YNAB You Need A Budget

[Trakeveth]

This really has become quite an insightful thread. I'm glad I asked the question.

I did get myself a little worked up yesterday....information overload, I think.

After reading the responses here, I went back to my budget and "picked my path." I feel good about the path that I have chosen and I am going to enjoy seeing it implemented over the next few months.

Maggie, I really love your "train the brain" and "find your rhythm" way of thinking.

There are some categories that I have to allocate more money to right now, because I just started saving for them and the bills will be due soon. Once those bills are paid and I know they will not be due again for 12 months, the amount that I allocate each month to that category will be reduced....freeing up the difference for either other categories or debt. For instance, after I pay my summer property taxes in June, the amount allocated to that category will be reduced by $200 per month since I will have the next 12 months to save for next year's bill, whereas I only started saving for this year's bill 5 months prior to the bill being due.

Once my categories begin to level off and sort-of run on auto-pilot, I can see how the snowball will begin to happen. I am really looking forward to it.

[lautzu]

I am really looking forward to it.

It really is fun, in a twisted sort of geeky way...

[Maggie Magpie]

After helping a number of folks set up an initial YNAB budget, I'm realizing that while keeping your categories as simple as possible is one helpful step, understanding and defining what that category means is of utmost importance. As an example, even amongst those of us who are pretty savvy with our budgets, a common thread to thinking YNAB may not be for them is the lack of "defining" what certain categories actually mean. For instance......when I started YNAB, I thought I had a pretty healthy emergency fund. I kept approximately 4 months of net income in my emergency (+/-), continually funded it, but often had to slide over there once in a while to move funds into my operating account to cover an expense that came up; but overall, I was pretty happy (so I thought) with my "emergency fund". Well, when I discovered YNAB, I moved an equivalent amount for my buffer out of my emergency fund plus I set up my various categories with the applicable amounts of dollars required to fund those categories in time for their due dates (per your tax example). What became shocking was that the amount left for my potential "emergencies" was about 25% of the amount in my emergency fund. In order to replenish it properly, I realized I needed to define "emergency". For me, an emergency is job loss or a catastrophic health event. Upon defining "emergency", I realized my emergency fund had always really been my buffer account (plus some, give or take). This was a light bulb moment for me. And it explained why the more seasoned saver might actually give up on YNAB faster then someone starting from the bottom who is open to learning, one step at a time.

For the Dave Ramsey baby step person, emergency is really buffer, in my opinion.

TRAKEVETH, re your statement: There are some categories that I have to allocate more money to right now, because I just started saving for them and the bills will be due soon. Once those bills are paid and I know they will not be due again for 12 months, the amount that I allocate each month to that category will be reduced....freeing up the difference for either other categories or debt. For instance, after I pay my summer property !@#$ in June, the amount allocated to that category will be reduced by $200 per month since I will have the next 12 months to save for next year's bill, whereas I only started saving for this year's bill 5 months prior to the bill being due.

These words lead me to believe you are truly "getting" it. At the point when you reduce your monthly commitment to the property taxes, you can apply that $200 to your debt. This is how YNAB will hold your hand and become your partner. There will be tight times and easier times. Fill each category dollar by dollar and your building of this buffer will decrease the stress of drilling down on your debt. Your example of property taxes is perfect in regards to all that I am trying to convey with all this typing! In my opinion, it takes a good year to iron out the general kinks of catching up and funding categories properly in order to then focus and zone in on the debt with, as DR likes to say, gazelle-like intensity!

[malisab]

Build your categories. Think about every single life item you can (specific to your current situation) and build those categories. Now take your payroll and assign what you can, even if it means only applying $1 to a category.....you are building a habit. Your brain is now "planning" all possibilities, and as you find your rhythm, YNAB will help you balance how you pay down/off your debt. Over time, the categories will start the build, your brain will now be in full motion and you will naturally start to increase the categories and the debt payments.....with patience, it will all naturally find its true balance in the end.

This really struck me.

I obviously didn't chose to start YNAB this way for ALL my categories, I am at a point where I can can start funding all of them at a level that makes it seem worth my while. (I couldn't stomach seeing $1 here, $10 there...I know I would have just used it to whack-a-mole early on.)

I'm taking part of my windfall (of no house payment next month because I'm refinancing) to fund all my categories with enough that I can see it as a base to build from. That was always my plan. I thought it would have been in September when we got our first real paycheck of the school year, then I thought it would be with DH's coaching check, then I thought it would be from the next windfall. I wasn't ready. The debt was weighing too heavily. The quantity of different ugly debts that I had to pay was too much for me. But now that I see the light on my third-to-last ugly debt (doesn't include house, student loan or car), I feel I can not only put a chunk toward that third-to-last-debt, but also give all categories a foundation.

Thanks for making me think about this just at the right time (thanks to Tracy too.) Everyone's journey is different. But I'm really happy with where mine is right now.

[lautzu]

I wasn't ready. The debt was weighing too heavily. The quantity of different ugly debts that I had to pay was too much for me.

To me, this is the untold story of how important cash flow can be to this whole process and why it needs to enter into one's thought process and planning (which DR doesn't do enough to my liking).

[malisab]

I wasn't ready. The debt was weighing too heavily. The quantity of different ugly debts that I had to pay was too much for me.

