In boxing, a fighter moves his body in the same direction as his opponent’s punch,
so as to lessen the blow. With budgeting, you do the same thing. You address
overspending before moving on to the next month, and stay in the fight.
When you overspend in a budget category for the month, the software automatically takes what you overspent and deducts it off the top of next month’s money. You’re borrowing from yourself. YNAB just makes sure you pay yourself back before starting the next month. This works because cash flow is no longer an issue. You have money saved in other categories due to Rule Two.
You budget your standard $50 in ‘Gifts’ for June. You forgot it was your friends birthday, who has very expensive taste. You spend $75. You just overspent in ‘Gifts’ by $25.
You feel like a failure. Budgets don’t work. This whole idea of watching what you spend, trying to “guess” what you do spend, is a complete waste of time. You don’t “need a budget”, you “need a raise.” If you only earned just a bit more money, everything would be fine! (Those last two sentences are dripping with sarcasm. More money does not help money management problems.)
With Rule Three:Your budget says—in an überfriendly voice—“Okay, that’s fine. It’s cool. I see you went over in ‘Gifts’ and I’m going to let you pay that. But let’s take that off the top of next month’s money so we can start next month with a clean slate.” You don’t feel like a failure. Budgets do work. You just haven’t ever budgeted like this ;)
There is no expectation that you’ll have a single month without overspending in some category. Rule Two will have you looking ahead and seeing the foreseeable, but please don’t judge yourself by your ability to guess at the unforeseeable at the beginning of a month. The value in budgeting doesn’t come from managing the easily-foreseeable (though if ignored, these will nail you). Value comes from managing the unforeseeable more effectively. It’s all about how you handle months that aren’t normal. Hint: they’re never normal.
At the time of writing this, Julie and I have been budgeting for 102 months. We haven’t had a single month go by without overspending somewhere. Join us in our budgeting “mediocrity.” :)
Rule Three is flexible. It’s okay that you overspent somewhere. That’s fine. We’ll take it from next month’s money. However, if you perpetually overspend, there will come a time where you literally won’t be able to afford the next month. This has happened in the past, and it’s those moments where the card is swiped, and the dance with the plastic devil begins. And no, that was not overly-dramatic.
Rule Three is responsible. It’ll make its gentle monthly corrections each month, and you won’t even feel it (the software does it automatically). However, if you overspend in a big way, you’ll feel it in a big way the following month. That’s just part of facing the music, and it’s an important reality check.
The value in budgeting doesn’t come from managing the easily-foreseeable. It comes from managing the unforeseeable more effectively.
You don’t. The software does it for you and shows you where all the numbers are coming from, and where they’re going. We built it for art students, English professors, and musicians, so you’re fine! :)
Alright, you got me. Rule Two is a crystal ball that lets you gaze into the future and plan for large expenses. But Rule Three helps you handle the fact that the crystal ball is a bit foggy at times. Now please stop examining my metaphors so closely.
There are very likely other categories for the month that have positive balances in them. You’re borrowing from those. If you’re just getting started, those balances may not be very large, and you’ll still need to watch things closely if you run a perpetually low checking account balance until you get on your feet. Also, there’s the Buffer from Rule Four, which we’re just about to get to...
Raise your hand and solemnly swear that you won’t be mad at yourself, or quit, because you overspent with your budget. You learned something from that overspending and are better for it.
