You Need a Budget

You Need a Budget

"A budget is telling your money where to go instead of wondering where it went." - John Maxwell

I've always been very bad with money. I can't think of a time in my life when I wasn't stressed about how all of next month's bills would be paid. I found out that I was creative, yes. But responsible? No.

For most of my life, I didn't really have a lot of money. The idea of "budgeting" wasn't something that we did. We just tried to make our paychecks stretch from payday to payday.

After a small series of fortunate breaks, I found myself in what I consider my first "real" job. In an office. There were benefits, and there was a larger paycheck than I'd ever expected that I'd make. It wasn't a windfall. But as a single man it should have been the beginnings of putting together a long-term financial plan. It would have laid a solid foundation, if nothing else.

Not too long after that, I got married. We bought a small house. As DINKS, we definitely should have been able to get that financial plan started. But we didn't. We continued to live paycheck to paycheck. We didn't buy expensive cars or go on exorbitant vacations. I honestly don't know where that money went. Which, of course, is the problem. We lived day-to-day, and didn't prepare for the future.

Sure enough, the future came. My wife got pregnant with our first child, and opted to leave the work force and spend her days (and nights and weekends) as a stay-at-home mom. Now we had another person in the family to provide for, and our income was essentially halved. And a couple of years after that came kid number two.

And we continued to struggle with getting the bills paid. We racked up credit card debt as we didn't have the cash to buy what we bought. The mindset was, "It'll get better. At some point, we'll be able to pay off the debt". That is a silly mindset.

Fast forward to 2013. We were now a family of 5. My wife was trying to re-enter the workforce, but it's very challenging to do that after a 10 year hiatus. And we continued to live paycheck-to-paycheck and we continued to pile on the credit card debt. And while we'd been managing to barely tread water financially, we didn't realize that every time we used a credit card, we were adding a weight to our feet. And finally, that weight was pulling us beneath the surface. We were going to drown. We'd been drowning for years, in fact. We just didn't know it. All at once, we knew.

We caught a break, though. In August of that year, my wife was able to re-enter the workforce. It was an entry level salary, but it was fair. We were drowning. This was somebody throwing us a lifesaver.

I was determined to not waste this opportunity. Now that we had some more money coming in, I wanted to create a budget. Only problem was, I had no idea what to do. Sure, at a very high level, spend less than you make. But I wanted something more. I set off to googling and eventually settled on YNAB1.

The YNAB principle is "give every dollar a job". It's not new, but the software makes it easy. It uses what is essentially the Envelope Technique of budgeting. You have $500. You know that you need groceries, gas, and clothes, and that the electric bill is due soon. So perhaps you take $200 and place it into an envelope labeled "Groceries". You take $50 and place it into an envelope labeled "Gasoline". You take $100 and put it in an envelope labeled "Clothing". And finally, you take the remaining $150 and place it in an envelope labeled "Electric Bill". Now every dollar has a job. And when you need to put gas in the car, you take it from that specific envelope.

YNAB: Gain total control of your money.

Pay off your debt, save more money, and break the paycheck to paycheck cycle.

This system has been great for me. Before YNAB, I did have somewhat of a "system" in place. I'd get my paycheck, and then sit down and look at what bills were due before the next payday. I'd put money aside for those, or pay them right then. Whateve was left, was the "everything else" money. The problem with that is that there's really no planning invovled there. There's no looking ahead. I might have had $1000 left over after paying bills. That seemed like a lot of money. Perhaps we'd go out to dinner (there goes $120). Then I'd buy groceries ($300). Then the kids need some clothes ($400). Oh, and the cars both need gas ($100). Also, one of the cars needs an oil change ($50). Look at that, I still have $30 left. I am a financial wizard.

But then it happens. A few days later one of the kids gets invited to a birthday party ($20 on a gift). It's picture day at school and the kids need haircuts ($50). The battery dies in one of the cars ($100). The dog ate a bag of chocolate chips and needs to go to the vet ($150). That adds up to $320, and I have $30. Time to break out the credit cards.

That is, quite literally, how we lived our lives for many, many years.

With YNAB, when I get paid I immediately "give every dollar a job". What this means is that I have predefined categories in the application. Think of a category as a virtual envelope. I have categories for each of the monthly bills. I have categories that are Everyday Expenses, such as "Groceries", "Gasoline", "Restaurants", etc. I have categories that are Rainy Day Funds, such as "Car Repairs", "Home Repairs", "Christmas", "Car Registrations", etc. Every dollar from my paycheck goes towards these categories. When I'm done, I have $0 "available to budget". It's all been assigned a job.

So now there's no longer that $1000 pool of "unassigned" money. If we want to go out to eat, we look at the "Restaurants" category and see if we can afford to go. If not, we stay in. When we need clothes, we look at the "Clothing" category to see how much we have to spend there.

We started with YNAB in February of 2014. Our "budget" was still very rough. The numbers were essentially best guesses, and we didn't necessarily stick to them completely. But they gave us a guideline. And the application allowed us to track the spending, even though that's not its primary purpose.

Last month, with almost a full year of YNAB behind us and a new year ahead of us, I sat down and averaged out how much we actually spent in each category. Based on that, I adjusted some of the numbers. Moving forward in 2015, we have a more solid budget, as it's based on actual spending patterns.

Also in 2014, we stopped using credit cards. Completely. Thanks to YNAB we were able to do that. And when Christmas rolled around, we didn't have to buy presents with money we didn't have. We'd been funding the "Christmas" category every month for the entire year. That's a huge accomplishment for us. We also took a small family vacation in November and spent Thanksgiving on the beaches of southern California. All without the use of credit cards. Because every month we funded the "Vacation" category.

We've got a ways to go before I'd consider us "healthy" financially. But we are absolutely heading in the right direction.

Today was a payday for me. And as I sat and allocated money to different categories, I found myself getting excited. Looking forward to the end of the year and seeing how much progress we made. Last year was great, but this year I expect should be even better.

I avoided budgeting for a long time. I thought that it would be something that I'd hate. Not being able to buy what I want when I want would be frustrating. I was sure that I'd hate it.

A year into it, it's completely the opposite. It's not something that I find limiting. Rather, it's something that I find empowering. Rather than being reactive to my financial situation and wondering how I'm going to pay for the next unexpected expense that arises, I'm in a much better position to handle it.

I may still have a long way to go to get to the shore, but I'm swimming. And that's a world of difference than where I was a year ago, treading water in the same spot and barely able to keep my head above the surface.

If YNAB sounds like something that you'd like to try, I'd appreciate it if you'd use this link:

You'll get $6 off of the purchase price, and I'll get a $6 "finder's fee". If it wasn't something that I believed in unconditionally, I wouldn't be recommending it at all. It's a solid application that does what it's meant to do. There's amazing support from the company as well as the YNAB community. You can enroll in online courses for free as well as participate in their helpful forums. Feel free to leave a comment with any questions. I'll be happy to answer.

  1. Full disclosure: Referral link.

Charlie Griefer

Charlie Griefer

Just another ghost driving a meat-covered skeleton made from stardust.

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