Beating Broke

Personal Finance from the Broke Perspective

3 Benefits of Budgeting One Month Ahead

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Person holding a calculator with a spreadsheet in front of them.

For years, I’ve tried to get one month ahead of my budget. This is based on the You Need a Budget rule number four: age your money. The idea is that you spend the money you earned last month this month. Finally, this past January, my husband and I were able to do this, and in the last few months, we’ve realized several benefits of budgeting one month ahead.

However, I want to recognize that putting together enough money to budget one month ahead is tough! We needed years to do this because our money was always so tight. However, we feel relieved now that we’ve finally reached this step.

3 Benefits of Budgeting One Month Ahead

Here are three times budgeting one month ahead protects your finances:

When Pay Day Falls Later in the Month

My husband is the primary breadwinner; his check comes every other week. That means that some months, his check will come at the end of the month, which makes paying bills at the beginning of the following month easy. However, sometimes, his check won’t come until the 8th or 9th of the month. If we’re not ahead in our budget, we’re short money to pay bills at the beginning of the month.

However, budgeting one month in advance took care of this problem. Now, I can pay our bills on time, in full, because when we start the month of July, for instance, all the money I need is in the budget. After all, I used June’s paychecks to fund July. This is freeing!

When Paychecks Are Delayed

I work as a freelancer and make about 20 percent of our household income. However, my money is allocated to pay for groceries and a few other budget categories. Recently, not one but two of my employers were delayed in paying me. Had we not been one month ahead in the budget, we would have had to shuffle some money around to have money for groceries.

However, I didn’t have to worry because I had budgeted ahead. I got both paychecks about two weeks late, but it wasn’t a big deal. I simply took the money when I received it and budgeted it for the upcoming month.

Defacto Emergency Fund

When you budget one month ahead, that money counts as part of your emergency fund. If anything happens, such as job loss, a reduction in hours, or, as in my case, delayed payments, you have next month covered so you have a financial cushion.

In addition, if you’re tempted by money sitting in an emergency fund, budgeting it one month ahead tends to reduce the temptation because you’ve already allocated how the money can be used next month.

Final Thoughts

We’ve realized several benefits of budgeting one month ahead in the few months since we’ve been able to do it. Who knows? Now we may try to work our way up to budgeting two months ahead. Then, we’ll be one step closer to a six-month emergency fund.

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How YNAB Changed Our Finances

How YNAB Changed Our Finances

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How YNAB Changed Our Finances

Years ago, when my husband and I were first married, I had a budget binder. It was simply a spiral notebook, and on each page, I put a different budget line item such as “groceries” or “electricity.” Each time we were paid, I put a certain amount in each category. When I paid a bill, I deducted the amount from that category. It was a tedious process, especially in a category that had a lot of deductions, like groceries. In desperation, I started researching budgeting software. I tried several before finally settling on You Need a Budget (YNAB). There are so many ways that YNAB changed our finances!

What Is YNAB?

You Need a Budget (YNAB) is a budgeting software based on the envelope system of budgeting.

The YNAB Principles

The YNAB system has four principles.

Give Every Dollar a Job

Using YNAB, you should budget every single dollar that you receive. Doing this helps you map out how to spend your money. If you have $40 left in your grocery category, you might need to have a small shopping trip and eat up the items in your pantry so you can keep within your budgeted amount.

Embrace Your True Expenses

Your true expenses are not just the ones that are due every month. You also have to budget for those expenses that you only pay once or twice a year like car insurance, property taxes, home insurance, and car registration. You should also budget for irregular expenses such as vet and medical bills.

Roll with the Punches

Your budget is flexible. If you only have $40 left in your grocery budget but your food costs $75, you can move $35 from another category to cover the overage. Things happen—roll with the punches.

Age Your Money

YNAB Changed Our Finances

The age your money principle refers to how long it takes you to use the money that comes in. If you have money coming in that you don’t have to use for 30 days, your money is 30 days old. The longer you use YNAB, usually, the older your age of money is. Currently, our age of money is 73 days.

YNAB Trainings

YNAB has many free training videos, so you can watch those to learn more about the principles in YNAB and budgeting. In addition, the creator of YNAB, Jessie Mecham, wrote a book, You Need a Budget: The Proven System for Breaking the Paycheck-to-Paycheck Cycle, Getting Out of Debt, and Living the Life You Want, that you can also read to learn about the YNAB system in-depth.

How YNAB Changed Our Finances

I started using YNAB over six years ago, and the program has revolutionized how I handle our finances.

Electronic Version of My Budget Binder

How YNAB Changed Our Finances

At its core, YNAB is an electronic version of my old paper budget binder.

Easier to Use than Paper

However, using YNAB is so much easier! All of those calculations I used to do on paper? YNAB does them automatically.

More Flexibility

Plus, when I put in an expense, I have the option to split the cost into several categories. So, if I spend $70 on Amazon, I can split the expenses into separate categories such as $45 for groceries, $15 for toiletries, and $10 for spending. I love that flexibility, and the process is so much easier and quicker than doing it by hand.

YNAB Is Portable

Plus, I can always consult my YNAB budget on my cell phone. I never carried around my budget binder previously, so I would have to guess how much I had left in each category.

