The problem with budgeting for my real needs
I've using YNAB for a little over a year now. When I reached the year mark I reviewed all my spending categories to get a sense of how much I had really spent in them over the year and adjusted them accordingly. But I'm finding that there's a twist. In categories where I increased my budget based on my actual spending over the past year I'm actually spending MORE now than what I budgeted for. Let me illustrate with a somewhat fictionalized example.
I have a category called Cultural and Religious, which is a catch all for books I buy, religious services I pay to attend, cultural events, etc. When I first started using YNAB I wasn't sure how much disposable income I had to spend in this category, so I budgeted $10/month for it, but really tried to just spend as little as possible. However, a few times a year there were more expensive items driving up the expenses in this category. For example, I paid $50 to go to a religious service at one point.
After I did my 12 month YNAB reckoning I saw that I had actually spent $20/month on this category, so I adjusted the category to $20/month -- my real expenses. Remember, this $20/month is a result of trying to not spend much in this category and then having a few larger expenses.
BUT, what I'm discovering now is that I see a book I want to buy. Last year I would hem and haw and maybe buy it or maybe think it was too expensive for and put off the expense. NOW look at the $20/month I have budgeted for this category and I think cool! I've got $20 to spend here. I can afford this $15 book.
What this actually means is that, when I figure in my more expensive categories over the year, my real expenses will wind up being more than $20/month, but it's hard to keep this in mind and hard to figure out how much I should really be trying to spend (or not to spend) in any given month.
Maybe you are trying to cover too many expenses in one category.
I would be inclined to break out the big, expensive events into their own category, and split the budgeted amount accordingly. Then when you look at the remaining amount, you will be better able to decide if the purchase is affordable.
I've had this issue before where my annual Audible subscription was coming out of the same category as my regular book spending. Most of the year it looked well funded, until the annual expense landed.
In addition to the above post you can use the technique that creates some room by collecting some money in that budget line over 3 months; so now you have 60 sitting in there and it is growing at 20 a month. then as you check on your phone prior to your purchase you then take pause and decide if that money is to be spent on a book or if you need to save it for an upcoming event. If there is an event then wait one month then re-look at the budget. In the language my wife and I use its a sinking fund. We can create an allowance we give each other permission to spend with out checking in with the each other. The longer we go without a purchase the bigger the fund becomes.
I hope you find something that works for you. Otherwise you will have to reduce a line item somewhere to make room for the purchase you are looking at.
You are now gaining a better idea of what is really important to you. You habitually took money from other categories for books. Clearly, books were more important to you than those other things. Otherwise, you would have skipped the purchase, right?
Really, all this just means your initial guesses were off slightly, but that's to be expected. Don't forget priorities change over time as well. I consider 2-3 months to be a good timeframe to evaluate whether budget entries are appropriate moving forward.
Green Nomad said:
it's hard to keep this in mind and hard to figure out how much I should really be trying to spend (or not to spend) in any given month.
That's why you change the nominal budget entries, so what you see is what you get. Increase something and decrease others to remain within your income constraints. You should not be doing mental math for the "real" amount you can spend.
However, there will always be unpredictable events that may motivate additional spending, which is why you should reallocate. Money SHOULD flow from less important things to facilitate more important things. Whether that shift in funding should persist in future months is a different, but still important, consideration.
Green Nomad said:
What I realize I forgot was that every six months I have to buy fairly expensive anti-flea treatment
Differing timelines in the same category is a source of difficulty. The reality is the flea treatment has a different priority in your mind. This is solved with another category.
A similar thing happens for an annual gym membership combined with a monthly allotment towards classes.
In other words, structure your plan so you don't have to do mental math. Make it explicit.
It's about awareness and control.
Make it explicit.
These two statements say it all.
I HAVE to have separate categories for food and non-food consumables, why? Because if I don't, the money I have to spend is not explicit and I am not aware of what I am doing and loose control of the combined category. Therefore, if I want to have clean dishes or anything else in my home, I must separate these categories.
I also keep the monthly audible away from the extra audible and books categories as the latter two are only extras that the budget allows, whereas the monthly audible is a subscription that I don't pick and choose when to spend on.
