I’ve had a lot of questions about what it means to have a budget. “What’s it like?”, “What does it require?”, and “Which categories do I use?” are the typical ones. If you took my advice and signed up for YNAB right away after I suggested it in a previous post, then you have at your disposal an abundance of information in their learning section (https://www.youneedabudget.com/learn) as well as access to free classes. You’ll need to at least have a look at the quick start guide if you’re serious about using the software! In the meantime, here are some answers.
A Family Affair
If you have any kind of shared expenses or joint accounts or if you’re living under the same roof and you’ve passed the “just dating” phase, you’ll both have to be on board and participate for budgeting to work. Perhaps there’s some way to do it alone if the other person just doesn’t care, you ask? That seems unlikely.
Isn’t it annoying to have a budget?
No! Actually it’s quite awesome indeed. A typical day out on the town spending is just like it is without a budget.
Do I have to look at my budget every time I spend a penny?
No! You can look as often or as little as you want. From personal experience I look at my budget only in a few specific cases: when I think I may have spent too much in a certain category, and at the end of the month when adjusting categories.
When we first started budgeting we had to pay attention to a lot of different categories to make sure we didn’t go over what we planned. (There’s an adjustment period when first starting.) Now with years of experience we have one category that we sometimes have to pay attention to – eating out. Most months we’re in a good routine and we’re fine, but some months we get half-way through and have to remind ourselves to plan for home-cooking a little better.
Which categories do I use?
Categories are a pretty personal thing. Maybe you’d like to budget $200 a month for your personal Pokemon collection? Here’s an example monthly budget to give you an idea of what some categories might be.
|His Personal Money||$40|
|Her Personal Money||$40|
|Vehicles / Cars||$200|
|Bus / Carpool||$50|
|Clothes for Kids||$50|
|Clothes for Adults||$50|
|Gifts / Presents||$50|
|Second Honey Moon||$100|
|Government / Taxes||$60|
|Credit Card Debt||$100|
How do you buy a new fancy thing?
Maybe you’ve had the thought “Okay, but if I only stick to a certain amount on certain categories then I’ll never be able to buy anything new.” Not so. There are some categories for saving and some for spending. For example you could have a “cell phone service” category and a separate “new cell phone” category, or simply a “cell phone” category where you’ve budgeted more than your monthly service bill and the extra is to be spent on a new cell phone when the time comes. Of course the “Emergency” category should never be spent on normal monthly expenses. Other types of savings categories work the same way (e.g. for a new car or computer).
What if I go over on a category?
We’ve been budgeting for YEARS, and we have never had a month where we don’t go over on at least one category. So you adjust it. That means taking money from a different category and putting it into the one where too much was spent. For us the important thing is to make sure our “savings” categories get what they’re supposed to (investments, emergency fund, savings for large purchases), and making sure that we don’t spend more than we have coming in every month.
When saving for an emergency fund please also consider loss of income as an emergency! There needs to be a considerable amount in there to cover that unexpected expense (three to six months living expenses). The fund also needs to be fairly liquid. Stocks are a bad idea for an emergency fund because you want to be able to get the money quickly and not have to worry about a down market.
The emergency category and the special “savings” categories are very important – it’s why we don’t worry. Because even though we only pay taxes once a year, we still budget for (and thus save for) it monthly. That’s what makes the difference between being surprised by unexpected expenses and being untroubled by them.
There are some fundamentals that can’t be avoided – everything needs to be tracked, for example, or it just won’t work. Also you have to plan ahead and have an “emergency” category. Which categories are used and how you use them is more open though. There are lots of options.
So there is some necessary setup of course, but once it’s all in place it’s smooth sailing. Happy budgeting!