YNAB You Need A Budget

[maryea]

I am following Dave's plan with very few modifications...my dh and I are probably not as gazelle as many, yet we do live pretty tight in order to pay off debt. I feel that YNAB works very well with this. We still do not have our buffer and I am still going back and forth about whether to pay off debt first or build the buffer. I want the buffer, I really do, but I also am so tired of debt and at least by fall of 2009 we will be debt free if all goes as planned, so up to this point, I have gone with paying off debt first.

[Mudie]

We still do not have our buffer and I am still going back and forth about whether to pay off debt first or build the buffer.

The choice is yours of course but if you had the buffer in place then the clarity it would bring to your finances would allow you to pour more money on your debt faster than you know. The ease at which your budget functions with the buffer in place cannot be overstated.

Build the buffer, you won't regret it and if you get cold feet halfway there you can always just drain the buffer and go back to the approach you're on now.

Steve

[maryea]

I'm sure you are right Steve. I guess I just still don't quite understand (and yes I've read everything) what that clarity would be for us. We are already paid monthly and other than a little "snowball" money for debt...all our payments are paid the first week of the month...3 checks come the 1-3rd of the month. We do get one small check that comes on the 3rd Wed of the month and that is the extra snowball money I'm referring to. So it's not like we are struggling to figure out what bills to pay when...we pay every bill as soon as we get it ...most are auto paid but any we receive we pay immediately usually by billpay or at the website. I can see it would be nice to be one paycheck behind just to know you're not living paycheck to paycheck but in practice I am not getting what I would do differently and am a tiny bit worried about the temptation of using the money since it's there. But I'm sure so many are doing it because it is helpful so I am planning to start putting that little check into my buffer savings instead of debt starting next month. In fact it's already in the budget so I won't forget.

[Mudie]

I guess I just still don't quite understand (and yes I've read everything) what that clarity would be for us.

If the system you have works for you then by all means don't change. That said, allow me to make it a little clearer for you.

With a buffer in place, an entire month's worth of income at hand on the first day of the month with which to plan, it completely eliminates all guess work and worry (if there was any before) from what you need to do. 100% of the buffer amount at hand can be "spent" (actually spent and/or saved as it needs to be) on all regular recurring utility bills and payments as well as food, gas and entertainment for the month. Any leftover after that point would typically be assigned to long term rainy day categories and other various annual expense style sinking funds.

It's at that point where the real fun is. With all of the above taken care of, you get to throw every last dollar of the available at anything you'd like with zero worries (or guilt). Debt snowball in the works? You can slam it with a nice little "bonus" that may not have been clearly available to use on a week-to-week approach to budgeting.

The kicker here is that the world rotates on a month-to-month basis. Nearly all bills and loans are set up that way and it behooves us to do the same. I think you'll find that if you were to match "their" plan, then your plan would run that much smoother.

I...am a tiny bit worried about the temptation of using the money since it's there.

The key to avoiding temptation in that regard is to retrain yourself. Since YNAB is a plan for your money then that is where you need to look if you need to buy something or pay a bill. If the category under which the expense would fall has money available in it enough to make the outflow then fine, pull the trigger and do so, guilt free. If not then don't spend it. The idea here is to not use the bank balance as the guide to whether or not you can spend money. Under a budget that you set up and you follow, the money in the bank is already spoken for and as such must be left alone.

Doing exactly that has worked for me and if I can do it, then anyone can as I was practically a poster child for having an empty (or overdrawn ) bank account for years as I would use that balance as my guide. Now I use YNAB and lo and behold Steve has several thousand dollars in the bank at any given time.

So there it is, yet another way of looking at how or why the buffer is, IMHO, the greatest thing since sliced bread.

Steve

[MALMomma]

The idea here is to not use the bank balance as the guide to whether or not you can spend money. Under a budget that you set up and you follow, the money in the bank is already spoken for and as such must be left alone.

For some reason, Steve, this just hit me hard. For so long, that is exactly what we HAVE been doing, so we now need to retrain ourselves and use our budget as our guide. Thanks for driving home that point.

