How Much Time Do You Have?
On average, new budgeters save $600 by month two and more than $6,000 the first year! Pretty solid return on investment.
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Every week we run 100+ live, free workshops. Our teachers have interacted with hundreds of thousands of would-be budgeters—they’ve answered every possible budgeting question that has ever been uttered on this Earth. If anyone is qualified to identify (and answer!) the most common budgeting questions it is these patient souls.
Looking at the data, it is kind of crazy how often these same questions are asked again and again. It made me want to remind everyone just getting started that:
In the meantime, there’s a pretty good chance, your question will be covered in our top ten:
Let’s see what happens if you budget money you don’t have. Let’s say I have a checking account with $300. I’ll go ahead and budget for all my immediate obligations.
The budget says I have $1200 available for rent. But do I?
No. There’s only $300 in checking.
The budget says I can spend $500 on groceries. Can I?
No. There’s only $300 in checking.
That’s the first issue. Now I can’t trust my budget.
The second issue: What am I supposed to do with the $300 in checking? Am I supposed to keep track of that in my head?
Of course not.
Your money is finite, like your time. This scarcity is good for you because it’ll help you clearly see your priorities. This is what my budget will look like if I just budget the $300.
That’s what I need to do with the $300. I’ll add more money when I get more money.
If you’re wanting a sense of the big picture, I’ve got two tools for you: Scheduled Transactions and Goals.
Enter any upcoming bill as a scheduled transaction.
Once it’s set up, you’ll never need to enter that transaction again, YNAB will do it for you on the date and frequency you set. On the budget, you’ll get an alert reminding you to budget for it.
For other categories where a scheduled transaction doesn’t make sense, use a monthly funding goal. Again, you’ll get that alert reminding you that’s a priority.
If you select all your categories, you’ll see the total amount that needs to come in to fund all your scheduled transactions and goals. It’s a template of sorts.
This is one of the wonderful benefits of YNAB’s approach to budgeting. The same three steps apply to any and all pay cycles.
You enter the money when it arrives. If you’re paid weekly, you’ll enter your paycheck each week when it arrives. If you’re paid once a month, you’ll enter it once a month. We always enter money when it arrives, and not a moment before.
Then, you budget it. You look at the money you just entered which will appear in “to be budgeted” and ask yourself, “What does this money need to do before I’m paid again?”
Again—if you’re paid weekly, you’ll budget weekly. One week you may budget $100 to groceries, then next week when you’re paid again, you add more. If you’re paid monthly, you’ll budget monthly. It may be that you’re paid near the end of the month and you need some of those dollars for next month. No problem. Budget what you need to finish out this month, then move to next month and budget the rest of the dollars there. For example, if you’re paid on the 25th, maybe $1000 of those dollars are for next month’s rent. Move to next month and budget $1000 to rent. It’ll be sitting there waiting for you.
You record your spending as it occurs, checking your budget as you go. You’ll stop checking the bank balance to determine whether or not you can spend. The budget will be your guide.
Repeat these steps each time new money arrives.
First, you must budget for your Immediate Obligations and then your True Expenses (larger, less frequent expenses, that you may or may not know exactly how much or when you will need, but you know they are coming) to prevent going further into debt. Think Christmas, insurance premiums, car repairs, etc. If you aren’t putting money aside for these True Expenses, when they come up—and they will!—you’ll just go further into debt. After you’ve taken care of your Immediate Obligations and your True Expenses, then you can really tackle your debt.
What if I’d made more of an “either/or” choice? What if I’d said, I won’t save a penny until my debt is gone! Well, you can imagine how easily that could lead to new debt. Or … I need to have a six-month emergency fund and fully-funded True Expenses before I pay a penny on debt! You can just as easily imagine how much interest that will cost you, and you’ll wait forever to free your cash flow. So it’s best to strike a balance.
This way you can work on both things knowing that you’ll be able to save and prevent debt and still make progress on your debt at the same time.
The budget can help you pay down debt at the same time you are building savings.
If you trust the budget, and yourself, your budget can actually protect your savings dollars.
Once you budget dollars to your savings categories the budget then protects those dollars, because, with YNAB, you make spending decisions by checking to see what’s available in a given category, not your bank account balance. If you need money for groceries, check the groceries category. As long as your savings dollars are assigned to things you’re saving for, you are all set!
This also allows you to be really purposeful with your savings. It’s easy to “steal” money from your savings account, but it’s a lot harder if you’ve assigned some of those dollars to vacation and some to your new computer category. If you take them from those categories, you’re delaying your vacation or the purchase of your computer.
Keep day-to-day expenses and True Expenses in checking and medium-term savings in a separate savings account.
