It’s a fair question: what purpose is your budget serving in your family’s life? I’m going to bet you have one because most people I know have a budget.
But the bigger question is this: what is your budget DOING for you?
“Doing for me?” you ask? Yes. What is your budget’s value-added to your life? Because money is a huge, huge, huge stress point and stress causes all kinds of nasty, unhealthy reactions in our bodies–making us sick and diseased. It is also a major factor in divorces for those of you with-spouse. So it’s worth giving some time to for the sake of our physical and emotional health. And it’s financial literacy month, so… If you’d like a rundown on why I feel like I, a health coach, feel qualified to speak about money outside of being in my 40s and having some level of life experience, click here.
There are different ways people use a budget. Some create a budget based on the paychecks they can comfortably assume are coming in so that they can determine how much they can spend on any number of categories. I have to say that the places people often miscalculate their numbers are in groceries and eating out–where they have been notoriously underestimating how much they spend. Some programs out there (or now, even some of the bank programs) will give you estimates based on spending for better accuracy. Those programs are good for that; but they miss the things you need (or just want) to set money aside for. My vehicles have had almost no repair work for the last 2 years, but they’re getting to an age where that might not be the case anymore. So relying on my past spending isn’t going to be smart for the future when it comes to car repair. I need to set up a budget category for car repair that is not reflected in my past spending. This category is called a “sinking fund” and we have them for all kinds of things: clothing, car repair, summer camp, buying a LOT of salmon when it’s in season, our CSA shares, dog boarding & grooming, accounting fees at tax time, etc…
Once people have a budget, most people I know are split between two camps: those who download their bank activity into a program that sorts it into their budget categories, and those who put their receipts (or look at the bank activity) into their budget every week or month. Very few of the people I know are looking at their up-to-date budget before they spend and making a decision based on their budget.
And that’s a problem.
The way most people do it–you could be over budget and still spending before you realize it. When the numbers come in and you plug them into the budget… POOF… you’ve overspent. You can “steal” money from what you’re setting aside for clothing or car repair but then what happens when you need money to buy clothes for an event or your car breaks down? Can you steal from somewhere else? Or do you empty some savings? Or put it on a credit card? You can see how this is going.
I know people who do the envelope system–where they put the actual cash for each budget category in an envelope and when the money is gone, they stop spending. My family did this for a
I’ve been budget counseling friends and family for 20 years because I had pretty much been through it all with money. Not in a good way; but with good results. When smart phones came around, I was able to hack a way to keep my most significant overspending categories on my phone and keep track of purchases in a way that wasn’t pretty, but helped a LOT. I was not, however, able to sync that up to my husband–who really never worried about robbing from another category. My husband would also rather die than deal with the money. I remember when we were dating and he asked me to balance his check book. He did it with a smile so I might think he was joking, but I know now–he wasn’t joking. He also enjoys gadgets. If the GPS needs new maps then we need a new GPS. You get the idea. We are quite a pair: I am a meticulous budget fanatic and he gives very little thought to money at all. If you have this situation, you know it can be extremely stressful.
If you are looking for a new way to manage the money, let me tell you what I have found. It’s an app. My husband is also a technology security specialist so it’s a safe app. 🙂 What I like about it:
- Reconciling things is way, way easier because the budget part is done for you or requires way less time. The time you spend now will be about making decisions about spending habits more than shifting money around. That change is not all at once, but that’s the shift you’re going to make.
- It syncs real time across my laptop (you have to have it installed on one non-mobile device) and our phones. When I’m at the store and plug in a purchase in the grocery category, seconds later my husband can see the updated budget amount when he looks at the budget.
- They have an insane level of understandable education videos that even my husband can watch and comprehend… which is making it easier for him to grasp the necessity and value of a budget.
- Initially, this next point seems like a negative to many–but hear me out on this one: they don’t pull any personal information from anywhere. You have to enter it all yourself. Let me tell you why this is a good thing:
- No personal information is compromised
- You are forced to ACTIVELY engage with your finances instead of it being a passive task. That’s a big part of the game changer.
