YNAB You Need A Budget

[MALMomma]

...or, more to the point, tricks that the dog should have learned the first year of using YNAB. Thought this post might help the newbies who come to the boards looking for help & guidance.

I've been a YNAB user since August of 2008. Doesn't seem like it's been that long, but time does fly. My goal was to have a buffer in place by December. Ahhh, so ambitious! Instead, we arrived in Bufferland on March 5, 2009. See my post here. So exhilarating! So thrilling! So... gone.

We used the buffer to pay down a credit card several months later. *sigh* A credit card that we ended up putting more things on & STILL owe to this day. Frustration! Annoyance with ourselves! Angst!

So, here we sit, a year after our buffer was complete, back to square one.

And we've LEARNED. DH and I have realized how bad we were at sticking to our budget. How bad we were at our goal of getting rid of the debt. So last month we hacked at the budget & basically pinky swore to each other that the debt was going to be GONE this year. THIS year. We're hoping by December to have $14k blown away & smacked into smithereens. This means we MUST stick to our budget - adapting it as needed - so that we can give that debt a whats for. Besides, sooner it's gone, the sooner we can relocate from Philly to North Carolina. That is one MONSTER carrot dangling in front of us.

But... in my zest & zeal for eliminating the debt, I made a boo boo in February. I made an extra payment on our Sears card. Before the end of the month. Without a buffer in place.

You know what happens when you don't have a buffer & you make an extra payment on the credit card?

HULLOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOH, Mr. Murphy!



New plan - or, I should say, a modified plan. Get a buffer in place. Then attack debt.

Good one.

Ahhh, but that is not all the old dog has FINALLY learned.

I was doing a budget for March - the entire month of March. But we only have one paycheck so far. I realized that my doing it this way could seriously be a hindrance to us moving forward. Heck, it is talked about again and AGAIN on these boards & in the Rules. Only budget the dollars you HAVE, not what you're forecasting!!!!

After 2.5 years of being a YNAB'er, it FINALLY sunk in. I did a "save as" of our forecasted budget (I had entered future paychecks throughout 2010 to see where we could pay off the cards.) Then I deleted everything in the current budget & ONLY entered what we had income for. So now when I open our budget, I only see what we TRULY have. (And I can always look at the forecasted budget to see if we're sticking to our debt payoff goals.)

This "trick" is something that is so important - I can't stress it enough for you newbies! Don't be as I was for so long - don't be so gung ho that you enter future paychecks & mess up what you have vs what you MIGHT have. Until you get that buffer in place, only budget what you HAVE in the bank or CU. Seeing LIMITS for spending will help curb the desire to spend!

I hope that this post can help one or more of you. Don't get down on yourself because you don't understand or did something wrong. Think of me and the 2.5 years it took to get it right. (And then learn from me so you don't take 2.5 years yourself! )

Good luck. Ask questions. We're here to help.

[blarg]

I think a lot of people don't understand the reasoning behind only entering money you physically have. It's to keep you connected emotionally to your spending. If you're a week into the month and you realise, gee, I only have enough for rent no food at all, it demonstrates very clearly to you how close you are to the precipice. If you were to lose your job that week, let's say the company disappears like Enron, how would you eat? What would you do? If you had entered all your cheques for the month first, you would still see a huge chunk of money sitting there and could think to yourself "gee, things aren't so bad." That's not the truth though. You don't have that money in the bank. You may at some point, but you don't have it now, so you CAN'T SPEND IT. Period.

So much of this is a mind game to show yourself what the reality is. Sure, if you do receive all of those pay cheques, it doesn't matter in theory when you enter them into YNAB. It's the same amount of money, right? Well, the value here is to show you that while it may be the same amount of money, you're operating on a RAZOR thin cushion, and any negative income deviation would send you straight into debt. So, no, it's not the same. Only spend money you have.

(And if you want to forecast, fine, but do a save as and then forecast in a separate file. You shouldn't be budgeting money you don't have in your day to day budget.)

I crammed us onto our savings this month so that we are budgeting purely off of money in the bank. It was less than we normally make in a month, but with some sacrifices should be enough. Next month will be nice since we'll be on this month's income in its entirety.

[MALMomma]

So much of this is a mind game to show yourself what the reality is...

(And if you want to forecast, fine, but do a save as and then forecast in a separate file. You shouldn't be budgeting money you don't have in your day to day budget.)

That is a PERFECT way to say it - it IS a mind game. And boy oh boy, when you do it right, you are smacked upside the head with reality.

And yes - save as & keep the forecast separate. As I said, it's what I'm doing and only doing it to make sure of where we are in our debt payoff. Help motivate us & keep us on target. But ALL day to day transactions go into our every day budget that is grounded in reality.

[blarg]

Sorry if that came across as aimed at you! It looks like you've already learned that lesson. I was more just commenting on the general "enter my income for convenience" or "only enter income you have" argument.

[MALMomma]

Oh no, didn't take it that way at all. More, I thought you were just reinforcing what I wrote. Perhaps if we keep on drilling it into their (newbies') heads, they'll learn it before being "dumb" like me! LOL

[Trevor]

Excellent post!

