Step One: Overcoming Fears
Ah, a new year. I started a brand new budget! As a teacher here at YNAB, I encourage people to do this all the time. But here’s a confession: I was really nervous about starting a new budget and wasn’t sure I wanted to do it. Why?
For the exact same reasons that you all have given me over the years. HISTORY! I had a year and a half of history in there. Lots of juicy data and averages. I need that stuff!
Except that I don’t. (I need some of it for tax season, but that’s no problem. I still have the old budget and can open it anytime.) But it’s even more than that, I don’t need, and in fact, it could be leading me astray, because my history isn’t an accurate representation of my priorities and circumstances today. History doesn’t improve with age, it just becomes increasingly irrelevant.
My life changed a lot last year. I sold my house in July, I’m currently renting in a new place while I house hunt, which means a new Internet provider, heating company, and water bill. I have a new grocery store, and my favorite discount store is a drive. So, my old data can’t really help me plan for today or tomorrow.
Plus, over time my budget had become overly complex and I wanted to resolve that as well.
Step Two: Simplifying Accounts
In my old budget, I connected my Betterment account, where I keep money for purchases that are (hopefully) far away, like the next car. But it was extra work for no added value. So it’s gone from the new budget. Instead, I have a Betterment category where I budget for the money I send to them, and that’s all I really need.
I also have one of those “you have to have a savings account in order to get a checking account” savings accounts with just $25 in it. But when I sold the house, knowing I’d need the profits to buy the next house, I tossed it in that savings account for the time being, and created a “new house downpayment” category. It works, but it’s just overkill. Plus, it inflated my income big time. So that account is not in the new budget.
Step Three: Streamlining Categories
This is where things got really fun. This felt a lot like the Kon Mari organizing/decluttering process I went through before I moved. I went through every category from my old budget and asked myself, “What am I gaining by having this category in my budget?” or “Does this category bring me joy?” (Oh yes, I went there.)
Sometimes you want more detail to maintain focus. For example, I thought about just having one category for gifts and including my Christmas spending in that category. But as I thought about it, I was worried I would spend it down for various gifts throughout the year and end up short at Christmas. When it comes right down to it, it’s really two completely different jobs. So the Christmas category stayed.
On the other hand, I streamlined my pet categories. I have a dog and a small collection of cats. In the old budget, I had the dog and the cats as separate categories. But there’s just no benefit in doing that. I’m going to feed them and take them to the vet, and that won’t change no matter how I organize it. So now I have one pet category for their day to day expenses and another one for medical costs which is under True Expenses.
I went from 61 categories (not to mention all the hidden ones) to 39. It just feels lighter looking at. But I still have the information I need to make decisions, and that’s what matters.
Step Four: The Blank Slate
Once I added my accounts and connected them I had a very healthy To Be Budgeted number—just one big pile of money—no doubt, a byproduct of following the rules for many years.
This is the part of creating a new budget that my good buddy, Dave (one of our fabulous teachers), is always talking about. You get to really step back and think about your priorities. Challenge your assumptions. What do you really need and want your money to do? What are your true priorities? I loved this part of the process.
Some categories won’t change. Rent is the same as it was before. And, there are certain categories that need to be funded at the same amount they were in the old budget so I don’t get caught short.
No problem, I opened both budgets in separate tabs. When I got to car repairs, I looked at the old budget to see what I had set aside. Then I quickly checked last year’s spending report for car repairs and made a determination for how much to set aside in the new budget.
I also finished up a few long-term goals right off the bat. For example, I fully funded my emergency fund category. It’s nice to have that done.
I worked my way down the budget, creating goals along the way. I budgeted all the way through March and there was a little left. That’s going in my investment category for long-term savings.
All in all, the most time-consuming part of this exercise was the part I enjoyed the most: rethinking my categories and goals. Once that was done, the rest was a breeze.
If you are thinking of starting over or starting a new budget, we run a workshop called “Start Over Today” where we walk you through all the options! You may be surprised how nice it feels to have a new shiny budget that only brings you joy.