To me, this is the untold story of how important cash flow can be to this whole process and why it needs to enter into one's thought process and planning (which DR doesn't do enough to my liking).

Yeah, I'm not big on anything black and white. Maybe I should have taken the screen name krishnamurti?

[Trakeveth]

Maggie...very interesting to read about your light bulb moment with your emergency fund. It's not really an "emergency" fund if you have to use it to cover expenses, is it?

I think the best thing about YNAB that has happened for me in the short couple of weeks that I have been using it is that it is forcing me to be really honest with myself about money, and I hope that continues.

Before YNAB, I can't tell you how many times I transferred money to my savings account to make myself feel better that the balance was higher....and then transferred it right back to checking when I needed to use it to pay a bill.

Oh, the psychological games we can play with ourselves!!

[computerkathryn]

Well, when I discovered YNAB, I moved an equivalent amount for my buffer out of my emergency fund plus I set up my various categories with the applicable amounts of dollars required to fund those categories in time for their due dates (per your !@#$ example). What became shocking was that the amount left for my potential "emergencies" was about 25% of the amount in my emergency fund.

Wow...the exact same thing happened to me! When I had really budgeted for those "lumpy" expenses and expected unexpecteds (e.g., car repair), there wasn't that much left in my "Emergency" account. I, however, chose not to fund the Buffer and instead left the money in the Emergency category...thus putting the goal of building a true 1-month buffer right out in front of me where I would see it each month.

But now I do have trouble deciding on whether to building the Buffer or fund individual categories for future expenses. Do you really need both?

[Mudie]

I've mentioned this a number of times in other posts, but the combination of YNAB along with a good debt snowball calculator like this one: http://www.whatsthecost.com/snowball.aspx?country=us helps streamline your debt payment application process to ensure you meet your goals.

Since you brought it up, here's a very nice spreadsheet debt snowball calculator that you can play 'What if?" with all day long if you'd like.

[Mudie]

But now I do have trouble deciding on whether to building the Buffer or fund individual categories for future expenses. Do you really need both?

Eventually you'll have both but if you don't have a buffer yet then my vote is to build that exclusively. The worst case scenario has you draining your baby buffer to pay for a mini-emergency or bill that is due. The clarity that arrives with a full buffer in place - not to mention the peace of mind - is worth the race to get there. Once it's in place you can attack debt and/or fund categories to you hearts content with REAL money and numbers that you can feel confident in.

[MALMomma]

Great thread.

Having been around the block, stumbling here & there, I'll offer my 2 cents and, like Malisa, make the talk about "me". LOL

Hubby and I have revamped our budget as of a few weeks ago. We had been slacking on financial talk &, long story short, he thought we had been doing good on debt paydown. Needless to say, once he realized we weren't anywhere close to where we had planned to be, he said we had to slash the budget. I was in complete agreement, so after figuring out the mandatory monthly expenses (mortgage, insurance, gas, food, et al.), the rest is going to be put towards debt.

We had a hiccup - I put a second payment on a card too early in the month and we nearly overdrafted. Another discussion led to my finding out he wanted to have a small buffer in place prior to debt payoff. Whoops. (His mistake, he said, as he didn't verbalize that to me.) We figured out what we wanted in a buffer and it basically is a DR BEF - $1000. We don't have a full fledged YNAB buffer and are not planning on jumping into that until after the debt is gone. But the $1000 will cover us if a small emergency arises.

The not mandatory expenses that pop up (hair cuts, birthday presents for the kids' friends, etc.) - we are not budgeting in all of those little things. Not yet. They're not mandatory & we'll deal with them as the need arises. Our plan is such that at the end of the month, if we have $1000 to throw at debt, we'll throw it. We need to make sure that we can cover those little expenses that pop up infrequently first.

Hope that makes sense and hope it helps give some food for thought. I'm a little tired after a long day, so pardon me if I'm clear as mud.

[llambe]

But now I do have trouble deciding on whether to building the Buffer or fund individual categories for future expenses. Do you really need both?

My choice was to fund individual categories first. This was after almost making it to buffer land several times (sometimes actually being there for a couple weeks) and then blammo, having some huge repair type expense that blasted my buffer away. However, I don't think this is really an either or choice - some categories you should always fund (like where there's an actual bill that comes due) and other categories like medical/dental/car repair/house repair can be funded more or less depending on your comfort level. I fund these "unexpected" expenses as one lump category.

Here's the plan I'm using now (and for the last year+):
0 - figure out a reasonable/best guess/comfortable amount to save for "regular" unexpected expenses (medical/dental/car/house) and fund that category separately
1- save up lots of money for peace of mind
2 - use that money to cover any huge unexpected expense too big for step 0 to cover
2b- after any such unexpected expense revisit Step 0
3- blast away <debt> in full
4- go back to Step 1

We paid off the last CC in Feb so now mortgage replaces cc's in the <debt> spot (we had no car debt)

I am planning on raising the amount funding Step 0 though - so far I've tweaked the amount I came up until for the last year it has (barely) covered the actual expenses (including 1 very large expense), however I'd like that category to start accruing money so that it can cover either a "really bad" year or a "huge" unexpected expense (actually what I'd really like is for that category [+EF probably] to eventually be self funding ala DR's car plan but I haven't decided if that's a pipe dream or not ).

LL