[maryea]

I think I understand what you are saying, Steve, about the buffer. We already plan and live on a monthly basis though since the funds we live on all arrive in our checking account within the first 1-3 days of the month. So I budget for the whole month and as I said, we pay all bills as soon as they come in.

But that said, I did have something rare happen this month that made me think of what you are saying.....actually I don't think this has happened to us since we stopped debting and got our finances in better shape (2004-2005). But our dd is getting married next month which has caused us to have to spend a lot more than usual plus my dh had to have some very expensive dental work done this month. We were able to pay for it with cash but we had to take money out of all our savings accounts (including our property tax fund) except our small emergency fund. This caused me to think again about the buffer...and I was thinking that if we had had that, I guess we wouldn't have had to scramble like that to pay all these extra large expenses. Is that part of the benefits of the buffer?

The way it is, it will take us a couple months now to get back on track with our savings. Because we have quite a large snowball we can use it to build up our savings again. The property tax is due in Oct so that will have to be our big focus of course. It is not likely we will have any other really large expense in the meantime, but if we did I guess our finances would not be in very good shape to handle it right now. So it seems like a buffer would have helped in this situation for sure. Again, this is a very unusual situation for us for us to be hit with so much all at the same time.

ETA: Wanted to add that I really am not very concerned about the temptation to spend the buffer frivolously. The thought occurs to me because in the past we spent everything we had. But we have changed so much and are at a much better place financially now that I honestly don't thing we would do that. We have learned our lesson the hard way!

[Mudie]

I think I understand what you are saying, Steve, about the buffer. We already plan and live on a monthly basis though since the funds we live on all arrive in our checking account within the first 1-3 days of the month. So I budget for the whole month and as I said, we pay all bills as soon as they come in.

Ah... It all arrives at once early in the month. Okay, that behaves something like an "instant" buffer each month, but not really, read on for more.

This caused me to think again about the buffer...and I was thinking that if we had had that, I guess we wouldn't have had to scramble like that to pay all these extra large expenses. Is that part of the benefits of the buffer?

Yes!

The true definition of a buffer is of course one months expense (or income, a debate for another time) saved up and on hand on the 1st of the month to budget with. Then, as the checks roll in they are saved aside to of course become the next months buffer. So... if you were to save aside that amount and then hold/ignore the money that arrives in the first few days you would have a buffer and enjoy the huge benefits of Rule 3 (Roll with the Punches) which would have cushioned the blow you just experienced.

Once again, don't change on my account but I'm pretty sure you can see the benefits now and the choice is up to you.

The way it is, it will take us a couple months now to get back on track with our savings. Because we have quite a large snowball we can use it to build up our savings again. The property !@#$ is due in Oct so that will have to be our big focus of course. It is not likely we will have any other really large expense in the meantime, but if we did I guess our finances would not be in very good shape to handle it right now. So it seems like a buffer would have helped in this situation for sure. Again, this is a very unusual situation for us for us to be hit with so much all at the same time.

Life happens to all of us and the more we can prepare for it, the better off we'll be. Unusual? Yes. Would a full buffer have helped? YES!

ETA: Wanted to add that I really am not very concerned about the temptation to spend the buffer frivolously. The thought occurs to me because in the past we spent everything we had. But we have changed so much and are at a much better place financially now that I honestly don't thing we would do that. We have learned our lesson the hard way!

I hear you on that. I was a huge spender for years and the idea that we now have thousands in the bank at any given time is amazing to me when I think of my former self. It's also amazingly comforting to have that buffer in place.

Steve

[maryea]

Yes I have definitely made the decision to start building the buffer. I want ot start in Sept if I can. Since we've been hit so hard this month and some is ongoing into next month (the wedding), I don't know how well it will work to start next month but will try. Oct will be very tight as well to to the property tax but assuming that we go back to normal after we definitely should be able to start it by Nov if not sooner. It should be fairly easy (once we get back to normal at least) since we live on the income that comes in the 1st of the month anyway and we still have that odd-timed small check later on that we currently snowball...that will become our buffer deposit. Thank you for your responses, I feel I understand better now.. and I am sorry to the op as I guess i kind of hijacked your thread.

