The spread of the novel coronavirus is fueling anxieties all over the planet: Most are trying to stay healthy for the sake of family, friends, and community members; while others are stressed over temporarily closing their small business. Another worrying reality is a reduction or loss of income for the foreseeable future. How can we sustainably provide for ourselves and our families with newly idle checking accounts? Answer: with budgeting!
First attempts at budgeting
Many of us have (unsuccessfully) tried budgeting in the past, but with greater financial uncertainty we may want to try again or seek different methods.
I am one of those people who has half-tried budgeting in the past…without much luck. It was hard to remember how much I had budgeted for, say, groceries when I was actually at the store. And it was difficult to not go over budget on groceries if I saw something on sale and wanted to stock up. Also, what if I suddenly needed a new dress for an event and I hadn’t budgeted for it? In the end, I felt as if I had failed my budget and, eventually, I lost my motivation.
Finding a solution that worked
Last fall, I was listening to a podcast about budgeting, which featured an interview with Jesse Mecham, the creator of You Need a Budget (YNAB). I decided to try it out, which ended up being the best financial decision I’ve ever made.
YNAB is a budgeting app that encourages you to rethink the basic idea of budgeting. Instead of uninspiring restrictions (which are the last thing we need more of right now!), YNAB has you practicing financial freedom: you have the power to decide how your money is best spent.
YNAB is based on four principles: Give Every Dollar a Job, Embrace Your True Expenses, Roll With the Punches, and Age Your Money. I’ll briefly summarize them here.
1. Give Every Dollar a Job
I think this is YNAB’s most effective principle. When you link your bank accounts to the app, your ‘To Be Budgeted’ total at the top of the screen is the sum of all the money in those accounts. The goal is to allocate every single dollar to the categories you create (e.g. Groceries, Auto Insurance, Restaurants, Cell Phone).
Extra helpful here: when you’re done allocating to a category for the current month, you roll over to the next month and start filling in. It can give you a deeper peace of mind when you see you’re covered for the next three months or more.
2. Embrace Your True Expenses
Bills and basic expenses are inevitable: every month I have to pay for gas for my car, groceries, insurance, and medical visits. YNAB encourages you to organize these expenses so you see them first when you open your app (above less essential expenses, such as ordering in and new clothes).
Important: really ask yourself how much you need to allocate to these basic expenses. If you spend $500 a month on groceries, enter $500! If you have good intentions to save on gas but know you usually spend about $250 a month, enter $250!
Honestly assessing your true expenses in uncertain financial times may help you decide what’s really important. For me, my ‘Groceries’ category has received the most attention this month, with other categories temporarily falling by the wayside.
3. Roll With the Punches
This principle is especially pertinent with the huge shifts many of us have experienced over the last few weeks: for example, you might have lost part or all of your regular income. A practice that is encouraged in YNAB is to simply shift money between categories.
Because my favorite coffeehouses and breweries are not open for sit-in orders, and I don’t feel that I need lattes and growlers delivered to my door, it was an easy decision to move money from those categories to others (like Groceries). I also took all of the money out of my ‘Self-Care’ category (chiefly used for acupuncture) and moved it to ‘Groceries’. To substitute, I’ve been using the Balance meditation app and online yoga videos (with my girl Adriene!).
In general, I tightened up my “fun” categories, like ‘Clothes’, and moved that money into ‘Groceries’. I also moved a bit more money into ‘Restaurants’, as I want to help out my local eating establishments with take-out orders.
4. Age Your Money
This rule might be more applicable to you when you have regular income. YNAB let’s you see how “old” your money is. The older your money becomes, the less you are living paycheck to paycheck. In other words, if your money’s age is 30 days, you’re spending last month’s money! YNAB has a fun video here explaining this rule.
Why wait?
The beauty of major life changes is that our habits and rituals and ways of thinking can get dramatically shaken up. Now is a perfect time to ask yourself, “What new practices can I incorporate into my life to make this all seem more manageable?” Budgeting, perhaps with an app like YNAB, is a perfect response to this question, a skill that can help carry you through this period of uncertainty with perhaps a little more financial peace-of-mind.
