Spending Awareness - A New Year's Gift

We get a lot of questions in webinars and one on one coaching sessions about how to know how much to budget for categories, particularly from folks who are just starting out. And it’s a legitimate question – if you’ve never budgeted before or even tracked your expenses, it’s difficult to know how much you spend each month on something like gas, groceries, or entertainment. Then there are those really tricky categories like gifts – I know I certainly had no real idea what we were spending on gifts before I became a budgeter.

So when we’re first budgeting, it’s okay that there’s a fair amount of guesswork in there. Thankfully, the YNAB Rules help us deal with that by making sure we’re at least giving every dollar a job (Rule One) to start with and that we’re rolling with the punches (Rule Three in action) when our estimates aren’t quite right.

For those of us who have been using YNAB for some time, the new year also brings a special little bonus to help our financial awareness grow – in the form of YNAB’s Reports function. If you’ve been using YNAB since last January, you’ve now got a very handy twelve-month average for all your spending categories.

Just click on over to that Reports Tab and make sure you’ve selected “SPENDING” in the top left corner of the window

and “TRENDS” on the right.

Once you’re there, make sure the slider at the bottom of the screen runs all the way from January of 2010 to December of 2010 (don’t select January of 2011, or you’ll have two Januaries, one without much spending in yet, going into your average).

Now in the top section of this beautiful report, push the scroll bar all the way to the right. You’ll see the months of the year go by at the top, and then just at the end, find your gold-mine of spending awareness:

Scroll down that “AVERAGE” column and you’ll find your average outflows (or inflows) for each category in your budget. You’ll not only build your awareness of how you spent (or saved!) in 2010, you’ll also find a powerful tool for working with Rule Two – Save for a Rainy Day – in 2011. Armed with information about how much you spent on average per month in each category in 2010, you can feel all the more confident about assigning those Rainy Day Funds in 2011.

Turns out that monthly average for gifts was $47? Go ahead and plug it in in January, even if there’s not a birthday or holiday in sight. Your average monthly cost for that golfing habit was $160? Go ahead and start building those funds, even if you won’t play again until May. Spent an average of $390 at the grocery store each month? Well, that makes it a pretty good place to start in the new year, or gives you a target not to top if you’re looking to cut back. Each category from 2010 provides a great place to start as you move into 2011.

[TIP: One of the other things we often tell people in coaching sessions is that it’s okay to start over with a new budget. One of the reasons people find themselves hesitant to do so is they don’t want to lose old data, data just like what I’ve been describing. I want to be clear that, in this case, you can have your cake and eat it too! I’ve actually been thinking of starting a new file myself for the new year – but if I do, I’ll still have this old one, and all the information I need should I want to go back and look.]

Don’t have twelve months worth of data in YNAB? That’s okay. Really cool reports aside, each and every time you work in YNAB, you build a bit more awareness. If you’ve got two months or five, that’s likely more information about spending than you ever dreamed of before YNAB helped you uncover it – use whatever you’ve got to help you peer forward into the next month, and begin 2011 feeling confident!