My Budget is More Than I Make
I'm new to YNAB (~1 month), but I've used Mint for about 5 years, so I have my spending averages per category over the past 5 years, which I've used to make a budget in YNAB and make cuts based on any changes in my life situation. I feel like I make enough money, and my budget feels slim and efficient already, like I've made the cuts suggested in the "Overspending" YNAB course. However, my budget per month is ~$600 more than I make (but because of my savings I haven't gone into debt, yet). Now I feel like I have to choose between paying less down on my student loans or selling my car because I can't afford $388/mo for (basic) auto insurance (and yes, I've shopped around, it's a long story). I know at some point you need to adjust to the reality of your income, but I feel like I've hit a wall. I want to keep my (relatively modest) lifestyle, while also keeping my car and paying down my student loans in a timely manner ($20,000 over three years).
Anyone else experienced this wall of "how do I cut more" or "how do I choose between top priorities?" What did you do? Any tips?
Do you need a car? If you do, would you be able to replace it with something that will cost you less? Just selling the car may not cut it.
Sometimes you just don't have room to pay off your debts as fast as you'd like.
We'd be happy to make suggestions but that would require more detail about your spending habits. Sometimes people see a want as a need and it takes discussing it with others to get over the hump. You may have some wants that you just aren't seeing as wants, but as I said, we can't help you without seeing how you are spending your money.
Can you slow down your student loan repayment temporarily while you get caught up on budgeting for True Expenses? I got mine changed to a graduated extended payment plan, and I pay off extra to the one with the highest interest rate each month. I pay about what I was before the switch in plans, but because the required payment is lower, I can use that if something unexpected happens (like car repairs or health needs).
Are you paid weekly, every two weeks, or monthly? Is there any irregular income not yet accounted for?
I joined YNAB 3 months ago. I had a similar situation. I'd been budgeting for decades. Of course, not in YNAB terms, but that's a longer story, you'll get the new terms as you stick around. I knew what I wanted my categories to be, I knew how much was spent in each one category per paycheck (I'm paid every two weeks), and when I entered it all, it was much more than my income. I was surprised. How could it be? I double checked the numbers. Of course, one spot of frustration is YNAB working only a month basis and my pay comes every two weeks. The true blue YNABer response will be once you're a full month ahead, that will not be an issue, but is it ever an issue when your trying to get a month ahead. Here are the steps I took once I realized the issue:
1. Stepped back for a bit. It's a lot to take in. I joined about 10 classes for YNAB, watched other videos, etc, but didn't look at the numbers for a little while.
2. Decided some of my spending wasn't worth it. That's tough. I had to let go of some future goals, some near term goals, etc. Reduced groceries, cut out eating out for now, etc.
3. Started paying bills on time, and not early. This gave me a little breathing room. I was paying electric the day the e-statement hit. Now I pay when it's due. Sure, it's only a one time event, but it helped build up my buffer.
3. I think this last one hurt the worst, but I greatly reduced what I give at church for a couple of months. I'm back to where I was before, but after going over all my other expenses, this was the only way I could build up some buffer.
Also, have you assigned categories for your savings? Maybe some of it needs to have active jobs, like 9/12 of an annual bill due in 3 months, so that you can budget just the monthly amount going forward.
Do you have any bills like cable, internet, or cell phone that you my be able to get a better deal on?
Are you short because you are paid weekly or biweekly, and the 4 or 2 paychecks you get in a normal month are less than your average monthly salary? If you depend on your extra paychecks to keep you going, you may want to store the next one in a "Deferred income" category and release a portion of it into you budget each month.
However, if everything is trimmed as much as you are able or willing to trim, and you are still 600 short every month, then maybe you are not really earning enough for how you need or want to live.
Please make sure your student loan company is really using the extra payments to pay down the principle of the loan. I've seen this many times with different student loan servicing companies. They accept the extra payment sure, but they hold onto it in some place that doesn't apply to the principle until the normal payment would have. I think it's almost criminal, but that's just me. You can see this by examining the principle amount on your statements, or by asking them directly, or by other little tip off when your statement says 'paid ahead until some date months away'. Here's more reading if you want: https://studentloanhero.com/featured/extra-student-loan-payments-applied-correctly-maximizing-savings-on-interest/
Is your financial situation likely to change before your savings are exhausted? If not, then you really need to make a change, otherwise you're simply going to replace old debt with new debt, perhaps with higher interest.
$600 feels like quite a shortfall, but what is this a percentage of your overall net income? You didn't say this explicitly but it also sounds like you're trying to pay down your student loans very quickly - I'm taking a wild guess here at your payments, but $20,000 over 3 years would be $556 with no interest, so at 8% that's another $130 or so. At a wild guess, your loans are ~$700 a month? So your insurance + loans is over $1000 a month easily. If your student loan interest is much lower, it might be wise to make smaller payments and increase them when you can afford it.
Without knowing what the rest of your budget looks like: rent/mortgage, groceries, utilities etc. it's hard to give advice where to cut, but as someone else already mentioned, take a good look at your student loan terms because if you're eating away at savings, it might be worth paying down a large chunk and having to deal with lower interest payments to help chip away at your monthly deficit.
The car insurance is extremely high - can you move to someone else's insurance (parents) and get a better deal?
