Budgeting Update 1/25/2016 – Using YNAB

For me, budgeting was hard, but budgeting with YNAB is not as hard.  Since we have been using YNAB for about 2 years now, it is really easy!  My wife and I really don’t have many “heated” discussions when it comes to money as of late.  Here are a few key reasons:

  1. We set up a zero based budget in YNAB and learned to prioritize.  This helped us look towards the future instead of the past.  We did an excellent job at tracking our spending for years without any real forward progress in controlling our money.  We were just able to see where it went, but did not have a plan until we created a comprehensive Zero Based Budget.
  2. Diligence in entering all spending into YNAB in a timely fashion.
    1. Reconcile YNAB with bank account each month to make sure we did not forget to enter something.
  3. Don’t overspend the category.
  4. Spend based of YNAB category balances, not check book balance.
  5. If an expense comes up unexpectedly, deal with it.
    1. If it is going to be recurring expense, make a new category and figure out how to fund it.  This may take some creativity, but is doable even if you have to cut another category or categories.
    2. If it is a one time expense, maybe it has to come out of the buffer and then rebuild your buffer over the next few months.
  6. Review, revise and relax.

After you get a few months behind you really sticking to your new budget, it does get easier!  When a bill comes in, you are ready for it.  There is a category for it and there is money in the category to cover it.  If is the electric bill and it has been really cold, it might be a little over what you have budgeted.  That’s ok.  Make a minor adjustment to you budget categories.  I bet there is one that has a few dollars left in it at the end of the month.  Pull from that one to cover the overage.  Over time, you will figure out what the average electric bill is and then hills and valleys won’t matter as much.  The category will build in the months when you don’t use as much electricity and then you can pull from that to cover the months when you use more electricity.

So, back to the update.  We have encountered many things in the past couple of years that could have derailed our budget if we would have let it.  Instead we pulled from our vacation category to cover most of these expenses and had to flex a little in some other areas as well.  Overall, we were able to weather these situations without much of an issue.  We did fall short in our birthday category.  We overspent on a few gifts here, but we adjusted another category to cover short term and made a couple of permanent category adjustments in effort to cover over the next year.  Christmas spending for us this year had to be somewhat moderate in order to stay within our budget.  We did really good on some gifts and I fear not as good on others.  We did go over budget a bit and had to pull from another category to cover.  I mention pulling from other categories a lot.  We don’t have endless categories that have lots of money, we have a few categories that are not must spend categories.  Vacation, Fun money, Entertainment, Clothing (you have to buy clothes at some point, maybe not this month if you need the money elsewhere) and Buffer (any month that has a few extra dollars in it, those dollars go to the buffer) is where we typically pull from if we have an unexpected or go over a category for a special reason.  We know it before hand since we look at YNAB before we spend and it tends not to be big misses, just small misses.  Groceries is still a challenge to stay within budget.  We have groceries and household cleaning supplies in one category since both tend to get purchased at the same time and same place.  We budget $425 for groceries and cleaning supplies.  Some of you may think that is a lot while others may spend that per week on groceries.  Everyone has a different situation.  You have to decide what is important to you and budget accordingly.  Do you want steak and lobster tonight, or do you want to have some money to fix the car when it breaks down or needs a set of tires?

Our Budgeting Journey – 2 years using YNAB

If you wonder why we decided to get serious about budgeting, read my blog post here.

How to set up a budget

Month 1 – Signed up for a free trial with YNAB.  I figured if I only have 34 days free, I better make the most of it!  So I dug into YNAB.  My wife and I sat through YNAB webinars, read on the YNAB website, and watched YNAB training videos so we could make good use out of this budgeting tool.  I tried to make it harder than it really is.  We got a bunch of categories set up with some budget amounts assigned to them and started entering each and every expenditure.  We over did it with the number of categories and have since combined a few and have added a couple that we forgot.

Budget mistakes

Month 2 – Crud, we missed this category, that category and this other category to.  What are we going to do?  I thought there is not enough money to go around.  We were trying to cover all the “musts” while also trying to build a buffer, move to living off last months income and covering some annual bills that came due before we had a chance to save for it.  We had to slow down a little bit and cover those bills and other necessities and let the buffer and living off of next months income suffer a bit.  We made some adjustments, but we only had one data point to use, so our adjusting was not very effective.

