It is working but I still don't clearly understand it.
I used YNAB a few years ago and gave up. I started again this past February. I have seen huge changes, have saved money that has gotten us out of jams, paid some really important priority things that we had been putting off, and overall we have more money every paycheck, don't get hit hard with small emergencies or unexpected expenses. I am fortunate to be an "essential worker" so haven't been affected much by the pandemic. I've said all of this to say that I still don't get how everything fits together. Part of the problem is that YNAB is set up for monthly pay, and I get paid every two weeks, so it is confusing to me looking at the numbers in the budgeted and available columns. I struggle to grasp the concept of where the money resides in YNAB and how to keep it there. I have also tried to explain it to my wife. She doesn't like YNAB. She still uses her spreadsheet to track expenses, but she also sees that things have dramatically changed since I started using it. I have just started going back to the tutorials, but can't seem to shake the feeling that there is MAGIC that I can't see that makes it work.
The magic, as you say, is in YNAB's rules. YNAB's docs have good write-ups on them, but here's my short-version take.
Give every dollar a job. The same money money can't be committed to different things at the same time. It can only have one purpose at a time. This gives you a better idea of the reality of how far your money can go.
Save regularly for all your non-monthly expenses so they don't surprise you when the bill hits. Rather, the money is already there when it comes time to spend it.
When things don't go according to plan, change your plan. When you spend more than you had planned, the money's gotta come from somewhere and you can't rely on future income to make it up, because that's the recipe that creates debt.
Tracking expenses is meaningless without having a plan. I tracked expenses from 1998 to 2014 before I started using YNAB. Tracking expenses didn't benefit me in any way. At that ime our budget was simply.... don't put more than $XXX on the credit card every month, and in that regard we weren't getting ahead and had very little savings or retirement funds.
As I mentioned in my previous post, it was the YNAB Rules that changed all that. The software is great, but it's simply a platform for carrying out the Rules. It's based on the envelope budget paradigm, but instead of having all your money as physical cash in envelopes, it's virtual you can use real accounts.
Scott Elrod Welcome to the forum!
Scott Elrod said:
I get paid every two weeks, so it is confusing to me looking at the numbers in the budgeted and available columns.
Some people list their obligations in order of payment due and include in the item description when the payment is due. This helps you to see paycheck 1 needs to fund the mortgage, tv, and food. Paycheck 2 funds cell phones, insurance, and more food.
You could use goals to help with this as they will turn green when you have reached the goal, they will stay orange if you are underfunded. This is helpful if you need to split an expense across two paychecks.
Money resides where you budget it. If you have $1000 in your mortgage category that money stays there until you move it, either by paying the mortgage or by moving it to another category.
Scott Elrod said:
Part of the problem is that YNAB is set up for monthly pay, and I get paid every two weeks, so it is confusing to me looking at the numbers in the budgeted and available columns.
YNAB is not set up for monthly pay, it is set up for monthly budgeting. Big difference. It works with any pay schedule.
Are you following rule one and budgeting until To Be Budgeted is $0? It should not be negative and if it is, you need to fix it. Every time you get paid, you budget TBB down to $0. No more, no less. You do this based on your upcoming obligations and true expenses. Rinse and repeat with each paycheck.
Every time you are paid, allocate those dollars to whatever category needs money in the current month's area. Most needy would be things this month in order of outflow date. After that would be True Expense contributions you haven't made in this month. If nothing needs more money in this month's area, flip to next month and budget things there.
The best way to operate with a biweekly income schedule is to get to the point where you can push all your income into next month's area. That means you don't need either of your checks in the current month, so just stash them in a holding category until the end of the month. At that point, release the month-sized chunk back to TBB, flip over to next month, and budget the entire month at once. Ideally, this only takes a few clicks via goals and scheduled transactions.
The only problem is not everyone has enough money to cover expenses between the first paycheck and the end of the month (allowing the checks to be budgeted in next month's area). In such cases, you can budget increasingly ahead (in next month's area) and you'll get there.
