Estimating "budget" values
I saw YNAB yesterday for the first time on YouTube. The YouTube videos assigned a budget value such as $50 for eating out that month. Truth be told, I have no idea what the proper number is for me. Sometimes friends come over and we go out. During XMAS season the family gets together and we go out. Some months I don’t eat out. How does one budget for that? Start with a guess, update it as the actual number gets clearer, then finally update the number once the month has passed? (once the month has passed you will know the actual amount spent on eating out).
How you approach it depends on whether you’re looking forward or just using YNAB to record expenses after the fact.
Ideally, you’ll be looking forward and your guess will be close. If you decide to prioritize more eating out, you’d probably move money from another category. Updating the number once the month has passed it unnecessary, but might be useful in some cases.
Start with your best guess. If you go over, you'll need to transfer funds from lower priority categories. If December is a particularly expensive eating out month, you can fund more that month or have a Christmas category to move funds from. Since you're just starting, the latter won't be much help but start funding a Christmas category for next year.
Over a few months, you'll figure out the best monthly funding amount but in the meantime, that's what Rule 3 is for is to roll with the punches.
Yes, it's going to be an iterative process. It's also constrained by more important categories taking some of the available funds, which forces you to have to make do with less. Things are further complicated by the fact you may be allocating for only part of the month if you are paid multiple times per month.
This is not an easy process. You will make mistakes. Yes, as you realize things are not quite what you'd like, you should adjust/improve the plan (a.k.a., budget).
One of the fundamental rules is that you should only move from lower priority categories to higher priority categories. If you can't identify a lower priority from which to steal, you shouldn't incur the expense.
Your numbers will gradually work themselves over time. Check out a video on "bubble sort" for an analog of what will happen. It's not quite the same, but dollars will gradually settle into where they're needed.
Tan Drum My advice here is that you start by doing it in the following order, which I find to be easiest:
(1) Print out your credit card statements and/or debit card statements for the last 12 months [assumption is that you pay a lot of your bills electronically. If you don't, and you find yourself using cash for most expenses, disregard this (1) and move on to (2)]. Perhaps take out a glass of wine or beer, or if you don't drink, a snack you enjoy. Don't treat this as a science; it's more to determine items that are non-variable expenses described in (2) and (3) below. Do a quick scan and highlight anything that is going to be a recurring charge. I don't mean a restaurant that you visit often; I mean things like your monthly Netflix account. You may be surprised at the number of small subscriptions that are recurring charges! True story: I was paying for a credit monitoring service that I hadn't used in years, and totally forgot I had signed up for it.
(2) In YNAB, set values for things where you do know the actual monthly amounts: rent/mortgage, insurance payments (if paid monthly), cable/internet, etc.
(3) Then, set values for things where you do know the actual amounts, but that are more long-term, such as annual, semi-annual, or quarterly: property taxes, insurance payments (if not paid monthly), school tuition, etc.
(4) Then, set values for variable expenses that are necessities: groceries, utility bills, medical expenses, pet expenses, trips to the pharmacy, clothing, etc. You can use your credit card history to see what past spending has been, but if this seems daunting, then just start with a guess for each category. Don't worry about being "right," as many of us have been using YNAB for months or years and often need to readjust amounts budgeted. It's part of rolling with the punches, after all!
(5) Finally, set values for variable expenses that are discretionary, or more "want" than "need:" vacations, entertainment, dining out, etc. You could look at credit card history, but it may not do much good, as I find these expenses are quite variable. Take your best guess, and as I say above, don't worry about being "right." You'll certainly be readjusting these as you proceed with using YNAB. Honestly, I still struggle with setting an optimistically low dining out number versus knowing what I usually spend. I'm getting more honest with myself about this category, but am not quite there yet and have had to budget more money to this category 8 out of the 9 months I've been using YNAB.
Finally, instead of spending hours or days trying to figure out what all of your true expenses are, just start to budget based on the ones you know. Just getting started is really the biggest hurdle. Best of luck!