I think for a lot of us, it can be hard to admit when we’re making obvious money mistakes. There’s a tendency to kind of fib (just a little) to our budgets, especially when things are not going our way. At YNAB, we’re all about reflecting reality in your budget, but sometimes seeing reality in front of us is … not so fun.
And I totally get that. In the short run, it’s more fun to choose the rosier picture (not the real one!). That’s why these common financial mistakes are … well, common. But, here’s the deal, while avoiding the truth may reduce stress now, it’s going to lead to more stress, and more worry, in the future.
Are You Making Money Mistakes?
The first step to solving a problem is to acknowledge it. And that requires total honesty—with ourselves and with our budget.
Here are three money mistakes we tend to make by lying to our budget (and how it’s hurting us!):
1. We Budget Money We Don’t Have
Rule One, as many of you know, is “Give Every Dollar a Job.”
That makes sense to most people. We’re doing a zero-based budget! But in the YNAB method, that means giving every dollar—that you have right now—a job. In other words, only budget what you have. And it feels unusual, at first.
If you’re a new YNABer, you feel compelled to forecast for an entire month. You want to plan ahead. You want to make sure that there’ll be enough to cover all your expenses. Right? And those are valid reasons for being tempted to budget more than what you’ve got. But, planning further ahead than your current dollars could hurt you. Here’s why:
Your Budget Becomes Useless
When you inflate your budget with dollars that aren’t, yet, in your bank account, you can’t confirm that the ‘available to spend’ amount is actually in your account, ready to be spent. What if half of your grocery budget comes from your next paycheck, but you see a big sale at Costco and spend it all in the first week?
When you only budget the dollars that you have right now, you can always trust your budget category balances to back up your spending!
You Lose Sight of What Really Matters
Perhaps an even bigger problem with budgeting dollars that you don’t have is that it allows you to bypass the most important question of all: “What does this money need to do for me before I’m paid again?”
If we budget more money than we have, we’ll have made no decisions about the money we have right now. It’s so much better to make that decision when we’re budgeting, when we’ve got all the information in front of us, and we’re focused on our true priorities!
Embracing the scarcity of your money brings an immense amount of clarity. And that’s a good thing!
Forecasting, Sort of
Now, if you’re still feeling frustrated by the prospect of only budgeting the dollars you have now, know this: With targets and scheduled transactions, you can still plan ahead—you just won’t be forecasting with dollars, which is the important part! And, you still get all of the benefits of budgeting only what you’ve got.
I should add, too, that budgeting dollars before you have them is, quite literally, budgeting money you don’t have.
2. We Avoid Entering Spending
A big part of the process is recording our spending, and I mean all of it. Whether you do it manually, with direct import, or a mix of both, capture all of your data! That way, you’re always operating from an accurate budget.
Sometimes, people try to hide reality from the budget—especially in the case of an unexpected expense like a big car repair, when we know it’s going to cause overspending. Or we might decide to leave out that credit card debt that is racking up a little too quickly (note: any pace is too quickly).
The reason we do this is obvious, it’s not fun to see new debt and overspending in our budget! So, while it might feel good on a short term basis, it’s important to know that we’re not doing ourselves any favors—in fact, we’re robbing ourselves of the power of the budget. Without an accurate budget, we’re a ship lost in the financial sea (and it’s impossible to chart our path to financial freedom!)
Avoid reality, and things will only get worse. Honesty is required in order to meet your long term financial goals.
3. We Avoid Correcting Cash Overspending
I’ve been a huge culprit in this area. Back in the YNAB 4 days, I turned that red arrow right like a fiend! I’d never deal with cash overspending because it’s not fun to take money from a priority that’s important to you to deal with past spending.
Sometimes, I still struggle with this one! It’s an easy money mistake to make—that $20 you found in a coat pocket might technically be “found” money, but it’s still yours and needs to be accounted for accordingly.
If we ignore our overspending, the problems just start to build up. And as soon as we overspend with cash, our budget is no longer telling us the truth, because that money is coming from some other category. It’s so much better to decide where that money’s going to come from, fix it and move on.
Another reason why people avoid covering cash overspending is because they feel there’s nowhere they can take it from. All the other categories are too important. Well, the truth is, unless you’re actually in overdraft, by nature of cash overspending, you do have the money somewhere to cover it. Once the money’s gone, it’s gone, and it’s much better to fix your budget to reflect reality right away. Then we can see the truth and make a game plan to conquer this challenge!
The Benefits of Telling Your Budget the Truth
There are so many benefits to telling your budget the truth, but here are a couple of the big ones!
If you only budget money that you have, enter all of your spending, and fix any cash overspending, you know your budget reflects reality. You don’t have to play this stressful game of hiding information from yourself. And you’ll find that having reality in front of you will bring you less stress in the long run, not more. It also makes it so much easier to spot opportunities to save money.
That’s right. Telling your budget the truth will give you power. That’s not intuitive because the ultimate reason we avoid reality is to feel less weak. But facing and embracing our weaknesses is how we become stronger.
Here’s the bottom line: If you tell your budget the truth, it will tell you the truth right back. And I’m not going to tell you that truth is always going to be fun to see, or that it won’t take some time and hard work to fix it. Sometimes it might be tough. Sometimes it might be downright terrifying … but only for a moment.
Once you drink in reality, you can start making a plan to change it. And that’s when you’ll go from panicky to powerful.
You’ll Finally Be In Control, For Real.
Before I had a budget, I thought it would take forever for me to feel in control. I thought that I’d have to pay off all my debt, have a huge safety net in my savings account, and take 100% control of my spending before the financial stress would go away. But that’s not the case.
All it took was making a plan. Once I put everything down in my budget, and fully faced the facts, I suddenly knew exactly what to do to change my life. And, once I knew what to do, the stress just started to melt away.
And it can for you too! Just tell your budget the truth.
Ready to stop making money mistakes and to take control of your personal finances? Try YNAB for free for 34 days. No credit card required!