Hello YNABers. My name is Jesse Mecham and this is podcast number 78 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.
Sometimes money operates in a little bit of a black box of its own. It’s that dreaded Miscellaneous category. I wrote a blog post doing a deep dive into my 2012 finances and saw that we a had pretty hefty – in my opinion – amount of Miscellaneous category spending. So, I cannot care about it – which is one option, and it’s a viable option. Not caring is actually a great option. If you’re reaching all of your goals, you’re investing for retirement the way you want… By the way, we just launched our investment course – it’s free, it’s a 10 day email course, you can catch it at ynab.com/courses/investing if you haven’t already caught it from my newsletter blast that I sent out last week. Anyway, if you’re reaching your retirement goals, investing goals, if you’re reaching your other goals that mean something to you, then having spending in any other category doesn’t need to bother you. But, if it does and you want to dial things in a little tighter, the one way to do it is to basically peel the onion.
I remember when I was first learning about advertising with Google – Google AdWords – Google would talk about getting more granular and more granular as you looked at what keywords you would be targeting. And in that way, you could measure the ad performance reliably and see if it was profitable or not profitable on a very granular level. If you lump everything into a big category called Budget Software and then advertised for everything under one, big Budget Software banner, you can imagine some of the things would not be profitable and some of them would be, but I wouldn’t know because it’s all one big, nasty mess. So, you peel away a little bit of the onion and you see what sticks.
And that’s the same thing you can do with your Miscellaneous category. If you care to track it, if you want to see it go down – which is what I want in 2013 – the question is basically to do a little bit of an audit, look back on your category and say, “What was the spending? Is there a pattern here that’s developing? And could I have that with its own separate category?” As soon as you break things out into separate categories, then the power of the monthly budget meeting kicks in and you can have that discussion with yourself, with your spouse, whenever it comes up. When you’re out and you record it on your phone and you’re seeing the balance for that specific category and you’re recording a transaction for that specific category, you’re getting all that psychological impact, that overhead that you have to pay, in order to have that transaction be approved for you. And that is where you start to get downward pressure on your purchasing. The downward pressure happens when you spread things out.
And as you open up that Miscellaneous category and lay it all out flat, then you can start doing a little bit more pinpointing and saying, “Okay, that’s got to go. No, that should definitely stay. This has got to go. This we could cut down. This is fine.” And you can be more granular, seeing what works for you, what doesn’t, what you really value, what you don’t value, and find a little more contentment.
In that big blob of miscellaneous spending, there’s probably some value conflict there. There are probably things that you care about but just don’t have a category for. And then there are things that you don’t really care about. My guess is most of the miscellaneous type stuff is things that you don’t care about because you haven’t called it out already on its own. A few of the things will creep in there and you realize,” Oh wait. I just didn’t have the category for it.” That’s just part of tuning and tweaking. But when you have that kind of catch-all category, usually it’s a good sign of spending that’s wandering a little bit away from the value line, and you can kind of bring it back in check.
So, until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.