I get so anxious to budget that I am always tempted to enter my paychecks for a month. I have resisted to far, but your message will be additional motivation to keep me from going down that path. I'm sure if I skip ahead one paycheck it won't be to long before I start going out even further. Right now I enter my paychecks a couple days in advance. I can see my pay statement before the money shows up in my account, so I enter it when I know that it is electronically on the way.

My mental trick to make me understand what my money is needed for is to budget completely from scratch every month. When I get the first paycheck in the month I budget the mortgage, groceries and utilities. When I get the second paycheck I budget my debt repayment and then I start sprinkling the rest over all the other categories until I run out. It takes longer than it would if I were using quick budgeting but I it's a good mental reminder that I won't have the money to buy all my wants until I cut down on the debt so that there is money left over for the fun want categories.

I should have learned the forecasting lesson from my Microsoft Money days. I had my paycheck scheduled and all my regular expenses scheduled. The forcasting graph always showed a lovely stair step of increasing net worth. I would spent based on that graph, so my actual net worth growth was less like a stair step and more like walking up the down escalator.

[LondonYNAB]

But surely there could be another way ( with additional functionality in YNAB ). It seems to me that with the addition of an "expected income" field in the budgeting screen, we could do both this month and future budgeting. It seems to me that the problem is that whilst we can enter the expected budgeting spend for future months without impacting the "current" view, the only way we can enter expected future income is by putting transactions into the register. Allowing us to put an income expectation into future months ( and then budget against that expectation ) would solve the problem.

[MALMomma]

And what you said goes against what YNAB is about. Just sayin'...

Took me way too long to realize that. Yes, I still have a forecast budget, but I only glance at it now to make sure where we are in our debt repayment plan. It means nothing to me beyond that. It CAN'T mean anything to me more than that. The HUGE value of YNAB is the methodology and if you don't follow it, you'll end up paying the price (much like I did) and have a lot of hiccups along the way.

And that is why I posted this thread. To help newcomers realize that the best way, the right way, is the YNAB way.

[blarg]

But surely there could be another way ( with additional functionality in YNAB ). It seems to me that with the addition of an "expected income" field in the budgeting screen, we could do both this month and future budgeting.

Yup, that would work, and would be feasible. It would fill your stated need of budgeting out income you don't have. It would show you what your life would look like if you did receive all that income. The issue is that you haven't received that income. It has nothing to do with whether it's possible to do in the software, but whether it should be done based on the way one looks at money.

The value of a budget is in the mind game you play to see where you're actually at. I don't even think your feature would be hard to implement technically. The issue is that it breaks YNAB's methodology. That's why you're getting resistance. And I know it doesn't seem like a big deal to you because it's the same amount of money, but it IS a big deal. And when people say this, your response thus far has been "but it wouldn't be hard to implement". That's not the point.

When you budget money in an envelope based system, you used to, in the good ol' days, put physical cash in paper envelopes. That's a bit hard to do if you don't have the cash. So in response, envelopers developed the equivalent of Rule 4, so they could live on last months income this month. This solves the having physical cash issue. It also makes your life a lot easier, but that's beside the point.

What you're essentially asking for is the ability to stuff your real envelopes with virtual cash. How does that help you? Are you trying to see how long it would take to pay down a debt? The budget isn't a good tool for that. The budget is a tool for helping you react to your spending decisions and make better ones. If you do like using the budget to forecast, do a Save As, and forecast in a different file. This keeps the real cash in the real envelopes cleanly separated from the fantasy cash in the maybe-I'll-have-spent-this-much envelopes. If you mix the two, you're just asking to start spending in a fantasy world where you have money that you don't actually have.

Edited to reflect the change in the numbering of the rules.

[MALMomma]

What you're essentially asking for is the ability to stuff your real envelopes with virtual cash.

PERFECT!!!!

[Inspectorbob]

OK, I appreciate and understand what everyone here is saying about mind games and virtual cash. The point is that virtual cash forecasting has worked for me for years. I don't need to change my philosophy. I just need to know how to use the software for forecasting--say for the next 12 months. I need to be able to somehow show "BUDGETED INCOME" in my budget, without having to jump thru hoops to do it. If YNAB can't do it, then I guess I will need to just go back to my old program. Can anyone give me any ideas please??

Thank you,

Inspectorbob

[blarg]

OK, I appreciate and understand what everyone here is saying about mind games and virtual cash. The point is that virtual cash forecasting has worked for me for years. I don't need to change my philosophy.

What are you trying to forecast? What information do you get from doing the forecasting? I still don't see how forecasting out for a year helps you, and I'd like to understand what you get from doing it.

I know some people here use accounts called Future Income and they enter their future income into that one account dated like they will be receiving it. Then they can budget that income out for future months. When the checks do come in, they right click on the transactions and move to their real account. This keeps a bit of a wall between what's real and what's virtual, and lets you balance to your bank.

I guess I'm mainly just trying to figure out what info you get from doing this that you can't get otherwise. Can you enlighten me? It just seems like a lot of work if something changes, when really I don't think we can plan out a full year or we're just asking for that plan to get Murphied. What am I missing?