[MALMomma]

I hear you on that. I was a huge spender for years and the idea that we now have thousands in the bank at any given time is amazing to me when I think of my former self. It's also amazingly comforting to have that buffer in place.

Keep talking, Steve. I'm telling you, the more I read your posts, the more I'm inspired and continue to hope that I can change my ways! I've always been the spender, so hearing from another spender that they've curbed it is such a push in the right direction!

And sorry to keep the hijack going! LOL

[Subnet]

This seems as good a place to put a first post, as any.

I'm using a homogenization of both methodologies, really. Actually, perhaps it's better to say that actions which appear to adhere to any one particular methodology are incidental, rather than causal. In other words, decisions I make with regard to personal finance are arrived at through reasoned thinking alone, and the conclusions often mirror individual "rules" in either approach - and many others, I'm sure. I'll address the question posed, by explaining how what I do (and why) can be characterized as a blending of the two similar approaches, with the same goal in mind - financial freedom.

If there's one nearly universal thought present in most of us, it's probably this - Our wants and needs perpetually exceed our ability to realize them; to see them come to fruition. This manifests itself in many ways, but if I had to take a stab at it, I don't think it's too far fetched to suggest that the biggest manifestation of this is a condition of being perpetually broke. Many of us either spend more than we earn (made possible through debt), or we spend nearly all of what we earn. Often, we do both. For many, there comes a point when you take inventory of your financial situation and declare it rather unsatisfactory. You feel as if your money controls you. "There just isn't enough to go around", you say to yourself. That's another way of saying you know so much, that isn't so.

So you find yourself presented with a problem that needs to be solved. One obvious solution that leaps to mind is to increase your income. To the extent that you are successful in doing this, it most certainly solves your problem...for a time. Consider the man who declares his $42,000 median income to be insufficient. He could solve his problem of being financially insolvent by earning, say, $60,000 a year. All expenses would be covered, and he'd have some extra money. But what of the man who makes $15,000 a year, and declares that $42,000 (over twice his current income) would solve his problems? It quickly becomes apparent that the problem isn't money, but rather it's management. If you think $10,000 a month would solve your financial problems, I humbly ask that you grant me the opportunity to earn it, so that I can show you just how wrong you are, and look really good doing it.

No, we eventually decide that our money needs to be managed differently. Actually to put a finer point on it, we first must accept the fact that it is we who manage our money through deliberate action, not the other way around. It was always this way. Our money didn't vanish on it's own - we spent it. The most important realization, is that most decisions to spend were arrived at through emotive thinking, not reasoned thinking. So then, we must declare that reason - not emotion - will guide our actions moving forward. If there is any emotion to be had, it's a love for careful and deliberate action.

The solution is incredibly simple - you must spend far less than you will earn over a lifetime. That's it. That's all there is to it. Do this for the rest of your life, and you'll be set. Oh, you want to know how? Picky, picky...

Dave Ramsey and the YNAB team both offer solutions that WILL solve this problem, if followed to the letter. There are dozens of ways to solve this problem. They are two of them. At the absolute core of any successful methodology, is a healthy amount of respect for the one inescapable truth that governs your results, whether you like it or not - you must spend less than you will earn over a lifetime. Any methodology that presumes to ignore this fundamental truth, will fail by design. Conversely, any methodology that acknowledges it - when followed - is capable of succeeding. The important thing to realize, is that both Ramsey and YNAB are means to the same end. You can follow one exclusive of another, or you can borrow from both. Either approach is satisfactory, because each step in either methodology respects the one fundamental truth. In my opinion, they compliment each other. If you take away anything from this, it should be that neither approach requires dogmatic adherence to succeed. Your own situation, combined with reasoned thought that respects and acknowledges fundamental truths, is all that is actually required.

