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.
Let’s say my checking account balance is $1,700. Using this as my starting budget, I’ve added in five scheduled transactions to cover expenses that I’m expecting later this month.
YNAB will deduct these from my checking account, automatically, on the dates that I specified. That’s great, but the real win is over in my budget. See, when I set up these scheduled transactions, YNAB created an alert for each of the corresponding categories which reminds me to budget for them.
I haven’t budgeted, yet, so these categories display as orange, which means they’re underfunded. The inspector has tallied up the total of these transactions on the right, where it says “Underfunded: $1,480.00.”
That’s the amount of money I need to cover my scheduled transactions. We’ll revisit this, again, in a bit. For now, let’s look at goals.
For the rest of the categories in my budget template, I’m going to use two types of goals:
In some cases, you know how much you need to save and exactly when you need that money. For example, in this scenario, I need $600, before February, for my semi-annual car insurance bill.
Once I’ve created my goal, the inspector calculates how much I need to budget each month until February.
If I budget $100 every month, by February, I’ll have saved up the $600 that I need 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. I’ve added both of those goals to my budget, and here’s what it looks like:
Notice the total in the inspector now: “Underfunded – $1,767.50.”
My template is starting to take shape.
To make sure that I’ve got enough money in my budget each month for things like food, a monthly funding goal really helps. If I know that I’ll need at least $500 for groceries this month, I can create a goal that looks like this:
Now let’s add a monthly funding goal to every remaining category:
I’ve scheduled transactions, created goals for future expenses and created monthly goals—all without a care in the world. And the inspector says? I’m underfunded … to the tune of $2,942.50. Stay with me.
It’s time for the all-important reality check. This is when we ask ourselves: “Is this realistic?”
If my 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 I’m (way) out of the ballpark of what I can realistically afford, I’ve saved myself the stress of coming up short.
Instead, I can proactively adjust my budget template to make sure I can pay for the things that matter most to me. I’ll do that by adjusting the dollar amounts tied to my goals. We 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.
If you recall from up top, we’ve only got $1,700 in the bank right now, so that’s how much we 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 my case, $1,700. So, let’s look at my immediate, most pressing, obligations:
You can see in the second column that I’ve budgeted $425 for rent, but the fourth column shows an orange alert that I still need another $425. Why would I only budget for half of my rent? Great question! Here’s why:
When I’m done, my budget looks like this:
I fully funded some categories, but partially funded others. Still, my plan is completely intact. And my budget reflects reality: How much can I spend for groceries right now? $250. I just need to check the budget categories before spending.
When my next paycheck arrives, I enter it:
And now those new dollars need to be budgeted! So, using the checkbox at the top, I select all the categories. When they’re selected, it looks like this:
The inspector shows that my underfunded amount is $1,242.50. My paycheck gave me $1,600 to be budgeted, so I’m good to go! When I click the underfunded button, voila! Fully funded categories, as far as the eye can see:
Even better, there’s still $357.50 left for me to budget. Now I’ve got choices, but what to do? Build up some of my 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.
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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