I’ve never been good with money, mostly because for so long I never had any. Then I got my first IT job and my first credit card and promptly had less than nothing, despite the fact that I was making more than I ever dreamed I might just some five years earlier. These days I make almost twice as much and yet, somehow, it feels like I can never get ahead. Enter budgeting.
Some three or four years ago I was constantly anxious about my money. I kept putting money into my savings but then something unexpected came that wiped me out. I loathed every time I had to go to my savings account or ask my partner to bail me by paying bills that I was supposed to handle. I was in desperate need of a budget. So, my partner researched budgeting software and got me an application called YNAB, short for You Need a Budget. Turns out, it was much more than what I was looking for.
Most budgeting is simple; this is how much you make in a given month, this is how much you have to pay in bills, this is how much you should put into your savings, this is how you should invest. YNAB is some of that, too, but it’s also more than that. It starts with figuring out what’s most important to you in the big picture. I want to be a full-time writer someday and to make sure I won’t tear my hair out because of money, I want to have a full year’s expenses in the bank before that happens. I want to get rid of my mortgage and buy an apartment for my mom to live in so that she can have more financial security and do more fun things. And I want to travel. Any one of these alone would require a huge commitment in any budget. One of the things I like about YNAB is that it makes me make actual choices about what I want my money to do for me most right now.
After that, you “just” follow the four rules:
- Give every dollar a job Basically, every money that comes in is working toward a specific purpose. Whether it’s rent or a personal satellite, every money has a job. It also doesn’t matter as such where the moneys are located, whether it’s a bank account or inside your mattress, as long as it has a job. Although there are a thousand reasons why you shouldn’t have your money in your mattress. And you only ever budget the money you already have available. This seems like a no-brainer at first, but it took me embarrassingly long to understand. For example, one of my priorities is paying for a tattoo sleeve from the supremely talented Linda Räihä at L&R Tattoo and Art Alliance. So a portion of every budget is going toward paying for it.
- Embrace your true expenses There are some things that you have to do; you have to pay for your electricity and groceries to be able to keep going. Most likely you’re also paying for internet and whatever else. Maybe you ´don’t know how much these are going to be but you know it’s more than zero. For example, I get an electricity bill once every a quarter. That’s a long enough timeframe that I’m never entirely sure how much it will be. But I know it’s going to be more than a certain amount. So I budget enough every month that by the end of the quarter I have at least that much on my account, ready to go.
- Roll with the punches Sometimes, a high priority bill comes and it’s more than what you’ve budgeted for and you just have to deal with it. I’ve been stuck in this place for a long, long time. I get paid on the 25th of each month, so by the time I get paid, the money is more or less already gone, especially since a lot of my bigger bills also fall due on the 25th. Look how that happened. More on that in a bit. But the beautiful thing about YNAB is that there should always be lower priority categories. And if not,
it might be time to see if there’s a way to cut back.
- Age your money This is the thing that I’m working on right now. Like I said, by the time I get paid, most of the money is already gone. YNAB assumes a first in – first out mentality about the moneys in your budget. The age of your money is the time it takes from when money enters the budget to when it’s used to pay for something in the budget. The age of my money right now is 20 days, which is a little terrifying, considering that I get paid every 30 days. I’m planning to run lean for the first quarter, only paying the absolute necessities, which means that I’ve stopped my subscriptions for a whole heap of services. No more HBO until April. I’ll miss John Oliver terribly. Anyway. The idea is, that by the end of March, my money will be a lot closer to 60 days old, from where I can then get back to my regularly scheduled saving goals with some reasonable spending included.
Those are the basics and the rest is essentially implementation. I’m really excited about this system right now, because Jesse Mecham – the guy who built the system – just came out with the YNAB book and the system finally clicked home for me. I realized that if I did a lean January and more or less drained my savings account, I could get a full month ahead in my expenses. My January pay will actually be funding all of my February expenses as well as part of March expenses, which means that by the end of March, I should be able to start funding May expenses. Doing that made me feel like a weight had been lifted, even if I am fairly secure in general. It feels like I’m making actual headway in my long-term goals and dreams, which is basically turning me into a new convert preaching the good word of YNAB to all who will hear it.
The YNAB software is available as a cloud-based software, but the system is the thing and if you like or don’t have the $45 to put in an annual subscription, you can totally do the thing in Excel. That’s how Mecham started out. They have a great Youtube library full of free resources, but I still recommend at least getting the book, which is a surprisingly fun read and explains the system in great detail. Mecham is such a nerd that it’s also a really enjoyable read. I am especially fond of this book because as previously mentioned, it made the whole system really click for me and it completely changed the way I look at my money. I honestly never thought I would be excited about budgeting.
So. What is it you want your money to do for you?
PS. Just in case you, dear reader, should feel like it, here’s my referral link for the cloud-based YNAB. With a referral, we both get a free month of YNAB. It’s a win-win situation in my book!