Dave Ramsey tends to be a bit dogmatic about his approach - it's almost a religion all on it's own. "Do this, and ONLY this". I used to consider this to be a bit presumptuous, and even arrogant. Thinking about it for a while, it occurred to me that he is a man who knows his audience, and he knows how difficult it is to overcome the emotive thinking that often leads to financial ruin. Dare I say, he may even be a keen observer of human nature. Consider the example of an alcoholic. Can you really have a couple of beers now and then, with little consequence? Absolutely. Is it a good idea to tell an alcoholic that he can still have one or two on the weekend? Probably not. You're not doing him any favors. So then, is having a credit card all that bad, even if you pay the balance off every month? Nope. In fact, there are a lot of benefits (mostly minor, but benefits just the same) to responsibly using a credit card. Should you remind a compulsive spender buried in debt, that it's okay to use a credit card now and then? I should think not. And so it is, that any approach taken to solve a problem, must respect your own situation.

The prospect of spending less than you earn is most likely to be realized, when you deliberately plan your spending. It can happen by chance and blind luck (the approach most of us seem to take, by observation), but I'm more interested in probabilities. In fact, risk is something that guides every decision I make. The acknowledgment of risk is crucial to problem solving. Things don't always go according to plan. Every decision - every solitary one you make in your life, financial or otherwise - carries consequences, some more likely than others, some good, some bad. Respect fundamental truths while acknowledging risk, and you've got it made.

So, you need to plan your spending. You need...a budget.

One of the hardest things about budgeting, is calculating risk. Suppose you and your spouse sit down at the kitchen table, get a VERY comprehensive budget together. You've thought of everything. You pat each other on the pack, and declare yourselves masters of your financial future. "If A, then B. Simple. Spend this, and we'll be left with this. Brilliant!". I had this problem, early on. "Problem, you say?". You bet. My early attempts at this were fraught with failure. "If A, then B. Wait...where did C come from? I don't remember seeing you, around". I would give each dollar purpose, spend every last one exactly as I had planned to, only to find that I planned wrong, and didn't have the money to fix it. I would establish an aggressive debt reduction plan, write all of the checks, then find myself really wishing I hadn't have done that 3 weeks later, when an unexpected (or ill-accounted for) expense cropped up. Now, I didn't have any money budgeted to pay it. There are two approaches that solve this problem, when used together:

1. Divide your planned spending into categories, and keep an accurate account of how much you haven't spent in each, yet.
2. Establish and maintain an unallocated sum of money sufficient to cover risk.

Approach #1 is often implemented by adopting the well known "envelope" system. In the literal sense in which it was conceived (and the implementation Dave teaches), your physical money is divided into separate envelopes, each marked for a specific purpose - groceries, electric bill, etc. It respects fundamental principles, namely that you must spend less than you earn, and that each dollar allocated towards one purpose, is a dollar that is unavailable for another purpose. If you need an extra $10 for the electric bill this month, you will have to spend $10 less somewhere else. You will have to physically remove $10 from another envelope. Which one? Well, that's up to you. But it's going to come from somewhere. It does work, when followed. Following it however, can be a logistical nightmare for some.

The underlying justification for the principle is sound, but it's application leaves much to be desired. It's apparent simplicity masks it's overwhelming complexity, in practice. First, I must go to the bank and retrieve my paycheck - in cash. Next, I must get it in denominations small enough to allow some sense of granularity between envelopes. When I go to the store, I often purchase items with funds from 3 or more envelopes in a single trip. Digging though multiple envelopes, putting the proper change in each envelope, etc is far from practical. I can't - at a glance - tell how much money I have left in each envelope. I must either count it each time, or make a habit out of keeping some form of a rudimentary ledger for each envelope. The more you think about the headaches associated with this (not the least of which is an inability to pay bills online, or even write a check) the harder it becomes to follow through with it, long term.

The solution of course, is to either keep a manual paper and pencil ledger for each budgeted account (the sum of which must match your checking account balance), or - use the handy portable calculator and all around problem-solver I'm typing this on.

