Far From the Usual's Guide to Getting Started
Hi! I’m just a random person using YNAB, and crawling out of the debt hole. I used the classic version for over 3 years, and then switched to the web based version in November of 2017 (happy 2 year anniversary to me!). In that time we’ve clawed our way kicking and screaming forward (my BF was doing the most kicking and screaming), and I’ve figured out a few tricks along the way.
I manage my personal budget, his budget, and my small business budget. All 3 are very different, and I’ve had to navigate different pay schedules, varying income amounts, semi-freelance work, and the major crisis of losing a HUGE chunk of my small business income plus needing to purchase a house (with nothing saved up) when we were asked to leave the farm we were renting 2 years ago.
I wanted to write this because there are things I’ve figured out, and ways of approaching my budget that I don’t see talked about, so here’s some things that have worked for me.
In the beginning…...
Don’t expect your budget to “make sense” right away. 🙃 Or make any sense at all. So for that - Give yourself a MINIMUM of 3 months, better yet 6 months, and realistically/honestly a year to figure out a rhythm.
Setting up categories in a meaningful way makes your budget. The titles of each category don’t have to make sense to anyone except for you. There is a fine line between too much detail and too little detail. It’s totally ok to combine, or split categories over time. I’m still doing this after 5 years of YNAB use. That being said - I do highly recommend keeping ‘groceries’ and ‘eating out’ separate… (and if you struggle taking your lunch to the office, an additional ‘eating at work’ category can be VERY eye opening)
I have found that it helps me to know due dates, and sometimes amounts, if I need to. So my credit cards all look like this:
- Care Credit 5th/$47.69
- BJ’s CC 13th/$61
- Quicksilver CC 18th
That’s the due date, plus the amount I pay each month. That keeps it in front of me, and I know when and how much that category needs to be funded in order to meet the payments. The last card is my “general use” card, so I don’t have an amount on it because I pay it in full each month, based on the amount that I have spent. Having them in date due order also helps me to keep an eye on the flow and know when to fund things.
For my major bill categories, I split up setting aside the total amount each paycheck, so I make notes next to the bill name so I know how much to put into the category each check, similar to the credit cards, but based on each paycheck and not the total amount due.
- Mortgage - $827.47
- Car Insurance - $175
- Power - $75
- Water - $10
Several of these bills are only due quarterly, or biannually, so I know that I need to add that amount into the budget when I get paid, and then the full amount will be waiting when the bill is due.
So when the paycheck comes in, I just run down the list and apply the amounts listed quickly, and then I know how much I have left over for the rest of the budget.
For the first 3 months - stick to focusing on funding only the immediate bills that you know are coming between now and then next time you get paid. If you just got paid and your next check is in 2 weeks - only fund whatever you have that is due between now and then first, then apply anything left over to categories that are likely to fluctuate (groceries, eating out, gas, shopping, etc, etc, etc). If you know the power bill is due later in the month after you get paid next, and you’ve got enough to add some to that category now, then that’s a helpful thing to do. But don’t stress too much, just work with what you have and what you need immediately.
Ideally - if I were to do this all over again, I would make categories for all of my major bills, and then make a category called “everything else” and put anything extra into that category, with categories below it for various things. It would have made me feel better to have used one “pot” of money and simply funded as I spent until I had a handle on how much I was really spending each month. In the beginning you have no idea… are groceries $400/month and gas $200? Then when you suddenly spend $300 on gas it is an emotional roller coaster moving money everywhere and trying to cover it all.
If you’re using credit cards it is really likely you’ll overspend something in the first month. It happens. And it might even happen the next several months as you navigate managing your money in a whole new way. Don’t beat yourself up for it, just keep moving. Know that if you leave a category over spent in orange, that negative amount will disappear at the beginning of the next month. In order to make up that over spending in the next month (or to make payments on any debt), you will need to apply the amount directly from the To Be Budgeted (TBB) into the Credit Card category itself.
Refrain from paying “extra” on any outstanding debt right away.
If you’re like many new YNABers, you’ll suddenly “find” money you didn’t know you had after setting up your categories and assigning your dollars a job. It will appear that you suddenly have extra. As they say, you’ll be “YNAB rich.” In the beginning the temptation is often there to dump all that extra into debt, which is admirable. The only hiccup is that if you’re like most new YNABers, you’ll also have forgotten to include something in your budget when setting it up. And, you will likely not have a nitty gritty accurate assessment of just how much you spend on lattes every month. Or just basic necessities like gas or groceries. And if you’ve already dropped that whopper extra payment on your debt, you’ll suddenly find out that the $100 you budgeted for food between now and next pay day wasn’t enough, and next pay day seems really, really far away.