I had trouble budgeting with two paychecks when I first started too. I know YNAB doesn't talk much about the "buffer" anymore but that saved my budgeting life! Basically, the goal is to save enough in the buffer to cover one months expenses. Then, you use that money to fund your budget for the next month rather than the current paycheck. I know the current age of money is supposed to do this but I haven't adapted. I put both paychecks in "income for next month" category and then put that money in "to be budgeted" at the beginning of the month. It takes a while to save that fund but after that, I had so much freedom. I hope that helps
I know I'm late but I think the magic you talk about is simply awareness. With YNAB you clearly put the money you currently have towards your obligations or priorities. So you become absolutely aware of how much you can spend on what. Need to spend money on a big-ticket item? YNAB will make it clear to you how much you can put towards it, where you can reduce other expenses (and by how much), it makes it easy for you to follow that plan (as long as life doesn't change), and finally, it makes it obvious when you will be able to pay this big-ticket item (if things keep their course).
So suddenly, you know what you need to do (or not do/buy) to get what you want. And you feel free to spend on big-ticket items once you know you have saved for them. Finally, that picture is updated "in real time" as long as you enter transactions.
Others have explained it already, but I'll toss my two cents in here. Sometimes hearing it from different people in a different way can help.
My BF gets paid every 2 weeks (I frankly do not like this type of pay schedule... but you don't get a choice in the matter).
I have his pay days marked on the calendar, along with the major bills so I can look ahead and see what will be due during that pay period.
Second piece is that I have each of the bills listed out with their due date, and half of what I need to budget for the total bill (sometimes I write the full amount and half just so I don't have to do the math).
So a few examples look like this:
Care Credit 5th/$82.70
Utilities - $65
There's a few different styles of notes in this list, but each one is enough to job my memory to know what needs to be funded when and how.
The mortgage is on the first, so I don't need the due date for that. That's the full amount of the bill, plus half of the bill - I set aside half of the mortgage out of each pay check so that I know it will be covered by the 1st of the next month. We are actually a month ahead, thanks to the "3 pay check months" a few years back, so that category currently has $1692 already in it, and I will add the first $846 on Friday when he gets paid, and then the next $846 in two weeks - so that category will be double funded by the first of June. Then it drops again, and I add back to it.
The Care Credit is interest free debt - so I know that I need to put aside $82.70 by the 5th of the month. Most months I set aside $40 out of the first pay check, and then $42.70 out of the next. I don't bother to break that down because the math is simple enough.
Discover is the same, I know that I want $70 in there by the 24th, and most months I break that down to split up the stress on the pay check.
Finally - once you've got some longevity in YNAB (or you have a past history of tracking that you can grab and do some math with - i.e. your wife's spreadsheet if it includes this info) you can start to look at trends and averages. So I know in order to stay ahead of the power bill I need to put $65 per pay check into that category. Then when winter rolls around and the bill skyrockets as we pay for our gas heat in our leaky house, I know I'm covered. Never once this winter did I struggle to fund that category. It was SO much easier.
Likewise, I have done this with our gas categories, too. There's always enough money in those categories now to cover our gas for the month, and sometimes there's leftover. Depending on what the category is, I'll leave the leftover and keep funding, or sometimes I take it out and shuffle it around to something else where it might be needed more (doing more of that now since we are using less gas at the moment).
The ability to look at average spending dramatically changed how I was budgeting, AND how much I needed to 'whack-a-mole' to keep things covered every month. Prior to shifting my thought process around this I was having to move money, and categories were getting over spent a LOT. That is not the case now, and it feels really good to be able to easily manage it. It's taken years, but we are both in the best position we've ever been in, despite his hours getting cut back due to the pandemic. I'm actually paying extra on my car payment due to getting the stimulus money.
Feel free to message me if you want any other ideas on how to work with a 2 week pay check. I manage his budget that way, and my budget separately, and I get paid on the 1st and the 15th (which I GREATLY prefer!), along with my small business budget, which is much more unpredictable. :)