How does YNAB want you to apply Rule 4?
First - I'm a buffer guy. Was my favourite thing about the old YNAB method.
Age of Money hasn't clicked with me like the Buffer did.
But anyways. Here we are.
Now I understand Age of Money. But was not really sure how it was supposed to be implemented. So I've applied the "buffer hack" to nYNAB by creating a Buffer category and throwing this months income into it. Then freeing that money up to be budgeted when the next months rolls around.
But is that what YNAB officially wants you to do to age your money?
If not...what is the official strategy for implementing Rule 4?
All the videos and information I read just say it's good to age your money past 30 days. But it's not as "action oriented" as the old Rule 4 for the Buffer was.
Thanks for your help in trying to understand the new (and improved?) Rule 4!
Ultimately, "aging your money" simply comes down to making sure you don't spend more than you earn. As long as you are consistently doing that, the age of your money should automatically increase. I've generally found that the "age of money" concept is most useful for brand new users who are living paycheck to paycheck, and having a goal to get to 30 (or 60 for heavy credit card users) is motivating. It's a little less useful the more financially stable you are. I think I have an AoM of around 100 days right now, and that doesn't really help me a whole lot.
In regards to the buffer, nYNAB is a bit more flexible than YNAB4, allowing users to budget money into any future month, not just the next month.
The officially recommended approach for budgeting money towards future months is simply to switch to that month in the budget and budget the money immediately. Some like a buffer category and keeping everything in the same month, and that works too.
Okay. This is going to sound totally sacrilegious. I had this totally crazy thought about Rule 4 and the buffer and transitioning to nYNAB from YNAB4. What if...... bear with me, now.... what if I just temporarily forget about trying to impose the <income for next month> process. Gasp! What if I give the nYNAB software a good three-month run without imposing any hacks of any kind to make it work like YNAB4? As I recall, it took me about three months of using YNAB4 to begin to really grasp its potential and begin unlearning my previous thinking.
When I first began using YNAB4, I tried to force the software to accommodate the laborious way I used to budget (by multiple accounts and handwritten lists). That was far too cumbersome and frustrating, of course to try to impose on YNAB. I finally took a leap of faith and just embraced the software and methodology (letting go of all my previous methods) and it proved itself to be so totally phenomenal and liberating.
So I got to thinking a week or so back.....I've been working excessive overtime and getting very little sleep so I'm surprised I could think at all....who says that in order to observe Rule 4 you have to budget your funds in the month after it is received? Why can't Rule 4 allow for the physical act of budgeting the funds in the month received but then not spending any of it until next month or later?
So in my nYNAB transition month of November, instead of taking all of November's income and budgeting it in December, I went totally rogue and budgeted it all in November. The budget police did not knock on my door and my computer didn't fritzle. So far, so good. Then when the month turned over to December, all my categories were filled and ready for December spending, but my budgeted column is empty right now. As income comes in in December, I'll just budget it to the empty categories and the funds I will spend in January will be in my categories before the end of December.
I feel almost giddy at the notion.
We've been around and around on the subject of AOM as a metric, but less so the rule 4 rewording. If YNAB fixed the AOM metric, so that it accurately accounted for heavy CC usage and made some kind of allowance for rule 2 funds, I could better get behind it. Face it, AOM is for people with an AOM less than 30, so just track it up to 30 and then say "Congrats, you're living this month, on money you earned a month ago (old rule 4 wording )". Rule 4 hasn't really changed, they were just attempting to make it less scary to new users who are starting out paycheck to paycheck or worse.
I have not found a way to use AOM in an actionable way. Right now it hovers around 200 days. But that doesn't give me any guidance on what I should be doing. And increasing AOM does not automatically equal better financial position: back in early 2016 when I was unemployed for 5.5 months, the AOM kept going up and up because I had no money coming in. Plus I know my AOM is going to go down in March when I replace my HVAC. So that seems bad and I should do something about that! But it's not bad because I saved up to pay for that in full over a year ago and am finally getting up off my duff to get it done before summer. And there is nothing to do to my budget to "make it better" (other than to buy a winning Power Ball ticket 😉).
The discussion on this topic is great! :)
Your Age of Money is the average number of days between when you receive money and when you spend it. So, it completes the sentence, "You're now living on money that you made XX days ago."
A great way to understand Age of Money better is to visualize each income you receive as a new bucket of money in your budget. As you spend, the money leaves those buckets in sequential order, oldest first. YNAB tracks the age of the bucket that the money for each cash transaction comes out of, and gives you the average age of the last ten as a tool to measure your budgeting progress.