[MALMomma]

It just seems like a lot of work if something changes, when really I don't think we can plan out a full year or we're just asking for that plan to get Murphied. What am I missing?

Bolded & italicizedfor truth!!!

[MALMomma]

Just reread my original post... We're still on target for our debt payoff this year - September, in fact, which means that we'll have paid off over $16,000 in bad debt in FIVE months. Thank you, YNAB, for the major help with that.

We're not doing a full buffer prior to debt payoff, however, as you can see in my siggy, we do have a $1000 emergency fund in place in case Mr. Murphy pays us a little visit. We also have an HSA account, so if any medical needs arise, we're covered there. We're looking to have a full buffer in place by early October. *knock on wood*

Sticking to our budget is still going well, though we've had some things come up. Little things that happen in life - new shoes for kids and husband, birthdays, etc. They will be budgeted for after the debt is gone, of course.

I still have a separate forecast budget and it is still a TENTATIVE plan for how we're hoping to get things paid off. Key word there, folks - tentative. As Blarg said above, "I don't think we can plan out a full year or we're just asking for that plan to get Murphied." I'm quite happy with budgeting paycheck to paycheck. It's WORKING - and SOOOO much better than my attempts at budgeting in the past where I would enter all of our income for one month at a time, despite not having it in the bank yet. Hubby might be salaried, but that doesn't mean a THING. He could be out of a job next week, so why count on the money?? (Ok, I don't think he will be, as his boss just gave him a promotion, BUT... Anything can happen, so don't be caught with your pants down - in this case, budget money you do NOT have in your physical accounts.)

Hope this helps a few more of our YNAB newbies!

[TLBauer]

OK, I appreciate and understand what everyone here is saying about mind games and virtual cash. The point is that virtual cash forecasting has worked for me for years. I don't need to change my philosophy. I just need to know how to use the software for forecasting--say for the next 12 months. I need to be able to somehow show "BUDGETED INCOME" in my budget, without having to jump thru hoops to do it. If YNAB can't do it, then I guess I will need to just go back to my old program. Can anyone give me any ideas please??

Thank you,

Inspectorbob

Let me first say that I whole-heartedly support YNAB's methodology! .. especially if you are just starting out and living paycheck to paycheck. No useful purpose is served in budgeting for funds that you do not yet have. What would happen if you budgeted for a full month and paid a bill only to discover that you did not have the funds in the bank and over-drafted?

Now, having said that, things change somewhat when you achieve a full buffer. Also, if you are salaried and you don't foresee your salary going up in the near future, there is absolutely nothing wrong with budgeting out several months or even a year ahead. My budget for the entire 2010 year is already in place. For me, it is a projected budget based upon my expected earnings and needs that I expect to have over the coming year. Of course, anything can happen, and often does. The car needs repair, the water heater needs replacing ... unexpected things. In those cases, money is moved back into the budget from emergency savings .... or money is moved from one budget account with a surplus to another with a deficit. My budget is a "living organism" that I must nurture throughout the year.

I do not advocate how I handle my budget as the only correct way of doing things. But, it serves my needs and YNAB 3 is flexible enough to allow me to do it my way. Each individual must use YNAB in a way that works for them.

Toward that end, here is how I budget a year ahead:

In YNAB, I have an account called "Deferred Transactions" and it is the topmost account in my account register. Since I am buffered, I enter all of my paychecks and my wife's paychecks into the "deferred transactions" register on the date I expect that they will hit the bank. I enter them as "income available next month." This makes the money available to budget for future months.

As for expenses, I have an Excel spreadsheet that I set up which looks like the budget page of YNAB. It has two columns for each month: one for actual spending for the current year, and one for the budget for next year. As I enter in the figures for actual spending, they are totaled on the far right of the spreadsheet and I am given a rolling average. In December, near the end of the month, my wife and I sit down and review the figures for the current year and then decide how we are going to budget for each month based upon our spending for that year. We always budget for the next year based upon our current year salaries. Then, if either of us gets a raise, we sit down and do a budget revision session. Once the budget is finalized, I plug the figures into YNAB.

Like I said, I don't advocate this as the "correct" way or the "only" way, but it is "my" way and it serves me well. As of Feb 2010, we have completely retired our credit card debt ($30,000), and for the first time in our lives are putting away money into savings. We have three credit cards that we use ... but we use them on OUR terms ... that is, everything put on the card is a part of our budget and gets paid when the statement comes due. We took a three-week trip to Australia last fall, and anticipate taking a trip to Alaska this coming fall, and we are even planning a 3-day weekend get-a-way next month ... all of it budgeted for, saved for, and paid for!

That's what budgeting a year out does for me: it allows me to see if I am on schedule for planned expenses or savings goals and gives me time to make adjustments along the way if I have something unexpected that crops up ....

Once again, let me say that if you are just starting out and still living paycheck to paycheck, I do not recommend my budget methods ... stick to the YNAB methodology of only budgeting monies that you actually have in hand. Once you reach your goal of being fully funded, then you can explore ways to make YNAB work for you! By then, you will have a lot less stress financially, and you will be able to think more clearly about things.

Happy budgeting to all ...