You can pull this off with spreadsheets, and lots of custom macros. If you're really creative, and perhaps if you design Cisco voice networks for a living like I do, you might even manage to clobber together a solution using Quicken or Money. I assure you however, that they will rear their ugly heads and mock your futile efforts to shoehorn them into this role, even if you are an information technology professional. They don't fear you, or your persistent will.

I actually found YNAB Pro, because I was looking for a proper (and compiled) software equivalent to the envelope system. It does it's job admirably, with intuitive simplicity and elegance. It doesn't presume to do much - it addresses a simple problem and solves it well, like all good software should. It does little more than it needs to, which is a hallmark of a well designed application. For those that wish to follow the spirit of Dave's "envelope" rule, YNAB provides an easier method of doing so in software.

This brings us to the matter of Approach #2 - managing risk, by establishing and maintaining an unallocated sum of money, sufficient to cover the most likely problems. No matter how hard you try, there will be times when your planned spending is impossible. You must be capable of reacting to unforeseen expenses, and adjusting your spending accordingly. When the unexpected expense is relatively minor, this is easy to solve by simply moving money from one budgeted category (or account, if you prefer) to another. This isn't always possible, however. Suppose you gave purpose, to each and every penny you had for the month, and spent nearly all of it perfectly, and according to plan. Now suppose that you need more money for gasoline this month than you could have reasonably predicted. If you're looking around in your budget and can find no "envelope" from which to take the money, you've got a really big problem. You don't have enough money, and that's the end of that. You will either not drive, or you will borrow the money. Those are your choices, and they're not particularly pleasant. But, suppose you had a small sum of money set aside for budget irregularities. Ah, now the problem doesn't seem so dire at all.

Dave's method of handling this problem, is to first save $1000 as fast as you can, and stick it in a savings acount. This is money that can be used for a small emergency, or even (though he doesn't articulate this) to cover an honest budgeting miscalculation that you can't overcome, by moving money around. In the example above, the extra money you needed for gas would come from this fund. Next month, you will first - above all else - work to bring this fund up to $1000 again. It's not enough money to cover a huge emergency, but it's likely enough to cover all but the most stupendous of budgeting blunders. It will also cover quite a few legitimate emergencies. Having this money brings a sense of peace, because while you know that you will try as hard as humanly possible to make your budget accurately reflect what will actually be spent, you also know that the occasional error will not cause any significant grief. It's an insurance policy (with a premium!), underwritten by you.

The take away, is that money you were planning to spend next month for any purpose (even debt reduction), will be reduced by the amount required to bring your mini-emergency fund back to $1000 - even in Dave's method. The financial ability to adapt to minor fluctuations in planned spending trumps all other concerns, even debt. It might come as no surprise, that many emotive thinkers do this intuitively - they'll keep $10 or $20 in their checking account, rather than running it all the way to zero. They do this automatically, because they instinctively know they can't plan for every last cent in advance. When they "awaken" to their new found age of enlightenment and reason, they'll give a name and a purpose to their intuition, and declare that $10 worth of wiggle room was financial roulette.

In Dave's writing, the $1000 mini-emergency fund is used for real emergencies, and is kept (for emotional reasons) in a savings account where it's not easy to get to. It reduces temptation, and all of that. This is what I did for years (before I even know who Dave Ramsey was), and it does work.

The YNAB approach is, in my view, a more rational approach that solves the same problem of managing risk, but in a way that's more comprehensive in it's justification, and more elegant and flexible in it's execution. It also solves more problems. The YNAB solution, is to quickly build a "buffer" sufficient to manage probable miscalculations in planned spending, that cannot be overcome by simply moving money between it's virtual envelopes. This ever-present "buffer" can be used for real emergencies, and it can be used to cover honest budgeting blunders (they happen). To this extent, It's effectively the same thing as what Dave suggests, except that the money is kept in your checking account and it's expected that you'll use the money once in a while to cover honest budget miscalculations. And like Dave's $1000 mini-emergency fund, it is absolutely crucial that it be replenished immediately, given the highest priority possible.

