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Posts tagged with: YNAB

Living on Last Month’s Income

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I started my YNAB (You Need a Budget < not an affiliate link) trial and have viewed the “getting started” video (several people said these classes really helped).

So far, I’m not sure this is for me. But there is one aspect of YNAB that I am getting really excited over: living on last month’s income.

Now, this isn’t rocket science or anything. I don’t know why the thought hadn’t occurred to me before being introduced to YNAB. I’ve even had people mention it in the comments before when I’ve talked about our variable income (the main problem with doing a zero-based budget at Dave Ramsey suggests). But it always just seemed so daunting and scary to try to save up enough money to live off of last month’s income.

But now I see the light.

Doing this will solve so many of my budgeting “issues.”

First and foremost, it resolves the issue of not knowing exactly how much we will be making during the month. Also, I’ve mentioned how I’ve had a hard time waiting until the end of the month in order to make our snowflake payments out of any surplus funds we have from the month. Now I’ll have all the funds up-front so I can make these payments immediately at the beginning of the month. And it is my hope that it will make sticking to my budgeted categories easier because there is ONLY “x” amount of money, and that is it (currently, I’ve tried to do that with the money envelopes, but it hasn’t stopped me from swiping my debit card when needed for the girls’ birthday even though I was out of money).

By living on last month’s income I’ll know, from the beginning of the month, exactly how much can be paid toward each variable expense. That money will get budgeted and/or spent and then I will literally be left with only “x” amount for groceries or spending money, so going over budget is not an option. If I really need more money in a category (like gasoline), then I’ll have to take the money from another category where I’ll have to get by with less (like personal maintenance). I like this flexibility, and yet the rigidity of the structure, too.

What I’m not “sold” on yet is the actual software, itself. I can’t even explain why, but I don’t like the way the system is all set up. I much prefer my usual Excel file spreadsheet. But that could just be a “comfort” thing. I will, indeed, use the YNAB software for a month to give it an honest chance.

Honestly, though, I’m excited about the whole “living on last month’s income” thing. I think it will be a positive change for me, and the saver in me likes that it essentially provides one additional month as a “buffer” should worst-case-scenario happen that disrupts work.

But, from a debt perspective, what does this mean?

I’m still crunching the numbers (hope to get a budget update up later today, Friday at latest), but I’m thinking this will probably mean no (or very small) snowflake payments this month. Instead, I’d be setting that extra money aside until I can build up enough to live on for a full month. The YNAB class said it takes most people 4-6 months, but with all our extra income lately, I think we can do it in 2 months. We shall see.

In the meantime, I’m going to create a new subaccount of my Capital One 360 savings called “one month’s income.” I’ll use it as the place where I stash the extra money until we get to one full month’s income (and, thereafter, it will be used for storing our income until the start of the following month). Make sense?

 

Have you ever lived on last month’s income? How long did it take you to build up a full month’s income? What were positive experiences? Negative experiences? What do you think of YNAB?


Budgeting = A Work in Progress

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Before blogging here, I’d had a budget but I’ve mentioned that I didn’t really “stick” to it very well. Basically, if I wanted to buy something (within reason) I would just do it…it didn’t really matter if I was already over budget for the month.

I’ve been trying to modify this behavior (through use of the money envelope system). But if there’s one thing I feel I’ve learned since starting this debt reduction journey, it’s that the budget is like a living, breathing thing. It needs to constantly be monitored and adjusted as necessary to work well.

To jog your memory, here was my previous budget (notice the new line-item for my gym membership):

Item Budgeted
Rent $1055
Electricity $150
Water bill $75
Gas bill $25
Sprint (2 lines) $115
Cable/Internet $85
Car Insurance $90
Health Insurance $350
Waste Management $35
Debt $1500
Gym $50
Miscellaneous $250
Groceries $380
Baby Purchases $600
Gasoline $100
Savings for Irregular Purchases $265
Total: $5125

There are a couple categories that I want to revise moving forward. First, I’m going to have to bump my grocery budget back up to $400. This is what it had been set at before I started blogging and I was hopeful to reduce this number but have failed every single month. Instead of continuing to beat myself up about it every month, I’m going to set the budget at a more realistic number for our family. Back to $400.

 

The other changes all have to do with savings.

 

Here was my old break-down of savings:

$40 for semi-annual fees (car title/registration fees)

$50 for car maintenance (oil changes, savings for new work truck)

$125 for dental/vision (just increased from $50 last month)

$25 for travel and Christmas

$25 for 3-6 month expenses

 

And here are the changes I want to make:

Increase the semi-annual fees savings to $45/month. My “semi-annual” fees were only calculated to include annual car registration costs. Just the other day I got a $50 bill to renew my Costco membership. Oops. So I’m adding the $5/month to cover this expense (and provide a small buffer).