Budget adjustments

Month 3 – Shoot, we missed this category again and that category again, but we hit this one and that one.  We still were not able to make much headway on our buffer and building up enough to live off of last months income, but we could see a little light peaking through the tunnel.

Budget discipline

Month 6 – More hits than misses and now we had enough data to start making some meaningful adjustments.  Making a bit more progress on our buffer and living off last months income, but not there yet.  I started to think that this budgeting thing might really start to pay off if we stick with it.  We got a tad lazy here and there and forgot to enter an expenditure which we found during reconciliation with the back account.  Ouch, got to remember to enter all those receipts I stuck in my walled because I was in too big of a hurry to enter them when I got out of the store.

Budgets work

Month 9 – We finally got to a place where we thought we could make the jump to living off last months income.  We just covered the “must” categories on the month we made the jump and banked my entire paycheck and started living off last months income.  This felt really good.  Got one month in the buffer, now to work on the next goal.  You likely can’t fix everything at the same time, so prioritize and work on the most important things first.  Dave Ramsey use the debt snowball method and 7 Baby Steps.  Use whatever method inspires you and go for it with dedication and enthusiasm!

Budget milestone

Month 12 – We are living off of last months income, have been able to build the buffer a tad bit more and are coming around to having to pay some of our annual bills.  I found out that if you start saving the month after you pay the bill for the next year, you are a month short when the bill comes due.  How did I miss that?  We had to pull some out of the buffer and kept it moving.  I bet the category will be fully funded next year when the bill comes due!  We are working towards a few other goals and have enough budget/spending data to really get close with our budget category amounts and spending.  Still some cringe moments, but they are not nearly as severe as they were a year ago.

Budget on autopilot

Month 18 – Buy milk and eggs, walk to the truck, enter the info into YNAB.  It has really become a habit at this point.  Do we miss entering an expense, now and then, but not too much.  We have been working hard over the last few months to build up some strategic reserves so we can pay our house off in 2015.  It will be tight, but I think we can do it.

Budget success story

Year 2 – We were able to pay the house off, but robbed from another category and so we are having to pay that category back and pray that we don’t have a big unexpected expense hit use during the next few months.  Mathematically, this may not have been the best decision, but we don’t have a house payment any more and that feels good!  We will now start working on some other long term goals with our house payment money.  I had some changes with insurance and other things at work and do not know what my bring home will be in 2016, so I am a little anxious.  I may have more money budgeted than I will make.  Luckily we are living off last months income, so we can adjust February’s budget based on January’s income.  The YNAB process does work and works well!

Living Paycheck to Paycheck

I read somewhere about what it meant to “Live Paycheck to Paycheck”  Most folks equate this with being broke and being out of money at the end of the month and can’t make it much further without their next paycheck.  The author of the article suggested that many wealthy people “Live Paycheck to Paycheck”.  Not that they are broke at the end of the month, but rather that they have given each and every dollar a job for that month and stick to it.  Next month, the same thing, they live based upon their budget.  Granted, some folks will have larger budgets than others, but if you live within your budget and maybe a little or a lot below your budget, you will see balances grow and become financially free.  We definitely live paycheck to paycheck!  I am happy to say that we are not broke at the end of the month.  We are not wealthy, rich or well-to-do, but we are saving and striving for even more financial freedom.

Why should I budget?

Why should I budget might be a question you ask yourself?  Only you can answer that question fully.  I will say that this has been a fantastic 2 year journey that has shown me how to plan for expenses, pay off our house, start saving for long term goals and has virtually eliminated buyers remorse since if the money is not in the category, don’t buy it!  Sometimes that little voice in your head says, “you have enough money in your checking account, buy it”, but how did the checking account get enough money in it, through sticking with your budget.  So, we will be using our budget long term.  I can’t see going back to where we were 2 or 3 years ago.  Are we frugal, yes.  Do we have to sacrifice in certain situations, yes.  Are we able to give more freely to Church, yes.  Are we able to eat out anytime we want, no.  Do we eat out, yes, just staying within the budget.  Try budgeting for 6 months, I mean give it your all, and I bet you keep going at the end of 6 months.  Put a solid zero based budget plan together, use any budget tracking tool you like stick to it and in 3 to 6 months, you should feel much more in control of your money.  Don’t wait to start budgeting, Be patient, it works!

Budgeting tools and information

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