Keep Monopoly Money Out of Your Budget
A couple of my recent posts have mentioned Rule One. Yesterday’s sparked a conversation with a good friend who told me he’s been breaking Rule One without even realizing it (which I’ve also done).
He gets paid twice monthly, on the 1st and 15th, and he’s not fully buffered yet (meaning he isn’t able to live on last month’s income).
Rather than budgeting twice per month (one budgeting session for each paycheck), he estimates his expenses for the entire month when he gets his paycheck on the 1st.
By the way, Jesse tells me that 80% of YNAB users get paid other than monthly, so my friend’s situation – and the way he handles it – are normal. Less than ideal, but normal.
Another way of saying “he estimates his expenses for the entire month” is “he budgets money he doesn’t have.”
Which turns his whole budget into Monopoly money. If any of your budget is fake, all of it is fake.
Things Fall Apart When You Break Rule One
When you break Rule 1, the other three rules break down, and YNAB becomes a simple expense tracker instead of a finely-tuned money happiness machine.
How so? Because Rules 2, 3, and 4 are extensions of Rule 1:
- Rule Two assigns dollars to known future expenses.
- Rule Three acknowledges that dollars sometimes do jobs other than the one they were originally assigned.
- Rule Four lets you assign old dollars to today’s jobs, creating true financial bliss.
“Estimating” detaches your budget (and spending) from your real account balances (in checking, savings, etc), creating undesirable outcomes:
- You always have to check your bank account balance before making a purchase.
- You’re missing out on the magic expense reducing-power of a real budget (because your brain knows those category balances are made up, and don’t have to be honored).
- As your budget becomes less and less meaningful, you have less reason to use it, and you run the real risk of quitting.
Make a Fresh Start
First of all, don’t feel bad. Feeling guilty about your money is a waste of energy (No shame, no blame – right?).
Second, consider a fresh start with your budget. I don’t know how many times I’ve fresh-started YNAB – could be a dozen or more.
After fresh-starting (which, you might not realize, is an actual feature in the software under the “File” menu), resolve never to budget money you don’t have.
When money enters your life, assign it to those jobs that need to be done before you get paid again. In the unfortunate event you have to use a credit card to get by (we’ve all been there), you’ll be doing so with full awareness.
For those of you paid weekly or twice monthly, use your category names (or the notes feature in YNAB) to estimate your bills and remind yourself of their due dates. (I just made this change myself.)
Bottom line: “Available to Budget” is a sacred number. As long as you treat it accordingly, you’ll be using YNAB to its full potential.