Quick Review: At YNAB, we have four simple, but powerful rules.
Last week I talked about Rule One: Give Every Dollar A Job and how although we resist scarcity, it provides clarity and helps ensure our money is doing what we want it to do most. Enter contentment.
Today, I’m going to talk about Rule Two: Embrace Your True Expenses.
What Are Your True Expenses?
True Expenses larger, less frequent expenses. It might be a non-monthly bill, or something that you know exactly when you will have to pay it and how much it will be, like insurance premiums or tuition payments. These are true expenses.
Also, consider things that you know will happen eventually, even if you don’t know exactly when or how much they will be—your car will break down, someone will need to go to the doctor, or your laptop will die. These are true expenses.
And then think about things you know you will do, you just choose not to think about them until you absolutely have to, at which point you usually don’t really have money for them, but want to do them anyway, and usually end up using a credit card—Christmas, vacation, summer camp, etc. These are true expenses.
So start breaking these expenses into smaller, more manageable amounts, and save for them every month.
Accepting Reality Is Cost Effective
Just because these expenses don’t come due every single month for the same exact amount, doesn’t mean you can ignore them. This is how you get ahead. This is how you get control. Accept the truth that you don’t have as much discretionary money every month because you need to be putting money away for these bigger expenses which will “surprise” you if you don’t prepare.
Reality Check: Cars Break
People will say, “Jesse, I don’t know how much the car repairs will cost and I don’t know when they’ll happen.” You’re exactly correct, but we do know they will happen and we do know that they will cost more than zero dollars. So let’s just go with that.
Take a guess. Put away $100 a month for car repairs.
You say, I’ll put aside a hundred bucks a month for car repairs. Now, as you’re giving every dollar a job, and you’re saving for this and that, you’re weighing your priorities. Do I care about A more than B more than C, and then car repairs! Do I care about car repairs?
In the moment, if your car is running fine, you probably don’t. But you will when it breaks, and you know it will cost more than zero dollars. So, ask yourself about your future self, will you care about having money to pay for your car repairs when your car actually needs to be repaired.
Take Care Of Your Future Self
It is important for me to make sure my future self will have money for when the holidays land consistently at the end of every year and there’s money there for them so they can feel merry in that time of “merriment,” right?
It is important for me to set aside money for my kids’ summer camp because they’ll have a fantastic time and I love the program so I’m gonna make sure that even though it’s October, I’m gonna be setting aside some of that money for the summer camp, for the swimming lessons, and a number of things. These are still your priorities but they’re the priorities that are further down the road.
Because Stability Is Worth It
Embrace the fact that your expenses aren’t just the monthly bills. They are your monthly bills, plus putting money aside for the less frequent, larger expenses that normally knock you off your feet. If you look ahead and break those up into monthly amounts, you’ll be prepared, you’ll be able to be flexible, and suddenly things will just run really smoothly. The best feeling ever—boring finances.