Where Did My Money Go?

You work hard for your money, and yet, you feel like there’s never quite enough. You may feel like your income is more than enough, which makes it even more frustrating. It’s a constant nagging question:

“Where is the money going?”

You don’t really know. It’s just not clear.

This question presents several specific (and very solvable!) issues.

Can I afford this?

When your finances feel out of control, literally every expense in your life is ruled by “Can I afford this?” The fear of overspending spills into every corner where you spend money.

• We need a new car. Can I afford the $20,000 car loan, or should I buy a less expensive model? Can I make the monthly payment?
• If I pay the mortgage, will there be enough left in my bank account for groceries this month?
• How can I possibly save for a house down payment when I feel so unsure about my finances? Saving for retirement feels downright impossible.
• Will I get another paycheck before the phone bill arrives?
• Can one of us stay home when we have a baby?
• Can I afford the house that costs $50,000 more?
• Can I take this new job that pays a little less up front but offers more opportunity?

Trying to keep track of all this in your head just compounds the stress. It’s stress on top of stress.

Why does a big bill always show up just when things were getting back to normal?

When it finally seems like you’ve had a normal month—BOOM—you have a $600 car repair. Or maybe it was something less dramatic and a little more expected; maybe it’s the annual car registration. The frustration is the same: “Why does a big bill always show up just when things are getting back to normal?”

You feel like you’re on a roller coaster blindfolded, and it’s not clear when the ups and downs are coming.

Where’s the money going to come from?

When the big bill shows up and the initial frustration subsides, reality begins to set in. Reality asks, “Where’s the money going to come from?”

The car repair was $600. That’s the reality. How are you going to find that money? Again—it’s not clear.

These questions are all a cry for clarity.

Lack of clarity leads to lack of confidence

Without clarity about your financial situation, you lack confidence in your financial decisions. “Can I afford this?” The answer is a tepid and unsure “…maybe?…”

And when you’re constantly making decisions that feel unclear and lack confidence, the negative voices in your head say, “See? You can’t manage money. You’re just bad at this.”

Nah. Don’t listen to them. These are good questions, and you absolutely should ask them. What you lack is a concrete and effective way to answer them.

The end of the year rolls around, you get your earnings statement, and you think, “I did make money—my goodness, it seems like it should be enough.” However, you’re no closer to your goals than you were last year at this time. You took two steps forward only to take two steps back.

The solution: take control

You need to take control. Clarity offers control. In other words, you need to know what you’re taking control of—if you want to put the fire out, you need to know where the fire is.

To know where the fire is, you need a map of your spending. You need a budget.

To most folks, the word “budget” is pretty scary. But I assure you, we aren’t trying to scare you.

We say: “You need a budget.”

You hear:

• “You’re spending too much.”
• “You’re spending money on the wrong things.”
• “You’re irresponsible.”

It’s not you, friends. It’s your money management system that’s failing you.

A budget is simply a plan for spending.

It’s a wealth-building tool that gets you closer to your financial goals. Trust me—we want you to spend your money on what matters to you.

Decide what’s important to you

Start by deciding what matters most to you. Everything else will fall into place from there.

Spend time clarifying what is most important to you. We call this Rule Zero: Decide What’s Important.

Why zero? It’s the step you need to take before you can begin budgeting.

Make a list. Define your priorities, either by yourself or with your partner. Write them down, sit with them, and change them a few times until they feel just right. You don’t have to go into a lot of detail here, but it’s critical that you take the time to decide what’s really important to you. It will guide everything else you do.

Here are some priorities we’ve heard before. You’ll have your own list! You know what’s important to you.

• Summer camp for the kids
• A trip across the country to see relatives
• A down payment for a house
• Saving up to have a baby
• Buying $400 worth of fresh peaches when they’re in season (yes—this really came up!)
• Exploring local restaurants
• Your daily coffee
• Paying for your kids’ college
• Planning for a stress-free retirement
• Becoming financially independent
• Buying a red Porsche

Surprised? Were you expecting us to tell you to stop eating out and live on rice and beans? Nope. We don’t do that around here. If you think budgeting is about restriction, prepare to be delighted. It’s actually about aligning your spending to what matters to you. And it’s easier to do that if you take some time first to figure out exactly what matters to you.

Make a list of all the things you spend money on, and then sort that list from most important to least important. Some things on the list will be pretty straightforward—rent, food, and electricity, for example. Keep thinking, and keep writing. As you continue creating your list, more of your goals will emerge.

Make sure you move beyond the phone bill and the rent. Dream big. What do you really want to do? Start your own business? Not have to work? Own your home outright? Save money to travel the world?

This is your life—and your money—it should do what you want it to do.

Once that’s done, you’re ready for Rule One.

