Budgeting might as well be a 4-letter word, with the amount of love it gets. What could be more fun than sitting down every month and guilting yourself to not spend any money? That sounds like a blast! What if I told you that I actually like budgeting? No, I’m not crazy (well, not any more than normal), I just found a system that actually works and is *gasp* kind of fun!
Let me introduce you to YNAB (aka, You Need a Budget) and their zero-sum budgeting system.
YNAB is a company that doesn’t just want to help you budget, they want to help you learn to manage your money better so that it’s working for you. They have a whole method they’ve developed to help you achieve freedom from money stress. They explain it in 4 Rules:
Rule 1: Give every dollar a job
Rule 2: Embrace your true expenses
Rule 3: Roll with the punches
Rule 4: Age your money
Today, I just want to focus on Rule 1: Give every dollar a job, Rule 2: Embrace your true expenses and Rule 4: Age your money.
At the end of the month do you ever wonder what happened to your money? Does it feel like it just kind of flitters away? That’s because you didn’t assign it a job!
You worked hard for your money, now let it work for you.
To get set up in YNAB, go to youneedabudget.com and create an account, then start adding your financial accounts.
After you create your account, your budget page will look like this:
Click on the “add account” button in the left column to add each of your financial accounts. Add your checking accounts, savings accounts, and credit cards. I don’t worry about adding my mortgage, loan, or retirement accounts, I find it easier to just budget for them as line items.
After you’ve added your accounts, all the cash you have on-hand will show up top in the green “to be budgeted” box.
Rule 1: Give Every Dollar a Job
Your goal in giving every dollar a job is to assign all the money listed in “to be budgeted” to various categories so that it ends up at zero. That’s why it’s called zero-sum budgeting. No more spending willy-nilly and saying you’ll save what’s leftover at the end of the month (hint: there’s never any leftover!)
First, you’re going to assign money to all your vital expenses. These are all the items listed under the “immediate obligations” group heading. They include things like your monthly bills, groceries, and transportation. Rename or add categories as you need, but these should be your unchanging expenses.
Did you have enough money to cover everything? If so, great! If not, head over to The Busy Budgeter, she has a great article about what to do if you can’t pay your bills.
Rule 2: Embrace Your True Expenses
Next set aside money for recurring bills and those variable expenses that seem to pop up. This is Rule 2: Embrace Your True Expenses. These are the items under “true expenses” group. They include things like insurance, medical expenses, car and home maintenance, gifts, and clothes.
You know, those things that catch you off guard when they come up and leave you scrambling for money. Well, no more! You know they’re going to come up, so plan for them! Rename or add categories as you need. It’s okay if you don’t know how much to allocate to each category. You can either look back at past bank statements to guesstimate or make an educated guess and adjust as needed.
Next is the ‘debt payments” category. This is where you include student loans, car loans, etc. Don’t include credit card debt. As you added your credit card accounts, they will show up under a “credit card” group heading.
Ok, now that we’ve taken care of all your boring, necessary expenses, hopefully, you still have some money to have fun with! The next two categories are “quality of life goals” and “just for fun”. I set aside money for vacation every month and give my husband and I each fun money allowances to spend as we please.
Rule 4: Age Your Money
If you still have money left over, that’s awesome! Click the right arrow next to the month and start budgeting for next month! Your goal is to get 1 month ahead of your budget, then work your way up to 6 months ahead. That’s Rule number 4: Age Your Money
You can also opt to put more money towards any debts you may have instead of budgeting ahead. Eliminating debt and building up your savings are both good goals to be working towards. You have to decide which one is more important to you.
You can pause on saving and put all your excess to debt repayment. You can pay your debt minimums and work on building up some savings. Or you can split the difference and save some and pay some to debt. You decide what feels right for your situation.
And that is how you give every dollar a job. You assign it a category and put it to work. Then embrace your true expenses- budget for those recurring expenses that might not come every month. You can set money aside so that you’re ready for them when they’re due. And age your money- work on building up one month’s savings and keep growing from there.
No more letting your money flitter away every month, let your spending be intentional. This isn’t about restriction, it’s about letting your money work for you.
If you want more guidance in setting up YNAB, they do free live classes online on all sorts of topics and features. Check out their class listing here!