Over-estimating Goals vs. Inflow
I need help!
We are trying hard to work with a budget and set our goals and stick to it. We've done pretty well over the last 3 months but we're running into an issue with aligning our goals so we're not overbudgeting.
Here are the numbers / month:
Immediate Obligations: $5,340
Credit Card (only 2 linked accounts): $326
True Expenses: $1,360
Total in goals / month: $7,534
How do you suggest this be balanced some? We anticipate that by the end of February we will eliminate 2 credit cards (eliminating the $326 from the goals) but I was hoping to roll that over into other debt, but I'm at a loss of how to even this out.
Any insight from the YNAB is greatly appreciated. We are DETERMINED to get over this wall.
No one can answer this for you, as your priorities are your own. Some people think a daily $7 latte is worth it. Others balk at a $85 annual fee (equivalent to $7 per month) for some things.
I will say, it's probably important to have a little fun or else you'll come to resent the budget and stop using it. Doesn't have to be expensive, but you need something. Personally, $400 a month for gifts seems excessive, but that's my values coming out.
It's also true that startup is the hardest. You're paying for the past (debt and catchup-contributions toward true expenses), present (immediately obligations) and future(part of the True Expense contributions). Sometimes you just have to wait on some things until those True Expenses are caught up. For example, a $1200 annual expense due 3 months after starting requires $400/mo in the short term, but then reduce to $100/mo after you've paid it. That $300 extra is the "catch-up" portion.
You may also not be able to pay down debt as aggressively. Yes, that has ramifications in interest, but that's just the price of kicking the can down the road.
Lastly, I think almost EVERYONE winds up reducing expenses to some degree or another once they are confronted with the reality of their situation. We switched that $200 cable bill to an $8 Netflix plan. Additional income is the other way to "get over the hump" (garage sales, temp jobs, dog/kid/house sitting, etc.)
Best of luck!
Can you lower or remove any of the bills in immediate obligations? Cancel cable, get cheaper cell phone plans, call to negotiate a better deal on your internet bill, turn down your thermostat, cancel unnecessary subscriptions? Your immediate obligations is what is killing you here.
Also you might try to get lower costs insurance or any other items in the true expenses categories as well.
All of this is said with kindness (forums are always difficult to gauge tonally)... Even with that credit card debt gone in February, your current reality is that you're budgeting more than you bring in - that's not sustainable, for anyone.
What YNAB wants us to do is to prioritize our needs/wants to align with our financial reality.
If your credit card payments aren't already at the minimum (not sure what your amount above reflects), then reduce those to the minimums until you can get other spending down while budgeting for your true expenses. You'll incur more interest by paying the minimums for now, but if you're adding more debt to those cards every month to cover your overspending, then you're not actually making any progress.
I second what PhysicsGal suggests. Take a look at all your obligations, expenses and "extras" and determine which of those can be reduced, renegotiated, or completely eliminated. I guarantee there is at least one thing that you can live without - we all have one of those "things" that we think is a need but really isn't. :) The belt-tightening doesn't necessarily have to be permanent either - maybe 3 months, 6 months, a year... whatever length is necessary to get you back in the black.
If you really can't find any categories to cut back, the only other option is to bring in additional income to cover the difference. Otherwise, you'll continue to be over-budget and increase your credit card debt.
Ask yourself where you want to be in 3 months, 6 months, a year? What are you goals for long term - 5 years, 10 years, 20? Does whatever you're spending your hard earned income on now bring you closer to those goals? If not, how can you change your spending, or your goals? Figuring out your answers is how you fine tune your budget, and it will take time to figure some of this out, so be gentle with yourself.
Good luck, and keep budgeting. It does get easier and the clarity you'll get by being honest with yourself about your finances is enormous.
I think when looking at your numbers most people will see that your gifts and immediate jump out. But your values are yours as another person said. Maybe you’re giving 10 percent to your church each month and that’s non-Negotiable. However, you’re asking for help and the answer is simple. To get out of the hole your inflow has to be greater than your outflow. There’s only two ways to do this. Increase your inflow (new job, side hustles) or decrease your outflow. I helped a friend recently on his budget and when we first started none of his immediate obligations were negotiable. So I said let’s start small. If you need to cut 300 hundred to break even maybe start with cutting 100. For him, he realized this Uber expense was high because he was always late to work. So he made a resolution to go to bed on time. Waking up early meant that he could take the bus or ride his bike. Once he got use to it, it stuck and he was able to easily reduce his Uber habit by $200/month. Also, are you paying high interest on your credit cards, if so try balance transferring or calling your bank to see if they will lower the interest.