- I needed fewer bank accounts to keep funds straight. Suddenly, I didn’t need a separate bank account for my sinking funds (things I pay infrequently). Before, if I didn’t have a separate account, I might not realize that I had eaten into my clothing budget as quickly. When they were separated out, I would see the main account getting too low too quick and reconcile the budget quicker.
- Their methodology is different. Instead of budgeting for the paychecks that are coming in the future, you budget the money you have in-hand right now. I remember my early years where I had to actually do this on paper because I lived literally hand to mouth and had no wiggle room and I couldn’t use money for my car payment until JUST after the next paycheck. Now that’s not the situation–but the methodology absolutely makes it so that you are looking at your current situation and prioritizing the next period of time. You look at your financial situation very differently.
- Their methodology also gets you out of living paycheck to paycheck. People who live in big homes with nice cars are still often just a job loss away from losing it all. This system tries to prevent that from happening.
Things people don’t like about it:
- No automatic import of data and sorting. I’m going to say this to you with love: having this done for you is a different mindset about your money. It might be that you are just a more ‘strategic” money thinker than a “tactical” one (in other words–you’re plotting out retirement and college fund goals instead of day-to-day stuff… I get it, I’m strategic and hubby is tactical… except for money) or it might be that you don’t really want to deal with the money any more than you have to. But realize that this complaint is the lack of desire to engage in how your money is being managed. That’s not an insult. Don’t take it that way. Realize that this is who you are, and decide if that’s okay with you. If it is–then yeah, this isn’t for you.
That’s really the major complaint. I haven’t heard others and I spend time on the forums quite a bit.
The application is called YNAB from youneedabudget.com I don’t love the name because I felt like “I have a budget”. You get to use it for free for the first month-ish and I STRONGLY recommend that you do that when you’re really ready to devote some time to it. Our money situation is a touch more complicated (hubby has a regular job, I run a business and we own rental property plus all the regular stuff) so it probably took us 2 months to really know how to handle all of our stuff and get our accounts consolidated (which wasn’t required, but we realized we could). Take the free trial at a time when you can really learn to use it and see how it works.
I won’t lie–there were some scary times for me when I was new to it. I’m a die-hard number cruncher with budget money. I was afraid to trust how they did things. It was too foreign. But we’re 18 months into it and life is very, very different in great ways. Really. Our budget works for us and guides daily decision making. Right down to a text conversation last night about my wanting to eat at Chipotle, my husband telling me the Dining Out budget was empty, and my telling him take $35 from babysitting just this once because we had budgeted for a sitter 2 days/week last month and could only get 1 day/week–so there was excess. 🙂
YNAB can be found for less than the full retail price, but full retail price has been well worth it. If you can’t find a discount code, you can feel free to use the link below and get $6 off. Full disclosure: I will also get $6 from them.
Here’s to better finances!!! And if you already use YNAB–tell me how you like it and how it’s changed things for you in the comments below!!
A little history: I come from poverty. Like, actual poverty–not the “we never took vacations” kind of poverty. Welfare, food stamps, violent crimes in your household, drug-dealing poverty. I was able to leave that around 12 when I went to live with a parent who had IRS liens that (long story short) meant carrying cash wherever we went. Ever. A big roll of it. When I was young, my greatest influence was my grandmother who was cheaper than cheap. When I was 18, I received a credit card in the mail from LL Bean. It had a $500 credit limit. This was circa 1990. They extended me this credit line based on nothing more than the fact that I was accepted to a well-respected college and that alone made me (in their opinion) credit-worthy. I had zero training in credit or debt. Zero. I went off to college on a full scholarship and quickly came home on a medical withdrawal and found myself living on my own with a car payment to support at 19. It was HARD. I never missed a payment on that car although I slept in it briefly. I’ve learned a lot about money. A decade later I was moderating a family finances board and budget counseling for friends. I had figured out the snowball method before Dave Ramsey made it “a thing”. I have heard and/or read all of the major financial guru information and have found my own family’s comfort level with what we do; and we do alright but we definitely have work to do.