The difference, is in how it's "replenished", and this difference is what makes the solution so elegant and useful. The real difference, is really only a conceptual one who's illumination is made possible through the simplicity of good software. Like Dave's method, it helps it's adherent to overcome the emotive thinking that tempts them to use this money, but it differs from Dave in how it's accomplished. In fact, it does so more effectively. To implement this solution, you must save enough money to allow you to spend this month's dollars, next month. You must save enough money to allow this month's dollars, to be spent with dollars you earned last month. The amount is not fixed at an arbitrary number, like Dave's $1000 "baby step 1" is. Rather, it is the amount you require to pay normal, day to day expenses (mandatory and optional) for one month. This is different for everyone. Once you've reached this, you effectively have just created a small emergency fund - just as Dave would suggest, but with an amount best suited to your own situation. The next step, is what truly separates this from keeping a small sum of money in savings - you now spend only what you made last month. Money you earn now, is allocated to budgeting purposes next month.

Once you've accepted this and begin to adhere to it by using the software as it's designed, you are forced to "replenish" your buffer. If you spend in excess of your income this month (honest miscalculation), you WILL have that much less to spend next month. By spending less next month, you will - by design - have covered your short fall. Just as deliberately replenishing a $100 withdraw from your emergency fund last month reduces the amount of money you have for other purposes, so then does not spending $100 this month to cover the expense incurred last month. Either way, you are effectively doing the same thing. The difference, is that through software, it's easier to see the effects of this AND it's easier to begin planning how it's going to be remedied.

With YNAB, next month's balance available for budgeting is sitting there staring you in the face. Every time you look at your budget, it's right there - you need to figure out how your going to spend your money next month, with a little less than you did this month. The beauty of this approach, is that it doesn't seem like you're being forced to replenish anything, even through you technically are. It just looks like you have a little less money to work with next month (and you do, either way!). If you replenish a savings account, you really do have less money to work with next month. But you don't always see it that way, intuitively. In Dave's method, when the monthly "do a budget" time rolls around, only then do you finally ponder "How am I going to fund this account again?" You have to deliberately allocate some of your money back into your savings account. With the YNAB software, you don't do this. You simply realize that you have less to spend, and you've had a whole month to think about where you're going to cut back.

With either approach, you really are effectively doing the exact same thing. You are doing nothing more than conceptualizing it differently. Both solutions effectively manage budgeting risk. Both solutions recognize the fundamental truth that you must spend less than you earn. Both solutions force you to allocate less money next month to "normal" budget items, if you exceeded your budget this month. Both solutions appeal to emotion, to,force you to act rationally. How this last part is accomplished, is where the substantive difference lies:

* YNAB does this by giving instant feedback into next month's available spending. The more you go over this month, the harder it's going to be on you next month. Most importantly, it's illuminating one of the greatest truths of all time - decisions you make today, WILL affect you tomorrow. The software forces you to see this at all times, when used as designed. It's always in your face.

* Dave Ramsey does this, by making it a bit cumbersome to withdraw funds from savings. Additionally, you saved this money up, and the sacrifice required to do this is a powerful emotional barrier to "going backwards". You know you'll have to pay this "bill" next month. The other emotional barrier, is the idea that this is to be used ONLY for emergencies.

Both methodologies require you to save money before going any further. Both methodologies require discipline and deliberate, planned efforts to do this. Dave asks that you save $1000 and stick it in savings, YNAB asks that you save one month's budget, then transition to living off of last month's salary. They really are two ways of accomplishing the same thing, for the same purpose. You get to pick which one is easiest for you to conceptualize and put to use.

YNAB is easiest to wrap your mind around, if you approach personal finance from the perspective of spending last month's salary this month. It alters your perception of living paycheck to paycheck. With Dave's method, you really aren't living paycheck to paycheck (you have $1000+ saved), but it's natural to perceive it that way. Pick the perception that gives you the most warm fuzzies, and go with that. One is not better than the other. In fact, without the YNAB software, Dave would have an uphill battle teaching people how to live off of last month's paycheck, using envelopes. You'd be removing cash from next month's envelopes to cover any shortfall this month, you'd have to remember to not place next month's paycheck in the envelops your borrowed from last month, and if you didn't wish to use physical envelopes, I can immediately see readers and listeners doing mental gymnastics trying to wrap their minds around managing it with paper and pencil, keeping everything square with the real checking account, etc.

