I’ve spent years tinkering with our household budget. There have been times where adjusting and forecasting and planning for our household expenses has been my after work decompression time(this was definitely before we had our two kids).
I’ve learned a lot about what matters and what doesn’t when you create a budget.
First, don’t be overwhelmed to get started. Just take the step. It may be ugly, but please realize that it’s totally ok.
I talked a little in a previous article about how the YNAB(You Need a Budget) software is the best way to budget. Yes, there are others. No it doesn’t matter if you choose to use a different software to run your finances. I’ve spent a lot of time taking a look at the differences in different programs, and I have to say that YNAB is the best.
But this article is about what really matters and what doesn’t when it comes to your budget, right? Well, the tool you use to budget isn’t the most important factor in the success of your budget. So if you’ve seen Every Dollar and think it’s the way to go, or you’ve come up with an awesome spreadsheet that works perfect for your situation, then go for it!
If you’re like me and have trouble committing to something before moving on? Just go with YNAB and call it good. Don’t get hung up on this choice, it’s more important to move on.
Now, the folks at YNAB keep making things better and better, especially with the on-boarding of new users. I won’t reinvent the wheel here by creating a setup tutorial. They already have plenty of great videos to introduce how the software works, and I won’t try to replicate their work here. It’s definitely worth heading over and watching a few introductory videos.
So once you’ve set up your account and have opened your first default budget. You’ll notice they have a bunch of categories set up for you. This is nice, especially because one of the most overwhelming parts about getting a budget set up is going to be those categories. These default categories should be enough to really get you thinking about what categories you want to add.
I like to think of all of my categories split into several specific category groups. Depending on your situation, you may choose similar category groups or different ones.
My groups are:
Monthly expenses- These are the expenses that we tend to think of not just as needs, but of money that we know we are going to have to spend. So we might have a need, like groceries, but we also have our category for fixed bills(think internet, youtube tv, iCloud storage ect.) here as well because we have committed to spending that money this month. We aren’t going to be faced with a choice on most of these categories- We have to buy shampoo, so we have a household expenses category which tends to be our miscellaneous catch all for needs. Things that we would put in our monthly expenses:
- Utilities
- House Payment
- Toll fees
- Haircuts
- Household Expenses-Needs like Paper towels, toothpaste, shampoo. Anything that we think of in America as a “need.”
- Fixed Bills-We put all of our fixed bills into one category. It doesn’t really change month to month. We used to have these all separated out into different categories but it took up way too much space.
True Expenses- I’ve taken this term from YNAB and really like it. These are all of the “gotcha” categories that you may experience in a year. You might hear other folks refer to having these categories as “sinking funds.” Either way, these are categories that could surprise you, although the goal will be for us to not be surprised when they come up. Take these categories and break them up into savings accounts throughout the year.
- Christmas- Yep, still on December 25th this year. Break up your amount that you’d like to spend on Christmas this next year, and save a little every month.
- Auto Repair- Save a little every month, so when an “unexpected” auto repair comes around, you’ve got some money sitting in your category waiting to spend for just a time like this.
- Home repair- Same as auto, you know it’s coming, you just don’t know when.
- Travel-Do you travel during the year? Again, break up those costs so that you’re saving a little each month.
Savings- I like to have our Roth IRA retirement savings in their own group and then other short term categories, like saving for a trip or big ticket item for the house in it’s own group.
Giving- Any giving gets it’s own group as well.
So the default YNAB budget will get you pretty close here. Just go through and spend a little time setting up your budget to fit your individual needs. Of course, you will be able to add, take away, rename, and change as you go, so don’t be worried about it being perfect here.
Now, YNAB will teach you how to do a zero based budget. That means that we don’t want to have even a single dollar unaccounted for. Even if we intend to blow that dollar or save it for a future trip, we want to be intentional with it and know where it’s going.
The simple formula for a zero based budget is money-expenses=$0. We want to make sure that we’ve assigned every dollar and that green To Be Budgeted at the top is zeroed out.
Now here is a way that YNAB differs from other budget programs and I really like it. YNAB doesn’t have you budget what you think you’re going to be making for the month. The only money that you have in YNAB is the money that is sitting in your account right now. It doesn’t matter what you think you will make this month, it only matters what you have now.
Now this could get a little confusing, but I think it’s a really powerful way to think about the money that you have on hand right now.
YNAB asks you “what does this money need to do before I am paid again?” So if you only have $1,000 right now when you usually make $4000 a month, that’s okay. You don’t make a budget for the whole amount you think you’ll make this month. You just have to decide where those dollars that you currently have will need to go.
So you’ll really need to think of your priorities. If you need to wait to put aside money for something until your next paycheck, that will become apparent. If you need to split your rent payment between the money you have now, and the money that you’ll make when you get paid again, you just put some aside now, and then add to it later.
The really important thing with your budget, it that it’s zero based. Make sure that every dollar you have now is spoken for. So if you want to put some money towards a “blow money” category, go for it! But when you go to spend that money and look at your budget, you know that you can spend that money guilt free!
Ok, so you’ve got your budget set up, and you have an idea of how you want to spend your money. The next part is the hardest. And no, it’s not sticking to your budget and all of your finances perfectly falling into place.
The hardest part is simply continuing to budget when you’ve gotten off track.
Now, you’ll want to set a budget that you think will work. But it won’t, it’ll be off a little. And that’s totally okay. With your first several months of budgeting, you will miss on some categories. With some categories, without having a baseline, you may have no idea what number to begin with, and again, that’s totally okay.
The most important thing that you can do is to adjust…and move on.
Recently, I was reading Finish by Jon Acuff. In his book, Jon talks about our goals and why people have a hard time finishing them. He says that the hardest day in completing anything worthwhile is day 2. We get excited on day 1, but by day 2, when it isn’t perfect, we think that we can’t do it. Perfectionism is the enemy, and that is so true for your finances and budget.
That’s why YNAB teaching you to “roll with the punches”- meaning, that when you realize that you just didn’t put enough money into your diaper category, that you’ve got to make an adjustment somewhere to make it work.
You haven’t failed, you aren’t bad at this-you just need to make an adjustment before moving on. Remember, your budget is designed to decide- “what does this money need to do before I am paid again?”
So if you missed somewhere, that simply means that you aren’t going to have as much in your eating out category as you thought you would.
With this blog, I’m preaching to myself to remember these concepts as much as I am my readers.
We miss in our budget all the time and have since the very beginning.
What I think has given my wife and I success, is that we simply keep trying. We haven’t let perfectionism keep us from sticking with it.
So, keep it up. The single most important part of starting a budget isn’t choosing which budget software to use, getting those categories right the first time, or allocating those dollars perfectly that first month. The most important part is rolling with the punches and showing up on day 2 and every day after that.
Happy budgeting.
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