Let's talk about the most boring topic that most people don't want to talk about for a sec. But why?
Well, it's when shit hit the fan that most people start to care. It's when the pain of not budgeting is bigger than the pain of doing one that people actually start doing something about it. Hopefully, you don't need to get there to start caring about that like I did.
In a typical 80/20 fashion, sometime it's small hinges that moves big doors in life. Simple habits that makes a huge difference. Budgeting in an easy and painless way is one of those.
My Story
For as long as I can remember, money was a big mystery to me. It was like a hot potato and the way I was making choices about what I could spend was simple: "Do I have the money in my account now?". That's a recipe for disaster. Late payments of bills, no money for christmas gifts, bad credit score, etc.
I had enough of this.
I tried to "track my expense". That required a painful amount of attention and I've never been able to make it last more than a week. Then I tried having multiple account for different purposes. It got so complicated after a while and the fees actually was eating my budget. I tried spreadsheet and a whole host of strategies to get a grip on my finances. They All Failed For Me.
I was first skeptical of yet another budgeting software when I discovered YNAB. But when I discovered that it wasn't so much a budget software than a budgeting process, it peaked my attention. I got started with them and the amount of peace I've found in my finances is hard to describe to people.
A Fundamental Flaw
Most budgeting strategy starts by tracking your expenses and then projecting them into the future. Most people assume that every month are the same. But what about unexpected accidents? How about those winter tires? What about that yearly insurance premium? What about that broken leg and the reduced income from the job?
Expenses are not the same from month to month. You need a method that allow you to deal with reality. The reality that you need to be flexible, that you will overspend sometime and that all months are not created equal. You budget needs to be "anti-fragile"
I'll explain the YNAB process below and HIGHLY ENCOURAGE YOU to give it a try.
You Need A Budget
The Four Rules
Rule #1 - Give Every Dollar a Job
If you just embrace that one rule, I guarantee you that it's enough to change your financial life. Basically, when you receive your dollars, you have to bring your budget to $0. Every dollar must be assigned a task.
This strategy switch the focus from allocating based on past event and projection to what your money need to do NOW. Secondly, it also enforce the principle of scarcity. We value things that are scarce. It's a lot harder to blow money when you know your budget is allocated. Rather than making decision based on how much money you have in your bank account, you can now make decision based on the allocation of your budget.
The best thing about this approach is that you only need 1 bank account. It's like a virtual envelop system where you don't have to go out, take the money cash at the bank and deal with it manually. To me, the extra time and energy doing that was wearing on me.
Rule #2 - Embrace Your True Expenses
What you have/want to pay NOW (frequent) +
What You have/want to Pay in the Future (unfrequent)
If you are in a dire financial situation you will mostly focus on what need to be paid now. You may realize that you need to reduce the amount of money you spend on your phone or groceries.
Once you start having a little extra, you can start allocating money for future expenses that you know will come sooner or later. Changing the tires to winter tires, car repairs, dentist, christmas gifts, etc.
Rule #3 - Roll With The Punches
You are bound the over spend in certain category. It's important to realize that you didn't "fail" at budgeting. It's just that you spent more than you expected in a certain category. Because ynab is very flexible, it allow you reallocate the money from a underspent section to an overspent section.
Rule #4 - Always Spend Last Month Income
That's when true liberation come. Every month, you can put a little bit of money towards that goal of having a buffer that allows you to always live on last month's income. On top of having the expenses that will come in the future budgeted, you can now have a full 30 day buffer to cover you in case something unexpected happens.
I can't tell you how much more relax you get once you've attained that goal. You know that no matter what happens, you have a buffer you can fall back on.
Conclusion
Go ahead and try it out. I find it especially useful every since I am on steemit and making money this way. I didn't include any affiliate links because for some people it may make them skeptical of the claims I am making. Have fun budgeting!