Both methodologies are very complimentary to one another, and they both accomplish the same thing.

The rest of each respective plan is more or less identical. You still need to get rid of your debt. You sill need to save 3-6 months worth of expenses. You still need to plan for retirement (an adaptation of the principle of spending less than you will earn in a lifetime...your regular earnings are going to cease, at some point). You still need to think about college, etc.

When I got myself out of debt years back (after first getting my budget methodology figured out), I did it differently than Dave suggests (I didn't even know who he was, then). I didn't attack it with "Gazelle-like intensity", as he likes to say. I most certainly didn't do it by selling everything that wasn't bolted down, or nor did I live on beans and rice. I knew that to be successful, I needed to first acknowledge that emotive thinking is what got me into this mess, and that reasoned thinking and deliberate action was going to get me out of it. After acknowledging that, I also knew my own nature, and I knew that brutal sacrifice was going to be short lived, should I decide to subject myself to it. My rational side can run a calculator and get myself out of debt in the shortest time possible, and it also knows that emotion often stands in the way of execution. I needed a balance. I needed to be aggressive, but I needed to feel at least somewhat normal in the process. Consider the example of a man who makes a New Year's resolution to lose weight. Suppose he hits it with all he's got, and embarks on a dramatic lifestyle change. Let him undertake a completely new diet, and an aggressive workout routine. If he sticks to his plan, he will lose weight in the shortest time possible. That much is true. I'd ask - Do you think it is likely that he will succeed? Or do you think he might be best served by moderating his execution a little, implying that "slow and steady wins the race" might be an expression with some truth behind it?

My moderate approach, was to take 10% of my gross income each month and apply it towards my smallest debt, paying the minimums on the rest. From here on out, it's identical to Ramsey's "snowball". Once that first debt was paid off, I rolled the same amount I was already budgeting for the first debt into the second, and so on, until they were all gone. Simple as that. By using 10% of my gross income (and a calculator), I was satisfied that it would be paid off in a reasonable amount of time *and* that I wouldn't have to kill myself to do it. I had a nice plan in place, and I didn't feel the least bit guilty about budgeting money for hobbies, entertainment, luxuries, and the like. Did it take me longer to get out of debt? Yes, but it wasn't significant. Was it hard work? Nah. I'd prefer to think of it as pleasantly uncomfortable. Think of it as 1 hour in the gym every other day and a sensible diet, instead of 3 hours a day and a lot of wheat grass. I most certainly had to do without, but I didn't have to live like a monk. By being aggressive without being insane, I managed to clear it all up in a few years, and maintain a reasonably comfortable existence. I suppose I'll never know for sure, but I have a hunch that had I decided to pour every last penny I could possibly spare into debt, I would have quit and followed it up with a very big financial blunder. Have you ever seen someone go off of an overwhelmingly strict diet and exercise regimen, only to gorge on food more than they would have before they started? It's the same sort of idea.

My approach differs from Dave's in other ways, as well. For example, I still keep a single credit card. Primarily, it's used for reimbursable business expenses. I don't like using money in my checking account, for things like car rentals, airfare, hotel rooms, meals, etc. Heck, I don't even want to see the transactions cluttering up my otherwise clean register. On a three week trip, it's easy to tie up north of $5,000. I'd much rather that be on my credit card. I get reimbursed every 2 weeks, and it never carries a balance. Ever. When I'm not going on trips for a while, I'll use it once a month for a tank of gas (again, never carrying a balance). That's it. I don't borrow money, but a decent credit score has a few perks - my insurance rates are lower, I don't have to pay a deposit to get a cell phone, future employers who run a credit check don't see anything worth being concerned over, etc. The decision to keep a credit card, in my opinion, is solely dependent on individual circumstance, and is far from absolute.

I also invest differently, but that's another long post all on it's own.