Here at YNAB, we teach four simple budgeting rules that lead to less money stress. Let’s start with Rule One: Give Every Dollar a Job.

“Can I afford this?”

Now that you’ve listed what’s most important to you, you’re ready to budget and find out what you can comfortably afford.

When money arrives, give those dollars specific tasks in your budget. Before you spend, set an intention for every dollar coming in.

We’re all used to the earning and spending cycle. Money comes in, and money goes out. However, we often miss the powerful step in between: budgeting. Rule One adds the pause between income and outcome.

This is envelope budgeting for the 21st century

Many moons ago, people would cash their paychecks and then distribute their earning to different envelopes. We’d put $500 in the grocery envelope, $1000 in the mortgage envelope, $200 in the student loan payment envelope, and so on. It was a great system: you knew exactly how much you had to spend, and you couldn’t go beyond the dollars you had in those cash envelopes.

That’s what we’re doing by giving every dollar a job. While envelope-budgeting is pretty great, it’s also pretty darn inconvenient. With YNAB, we take the genius of envelope-budgeting and turn it into an app on your phone.

Giving every dollar a job forces you to stop and think about what this money needs to do. The power of this pause is enormously underrated. Think about what happens if you spend in real time without the pause.

• You bring in money and immediately start spending.
• You pay some bills and then decide to spend $200 on new school clothes for the kids.
• A few days later, you realize that the electric bill is due, and you missed it.
• Now, there’s nothing left for it because you spent it all on school clothes.

If you had paused and given some thought to what was coming up, you would have caught the bill, set aside $100, and still had some money for school clothes. It’s not that school clothes aren’t important, keeping the lights on just takes precedence.

It goes beyond simply spending too much. Without the pause, you may feel more constrained because you’re afraid you’ll spend too much. If you pause, you might find that you actually can spend $200 on school clothes. By not taking a moment to think about it, you’re often creating more financial stress inadvertently. When you start taking more pauses, your balance will begin to align with your goal spending.

Pausing gives you a chance to think before buying and the possibility of spending with confidence.

We do this all the time in other ways. When you’re about to leave the house, you pause: “Do I have my wallet, my phone, and my glasses? Oh wait, I need to bring my raincoat since it might rain this afternoon.” If it rains, you won’t get wet. And if it doesn’t rain, fine, it doesn’t matter—you weren’t worried anyway. That’s the power of that momentary pause.

This is how you achieve clarity. The next time you see something and wonder, “Can I afford this?” You’ll know the answer. You’ll see all the information you need to know in your budget.

Tell your money what to do

Imagine a boss who never told her employees what to do. They’d show up for work and just wander around doing whatever they wanted. That business would not last very long. Telling your employees what to do helps the business run effectively and smoothly.

Be the boss of your dollars and give each one a job. This helps to create a visual representation of your financial life.

With Rule One, you can calmly sit and consider everything at once with all of the information clearly laid out. Consider this: A trip to the grocery store will be more effective if you pause and make a list of what you need. Your budget is the grocery shopping list of your financial life.

“You $1200—pay the mortgage!”

“You $500—buy me groceries!”

“You $150—pay the phone bill!”

It also gives you more ownership of your money. When you’re budgeting, you make an active decision about where it’s going to go before you spend it. This gives you control.

Only budget what you have

Money is finite. When you give every dollar a job, you are forced to deal with that fact because you will only give jobs to dollars you actually have. Not the dollars coming a week from Friday, not the dollars you’re hoping to get in that bonus or tax refund—just those you currently own.

This creates scarcity, which might initially feel scary, but it’s actually the secret sauce to gaining clarity. Anyone can imagine more money, but deciding what to do with the finite pile of money you actually have on hand is more powerful and effective.

Budgeting vs. forecasting

Let’s talk about the difference between budgeting with money you have and forecasting with money you don’t.

Here, we have $300 in our checking account, but we’ve gone down the budget listing our upcoming expenses.

If we were to use this budget to guide our spending, it’s fuzzy. It says I can spend $500 on groceries, but there’s only $300 in checking. How much can I really spend and still have enough to pay the phone bill that’s due this week? I don’t really know.

Compare that with this budget.

This is a budget you can trust. I can spend $150 on groceries and still have enough to pay the phone bill by the end of the month.

Even if you forecast and make plans for dollars that aren’t here yet, you still have to make decisions about the money you actually have. You can’t escape that—you can only lose clarity by forecasting.

“Why does a big bill always show up just when things were getting back to normal?”

Yeah, why is that? It almost feels like the world is out to get you. We promise it’s not. You’re missing the big picture. Monthly expenses send monthly reminders, so you’re likely to remember them.

But not all expenses are monthly, and you need to take control of them too. When you do, you’ll get that big picture and make informed decisions.

