Which path should I be taking?
I have a $1k EF and then a very small start towards a house down payment but have been wondering if that's the best approach.
Which budgeting path should I be doing:
- Keep those and work towards getting a month ahead.
- Use those funds to get a month ahead where everything on February is funded (Still have both paychecks for February to come) and then start building the EF and working towards house down payment?
- Name it income replacement instead of Emergency fund. But I guess doing that would depend on how stable you believe your employment to be. (I've been at my job almost 6 years).
- Make the emergency fund category a For next month category instead and make it your pot for all the extra money that will be used towards being a month ahead and then also making sure you have specific "emergency" categories that you are funding as well ( vehicle maintenance , medical surprises, house repairs )
I'm also working towards paying down debt so how should I factor that in as well?
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Dave Ramsey's 7 Baby Steps are a good default. Because you have a $1K EF, you can start step 2, and pay off your debt.
As how you enter that in YNAB, I would just try different things and see which one you like best. YNAB even recommends a Fresh Start now and then:
Fresh starts are a useful (and dare I say invigorating?) way for seasoned YNABers to see their money with new eyes. They offer you the opportunity to shed your old budget, like a snake sheds its old skin, to reveal the newest, healthiest version buried beneath.
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Hey there! This is a great question, and the answer will be a little bit different for each person and each situation. That said, the default category groups in YNAB are actually based on the prioritization strategy we recommend 😊
1. Budget for Obligations: They'll-turn-off-the-lights-if-I-don't-pay-this types of expenses: rent, food, utilities, medical insurance, and health care.
2. Embrace Your True Expenses: Prepare for larger expenses that might be months down the road, but will be just as non-negotiable when they arrive.
3. Pay Down Debt
4-5. Age your money - oh, and have some fun!
You might find our prioritize guide helpful as you find the budget setup that works best for you, too, so feel free to check that out and thread any other thoughts or questions you have!
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Rachel Where in these steps would you place Emergency Funds? In the Age your money or the Embrace Your True Expenses?
I've always wondered how YNAB philosophy around True Expenses ties into Emergency Funds.
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jmorse I learned from the ynab community not to have "an emergency fund" but different funds for different expenses, for instance an "income replacement" fund, an auto repair fund, home repair fund, medical fund with the amount of my yearly deductible in it; appliance repair fund; etc. Basically thinking through everything that could go wrong, and treating those as true expenses.
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Ivory Storm That's fair. That feels like a hard think to accept (for myself, at least). There are certainly things that I will forget to budget for.
I currently have a straight "Emergency Fund" and am building my Income Replacement funds. I suppose I could just treat that Emergency Fund as a Emergencies I Forgot To Budget For fund while I build up the things I do think of.
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jmorse that's basically what I'm doing. I have a small 3K emergency fund, and I just cleared my debt, so now I'm "snowballing" my EFs - filling up the smallest one (med deductible), then the next biggest one, etc. Of course, if I have a car emergency and that category isn't full enough yet, I can always WAM from one of the other ones. I do like the strategy of having it all distinguished though & actually visualizing different emergencies and what I would need to draw on to get through. It's more concrete than just "Emergency," so more motivating.
Oh & in answer to your other question, Age of Money happens organically as you have more money in your budget, no matter where the money is. So if you have a cushy set of true expenses budgeted, that will increase your Age of Money the same as if you have a cushy EF. -
jmorse I think everyone is right on track here! For many folks, by embracing true expenses, they are eliminating many of the things they might otherwise use an emergency fund for (like car repairs or medical expenses!). I like your idea of treating your current emergency fund as "Emergencies I Forgot To Budget For" for now - it's right in line with Erin's musings in this blog post.
As you continue budgeting, you'll get a better feel for what true expenses you might be overlooking now that you can start building funds for, and how much you prefer to have saved for those truly unexpected expenses!
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It's personal, and what you feel is priority. But like mentioned, make sure bare necessities are covered, have a small Emergency Fund, and then kinda figure out what you want to do with what's left. If debt paydown is most important, (and it probably is, especially if the interest rates are high) focus more on that, and just put a little toward True Expenses.
As you mentioned, a great goal to work towards (and can be achieved more quickly if you have enough in savings, or use the EF to fund it) is to become one month ahead, so you're budgeting this month entirely with money from last month. The way this works, is you create a category "Income for Next Month" and put all of your paychecks into there. At the end of the month, you move the money to TBB, and go to the next month and budget it all. If you're short, you can cover it with above mentioned savings, or simply make it your goal to "top it off" so each month you can budget entirely with income from next month.
That makes all your other budgeting decisions easier, because you don't have to anticipate income to finish funding your categories during the month. Now at a glance, you can see how much you have left, and make decisions on where the extra should go.
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You might also check out the “prime directive on r/personalfinance” (drop that phrase into google and you’ll find it pretty fast). It combines most of the best thinking on personal finance into a very easy to follow flowchart. You might rightly decide to do things in a different order, but you definitely won’t go wrong following that one.
