Unless you’re clairvoyant, you’re going to overspend. YNAB’s Rule 3 protects you from debt and (hopefully) discouragement by letting adjust your overages on the fly. Unfortunately, too many aspiring budgeters stumble unnecessarily over their first over spending experiences. Here are a few reminders of how to handle red numbers in your budget with style and finesse:
1. There’s a big difference between over spending and over-budgeting.
Over spending means you spent more than you had available in the category. See how we budgeted $575 for groceries but spent $647.21? That’s over spending.
Over-budgeting means you distributed more dollars to your categories than you had available to budget in the first place. I’ve referred to this in the past as playing with Monopoly money and mentioned how important this concept is to your crucial first 20 minutes with YNAB. Erin also created a great support video about the difference between over spending and over-budgeting.
2. “Turning the arrow to the right” is a risky way to handle over spending.
YNAB gives you two options when you overspend in a category. You can leave the overspend alone, or you can “turn the arrow to the right”.
I overspent by $256.29 in October. YNAB took that money away from November’s Available to Budget number. This is how YNAB helps you avoid debt: it tells you “You spent some of this month’s money last month, so don’t try to budget and spend it again.”
YNAB has another option, though. We call it “turning the arrow to the right.” When I’ve overspent, I can click on the red category balance, and YNAB asks me if I want to subtract it from next month’s Available to Budget, or if I want to subtract it from next month’s category balance.
Subtracting it from next month’s category balance may make sense at first: “I overspent in groceries this month; I’ll carry the negative category balance forward and spend less next month.”
That is one slippery slope, my friend. You have the best of intentions, but by turning the arrow to the right, you’ve told YNAB “I overspent last month, but it doesn’t affect my money available for budgeting this month.”
If you start building up too many right-facing arrows, you’re probably looking at new credit card balances (or drained savings). The money has to come from somewhere.
Personally, the only time I feel comfortable turning the arrow to the right on a category is if I’m dealing with reimbursable expenses. You can learn more about handling reimbursements in this quick video.
3. If you chronically overspend in a certain category…stop pretending you don’t chronically overspend in a certain category.
I’ve seen budgets where people budget $50 for this or that every single month. And in their entire history with YNAB, they have never spent less than $100 in the category. They budget, overspend, then backfill the category with surplus money from other categories (this is a pretty good indication you’re expense tracking rather than budgeting, by the way).
Figure out which specific purchases are driving the over spending in the category. Embrace them (bump up the usual budgeted amount), or eliminate them.
For example, pre-cooked bacon from Costco plays a small part in my overspent grocery budget. I’m embarrassed to tell you what it costs, but no way I’m going to stop buying it. I can see myself standing in front of a bankruptcy judge someday: “But, Your Honor, it’s so delicious, and it only takes two minutes under the broiler, and it doesn’t stink up your house!”
Over spending doesn’t mean you failed at budgeting. It means you’re human, and not psychic. Work with your budget (and yourself) to handle overages wisely and then work to eliminate them.