Hi all. Thanks for a useful thread and Green Nomad for raising the question.
The key takeouts for me are to split out categories which contain infrequent higher priority higher expense items and frequent lower value discretionary items
This highlights a solution to an issue I’ve been having with budgeting books. I’ve been successfully reducing spending in this ‘discretionary’ area by using the library (yay ebooks and the people who choose the books at my local libraries), reading my own unread books and borrowing books from friends. However I’ve had to WAM it twice to cover special purchases of bookclub books weren’t available as a cheaper electronic book and where a specific edition was required, ie I couldn’t find a cheap second hand copy. The last option is also limited as postage to and within Australia is much slower than usual with less overseas flights
I’d actually been merging my book spend into fun money as it had got so low and lockdown had reduced dining out, drinks with friends, theatre etc . But couldn’t cover these ‘unusual’ purchases. And as they were important to me I WAMed the money from future true expenses
So it looks like I now need a small ‘Special book purchases’. Good insight. Thanks YNABers
The issue is not whether you are spending more but whether you can afford to spend more. Your budget should allow you to both know how much you have to spend and then tell you what you have spent it on. Increasing the amount you spend on doing one activity is not an issue unless it impacts on you budget as a whole ie has it reduced your age of money. It is perfectly acceptable to readjust your budget to cover things you want to do but only if you can afford it.
Spring Green Piccolo said:
It is perfectly acceptable to readjust your budget to cover things you want to do but only if you can afford it.
I'd say that by definition, you can afford it if you are comfortable with the consequences of that reallocation.
I'll agree with others here - when it comes to situations like these where you have frequent smaller purchases vs infrequent larger purchases it's best to split them out. I now have 2 categories in my business budget - one is for monthly expenses (my monthly web hosting package, and email provider go in here), and annual expenses (my web domains, my annual website plan, and my annual membership fees for various things I use go in here - and I know how much monthly needs to be set aside to cover all these things). It was challenging until I did this to keep it organized because every so many months I would get hit with the bigger fee, and be unprepared for it. Now that you've got a year's worth of history, you can go back and do a little math to figure it out. This is where tagging purchases is helpful, and searching for purchases by where you purchased it from/through helps. So it won't take much digging to sort out these answers.
Once I created the category for the annual fees, I made a list in the notes (down in the bottom right hand corner of the side bar if you select the specific category) of what fees happen in which months, and how much they cost, so that I have a reference to be prepared for and can keep an eye on what is upcoming.
I never rely on YNAB to tell me how much I have spent in a category because I don't like how it calculates the number. When I tried to figure out what it was doing it seemed like it divides the total amount spent by the number of months where spending in the category happened - not all the months. If I'm right about this, then if I spend $20 on books every other month, YNAB will claim I spend $20 a month rather then $10!
YNAB is great for actively monitoring your accounts and budget. It is not great for actually creating or sticking to a budget.
I have to stick to a budget and reduce my spending and here's how I'm managing to do that (mostly):
- I put my list of category groups and categories into a spreadsheet
- In the column next to each category I put the amount I want to budget.
- I use the SUM function to total up the amounts and then I tweak the categories until I can afford the total.
- If I'm not sure what is realistic for a category, I can use YNAB's reporting function to find out what I actually spent in the past:
- I look through the report and decide whether I want to spend less.
- In my spreadsheet I add amount in the form of a calculation which is the total from the report minus spending I don't want to repeat. I divide this by the number of months in the YNAB report.
- Once I'm happy with my spreadsheet categories I add them to my YNAB goals (usually with the Monthly Savings Builder).
If you don't know how to use a spreadsheet please consider trying it out. It's absolutely not a replacement for YNAB - just a simple and incredibly powerful tool for organizing your finances, thoughts, or anything else you want to list or calculate. A spreadsheet's most basic functionality is really easy to learn, and so powerful that you may never need anything more. A spreadsheet puts everything in front of you, lets you try out different ideas, and gives you a stable reference that you can build your YNAB budget from. I use OpenOffice because its functional and free, and there are tons of info and recipes for it online.