Am I spending too much money?
I am a YNAB newbie. I have created all my categories, set up my accounts, etc. But I'm confused about one piece. How do I know I'm if spending/budgeting too much for some things?
Previously when i tried to budget i would gather all my expenses (yearly, monthly, whatever) for the year, then take our estimated net pay, and if the former was more than the latter I knew some things needed to be cut.
Say today I have zero dollars in the bank, but I have a credit card (that I want to pay in full each month). I know I have 2 paychecks coming this month, and how much they'll be. Using YNAB, I can't budget anything because I can only budget dollars I have in the bank. Lets say my only expenses are food and rent. How much can I "afford" to spend on food? Of course you can say 2*paycheck - rent. But YNAB never proposes any such calculation. And of course reality is MUCH MUCH more complex.
Am I just supposed to pick some number based on what I usually eat, and then see what happens? I guess that might work...or (in the above scenario) I might end up in CC debt for the month.
This all makes much more sense if you're paying this months bills with last months money since then in the YNAB paradigm you know exactly what you're working with. But what do you do until then?
-
You budget money that can be spent. The timeline is merely shorter than when using last month's income.
You'll develop a priority system among the priorities. Allocate money starting with the most important thing first and stop when you're out of money.
Mechanically, I prefer the True Expense concept applied on a paycheck basis. (That is, until one can push all income into next month's area.)
With this approach, the actual allocation is trivial. The only trick is understanding your priorities.
-
Yes, YNAB approaches budgeting differently than I've ever been taught how to do it. It works though. I was paycheck to paycheck when I came to YNAB, today I have more than I've ever had, in the bank.
It can take a long time to learn the YNAB way, like it did for me, or you could learn it more quickly. For me, my budget has been a million little choices. When starting out, I tracked my spending, using money I already had. Once I knew what I was spending, it was time to make some choices. I was spending around $400 per month on take out food but underfunding goals that were more important to me. When tempted to spend more money on getting something, I had to choose between that and my latest goal. For me, it was mostly easy choices but ones I hadn't been aware of before. As my spending habits were revealed to me, I was able to choose between that and my goals. It has been a million little choices over the years and I am grateful YNAB made me aware of them, allowing me to make different choices.
Things started slowly for me, and gained speed with time. If you stick with it, learn and follow the rules, I believe you will experience great improvement in your finances.
-
https://www.youneedabudget.com/how-to-create-a-budget-template/ will give you a link to what you were used to in budgeting; looking ahead. But now with only asighing money to the part you have funds for right now. The rest will come later, but the template gives you a way if the total is in line with your income.
-
Thanks for the thoughts. What I ended up doing was:
- creating a fresh start budget
- This meant I needed to remove the archive name from my budget, but no big deal
- Added a new account called 'Estimated Monthly Income' and filled it with...my estimated monthly income
- Then I fully funded all my monthly expenses, and funded everything else as a monthly average (I took the yearly total and divided by 12)
- This let me know that my budget was realistic
Note that there's a key element missing here. I don't have a full year to save for most of my non-monthly expenses. So I need to consider that. But, this gives me a quick overview of what (if anything) needs to be adjusted.
-
NeedsMoreZazz
NeedsMoreZazz said:
This let me know that my budget was realistic
Note that there's a key element missing here. I don't have a full year to save for most of my non-monthly expensesThese two things are in conflict.
You'll know if your budget is realistic if you can save up the appropriate amount with each paycheck (or each month) so you have the money for your non-monthly expenses at the time you will need to pay them. That is the only correct answer to your question. You don't need a year worth of income to figure this out. You need to figure out if you can actually accomplish this with each income event (or get a month ahead so you can figure it out on a monthly basis).
-
NeedsMoreZazz The "key element missing" is indeed crucial. Your current plan is likely completely unrealistic.
One approach is to fund categories from most important to least dividing the remaining amount needed by the number of months (or checks) you'll budget before the outflow. This will probably require that lower priority things will have to wait until you can spread things over the "nominal" number of months (e.g., 12 for an annual bill).
The other approach is to use money you have at startup to set categories to where they should be, assuming you had started those nominal contributions immediately following the outflow. This allows you to use the nominal contributions (e.g., 1/12 for an annual bill) moving forward. (Again, do this from most important to least. Timeline usually figures into that priority, but pushing large bills off too long is a bad idea as well.)
Realistically, you can probably use the second approach (pre-fund the category) for some categories but not have enough startup capital to do all categories. Those will have to use the first technique.
- creating a fresh start budget
-
To close the loop a bit here, there are some relevant details I hadn't shared. I actually have money in the bank to pay all my bills and even pay next months bills. So for me the primary issue is that going forward from there the monthly expenditures allow us to save some every month (or at least not deplete our savings more). It's also good that now I know I'm separating, for example, emergency savings vs house maintenance.
Not sure if anyone is interested but some more background. As DINKs, my wife and I had a cheap rent and spent more or less conservatively...we went out on Friday night, but we didn't buy BMWs. During that time we saved up a lot. Now we have 2 kids, daycare, and a mortgage. Over the last few years our savings dwindled significantly. Now we're trying to correct.
I know maybe this is atypical for the common YNAB user...so maybe that gives some context for my focus.
-
NeedsMoreZazz That's not atypical at all, or at least, it shouldn't be. The goal of using the YNAB method is to use money earned earlier to pay for expenses now. Most of us who learned the method using prior versions of the software internalize that as collecting last month's pay and using it to budget the entirety of this month.
If you're starting in a position where you can more or less do that, that is what I'd suggest you do. Add up all the regular income you were paid last month, to the penny, and that's your nominal budget. Budget that amount in November. Going forward, the amount you earn in month N is going to limit what you can budget anew in month N+1. Your entire regular budget--monthly bills, discretionary spending, and monthly contributions to true expenses and savings--needs to fit within that number, so that each month you'll be able to budget the same amounts.
For the rest of the money you have on hand right now, you'll want to ask yourself what jobs those dollars have. Is some for the December holidays? Are you planning a vacation in June? Is some of it in case you suddenly need a new roof? Is some of it waiting to be invested? It should be assigned categories based on that. From now on, you'll add to those categories by budgeting to them monthly, out of the money you earned in the previous month.
-
NeedsMoreZazz Note that yes, you're going to get some of this wrong at the beginning. It *is* a guess for some of it. Some of the things that almost everyone gets wrong: they budget too little for food, they budget too much for savings and debt paydown. But once you have money in categories, you're going to have to start observing yourself as you spend, because if you convince yourself that $100 is totally enough for dining out, you're going to notice when you have to move money because it's November 8 and you already spent it all. That's how YNAB works its magic. Over time, you'll get better at knowing how much you need.
-
-
NeedsMoreZazz said:
I actually have money in the bank to pay all my bills and even pay next months billsThe trick is to know you can pay those bills without tromping on other desired expenses. Just seeing a single fat account balance is insufficient to do that, which is where YNAB comes in. The budget is your spending plan. The timeline is, of course, variable (it might be years for some categories, and hopefully never for the Income Replacement / Emergency Fund!), but defining an intended purpose for every dollar -- and checking your plans before spending -- will pay off enormously.
You should absolutely know that YNAB works best when you can budget next month using money earned this month. (If you have multiple income events, just temporarily stash that money in a holding category, then release it at the end of the month.) This lets you work with a month-sized, effective paycheck. Via scheduled transactions and goals, you should be able to distribute money into all your categories in a few clicks.
I find it counter-productive to budget beyond next month, instead preferring to grow an emergency fund category. There's simply more edits to make when priorities/amounts/etc. change, and I'm not a fan of busy-work.
