At work, we are currently in the final month of the fiscal year, so we are doing a number of budget recaps and looking at our goals for the upcoming year. After a day of looking at my work budget, I thought it was high time I took a serious look at my personal budget as we near the final quarter of the calendar year.
Rule 4 – Last Month’s Income
I have talked here a lot about how much I love You Need a Budget, also known as YNAB. In addition to being a great app/website, it’s also a great plan for how to manage your budget. They have four major rules, and the fourth and final rule is to Age Your Money, meaning that you essentially live on last month’s income. You aren’t waiting for your paychecks to come in so that you can pay your bills, because you’ve budgeted such that you’re using the money you earned last month to pay your bills this month!
One key thing about this rule is that you don’t need to save up a full month’s worth of income to do this, just a full month’s worth of expenses. It’s a key difference.
I made it to rule 4!
Earlier this year, I made it to rule 4! Okay, I kind of cheated by using the funds from a three paycheck month to get myself to rule 4, but I was there. Happily living off of last month’s income. It made budgeting so easy. I knew what I had available to spend and I didn’t have to worry about when my paychecks were going to get deposited.
I’m hearing some past tense there
Yes, you noticed that word “was.” I am no longer at Rule 4. I’m not quite to the point where I have to wait for my paychecks to deposit before I am paying my bills, but I don’t make it through a full month on last month’s income.
So what happened?
A myriad of things. Some of it was just unplanned expenses I had some unexpected dental work and needed some work on my air conditioning.
But I can’t blame unplanned expenses for all of it. Over the past two months, I’ve also spent quite a bit on vacation expenses and dining out. Admittedly, much of the vacation expenses are for trips in the future (plane tickets for upcoming trips and a hotel room that I had to pre-pay), so it’s not like I’ve just been gallivanting around the country the past two months. I need to be better about putting aside money for vacations every month so this kind of budget issue doesn’t happen.
I’ve also spent quite a bit of money on dining out. That’s definitely an area where I need to cut back. Some of it has been going out with friends – which is definitely a worthwhile expense for me. But some of it has been me being too lazy or too busy to cook a meal. Some of it has been failing to meal prep properly and ending up without anything to bring for lunch. This is something I definitely have to stop. If I’m spending money on eating out with friends, I can’t be spending money just grabbing lunch solo.
Wait, couldn’t you use your emergency fund for some of that?
I could absolutely argue that both the dental work and the air conditioner repairs qualified as emergency expenses. But my emergency fund has taken a hit this year and rather than pull from my emergency fund and work to build it back up, I’d rather just pay from my everyday funds and work towards Rule 4.
Why? Because I know myself. I’m much better about prioritizing something like Rule 4 than setting money aside for my emergency fund. I know, as a personal finance writer I should be better about keeping a stocked emergency fund, but I have learned over the years that it’s harder for me to prioritize. So I use other tricks to make sure my money is where it should be.
Do you have budget tricks you use?
Do you have any mind tricks you play on yourself to keep your budget where you want it?
Megan is a 40-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.