Plan for irregular (but predictable) expenses

We prioritize immediate expenditures like monthly bills, groceries, and gas. But some expenses may not appear for a while. The annual car registration and a trip to the vet with a sick pet are your priorities, but they may not be immediate. That doesn’t mean we should ignore them completely or pretend they’ll never happen.

Enter Rule Two: Embrace Your True Expenses.

If Rule One is telling your dollars what to do, Rule Two is telling some of your dollars to hang around longer to be there when you need them for non-monthly expenses.

As you’re budgeting and assigning dollars to jobs, you’ll assign some extra money to these expenses. They may not be the top priority today. Someday they will be, and you’ll be ready.

How to make expenses more predictable

We tend to think of our spending as uneven and unpredictable, but the truth is lurking underneath: it’s actually fairly consistent. You can balance what feels like ups and downs by treating non-monthly expenses as if they were monthly.

Is the car registration $300 and six months away? Divide $300 by six and start setting aside $50 every month—the money will sit around and wait for that bill.

This works with unpredictable expenses too. Sure, you may not know exactly how much you’ll spend at the vet this year. But if you have a pet, it’ll probably be greater than zero. Set an annual total, divide by 12, and start saving. You and Fido will both be glad that you did.

Over time, you’ll see what these expenses cost and begin to plan for them more effectively. You’ll learn and adjust.

This gives you the big picture you’ve been missing. When these larger, less frequent expenses show up, you’ll be ready.

See other non-monthly expenses you might want to add to your budget.

“Where’s the money going to come from?”

This question often comes with a lot of guilt and shame. Let it all go—when an expense is more than you anticipated, you’re asking the right question.

What you need is to make adjustments to your budget. You need to change your budget and reassign some dollars.

Tell your money to do something else

Remember when you saved $600 for car repairs (good for you!), and then the mechanic hit you with a $650 bill? It sounds a lot like Murphy’s Law: “Anything that can go wrong will go wrong.”

Well, friends, we have the antidote for Murphy’s Law. It’s Rule Three: Roll with the Punches. If you want or need to make a change to your budget, go ahead and do it.

Shocking, I know! We’re so used to the old fashioned mantras:

“You can’t change the budget!”

“Stick to the budget!”

This idea falls apart under scrutiny. There are punches, and we simply must roll with them. If you wrote the budget, you sure as heck can change it. You don’t need anyone’s permission to do that.

This isn’t just OK. It’s downright honest and smart.

You’re not a failure when the car repair bill is higher than you planned. You can’t predict the future with 100% accuracy. Now, when faced with the very logical question “Where’s the money going to come from?” your budget will provide the answer.

Perhaps you notice you have a surplus in your clothing budget and move $50 from clothing to car repairs. Your priorities changed, so you shifted the budget to keep things on track. That’s smart.

Stick to a zero-based budget

Rather than sticking to a rigid amount in a specific area of your budget—which is just plain unrealistic—we want you to stick to a zero-based budget. Every single dollar gets a job. But if you need to reassign those dollars because new information arrives, go for it. It’s a game of trade-offs.

Zero-based budgeting is your friend here. It keeps the trade-offs crystal clear. The car repair is now a higher priority, but higher than what? That’s what you get to decide. Budgeting is a process, not a set-it-and-forget-it one-time activity. It ebbs and flows right along with your life.

Think about a time when you made a trade with someone. If you happen to have a 1967 Carl Yastrzemski baseball card, you’re not going to trade that away for just anything. It’s worth a lot of money—you’re going to want to get something of equal or even greater value for it.

A zero-based budget helps you evaluate financial trade-offs more clearly. You want to buy the $600 flat-screen TV, but what are you willing to trade for it? You are the only one who knows the right answer. Without a budget, you don’t have the right information.

When you give every dollar a job, it becomes clear what you’re giving up to get something else. If you have no money in dining out, but you want to go out to eat, you can. We’re not going to tell you not to. We just want to help you weigh the trade-offs.

So, you decide that you’re going to give up going out to eat by moving some money around in your budget. It’s OK to make changes—it really is.

Think back to our boss analogy. Employees are asked to do different jobs at work all the time. Maybe you’re stocking shelves in the store one minute, and then you’re needed at checkout the next.

It’s a smart decision to move an employee to where the work is needed. It’s smart when you do it in your budget, too.

Find the money first

Rolling with the punches is about more than having a smart way to deal with a surprise expense. It offers a way to make proactive changes in your budget before a problem even appears.

We call this finding the money first.

Imagine you just found out that your favorite performer is coming to town and tickets just went on sale. It’ll cost $150 for you and your honey to go. You check the budget, and there’s nothing set aside for entertainment, but this concert is important, and you didn’t know about it when you created your budget for the month.

Stop right now and look around your budget.

