YNAB is my preferred budget method. I’ve talked about it plenty of times, and I hope some of you have checked it out. I’ve been using YNAB since it was an Excel spreadsheet. Now that it’s a full application, with a mobile app to go along with it, I love it even more.
But it’s not about the program. It’s about the method.
YNAB has four rules that you are supposed to live by.
1. Give Every Dollar a Job
2. Save for a Rainy Day
3. Roll with the Punches
4. Live on Last Month’s Income
A lot of people can get on board with the first three rules, but that fourth rule is what turns them off. So while I will talk about all four rules, this week, I’m going to focus on the one that sends people away.
How can I live on last month’s income? I already SPENT last month’s income!
This is true. And if you’re living paycheck to paycheck, the idea of saving a full month’s worth of income seems impossible. But if you follow the first three rules, you’ll get there. YNAB says that it takes the average user 4 months of faithfully following the plan to save up a months’ worth of income. It took me longer than that. But it’s been so worth it.
What are the benefits of living on last month’s income? Well, you know what you have available to budget at the beginning of the month. If you have a steady paycheck, you can estimate this, but if your paychecks vary based on your hours or if you have additional freelance income, it might be tough to predict what you’ll have coming in that month.
Another benefit is that not only do you have the money to budget, but it’s already in your bank account. On October 1, you should have money in your account to pay all the bills that are coming due in October. You won’t have to wait for a paycheck to clear to pay the power bill. Sounds glorious, doesn’t it?
For me, another benefit has been the ease of which I can handle surprise expenses. I do have an emergency fund, but let’s say that this month, I discover some weird bugs in one of my trees. I call the tree guys and they tell me they can spray for $200. Well, I hadn’t budgeted $200 for bug elimination. But if I can’t move funds around, what I can do is overspend this month. It’s not how the plan is supposed to work, but overspending just means that I will have $200 less to work with next month. I can then tighten my budget next month and have the bill paid without ever touching the emergency fund.
I know, it’s a lot of work to get there. And you don’t need to save up a full month’s income – the goal is to get to the point where you can save up a full month’s expenses. It takes baby steps, but it’s worth it.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.