Creating a buffer category won't cause your money to age any faster or slower, but it can provide a clearer visual if you're trying to see the exact amount all in one place that you're carrying over. You could move to the next month and budget those funds there instead.
Our Aging Your Money guide gets even further into the "nitty gritty" of the calculation if you want to take a look.
I posted this elsewhere, but I'll repeat it here....
I wonder what my AOM would be if I didn't do the following that, for the most part, decrease the number:
- Churn 401k contributions as wash transactions (That's 4-5 income and "spending" transactions per month). - increases frequency of spending
- Churn HSA contributions as wash transactions (That's 2-3 income and "spending" transactions per month. - increases frequency of spending
- Pay for medical expenses via credit credit card with HSA reimbursement instead of using the HSA debit card - increases frequency of spending transactions
- Got a loan for my car instead of paying in cash - takes a big up-front hit rather than a smaller
- Use a credit card to make most purchases - pushes off the spending transaction to a single credit card payment... this is the only one that actually increases AOM.
- Make extra principle payments on monthly mortgage payments - increases amount of spending transaction
- Send money off to 2 Roth IRAs (4-6 transactions annually) - increases number of spending transactions and money leaving budget
- Send money off to a brokerage account monthly - increases number of spending transactions and money leaving budget
- Consider (some) gift card purchases spent at time of purchase rather than as a transfer that remains on budget - increases number of spending transactions and money leaving budget
For me, it's about the visual. I think it could all be fixed if there was a toggle switch on the "Available" column that could show me either 1) The total actual amount budgeted in the category (this is what the number means in the current YNAB), or 2) The total available to use for this month, based upon my monthly goal.
For example, let's say today is the 20th day of the month. I have a $50 monthly electric bill, already paid on the 5th of this month and I have a repeating "monthly funding goal" of $50. That means I have $0 in that category for this month, because I've already paid the bill for this month, on the 5th. If today is the 20th, I could use the toggle switch to show there is $0 available in this category for this month. But then I could toggle again to see the actual amount available in the category is $100 because I'm living with an Age of Money over 90 days and have already budgeted in this category for the next two months.
Interesting to see this question marked as "answered". I certainty don't feel that it has been answered - when the suggestions on how to implement Rule 4 are through work-arounds (i.e. buffer category to stow money away for next months spending or through future month spending that carries the risk of stealing from the future). I hope the discussion continues and that YNAB...
I found this thread while trying to understand how to interpret AoM when it reliably settles in above 30-60 days.
My budget is safely and consistently over the 30 day AoM mark. It’s definitely reassuring to see it stay there, but it prompts the question, “now what?” At the moment, I’m comfortable with AoM as a relative indicator of stability vs. a direct measure of financial security.
The approach that’s worked for me is to create and fund long-term aspiration categories. For example, a trip to France in 2020, a replacement car in 2021, a replacement smart phone in November. I set a Target Category Balance by Date for each of my aspirations and do my best to fund them each month. My attitude is that these categories are aspirations and some of them will pan out and others won’t. I don’t put a lot of rules around what makes the cut - it just has to be specific and require more than $100 to make it come true. I also fund a tracking account (off budget) where I’ve accumulated enough cash to cover loss of work, medical crisis, or other unfortunate life event.
I don’t set a category in my budget to collect funds for future months. Instead, toward the end of each month, I look at the upcoming month’s budget and start moving any excess funds from the current month to the fixed expense categories in the next month. I rarely fund the whole budget by the first of the month. So I live with some orange categories in my budget, but I know I can move money from my aspiration categories if needed.
I’m pretty committed to reviewing my budget once/week. I spend 30 minutes and it makes me happy. I use that time to make adjustments to the funding in each category. As paychecks come in, the orange categories turn green. If an unexpected expense comes in or I really want to spend money going out to eat, I bite the bullet and I move money out of the aspirational categories that have an available balance.
This approach works for me and I’ve found the inclusion of aspirations a powerful tool for regulating impulsive spending. The more specific the aspiration, the better. The dollar value could be $100 for a pair of goofy socks or $2,500 to blow at a casino. Watching balances grow is cool, but what happens when I reach my balance goal is delightfully surprising. I don’t run out and spend it. For example, I’d spent months researching my aspiration to have a high quality kitchen range. The category balance steadily grew and when I met my goal I instinctively said to myself, “I don’t want to spend that much on a range.” Now I have a better problem. What should I do with the money I didn’t spend?
The “next month” category approach makes lots of sense. I tried to use YNAB to chase that goal, but I consistently found myself stealing from the future category. In retrospect, saving just to be able to fully fund the next month’s budget felt like the budget was an end in itself. Funding and managing my aspirations turned it into something reassuring.