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Do you need a budget? - Real Life Review (Part Two)


The YNAB Method

This is Part Two of our Real Life Review and as promised in this post I will go into more detail on the YNAB method of budgeting and their 4 rules.
If you missed Part One you can read it here.
As the rule states you take the money you have on hand and you assign the money to different categories (think digital envelopes). When you first load up the page you will have a default set of categories which you can leave alone if you want but you can also create your own and organize them how you want. I did the setup of any categories I figured we would need and used the envelope names my wife had written down. 

I got our accounts synced up with YNAB which was fairly easy process and then using Rule 1 I took the money that we currently had in the bank, checked any bills that hadn't come out yet and assigned money to the bills to budget those and then after those were budgeted I started to allocate the money into things like groceries, school (that's starting up soon), gas, date night, eating out, coffee fund among others and we set up categories for ourselves which I felt was important to both of us to have money to spend on whatever we wanted as long as the money was in the category.

For example I am planning to save up for a new windows based tablet so I set a goal for how much to save and based on how much you put in each month it will give me an estimate of how long it will take to get there. 

Keep in mind at this point no money has actually left our accounts, no bills are paid through the software or anything like that, you still need to do that on your own with your preferred method but what you do is when the bill has been paid you indicate that in YNAB, so lets say you budgeted $100 to your phone/internet bill then you pay the bill. In YNAB you will tell it that you just payed $100 to your phone provider and used that category to pay for it, This will reduce the category by the dollar amount you payed. For things like groceries, when you pay for them you will add the purchase into YNAB which will reduce the available amount for the next grocery trip. 

Fast forward to couple days before payday and now there is only $38 in groceries, prior to YNAB one of us would go out to get milk say and come home with $100+ worth of groceries, now do this a couple of times per week and you can see how this becomes a problem.With YNAB we can look at the budget and say we will have to make due until payday for anything beyond the $38 in the category or we adjust our category totals from something else to increase groceries but then you need to ask yourself if you really need what you want to buy now or could it wait a couple of days?

Rule 2 Embrace Your True Expenses

Going back to the setup of all your categories, did you think of them all? I bet you didn't and will likely add and remove as you go along. How many expenses come up that aren't payed on a monthly basis? Things like medical bills, car repairs, Christmas, anniversaries, birthdays, etc. These are all non monthly expenses but can creep up on you out of the blue. What rule 2 wants you to do is make these categories and set yourself a goal of how much minimum you want or need in each and then start building those funds. How much money did you spend last Christmas and if you know then you can split that up and budget that each month, set a goal for the total amount in December and the software will tell you how much you need to save each month to achieve this and whether your getting behind or on track.

Rule 3 Roll With The Punches

Budgeting is a art in itself, it's essentially educated guessing on how much you think you will be spending in any given category. Stuff like savings, your regular monthly bills or the Rule 2 suggestions are fairly straight forward.

What Rule 3 is saying is it's ok to go over budget...WHAT!!!! that's not right, your supposed to follow the budget and not overspend your probably saying.  Well lets say I had $38 in my groceries fund but forgot about a family dinner or had unexpected guests so we go out and buy a couple of things and we end up spending $60. Well now I've spent $22 over my allotted groceries budget...I'm such a failure, budgets don't work, this is just stupid....All things people say when they go over their budget, they will think budgets don't work but what Rule 3 is saying that it's OK to overspend and now I will let you know the catch, you still need to balance that budget. 

Continuing with the example above let's say you have a clothing budget of $50 just sitting there, you have no desire or need to go buy new clothes and payday is only 2 days away, take $22 out of the clothing budget, which reduces the amount available there to $28 and add it to the groceries, now your back at a balanced budget with $0 available in your groceries budget. 

Actually this happened just the other day, my wife needed gas for the car to take one of our kids to camp, she over spent what was available by $10, I heard her say some of the same things above about overspending and not being able to follow the budget. I told her it was fine, reminded her of Rule 3 rolling with the punches, I just moved $10 from one of our currently unused amounts (school shopping) and balanced it, back to 0 and we will be fine for gas until payday so it's OK.

Even with this rule you do need to be mindful of your spending still. While it might be OK to overspend there is a limit and you have to know that. The overspending has to come from somewhere.

Rule 4 Age Your Money

Wouldn't it be nice to use last months paychecks to pay this months bills and expenses? That is what the aim of Rule 4 is. I have heard them say that if you follow their methods and watch your spending the average user will reach this stage in about 4 months but your mileage may vary. When we get to this stage we will no longer have to worry about timing them to a specific pay period and that will be great.

Another stat I have heard them say is that the average user could save $200 in first month, $600 by month two and over $6000 in the first year, suddenly that meager $50 per year doesn't sound like much. This is of course from controlling your spending.

We have been using this for a few weeks now and for the first time in a long time we still have a positive balance before payday. We did not go in the overdraft at all and for the first time we were also able to tithe to our home church while still keeping $300+ in the account and not touching any savings. 

Now keep in mind this will only work if you stick to the budget and keep it balanced. There is of course nothing stopping you from going wild and buying whatever and overspending in multiple categories but this means you are not using this as intended. 

I hope to provide an update on our status every couple of weeks showing progress as we go and will try to include a few other entries including a review of the recently released update to their app.

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