You kind of, sort of, mostly know what a budget is, and you are pretty sure you don’t like it. Or at least that it will be very hard.
As such, it’s always been pretty easy to come up with an excuse to avoid budgeting altogether. You tell yourself that you “just aren’t good at money,” and you never will be, and therefore, a budget will never work for you. Or that a budget will be too restrictive. Or that you are too busy to think about it right now. Maybe you tell yourself that you will live on a budget when you get out of school, or get a job, or get married, or have kids, or buy a house. (You see the problem with this logic?!)
And then there is my personal favorite, you “don’t have enough money to budget.”
But you are tired of being stressed about money. Living paycheck to paycheck is taking a toll, and you want (need?) to start getting ahead once and for all.
So, get all of the excuses out of your system and take a deep breath.
In just five steps, you can get set up with a dynamic budget that—if you let it do its job—will change the way you think about money, eliminate your money stress, and help you feel in control of your life like never before. Really and truly. Five steps. Not hard. Here we go:
1. Take Stock of Expenses
A budget is a tool to help make sure you have money to spend on the things that are most important to you. Of course, you also have bills and commitments. So, start with the things that you know you have to pay every month or your Immediate Obligations (think rent/mortgage, utilities, phone, groceries, etc.).
Then, think through larger, less frequent expenses that you know will be coming up in the future (think insurance premiums, car registration, Christmas), even if you don’t know exactly when or how much (think car repairs, a new laptop, a medical emergency, etc.). These are your True Expenses. Even if you don’t owe money every month, you are on the hook for these things, and if you don’t have money saved, it will be stressful (and tempting to rely on credit cards!).
You’ll also want to consider any Outstanding Debts (think credit cards, student loans or car payments). And don’t forget building in some money for the fun stuff. If you don’t leave any breathing room, it won’t be sustainable, and your finances are all about the long game. So whether that is eating out or buying games or seeing movies—budget money for fun every month.
When you start a new budget in YNAB, we pre-populate some categories to help you get started, but ultimately, everyone’s budget is a little bit different, because we all have different priorities.
Think about your Goals. What do you want to be able to do? How can your money help you get there?
2. Determine What Money You Have Right Now
Budgeting is about making the best decisions possible in the here and now, in order to improve your present situation, and set up your future-self for success. Therefore, you aren’t forecasting or predicting, do not concern yourself with money you will have (even if you will have it in two weeks!). You are only budgeting with money you have right now. Determine exactly how much that is, and then ask yourself, “What does this money need to do before I get paid again?” [More about Embracing Your True Expenses.]
In YNAB, you can connect your accounts (checking, saving, credit cards, etc.) so you know exactly what you have to work with, and your budget remains up-to-date in real-time.
3. Give Every Dollar A Job
What does your money need to do before you get paid again? You will no doubt have to cover some (or many) Immediate Obligations, and then you can think about what is most important as you go down the list among your True Expenses, Debt Payments, and Goals. As you become hyper aware of your spending and the fact that your money is finite, you may find yourself making better decisions, and realizing the things that feel worth it, and the things that don’t. Pay attention to these feelings. Every dollar you spend here is a dollar you can’t spend over there. It’s a series of trade-offs and compromises, but you get to decide. Whatever matters most to you can and should be prioritized. [More about Giving Every Dollar A Job.]
With YNAB, you can schedule recurring transactions and add goals to your budget, so it’s easier to keep track of the things that you have to pay for. Just one less thing to think about.
4. Live Your Life & Adjust As Necessary
Life goes exactly as we plan—never. You will budget for certain things, and different things will happen, or circumstances will change, or your priorities will shift, or all of the above. As things change, your budget should change, too. If you overspend on eating out, then move a little bit of money from your clothing category, and wait until next month to replace your running shoes. Or whatever it is for you. The important thing to remember is that your budget is dynamic and flexible. Changing your budget around isn’t doing it wrong or cheating or failing, in fact quite the opposite. Adjusting your budget is insurance that you will stick with it and achieve long-term financial goals and stability. [More about Rolling With The Punches.]
5. Rinse & Repeat
Repeat steps 2-4 every time you get paid. Whatever money comes in, you’ll decide what that money needs to do before you get paid again, and assign every dollar a job. Then you will flex and adjust as life happens. And then you’ll get paid again.
You can do this! (If detailed, step-by-step instructions are more your jam, don’t worry, we got you covered, too.) Hopefully, you’ve been encouraged. Starting a budget doesn’t have to be this big, epic, overwhelming thing. Budgeting doesn’t have to be terribly complicated, but it does have the very serious potential to radically change your quality of life for the better. We’ll put our money (and we have some because we budget!) on you experiencing a positive shift in your outlook after just the first month. Try it.
Haven’t started your YNAB budget yet? Try it free for 34 days and gain total control of your money.
This post was originally published in January 2017. The five steps remain the same but our software has some shiny new updates, now reflected in this post.