YNAB Budgeting Philosophy - Complete Victory over Finance

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

If you know how to keep track of income and expenses, you know how to make a budget, but have not yet gained full control over personal finances, then the YNAB philosophy can be the last step for you to final victory. If you consider yourself a complete layman in this matter, you can get the right direction already at the start.

My acquaintance with YNAB happened when I was already completely desperate to get the title of "master of finance" and was just looking for an app for budgeting. Having some experience in this matter, I instantly saw the full potential of the system and after a few months of practice I came close to the cherished title of sovereign. As I learned later, the father of this brainchild is the famous financial consultant Jesse Mecham.

YNAB Budgeting Philosophy

Jesse Mikum called his financial management system very simply - from the first letters of the words from the expression You Need A Budget (you need a budget). The system itself, for all its power and efficiency, is as simple as the name suggests, and includes only four rules.

Rule # 1. Give a Job to Every Dollar

Imagine a company in which no one knows their professional responsibilities, their front of work, and everyone does what they have to do. How long will such a company last?

So, you or your family are the same company, and the money is your employees, each of whom should be appointed to a certain position. Give a job to every dollar (ruble, hryvnia, galactic credit or whatever you get paid to shoot space pirates).

After budgeting, you should have a complete zero balance.

This does not mean that you should spend all your finances this month. Some of your "employees" will be responsible for savings for a rainy day, someone for a future large purchase. But not a single dollar should be left out of work.

Be sure, hear, be sure to enter the expense column "Spontaneous purchases." You can call it something else, but allocate a certain amount for it and spend it outside the budget and without any consideration. Spend as you please. This will make you feel freer, have more joy in life and, in the end, will not make you a servant of your own budget.

But above all, if you are married, you need to discuss everything with your partner. Discuss not the numbers, but in general the meaning and necessity of the budget. The reason is very simple: each person perceives life in his own way.

When you say, "We need a budget," the partner hears, "I want to control you."

When you say, "We need to plan big expenses," the other perceives, "You are spending too much."

Consider this and be prepared for unexpected twists and turns.

Rule # 2. Create a financial cushion and financial mat

Previously, instead of the phrase "financial pillow" they used "for a rainy day." To paraphrase another famous expression, we can say: "If I knew where I would fall, I would spread a pillow."

We do not know what events in the future will require unexpected expenses from us, and we do not know the volume of these expenses, and therefore we set aside a certain amount from each income.

The larger the amount, the larger the “cushion” and the less painful and stressful the “financial fall” will be.

I coined the term "financial mate" trying to explain the idea of the second rule as best as possible. The illustration is copied from a gymnastic mat that is spread in a certain place to soften our fall, since we know for sure that we will flop there.

In our financial life there are also gymnastic somersaults, the time and place of which we know for sure: New Year's gifts, payment of insurance for a car, future moving … That is, events known to us that occur once or several times a year and require tangible financial costs.

For example, if once a year you need to pay an amount of $ 600, you can create a category for this payment and each month budget $ 50. Agree, it is less tangible, painful and problematic to allocate such an amount in the budget than to tear off $ 600 from earnings at a time.

Rule # 3. Keep your budget flexible

Wise people schedule their day by the minute, not in order to live rigidly within the framework of their plans, but in order not to go astray and have a solid foundation for improvisation and a confident reaction to change.

We should treat the budget in the same way. Make an effort and try to live within your budget, but don't worry or stress if you end up overspending in a category. Sit down and calmly decide which category you can use to fill the gap. will help to do this in a matter of seconds.

Don't think of your budget as a supervisor. His job is to be your informant, helping you manage your finances in a mindful way.

The budget will warn you that if you spend money “on these things,” then at the end of the month you simply won't have enough money for bread. Are you ready to live a few days without bread? Please. You remain the owner of your funds. The budget just makes sure that "no bread" does not come as a surprise to you, and helps you to understand why you are buying "these things".

Rule number 4. Live on the income of the previous period

In practice, this rule looks simple: in June you receive your salary for May, but bring it into the July budget and, accordingly, spend it in July. And so every month. That way, you know exactly how much total spending to plan for next month, because it's already in your pocket. You do not share the skin of an unkilled bear and you feel calm and confident.

Of course, at one time, from the very first future salary, you will not be able to do it. But the embodiment of this rule can be specified as one of the categories of the budget and persistently strive for it. Explore 31 ways to save money in general, or other ways to save in specific cost categories.

Given that this situation will be temporary until you reach the ability to implement the fourth rule, you can use even extreme savings. From personal experience I know that such "exercises" can additionally open your eyes to many things. It turns out that without much that we consider necessary, life is happier and no less comfortable.

Just make a budget

At this point, the theoretical acquaintance with the YNAB rules can be considered complete. They are very simple and seem obvious to some. Perhaps. But in practice, few people follow them. Try it, and you yourself will see their effectiveness, as I was once convinced.

If you do not know how much to allocate for each item of expenditure, then get acquainted with the pitcher method or the method of budgeting according to the pyramid of needs.

Better yet, just make a budget for a start, follow the four YNAB rules and become the master of finances!