If the $600/month is coming from savings, that suggests that you haven't always had a shortfall and that you do have some money set aside. So what changed? Did your costs go up? Your income come down? Or is it a matter of setting your financial goals a little too aggressively?
It took a few months of using YNAB before I realized that I could NOT pay down my debt as quickly as I had somehow imagined I could. And I had to revise those aggressive monthly amounts to more realistic levels. And after I eliminated the debt, my budget also made me realize that I couldn't invest for retirement as aggressively as I imagined I might either, not and still have some reasonable quality of life.
Finding the right balance is challenging for most people.
Typically there is a catch-up phase where True Expenses require larger than nominal contributions (e.g., the nominal contribution for an annual expense is 1/12 of the amount). Since there's a ceiling on monthly income moving forward, you either have to delay lower priority things or use money you started YNAB with to cover the contributions you "missed" because you weren't planning for it (i.e., using YNAB).
That's the magic of a zero-sum budget -- the money's gotta come from somewhere, and you quickly develop a sense of priority among the things that are competing for your limited number of dollars each month.
Realistically, the only thing you can do is try to ensure the high priority things get money. (Or get more money... that never hurts!)
When I started YNAB I was 29, and my goal was to pay off my credit card debt by the time I turned 30. So I totally get the excitement around wanting to do that!
HOWEVER. That was AGGRESSIVE. I only had 7 months to do that, and unfortunately I was paying off my debt so fast and so aggressively that I wasn't putting anything away for future expenses. And what do you know, 2 times before I turned 30 I acquired more debt because life happens and I didn't have any plans for those expenses. These incidents taught me the principle of saving for future expenses. So even though I am turning 31 in May, and it will be a whole year after my original goal....
- I have money in future expense categories,
- I've been able to cover emergency situations,
- my spending is under control,
- I haven't acquired any more debt since those 2 times last year,
- AND my credit card debt will be gone before my birthday.
In my "hindsight is 20/20" opinion - that's a much better win!
I’m not sure what you mean by paying bills on time instead of early, but all my bills come out of my checking account automatically.
It just gave me a little breathing room to pay by the due date, say the 21st, instead of the bill date, the 2nd. Since I was budgeting before and had balances in categories preYNAB, this allowed me to take money out of those categories and give it another job. It's a one time use trick.
That insurance is a heavy burden on your income. I have the same income and my insurance is 1/5th what you pay. Do you have a sense from your insurance agent/broker just how long will you need to pay at this current rate (without an incident or claim) before you will begin to see a reduction in rates?
It can take a while to feel like you've got the winning formula for your life, but you'll figure it out. Course corrections are a necessary part of it, and it may mean that your timeline is affected. It's hard to argue with math. Don't be discouraged. Keep chipping away at getting it to fit.
I have successfully used YNAB to bridge the gap between what I wanted to do or thought I could do and what I really could do realistically. A big step for me was learning to plan for all those irregular expenses like Christmas and unavoidable expenses like brake repair and emergency dental work, and learning to leave that money sit untouched until I needed it. Once I figured that out, I stopped going backward and my progress forward became exponential.
Yikes! Yes, somehow get out of that insurance payment. I know the car is meaningful to you, but if you have to wait 3 years, and it's ALREADY 19 years old (didn't you say it was a 2000?) you'll be better off just saying a tearful farewell, and sitting tight for 3 years until insurance won't be so high. Then in the meantime, you'll be able to save up to buy a cheap, reliable car, and you won't be so squeezed by that ridiculous amount of auto insurance.
You're on the right track, but you need some breathing room. Maybe once your insurance issue is figured out, you'll be able to put more against your student loans, but until then, you might be better off just paying minimums.
Thank you all for your helpful suggestions. As life has it, the decision was made for me. My car started dying in traffic and needed some repairs, so I decided to retire it. I got $300 for the car which went straight into the purchase of a bike. I paid another $200 to get the bike and supplies all set up to transition myself into a cycling commuter! Funds that were allocated to the car will free up room in my budget for bike and transit costs. It will be clearer by the end of May, but it looks like I should be able to set my budget to match my income and keep paying down my student loans at my optimistic rate of $550/mo.
I've been using YNAB for 3 months. It's been a catchup process. I ended up having to use a lot of the money I'd earmarked for sinking funds to help get ahead enough to the point where I might be able to get buffered in a year or so. Otherwise, I would have had to stop saving at all in a lot of sinking funds as my monthly goals were much larger than our income. I also sank every last bit of money that came my way, including presents and stuff that normally would have been considered my fun money. However, every month I am paying more and more annual or bi-annual expenses that I've only had a few months to save for. This month I've saved enough to renew my Costco membership. Next year it'll only be $10 a month for that category instead of $30 I've been having to save. Next month I'll have paid for camps for the year, I will need to save around $90 a month going forward for 2020 instead of over $300 per month. So my monthly goals will go down some, which is good, because I'm not funding my true expenses the way I want to. Saving $10 towards a new HVAC system is going to get me precisely nowhere anytime soon....
That said, it's likely you'll experience some of the same things and hopefully your monthly expenses will go down as you're able to annualize all of your annual or long term goals like birthdays, holidays, etc. Even more so now that your car has gone caput.