I bet you know your checking account balance. I bet you check it daily, maybe multiple times daily. I bet it's the first number you look at when you or your significant other ask that not so useful question, "Can I afford it?"
I'm sorry you have to look at your checking account all the time, because I know how much stress that number produces.
But I wonder if you realize why your checking account balance stresses you. "Because it's low," you say? Fair enough. But that's not why it's a stressful number. It's stressful because it gives you vague, incomplete information.
Your checking account doesn't know whether you can/should buy something. All it knows is whether you've run out of money.
Wouldn't it be cool if you didn't know your checking account balance, because you didn't need to know it?
It's possible - all you have to do is detach your financial decisions from your account balance. How? By assigning your available dollars to individual needs and wants in your life.
It's called envelope-based budgeting because many of the people who use the concept actually take cash out of the bank and divide it among correctly-labeled envelopes ("Groceries," "Clothing," etc). When the cash in an envelop is gone, they're finished spending.
It's a brilliant system, and YNAB didn't invent it. YNAB took envelope budgeting and made it digital, allowing you to take your meaningless checking account balance and turn it into near-perfect awareness of your needs and wants.
It's a beautiful system that produces a couple desirable results in your life:
1. Reduced stress as you're able to let go of obsessive account balance checking.
2. Fat-approaching-obese checking accounts.
A couple of years ago, before I adopted the YNAB way, Jesse (YNAB founder) and I were having lunch. I'm sure my financial stress came up in conversation, and Jesse happened to mention he had no idea what his checking account balance was.
"What do you mean, you don't know how much you have in checking?"
"No idea. Lots of thousands."
Sure, you say, Jesse had lots of thousands in checking because he's the fancy-pants founder of a successful company.*
Wrong. Well, sort of right. He is the fancy-pants founder (the fanciest!), but that's not why he had lots of thousands in checking, and it's not why he had no idea what his account balance was.
It's all about the digital envelopes Jesse - and all YNABers - use to maintain high awareness of our money.
Jesse didn't know what he had in checking because that wasn't the important number in his life. Every time he got paid he divided his dollars among his family's needs and wants, assigning the money to virtual envelopes called budget categories.
Budget category balances give useful answers to important questions:
"Can we buy a new car?" Check the "Car Replacement" category.
"Can I buy some new running shoes?" Check the "Clothing" category.
No more vague, contentious conversations about "Can we afford it?" - only rational chats about whether the category balance is big enough to buy it, whatever it is.
My tax refunds hit my checking account this week, and I laughed when I noticed the new balance: $24,436.97.
For pre-budgeting me, $24,000 might as well have been $24,000,000,000. I was equally likely to have either amount in checking in those days, in spite of much higher earnings.
Of course, my budget categories - my envelopes - have already spoken for the money. Some for needs and a good amount for wants. But thank goodness I don't have to think about the number itself anymore.
If you're a person who has to monitor your checking account balance like Keanu Reeves watching an airport shuttle's speedometer, take our 9-day money management course by email.
Life's circumstances produce plenty of stress; don't let low-awareness money management compound your worries!
*I kid. Jesse is one of the least fancy people I know.