Budgeting in YNAB: Setting Spending Limits or Ensuring Availability?

Should one limit variable categories (only budgeting what they want to spend for the month) or grow variable categories (not worrying about limits)?

Do you think people can have big balances in each category and be frugal in spending or do we need limited amounts available? 

Should your budget be to help you spend less (with spending limits) or is it only there to plan and ensure availability?

What's your experience?

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  • It's a very personal decision. For some, they are coming to YNAB with a lot of debt and they are trying to figure out the path forward to pay down the debt while planning for the future. For others, they may be in new financial partnership with a significant other and so need a transparent way to talk and plan for wants and needs. You have to know a) what you are trying to accomplish with YNAB and b) if you are the type who will spend every penny in a category rather than letting it accumulate and c) if your spending is out of line with you income (like yeah, $500/mo for 1 person on take out is probably high, but if that's only 2% of your net monthly income and you are meeting all of your financial obligations, maxing out retirement, and saving for all your true expenses, it's probably not really a budget issue, though it may be a problem for your cholesterol depending on what kind of take out you're getting).

    In my personal situation, frugality is not my goal; mindfulness is - ie, I'm not trying to reduce my expenses because I have always lived well within my means, I'm just trying to spend it on things that will actually make me happy rather than just give me a quick hit of dopamine. I like having big fat balances in my categories. But I'm also never tempted to take from a long term category like Income Replacement to cover some immediate want, or even need. If I were short in the car maintenance category for example, I'd take from something fun, like vacation. But I have been willing to take from Income Replacement for a more long term category: I bought an investment property and needed a few thousand to top off the down payment. And replenished my Income Replacement as quickly as possible (I think it took about 4 months to get it back where it was).

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  • Maroon Keyboard  I agree it depends on your financial goals and situation.  For me, I'm paying down debt, shifting to allocating enough for true expenses and saving an income replacement fund, so that means every dollar really matters.   I've come off a period of low / variable income and am in a contract role for a few months with a significantly higher income.  

    NB: I'm yet to move to a month ahead or monthly budgeting as I like the control of allocating each pay cheque based on how much I can pay off and some extra costs I'm covering (eg. last month I bought new glasses, this month I had the dog's teeth cleaned) 

    I've set myself a small fortnightly  'allowance' in terms of takeaway and fun money, as well as a small clothing allowance, so not going all scorched earth.  I have also set an amount for groceries and car share, although the spending varies each fortnight.  When money was really tight, I just spent what I needed, so there was never anything left or even enough without transferring from another category. 

    Now I can get to the end of the fortnight and have not spent everything in these variable categories - as such I reduce the allocation next fortnight.  In this case, it is because I'm using these category totals as a way to monitor and manage my spending, especially on takeaway and fun money.   

    However, I have a category for prescriptions which I'm starting to make an average allocation into each fortnight.  The purchase dates vary as does the exact amount even though it is vaguely fixed.  So I'm letting this build up.  

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  • My goal, with my budget, is to make sure I am overall living within my means and saving up for true expenses. This is a bit less true currently than it was before my husband was diagnosed with cancer, because I'm willing to dip into savings to make sure he's comfortable (priorities!). But in general, I think of a budget as a way to make sure I have money available for things I need while living within my means.

    That said... I've tried, pre-YNAB, using category allocations as a way to limit spending. It never worked. With YNAB, I'm using categories as guideposts. The aim is to spend $100 or less on groceries per week, but if we end up with a month where we had lots of stocking up or just were a little bit more expensive, that's fine. I just have to make sure we cover it from somewhere else in the budget. Similar thing with dining out, except I'm being a lot more realistic about the amount than I was previously. Even when I go over in categories, it's a lot closer to my target amount than it used to be - because I know it means I'm taking money from something else, in a very visible way. 

    For me, it depends on what the category is, whether having a large pile makes me more likely to spend it. I think, in general, having the money saved up means I'm more likely to give in to impulse purchases, but within a limit. Whereas previously, of just give in to impulse purchases, without making sure it balanced with the rest of my budget.

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  • Maroon Keyboard said:
    Should your budget be to help you spend less (with spending limits) or is it only there to plan and ensure availability?

     My answer is both. 

    That is the beauty of YNAB. I have some categories that have a future dated balance goal like paying for a specific thing. I have spending goals for things like Christmas, to ensure that I have the money set aside for gifts etc. but that I don't spend more than I planned. I have set up recurring transactions for monthly recurring expenses. I have monthly savings goals for things that I have no particular known expense amount for but know that its coming (eg. clothes).  

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  • Really appreciate this topic. I think through this philosophical question often when I’m examining my budget categories. 

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