Anyway, the answer to the original question is yes - Some folks are "using" both. In my case, I've developed my own approach to personal finance, and it has a lot in common with both approaches. The YNAB "buffering" idea is one that I adopted after getting the software (originally, because I wanted nothing more than an easy way to budget the way I preferred), because the software is designed around the concept, and it's complementary to the way my mind likes to perceive things.

[Mudie]

Hi Subnet, welcome to YNAB and the forums.

Thank you for your thought provoking, well written post. I hope that you'll continue to add to the knowledge base here and I look forward to more.

Excellent Job!

Steve

[Subnet]

Hi Subnet, welcome to YNAB and the forums.

Thank you for your thought provoking, well written post. I hope that you'll continue to add to the knowledge base here and I look forward to more.

Excellent Job!

Steve

Thanks for the kind words, and I will!

Personal finance is almost a hobby to me (it's that interesting!), and I do enjoy teaching, learning, and sharing. I'm more used to forums (for other hobbies and interests) that are at least 100x more active (I have north of 40,000 posts on one of them, over the years), but this one is nearly devoid of "fluff" and senseless conjecture. I'm drawn to this community of folks who earnestly want to share what they know and what they've learned and experienced with each other. It's nice to see.

Personal finance is really personal freedom, and it parlays into my other love - individual liberty. The actions we undertake to assume control of our personal finances, are the outward manifestations of the same principles we might acknowledge in expanding and defending freedom - in all it's forms, financial or otherwise.

When forum software humorously obfuscates the dreaded t-word, treating it as a common obscenity, you know you're in the right place.

[Patzer]

In fact, without the YNAB software, Dave would have an uphill battle teaching people how to live off of last month's paycheck, using envelopes. You'd be removing cash from next month's envelopes to cover any shortfall this month, you'd have to remember to not place next month's paycheck in the envelops your borrowed from last month, and if you didn't wish to use physical envelopes, I can immediately see readers and listeners doing mental gymnastics trying to wrap their minds around managing it with paper and pencil, keeping everything square with the real checking account, etc.

Glossing past the very substantial issues with granularity of cash, Dave would really only need to have his followers use one more envelope. That envelope would be labeled, "Next Month." All pay would be put in the Next Month envelope, and at the start of the month the money in the Next Month envelope would be removed and distributed to the various current spending envelopes.

That's essentially what YNAB does with Primary Income, except it's a lot more practical using software than using physical cash.

Welcome to the boards! I can see that you'll be a strong contributor in the area of explaining *why* the software works as it does.

Patzer

[ctp]

Been doing YNAB for almost two years now. Just recently started hearing Dave Ramsey on the radio, read _The Total Money Makeover_ last week, and I am pretty excited about the baby steps. Just finished #2, starting on #3. Doing YNAB has made it very easy to get to this point, and I think the combination is powerful.

The best thing Dave Ramsey's baby steps did for me is teach me to focus on one thing at a time -- I had been overwhelmed with trying to save for retirement, pay off debt, build up the emergency fund, and provide for a large family, all at once and on a single income. The baby steps gave me "permission" to focus completely on one thing at a time. After reading the book, I took my little emergency fund and knocked out that last pesky student loan, and now I am focused 100% on building up the 6 month emergency fund.

The best thing YNAB has done for me is make it very easy to save up for periodic expenses by building up reserves in categories like car repair, vacation, etc. Because of YNAB, baby steps 1 and 2 were a piece of cake.

[lebdavidson2]

We don't really use Dave Ramsey at all. My husband and I both have very generous parents who taught us pretty well how to deal with money. We have never had debt except student loan debt, and at the 2.5% where it is now, it's not a big problem. Our total assets outweigh the debts. Point is, Dave Ramsey seems great for the "oh no, we've gotten ourselves in a bad situation, how do we get out?" scenario. But he seems a bit extreme for our family. I started YNAB because we needed a clearer picture of what we were spending where, and it's working great.
Because of the choices we've made we know that we will never make as much as our parents. We're trying to be responsible in how we use what we do have and plan ahead better. So I use YNAB and read the forums, but I don't think much about rules or baby steps.