My suggestion is to withhold that “extra” at least until the end of the month, if not a bit longer, just to be sure that you haven’t forgotten anything. Make your payments according to what YNAB says for credit cards, and what you usually pay for regular payments, and then once you’ve gotten a few paychecks in, and are getting transactions in correctly and everything is reconciling, then you can drop that extra jumbo payment and knock out some debt.
At this point you might be confused. “But I used to pay the credit card in full every month, and YNAB says I can’t!” This means that you’ve actually been riding the credit card float. There is usually no interest involved, but it is an indication that you are spending the next pay check before it hits the account. YNAB is asking you to pre-fund your categories before you make your purchases. Many people actually spend, and then pay the credit card for what they bought. And that’s totally ok, and a normal place to start from. Discovering the float is the first step to eliminating it, and once you know it is there, you can begin to chip away at it a little at a time.
At the 6 month mark it’s time to start looking at some of those fancy reports that YNAB has. Start digging into the spending categories, and look across the months. How much are you spending each month in each category that fluctuates? What are your averages so far?
This is also where the fun bar graphs put it in living color that you spent $450 eating out in June, and you have no idea how or why that happened. But it will give you the beginnings of some averages to work with.
So now you can take some of your general spending categories and set them up with averages. I write mine with the average I spend each month, and the amount I need to apply each paycheck:
- Groceries - $370/$185
- Gas - $288/$144
- Pets - $75/$35
Now these categories can just start humming along on their own. After a couple of pay periods, it won’t matter if I need to go to BJ’s and drop $200 on bulk items, I’ve got the funding built up in my category and don’t need to stress about where that money is coming from. My cats are pretty much covered no matter what I need to get for them, and things are building up for being able to pay for vet visits down the road. And now I have the complete peace of mind that when I swipe my card for the things I need, it’s all there.
This is also the time that you get to check in with your income vs spending. Using the spending report, you can select all of the categories that are consistent, and check in with your income each month to see how you much breathing room you have between what you have to pay out and what you are bringing in. When I did this recently it very clearly highlighted why I haven’t been able to crawl very far out of the debt hole (and often slide backwards…). My income and my basic expenses were almost equal. Ouch. But it also showed me that the fact that I haven’t slid backwards and further than I have is a REALLY good thing. I AM working with what I have to the best of my ability. And, I’ve got a better handle on it than I have ever had, so that’s STILL progress.
Once you’ve made it to the end of the first year you can get a true handle on your averages across all seasons. So now you can get a really clear picture of your power bill and what it averages out to be across summer and winter. Or you can notice if there are trends of more eating out and spending during certain months. You can also check your net worth and see a long term picture of which direction the line is going (hopefully up!). This is how I know that my power bill averages out to $150 per month, and so I’ve been able to fund it at that level for the past few months, even though the bill has been less than $100. Now when the first big winter heating bill drops, I’ll have money there and won’t need to scramble to suddenly cover twice as much as I had been. This is the peace of mind that YNAB brings!
This is just the beginning, and just my notes from somewhere around 5 years of experience being deep in the struggle. I’ve had to make choices and decisions, some of which worked out in my favor, and some didn’t. But I’m still here, and I’m still trying. Here’s wishing you quick and easy budgeting and abundance in your future!
I've been using YNAB for 6 years and I have my categories set up much the same way. I put the amount and due date (if it has one) right on the line with the item. The only thing I do differently is put the amount I need to apply into a note. We have three income sources that come in on different days. Of our total income, source 1 represents 60%, source 2 represents 22%, source 3 represents 18%. So in my notes that's how the pay is distributed. I just hover over the category and the note pops up so I see how much should be added from that income source. The initial set up was a bit of work, but it was so worth it.
I love these ideas. I had just been thinking of breaking out Lunch meals from our dining out category. I've been using YNAB for awhile. The concepts made sense but i struggled with the math. I did similar naming conventions to help my OCD brain.
For instance, my mortgage category is named '09 - Mortage'. That category is in a group called 'Hafta Do ($<total of categories in the group) <percentage of monthly income>%. The date on the category is helpful as my wife and I are both paid bi-monthly. As the month progresses, categories get funded and I can easily see from the group heading if I'm on target. The percentage is helpful when I start looking at the reports.
Thanks! Your post was full of useful tidbits. I have definitely been a bit too gazelle intense and, although it helped me make a lot of progress on my debt, it was stressful. I'm actually focussed on slowing down a bit and enjoying the process a little more.
Good luck on finding some more room in your budget, either more income or less outgo, so you can get yourself out of the hole. But I'm glad you're not digging in anymore. I'm so glad to be not only off the credit card float but to have a 30 day buffer and also have a ton of true expense categories building up. I feel so much better now, rather than stressed about it like before, when I had less room to breath build into my budget.