Create a Budget Buffer

Besides being easier to use than my clunky budget binder, YNAB taught me new budgeting principles such as creating a buffer. When you first start using YNAB, you’re encouraged to create at least a one-month buffer. That means that slowly you start covering next month’s expenses with this month’s money. Say, at the end of the month you have $150 leftover. You don’t go out to eat to celebrate. Instead, you take that money and put it in some of your categories for next month. Then, slowly, you keep adding until you have all of your categories for next month covered with this month’s money.

Having a buffer gives you an automatic one-month emergency fund and gives you a sense of security. It also makes budgeting easier. You can pay all of your bills at the beginning of the month instead of waiting until you get your paychecks during the month because the money is waiting to do its job.

Can See Your Finances in One Glance

What I love most about YNAB is that my husband and I can see our finances at a glance. Since I do all of the budgeting, YNAB allows my husband and I to sit down every one or two weeks and together look at where we stand financially. My little budget notebook never made much sense to him, especially because he’d have to flip through 20 pages to see the amount of money in each of our categories.

Easy to Track Net Worth

YNAB Improved Our Finances

The best feature is the net worth feature. Often when we feel like we’re not making much progress financially, we look at our net worth and see that we are improving our bottom line. We sit down together at the end of each month to go over our net worth.

YNAB’s Price Increase But We Kept It

Recently, YNAB had a significant price increase. I thought about searching for a cheaper budgeting software. However, my husband said no, he wanted to stick with YNAB. He feels it is a valuable tool that makes budgeting and money management easier for me. In addition, he loves how easily he can keep up to date with our finances thanks to the program. He feels that YNAB is well worth the price, even after the price increase, so we’re staying.

Final Thoughts

YNAB has changed our finances and made them so much easier to manage. If you’re looking for budgeting software, I highly recommend You Need a Budget.

Read More

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How to Feed Your Family on a Low Budget

P.s. if you’re looking for a good all around quality site to review while you’re working with YNAB, consider Moneycrashers.com.  I’ve been following them for year – and their advice is generally really solid.

You’re Doing it Wrong! Rethinking Your Processes

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Habit.  It’s a dirty little 5 letter word.  I read somewhere that it only takes 6 times of doing something before it becomes a habit.  Habit is a close relative to addiction, although somewhat easier to change.

If you’re like me, you’re a creature of habit.  You like doing things the way you’ve been doing them and don’t feel very compelled to change them.  That’s the way I was before I began taking control of my finances.  I was a habitual spender of my paycheck.  There was no saving involved.  When I started this personal finance journey, I had to break that habit and begin a new one.  One that involved paying off my debt and saving money.  Like any other habit, it took time to really make it into a habit.

Within that greater habit, there are other habits.  The habit of checking balances regularly.  The habit of balancing the bank accounts.  The habit of keeping the budget.

That last one, the habit of keeping the budget, is the one I’d like to focus on here.  In the beginning (anyone else hear that choir?), I used only a copy of Microsoft Money (now defunct).  As I matured in my budgeting, I adapted a spreadsheet based on the budget spreadsheet that Dave Ramsey created for his Financial Peace University.  And that’s where it’s been since.  I have spreadsheets going back several years, in fact.

LedgerRecently, my computer became ill.  I ended up having to back all of my data off the hard drive and rebuild it.  Not a lot of fun, but it’s sometimes nice to start with a fresh drive and get rid of some of the flotsam that it’s accumulated.  Long story short, it took over a month to get it all sorted out and rebuilt.  When I had gotten everything installed and ready, it had been nearly 6 weeks since I had last checked in on my budget.  The process, if you’ll indulge me, is somewhat cumbersome.  First, I would manually enter in transactions from the internet banking application at my credit union.  With the version of Money that I had, I was never able to get it to properly import a file, so manual entry was my only option.  I would then manually enter in any outstanding checks and bill payment items.  Once the info was entered into Money, I would then manually, line by line, transfer the amounts from Money into the appropriate budget categories in my spreadsheet, using a calculator as I went to calculate the totals for each category.  (This was necessary because I didn’t have the individual line items in the spreadsheet, so I merely took the existing total and added whatever the line item was in Money to it.)

So, you can see, 6 weeks of undone budget work was quite a pile of work.  And like any good person with lazy tendencies, I put it off.  Before I knew it, there was almost 3 months worth of budget to do.  That was about the time that I decided that maybe my habit needed a bit of rethinking.  I began looking into new personal finance software that might integrate a little bit better.

What I decided on was You Need A Budget.  I’ll have a review of that coming up in the next week or so.

Telling all of you that was just getting us to this point.  The meat of the idea.  You’re doing it wrong!  Somewhere, something your doing is being done wrong.  Maybe not wrong in the sense that it’s incorrect (none of us make financial mistakes right?), but wrong in the sense that the processes that you are using are costing you;  Time or money, or both.

If there’s one thing I’ve learned through all of this, it is that you must be vigilant.  You’ve got to rethink your processes periodically.  It doesn’t have to be all that often; Some will go overboard and spend so much time rethinking their processes, that they’ll suffer from analysis paralysis.  Instead, set up a schedule where by you set aside an hour or two to go through your processes and try and discover new ways of performing those processes that might save you money or time.

In our case, moving to a newer software that made it easy to import our transactions and had the budget part of it all built in has resulted in saving us a lot of time.  What about you?  What processes do you perform that you’ve never changed?  Take a look at them and see if you can’t find a way to save yourself some time or money!

Image Credit: Ledger by er1danus