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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One of our mantras here at YNAB is “Only budget money you have.”
And there’s always some pushback. It usually goes like this: “But Erin, I only have $97.54. If I only budget those dollars, how can I make a plan for the entire month?”
That’s a totally understandable question. When you’re trying to get a handle on your finances, you want a sense of the big picture, right? Then we come along and tell you to stop budgeting after $97.54, and you barely feel prepared to conquer the next few days.
If this sounds familiar, I want to share a little secret with you. There is a way to get the month-ahead view that you’re craving without sacrificing your grip of reality (i.e. how much money you have right now)—the trick is to create a budget template. And that’s what I’m going to show you how to do.
Let’s get started.
Monthly funding goals can help you remember to budget enough money for the necessities. For example, if you know that you’ll need at least $500 for groceries this month, you can create a goal that looks like this:
Click “OK,” and your budget will look like this:
Do you see the orange “$0.00” that’s available in your grocery category? This indicates that you haven’t budgeted the money necessary for this goal, yet.
In fact, this budget has several goals that haven’t been funded, yet (see the orange bubbles in the “Available” column). In order to fully fund all of the goals in your budget, you’ll need $1,250, as indicated by “Underfunded” in the inspector (the right-hand pane). Not to worry, we’ll get to that in a bit.
For monthly bills, in addition to creating a goal, add the due date to the name of the category. This gives you an at-a-glance view of how much, and when, everything is due. And, it makes paying your bills on time that much easier! Just click the name of the category to edit. It looks like this:
Once you’ve added due dates and goals to all of your monthly bill categories, drag them into order, according to their due dates:
Now, delete any categories that you won’t need. For example, if you don’t have any debts to budget for, get rid of that category group!
Go through your categories and make sure that each one has a goal and a due date. When you’re finished, it should look something like this:
With everything in place, your underfunded amount is up to $2,430. We’re getting there! And, now it’s time to look at your non-monthly expenses (a.k.a., true expenses).
In some cases, you know how much you need to save and exactly when you’ll need that money. For example, let’s say that you need $600, before June, for a semi-annual car insurance bill. Click on your car insurance category. Then click “Create a goal” in the inspector, and you can enter the details, like this:
Now, click “OK,” and the inspector will calculate how much you need to budget each month until June in order to pay the bill.
As you can see, if you budget $100 every month, by June you’ll have saved up the $600 needed to pay for this bill. Woot!
A goal with a “target category balance by date” also makes sense when you’re saving to pay for future purchases, like a computer replacement or vacation. Add both of these goals to your budget, and here’s what it looks like:
Notice the total in the inspector now: “Underfunded – $2,675.84.”
You’ve created goals for your monthly expenses and your true expenses, all without a care in the world. But what about the underfunded $2,675.84? Yeah, stay with me—it’s time for the all-important reality check. This is when we ask ourselves: “Is this realistic?”
If your income is $2,500 a month, then this budget is definitely not going to work. And, that’s OK. In fact, simply by identifying that you’re (way) out of the ballpark of what you can realistically afford, you’ve saved yourself the stress of coming up short.
Instead, you can proactively adjust your budget template to make sure that you can pay for the things that matter most to you. You can do that by adjusting the dollar amounts tied to your goals. You can push the date on that vacation goal a little further out, too. And cut the grocery budget by a few bucks.
The key, here, is to keep tweaking things until you’ve got a budget template that fits your income and priorities.
Let’s say that you’ve only got $1,640 in the bank, right now. That’s how much you can budget. Remember the mantra: Only budget money you have.
The budget template plans for everything, but you only budget what you’ve got right now—in this case, $1,640. So, let’s look at your immediate, most pressing, obligations:
You can see that you’ve budgeted $400 towards your rent, but the fourth column shows an orange alert that you still need another $400. Why would you only budget for half of the rent? Great question! Here’s why:
When you’re done, your budget looks like this:
You’ve fully funded some categories (see the green bubbles), but partially funded others (orange bubbles). Still, your plan is completely intact. And, most importantly, the budget reflects reality—since you only budgeted dollars that you have in the bank, right now, you can trust your budget to keep you from overspending.
When your next paycheck arrives, enter it:
Now, it’s time to budget your new dollars! So, using the checkbox at the top, select all of your categories. When they’re selected, it looks like this:
The inspector shows an underfunded amount of $1,035.84. Your paycheck gave you $1,200 to be budgeted, so you’re good to go! Click the “Underfunded” button, and voila! Fully funded categories, as far as the eye can see:
Even better, there’s still $164.16 left to budget (Who doesn’t like leftover money?). Now you’ve got choices, but what to do? Will you build up some of your true expenses? Fund a little more towards that vacation category? Start budgeting for next month’s rent?
When you have extra cash left, after you’ve fully funded your budget template, it’s up to you!
I hope that helps. If you have questions, be sure to join one of our free, interactive, classes. Check out “Set Up Your Budget” if you want to learn more about setting up a budget template.
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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