The truth is, with a budget, you don’t need a lot of different accounts. In fact, you could keep all your money in a single checking if you wanted to, because where your money “lives” is meaningless, and your budget is already keeping track of what each of your dollars needs to do.
But here’s a good rule of thumb: Keep your Immediate Obligations and True Expenses in your checking (or other main) account. This includes things like non-monthly bills, savings for unpredictable expenses like car repairs, or your holiday shopping for next winter. You’ll reduce the number of moving parts. This type of savings also smooths out your cash flow, and your primary account is where cash flow is most important.
If that bothers you and you just can’t keep it all in checking, keep some medium-term savings, like your next car down-payment or tuition money, in a separate savings account, but keep it all in one. You don’t need different savings accounts for different priorities since the budget will keep track of what those dollars need to do.
When you are budgeting, it doesn’t matter where your money is located, it just matters what job it has been assigned to do. And whenever you can simplify—making it less tedious to budget and therefore, more likely you’ll stick with it in the long-term—do that.
Or maybe it’s Groceries or Entertainment, whatever the problem category, ask yourself if you really need to rein in your spending or if you need to be more realistic about your priorities? Dig into the category in question and you can see averages based on spending history in the inspector.
Once there is some history in your budget, you’ll see averages for budgeting and spending. Maybe you’re always budgeting too little for eating out, dreaming that you’ll hit that magic number. But maybe that’s not realistic. Maybe you just need to budget more.
Another option is to click on “Activity” and see what’s really going on. What if you saw 15 trips to the local coffee shop because you’re grabbing coffee on the way to work? Maybe you can rein that in with a decent thermos and a good home brew.
If at the end of the day, you need to budget more, your budget can help you figure out how to make that a reality.
Let’s flip that idea on its head:
Imagine I have two free hours on Thursday afternoon. I plan to work in the garden and go grocery shopping. Then one of the kids gets sick and needs to see a doctor. I decide not to work in the garden, and instead my child to the doctor and to pick up a few groceries on the way home.
How exactly did I fail? Oh right, I didn’t. My situation changed, the information changed, so I changed along with it.
Now imagine a similar situation with money: What if I had $100 for auto repairs but the car needed a $225 repair.
I don’t have a crystal ball—I can’t predict the future with perfect accuracy. So, I didn’t fail at all. I have new information, and it can inform how I budget moving forward, but for the time being the best I can do is adjust and keep moving forward.
The car needs a $225 repair. I’m $125 short. You might think “Oh my gosh, where is the money going to come from?” and then you feel bad about that. But that’s the right question! Of course, you need to know where the money will come from! But without a flexible budget, it’s hard to answer that question.
This is the problem with the old school method of budgeting. You set that budget, you stick to it no matter what (impossible). That’s not realistic or helpful.
Instead, figure out where in your budget you can pull that extra money. That’s proactive. And realistically, that’s what you’re going to do. If you’re going to pay for it, adjust the budget to reflect that reality.
Budgeting is a process. It’s more important to stick to the process of budgeting than to stick to an arbitrary set of numbers that made sense a month ago, but don’t make sense today.
If the month has rolled over, you know you’re looking at a realistic budget, so no worries there. However, you may have less money to budget with if there was cash overspending in the previous month.
Any red overspending that’s not covered in one month is subtracted from the next month’s To Be Budgeted number. A correction is forced and the category is zeroed out giving you a fresh start.
Less available dollars means you’ll have to be even better about prioritizing with what you have left in a lean month. But this is a golden opportunity to learn. You’ll learn where you need to budget more, you’ll learn what’s really important to you. And that’s the most important thing.
If it was credit overspending and you created more debt, create a debt paydown plan to get that paid back.
Now, it’s possible that you’ve cut all the spending you can, and you’re still overspending, still running up a balance on the card. At the end of the day, overspending will always come down to one of two things: Cutting spending, or increasing income. It may be after a few months of tracking and tweaking and cutting where you can, you determine that’s not enough. You may need more money.
Do not sweat having a perfect budget while you are just getting going, just use the budget to help you determine what you need to do to make progress toward your goals. It’s always about your goals.
We recommend at least 30 days.
We want you to age your money at least 30 days. Consider that a starting point to aim for. When your money is 30 days old, you’re spending money that you earned on average a month ago. You’ve broken the paycheck-to-paycheck cycle. When this happens you will genuinely feel differently about your money. You will not be stressed.
With that said, if your income is highly variable you may want older money to ride out those peaks and valleys. Depending on your personal situation and your need for security
In the end, it’s completely personal. Your situation, your circumstances, and your need for security will determine what Age of Money is right for you. But generally speaking, if you are spending money now, that you earned last month, you will be able to pay your bills when they come due without thinking twice. You will have margin, breathing room, you will sleep better at night.
Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)
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