How I Manage My Money (Hint: I don't use MINT)
I’ve been using YNAB for almost a year now and I absolutely love it. YNAB is so powerful because it alters your spending behavior, it’s budgeting focused rather than tracking focused. That’s a key distinction. If you were to use a tracking tool like MINT it most likely won’t change your spending behavior, you’ll just see at the end of the month that you spent too much money on dining out…and you’ll likely repeat the same mistake. YNAB forces you to create a budget and stick to it. You’ll never overspend on dining out again, well, you might…but that’s actually okay under the YNAB system. That’s called “rolling with the punches” and it’s one of the four rules of YNAB.
- Give every dollar a job
- Embrace your true expenses
- Roll with the punches
- Age your money
The first rule is telling you to give a purpose to every dollar you earn and to base it on priority. For example, when I receive a paycheck, I set aside money for high priority expenses first, like rent and groceries. If I have additional money left, then I can assign it to a job like clothing (assuming high priority expenses have been covered). This mentality takes away any anxiety I have about the money I’m spending. When the time comes to pay rent at the end of the month I never think “I hope I have enough money for rent after I bought those new shoes last week”. I also never feel guilty when splurging on clothes or a night out because I know exactly how much money I have budgeted for that activity and that my rent is already accounted for.
The second rule is probably my favorite rule. YNAB allows you to plan for all of your expenses no matter the timeframe (monthly, quarterly, annually, and so on). Those infrequent expenses can be divided out into monthly expenses. My domain name categories are great examples. They cost $20 - $30 each year. Every month I’m setting aside the monthly equivalent (a few dollars) to fully fund that bill in the future. While my domain name example may seem a little nitpicky, I also account for larger expenses like car insurance in the same way. Every expense I will incur in the future is accounted for, this way there are no surprise bills.
Rolling with the punches allows for flexibility in your budget. Say I went on a date and spent $50 tonight, this would exceed the $30 I currently have remaining in my dining out category. No problem, I can just cover that overspending with money from another category, maybe badminton. Keep in mind I’m delaying whatever I was hoping to buy with my badminton fund since that fund will now shrink. This same mentality applies to emergency expenses, I was able to roll with the punches when my car was broken into and I had to pay for a new window.
Aging your money is meant to get you out of the paycheck to paycheck mindset. By spending less than you earn each month you’re effectively aging your money. Ultimately you want to age your money to a minimum of 90 days so that if you receive a paycheck today you won’t actually spend that money until 3 months from now. That means if you were to become unemployed today you could survive for 90 days at your current standard of living. That’s useful to know and incredibly empowering. Knowing that you are financially secure for 90 days takes a weight off your shoulders so you can plan ahead and make better decisions for yourself and your future. It could enable you to step away from a toxic work environment, to take time off to start a business, or to dedicate yourself to a new goal. All of these decisions require some basic knowledge of your financial foundation. Reaching your goals requires taking risks, it wouldn’t be a goal if there wasn’t a risk of failure. In order to increase the probability of success, you should minimize risk. YNAB helps you minimize risk helping you to achieve your goals.
- Treat your goals like financial goals
This is one of my rules that I use to supplement YNAB. Anytime I set a new goal I first approach it from a financial perspective. Maybe you want to start going to the gym and put on some muscle. Yes, there is a mental component to this goal, you have to wake up early and put in the work. However, there is also a financial underpinning. Maybe you need to buy a fitness book, or workout clothes and shoes, or supplements, or healthier food, or a gym membership, or stretching equipment, or a training class/program. When you break it down a good chunk of your fitness goal hinges on your finances. Using YNAB to financially plan for your goals will minimize the risk of failure and help increase your chances of sticking to your goal.
It’s much easier to achieve your goals if are able to plan ahead and remove the money component out of the equation so you can focus on the goal itself. I plan to get my skydiving license this summer and I’ve almost set aside enough money to do so. When I’m preparing to jump out of an airplane I want to be focused on the task at hand, not how I’m going to make next month’s rent.