I’m starting a savings for veterinary expenses of $10/month. This came up because our dog (who is like our first “child” – you can see him in my author photo with me) got extremely sick this week. Luckily he pulled through, but my fear at the thought of an emergency vet visit made me realize…we need some type of funds for this. The reality is, our dog is getting old (major sad face!). He turned 9 this year, and he’s a large dog (large dogs tend to have shorter life-spans than small dogs). I hope he’ll be with us for years and years to come. But the fact is that we may need to have some money set aside for eventual vet expenses for old dog problems and end of life expenses (breaks my heart to even say that….but it’d be unwise to ignore the realities of life). Note that his food and regular annual check-ups will continue to come from the “miscellaneous” budget, so this is more of an emergency savings for unanticipated vet bills.

I’m starting a small savings for baby birthday expenses of $10/month. I was conflicted on this one. If I’m going to save for the girls’ birthday, why not also start a savings for all kinds of gift-giving occasions (like family birthdays, shower gifts, etc.) But the dollar amount spent for those is much less, so I think those should continue to come from my “miscellaneous” budget. I could perhaps even reduce the miscellaneous budget since I’ll be appropriating money monthly for all types of expenses that would otherwise be paid with “miscellaneous” funds. I want to monitor this for a month or so before officially deciding whether to lower the miscellaneous budget.

And one last (relatively big) change: I’m going to start setting aside $100 monthly with the intention of eventually investing in a Roth IRA. Per this conversation when I paid off our credit cards and started contemplating the need for retirement savings, the majority of commenters said we should NOT wait on this until we’re completely debt-free. But, I also want some time to do research into different options with different places and feel comfortable about where we invest. In the meantime, it’s easy for me to open a sub-account of my Capital One 360 online savings (<refer a friend link) titled “savings for 2014 Roth IRA.” I will probably stash some money there until the new year (I hadn’t known before people commented, but you can fund a 2014 Roth IRA until April 15, 2015). Then sometime probably in the March time-frame I’ll open up a Roth and make a large contribution (not just the money saved here, but probably adding some surplus funds from February and March, too). I’d love to max out our contribution at $5500. My savings by that time will only amount to about $900 (in March 2015), so I don’t know if we’ll be able to scratch up enough surplus funds to hit the $5500. If I were to set the money aside monthly ($5500 divided by 9 months = $611/month), it amounts to more than I feel comfortable saving right now. Ultimately, this is not a savings/retirement blog….it’s a get out of debt blog. I do feel that there’s a place for retirement savings and it’s an important component of the conversation, but I still have so much debt to focus on that I don’t want to be saving at that level while I’m still trying to shovel my way out of debt.

These changes bring our monthly savings to this:

Monthly Savings

$45 for semi-annual fees (car title/registration fees & Costco membership)

$50 for car maintenance (and savings for new work truck)

$125 for dental/vision

$25 for travel and Christmas

$25 for 3-6 month expenses

$10 for baby birthday expenses

$10 for veterinary expenses

$100 savings for 2014 Roth IRA

Total Monthly Savings: $390 (up from $265/month)

 

Even seeing that amount of money (nearly $400/month) go to savings instead of toward debt kind of hurts. But thinking long-term, having these savings are going to help me prevent accumulating future debt when the unexpected arises. Also, there’s no law that this money has to stay in savings. If, for instance, we build up the veterinary expenses savings and never use it or have no need for it, of course this money can be used toward debt (or toward the 2014 Roth IRA savings, or whatever else we like). But it gives me great peace of mind to have everything accounted for like this.

 

So there you have it, another revised budget. Hopefully the next revision I make will be to reduce the amount appropriated toward “miscellaneous” and increase the amount toward debt. Here’s hoping!

Updated Budget

Item Old Budget New Budget
Rent $1055 $1055
Electricity $150 $150
Water bill $75 $75
Gas bill $25 $25
Sprint (2 lines) $115 $115
Cable/Internet $85 $85
Car Insurance $90 $90
Health Insurance $350 $350
Waste Management $35 $35
Debt $1500 $1500
Gym $50 $50
Miscellaneous $250 $250
Groceries $380 $400
Baby Purchases $600 $600
Gasoline $100 $100
Savings for Irregular Purchases $265  $390
Total: $5125 $5270

What do you think about my planned monthly savings? Is there too much or too little to each category? Are there any other categories you would suggest to include or any you would exclude?