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Why We Budget to Zero

YNAB's Rule One is Give Every Dollar A Job.  Five short words. Easy and concise and that's part of the reason we like it so much. But don't get too comfortable. Don't mistake easy for lazy, when we say every dollar, we mean every dollar.

Budgeting to Zero

YNAB's mission is to reduce people's financial stress. We do this by helping you align your money with your priorities. We teach you to cut spending, build a cushion of cash and time. We even help people learn to communicate better with their partners and radically simplify their financial lives.

All of which have the potential to reduce stress. But we have an even bigger lever: removing ambiguity and uncertainty.

People's financial lives are often complicated and filled with uncertainty. Income level, age, experience, and education don't make much difference here. Our typical customer, after all, brings in more than six figures. Our customers who make significantly less might wonder why someone in that position would ever experience stress. But regardless of how much money you make, if you aren't in control, it is stressful.

Because it isn't about the money. It's about the uncertainty.

Uncertainty = Stress

Julie Beck wrote (in a piece well worth reading in The Atlantic), "Not knowing what to do, not knowing what’s going to happen ... these situations are ripe to breed anxiety in anyone, depending on how well they’re able to tolerate uncertainty."

We know we can reduce this anxiety. When you use Rule One, when you give every dollar a job, you gain control. And total control of your money removes uncertainty. Even if you don't have as much as you wish you had, you know what you have and what it needs to do. No uncertainty, no stress.

But Every Dollar? Yes.

Okay. But really. Is giving every dollar a job synonymous with budgeting to zero? And what do both types of this uncertainty have to do with budgeting to zero?

tl; dr: Yes & a whole lot.

But read on, or you'll miss all the fun bits.

Purpose & Process

Giving every dollar a job—budgeting the YNAB way—means identifying the purpose of each dollar with an intentionality that removes ambiguity.

A pile of money without a purpose—no matter how large—lacks purpose. The resulting uncertainty generates countless opportunities for worry. Will there be enough for the bills I am facing next week? Can we eat out tonight? Can we go on vacation next month? A budget answers these questions, be it good news or bad.

More to the point, wondering whether or not you can afford next week’s bills is a far worse prospect , in many ways, than knowing that you can definitely not afford them.

"A lightbulb went off suddenly & I get it now. I'm genuinely excited about the level of control & insight [budgeting to zero] gives me over my money." -- YNABer

The answer to "Can I afford this?" might not always be what you want to hear, but budgeting to zero has the greatest chance of removing the greatest amount of uncertainty, and thus, stress, from your finances. This is what it is all about.

Budgeting in Real Life

We cannot, of course, remove all ambiguity from the budgeting process. There are all types of circumstances and exceptions and decisions and unique situations. Our Four Rules will point you in the right direction—and it is up to you to determine what is best and most important.

Consider the advice to budget for True Expenses before paying off debt. It sits on solid ground but might there be a reason to do the opposite? Of course.

In fact, every budgeting decision, other than expenses that never waver in their amount and frequency, is impacted by ambiguity. But the framework for these decisions—budgeting to zero—is unambiguous. It provides a crystal-clear direction that invites control and confidence.

And the clear direction leaves important space for embracing ambiguity where it makes a positive difference.

The Final Dollar

So about that positive difference,… Budgeting any single dollar has the beneficial effect of reducing uncertainty about where your money is going. The first ones are easiest. Combine rent or a mortgage, utilities, debt payments, and a minimum level groceries, and it's conceivable that in budgeting $5,000, you might budget $4,000 or more before you have the opportunity to make a decision of consequence.

As you get closer to zero, though, the more complex the decisions become. This is where it is tempting to leave a few hundred dollars, or even that last twenty, un-budgeted. Uncertainty is creeping in.

How will I know what these last hundred dollars need to do? Shouldn't I leave them alone in case I need them for... something?

(This is also where the idea of a budget as rigid and unchangeable can really get in the way, but that's a story for another day.)

We can and do provide guidelines for making these decisions. Ultimately, though, they are only guidelines, and you will be confronted with uncertainty. Which, if you've been paying attention, you're thinking, "Unhelpful! Anxiety-provoking!" But this is the moment of truth. Learning to resolve this uncertainty leads to long-term mastery, of both your money and your priorities. These are the tough decisions that bring the greatest benefit and that have the most power to change your habits and grow your confidence as a financial decision-maker.

“Because every dollar I had was given a job, I cut spending elsewhere & saved to do those things within a set budget." -- YNABer

Every Dollar, Every Time? Yes.

If budgeting to zero is important and beneficial in these ways, the final question left is timing. Should each dollar be budgeted as it arrives? Does waiting to budget one paycheck until it is bundled with the next mean missing out on the benefits of budgeting to zero? The simple answer: No.

When you budget is up to you. Budgeting to zero is the guideline and the expectation. Waiting for a Friday night budget date to assign your dollars? Sounds like a plan. Budgeting your tips every night as they come in? Great. It’s up to you.

We aren’t concerned with when you assign your dollars jobs or what jobs you give them, it’s just that you do the hard work of giving every dollar a job and prioritizing your money. That process begins with the immediate and moves forward through true expenses, more remote expenses and into more discretionary ones. However you define those. But the end goal of that process is, in fact, that every dollar has a job.

Todd Curtis is YNAB's Chief Customer Officer. He thinks about the YNAB Method all day long, so you don't have to.

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Why We Budget to Zero