The question is not “Is the concert important?” It is—you know that. The question is: “What is the concert more important than?”

By deciding before you spend, the trade-offs become clear. You have $60 left in your monthly restaurant budget, and that’s not as important as the concert. So you move the money, now you’ve got $90 to go.

There’s $200 in clothing, but that can wait. You move $90 from clothing and buy the tickets. Now, there are no surprises and no problems to solve. The information changed, and that information changed your priorities. Your budget, following your lead, changed as well.

Finding the money allows you to put your money toward the thing you truly want. There’s no wrong answer. Maybe you’ll face a choice and decide not to spend or move money around. That’s OK, too. It’s entirely up to you.

Move money whenever you want to

Rule Three applies to more than just problems. It’s really about making sure your money is doing what you intend it to. Your intentions may change, and you can make a change whenever you want to.

Imagine sitting down to budget some evening with a hot cup of cocoa and deciding, “Hey, let’s start saving to renovate the bathroom. That blue bathtub is so 1970s.” You create the category, seed it with $50, and feel good about it.

Ten days later, you open the budget, begin looking at all the things you’re saving for, and decide that a summer vacation at Yosemite is more important. Everything in the bathroom is working properly, so the renovation can wait. You move the $50 to vacation and hide the bathroom renovation category.

You don’t need to wait for a problem to arise to move money. You can do it whenever it makes sense.

With your priorities in order and your budget in place, you’re ready to spend. This time, the spending will be more purposeful.

When you spend without intention, you create wasteful spending that you eventually regret. Not so with budgeting. Want to spend $150 on concert tickets? You bet. It’s a priority and a decision you already made and weighed against your other priorities. Enjoy yourself.

Check your budget before spending

Before you spend, check the budget. When you do this, you’re simply reminding yourself of the decisions you already made.

The electric bill is due—did you set money aside for it? Great! Pay the bill and move on. Are you buying groceries? Check the budget to see what’s left and make sure you’re on track with the plan you put in place. Are you out shopping and see a great deal on a Christmas gift for your brother? Check the budget and see what’s there for Christmas spending. Look around the budget, weigh your priorities, and make an adjustment.

Remember: the budget isn’t doing anything to you. It’s just a reflection of your life.

Let the budget do the tracking

If you’ve been trying to keep track of all this in your head, it’s time to take some headspace back. Using a budget allows you to track expenses in one place, allowing you to weigh decisions carefully and purposefully. You’ve made space for other things in your brain.

Once you’ve decided what your dollars are going to do, the heavy lifting is done. You won’t need to remember the plan—your budget will do that. You’ve got your plan, and now it’s all about execution. You just need to check in. When you spend, the budget will update and show you how you’re doing in real time, allowing you to adjust it and stay on track.

Giving every dollar a job every time you’re paid allows you to become really, really good at it. Prioritizing gets easier and easier, and you’ll dial in your priorities over and over. You will know with absolute clarity what matters to you and what doesn’t.

It makes sense, doesn’t it? When we practice something, we get better at it.

Sell something online for $100? Cool. Give those dollars a job to buy you more coffee or fund part of a road trip. Maybe you’ll get a great bonus and use some of that to pay off a credit card, save for a down payment on a house, or really pad that car repair category. You do this over and over and over. You’ll become so good at assigning your dollars and prioritizing that it will become second nature.

This will change you. Instead of feeling like you’re bad at money, you’ll know you’re not because you’ll have proven it to yourself over and over and over. Your confidence will build. You can manage money and be an absolute rockstar about it. Imagine the power of mastering this skill in the face of a job loss or a big expense.

The ability to make smart financial decisions is just as important as having money itself.

If all of a sudden your income is cut in half, you’ll know exactly where to look to start cutting back. Now, it’s not nearly as stressful as it would’ve been. You practice the art of budgeting every time you get money and sometimes when you don’t. When your priorities change, you adjust, constantly making sure your budget is a reflection of your life.

Practicing keeps you close to your priorities and money. This is your life. It’s important.

1. Start a zero-based budget for clarity.
2. Keep budgeting for confidence.
3. You know where your money goes because you put it there. Watch as the dreams you’ve always had in your head finally align with reality.

Now that you’ve solved the “Where did my money go?” mystery, get even more savvy about spending and saving.

• Money and Mental Health: Budgeting as Self-Care
• How to Deal with Debt Stress
• 30 Affordable Ways to Treat Yourself
• Is It Bad to Keep Money in a Savings Account?
• 8 Ways Rich People Think Differently
• How to Get Rich Fast (& It’s Not Budgeting)
• Do I Need an Emergency Fund?
• 6 Myths That Could Be Holding You Back Financially
• How Big Should Your Emergency Fund Be?
• How to Avoid the Slippery Slope of Lifestyle Creep
• Living Within Your Means

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