Why Embracing Your True Expenses is Everything

Written by Lindsey Burgess  |  on


At YNAB, we build great software, sure, but the most powerful piece of the equation is our Four Rules. Today I want to dive into Rule Two: Embrace Your True Expenses.

Rule One: Give Every Dollar A Job is all about priorities. Each job is a representation of your priorities—or your predicament, if you are paying off debt or dealing with an emergency of some kind. The longer you YNAB, the more your money will be aligned with your true priorities and it’s a great feeling.

Part of why it works that way is because of Rule Two: Embrace Your True Expenses.

If I’m working with someone on their budget, one of the first questions will be, “What are your monthly expenses?” They’ll list off rent and cell phone and utilities and what not. And, admittedly, I kind of set them up because I say monthly and they start thinking of things that happen every month.

They don’t think about the larger, less frequent expenses, like the annual dance recital, or summer camp for the kids, or property taxes if they aren’t bundled up with the mortgage, or the holidays and the spending that happens there, or being in a wedding, or the inevitable car repairs—and obviously the list goes on and on. It’s different for everyone but there are some common denominators.

If you go back, through the last six months of so of bank data, just scroll through and look for expenses on or around $1,000. This isn’t a complete picture, but it’s a good starting point. Start making note of the larger expenses that possibly caught you by surprise.

As you pull together your list of larger, less frequent expenses, you can start estimating what they will cost. Take the holidays. If you think you’ll spend about $1,200, mostly for easy math, that is $100 a month. Make it a monthly bill.

And you’ll make all these things monthly bills. We call it normalizing. You normalize your expenses, so when the bill comes you just pay it because you’ve been saving for it for a year or for six months or whatever.

And while your outflows are erratic, in the sense that they are sometimes high and sometimes low because you have high spending from a vacation (which is great!) or you have low spending because you’re hunkered down for the winter,  but then you have high spending again because you’re burning all this wood in a stove or cranking up the heat, all these things create scenarios where your outflows for those expenses are not just Even Steven.

Outflows are erratic. They’re all over the place. And when you normalize, you start to smooth things out. And that normal line, that’s your baseline. That’s what you plan against.

So when you go back to Rule One and you’re giving every dollar a job and you’re prioritizing, you’re now able to that much more effectively because you have more information. Your monthly expenses aren’t $5,000, they are actually $6,200. It’s a big difference, but when the holidays roll around it will completely change everything.

Then you start to realize, “Okay, that’s why we weren’t getting ahead. That’s why we were just slowly bleeding out because we weren’t taking into account these other expenses that just don’t crop up every single month like clockwork.” They crop up regularly, but not frequently—and there’s the rub.

So, embrace your true expenses. Sometimes it is hard to face the reality, but once you do you are in a position to turn things around.

If you don’t like an expense, get rid of it—that is part of prioritizing. But if you acknowledge it, “Hey, we’re going to go on vacation again. We go to this beach house every year,” whatever it is, then you save for it.

You have a vacation bill every single month, that beach house bill. You have a holiday bill every single month. You have a summer camp bill ALL through the school year before the summer camp hits. That’s the idea with Rule Two.

You set up your categories. You fund those categories. You set goals in YNAB and say, “Hey, I want this balance to be at this point so I’m ready for the summer camp bill,” or whatever it is for you.

And then, I’m warning you, it’s going to get really boring. It will just work. Your money will just be sitting there waiting to do its job and it will feel fantastic.

Until next time, follow YNAB’s Four Rules and you will win financially. You’ve never budgeted like this.

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Adapted from Podcast #210: Rule Two Reloaded, the one in which Jesse talks about how and why embracing your true expenses is everything.

Your Next Step

Budgeting is not restrictive. You won’t be spending less, you’ll be spending right. So what do you have to lose? Except all that debt and stress?