YNAB: You Need a Budget Review
If you're ready to account for where every cent of your money goes, You Need a Budget could work for you. The app is based on the premise of "giving every dollar a job," meaning you budget for every expense -- fixed, discretionary or otherwise. Want to buy a new purse or pair of shoes? If your monthly clothing budget is $100, then you may not be able to afford it this month. Friends want to double date at that trendy new Italian restaurant? It may not be in your $200 dining out budget.
The app makes budgeting straightforward, allowing you to see how much over or under you are for a particular line item. But it's best for people who want to get serious about how much they actual spend and where they may need to make sacrifices to achieve a larger goal.
What I Liked
Zero-based budgeting is tough, but I can see its value. You have to account for every dollar coming in, either using it to cover monthly household expenses, pay off debt, for dining out and for what YNAB calls "quality of life" expenses like vacation. During this process, I realized that I'm not as good a budgeter as I thought. I do a good job of tracking our spending after the fact, but I could improve when it comes to setting aside money for specific purposes -- basically being more financially proactive. For example, before using this app, I had no idea how much my husband and I spent each month dining out and we never really set aside a specific amount for this purpose. It was more like "we'll eat out no more than two times a week." I also had no gauge of my own discretionary spending, since this money comes out of my personal account. Using the tool allowed me to see that we spend less than $200 a month eating out, but that I need to keep a better eye on my discretionary spending for things like beauty and hair products and anything from Amazon.com (Amazon Prime admittedly has turned me into a shopping junkie). We plan to buy a house within a few years, so YNAB allowed me to see that these are two areas where we (or I) could curb spending and put that additional money toward a down payment. Actually seeing the budget also showed me that we could be saving more. We have more cushion than we need in our account for household expenses, so it might be better to put more of that money toward retirement or paying down my student loans.
In a nutshell: By diligently applying four simple rules, you can move from being at the mercy of money to being a master of money.
In 2004, Jesse and Julie Mecham were twenty-year-old newlyweds trying to make ends meet. They lived in the 300-square-foot basement of a sixty-year-old home. He was pursuing a master's degree in accounting, while she was finishing a bachelor's degree in social work. Plus, they were planning for their fist child.
The Mechams felt flat broke.
But because Jesse was (and still is) a self-proclaimed "numbers nerd", he decided to create a spreadsheet to budget for every day of the year. The couple steadfastly stuck to their budget, and something surprising happened. Despite their meager circumstances, they no longer felt desperate about money. They paid their bills and still had a little left over for a couple of date nights each month.
Later, while brainstorming ways to earn extra money, Jesse wondered if other people would be interested in his budgeting method, which involved four simple rules. He started teaching others these rules and sharing his spreadsheet. In time, that spreadsheet morphed into a piece of software called You Need a Budget [my review].
Today, You Need a Budget is one of the most highly-regarded personal finance apps available. (Seriously. Everyone who uses it seems to love it. Its users are die-hards.)
In his recent book -- also called You Need a Budget, naturally -- Mecham shares the method that has helped him (and thousands of others) overcome financial anxiety. Let's take a quick look at the YNAB method.
There's a new fad in the financial independence subreddit, one that might be fun for Get Rich Slowly readers to play around with. People have discovered Sankey diagrams, a type of chart that makes it easy to visualize data flows. That sounds sort of geeky, I know, so it's probably best to show an example. Or four.
Perhaps the most famous example of a Sankey diagram (certainly the example I've seen most often) is Charles Minard's map of Napoleon's disastrous invasion of Russia:
This morning, I talked briefly about visualizing your financial progress when digging out of debt and when building wealth. Zach from Four Pillar Freedom has an interesting way of doing this.
He divides his expenses into three categories, which he has assigned arbitrary colors:
- Purple things are free (or cheap) and they bring him joy. His goal is to spend as much time as possible in life doing the purple things. Examples: being in nature, spending time with friends, reading, writing.
- Blue things cost money but they too bring him joy. He gives himself permission to spend money on the blue things from time to time without guilt. Examples: travel, coffee, dining out.
- Red things cost money and don't really increase his fulfillment. Zach's goal is to spend as little as possible on the red things (without depriving himself or causing hardship). Examples: rent, groceries, utilities.
Here's how Zach pictures his spending categories on a scatter plot:
We all know we should make and stick to a household budget if we want to be able to sock away savings each month—and end up financially comfortable. But building a household budget as a beginner can be daunting.
Only one in three Americans takes the time to create a monthly budget, a recent Gallup poll showed. (I don't need to tell you the rest of us are spending an inordinate amount of time looking at cat memes instead…)
“No more pencils, no more books, no more teachers' dirty looks.” And for many parents, no more child care for eight hours a day. Summertime — every child's dream season — can be every working parent's nightmare.
Think about it: From late August or early September through mid-June, working parents have the luxury of public education to make sure their children are cared for, watched over, intellectually stimulated and exercised. Yes, it's education. Yes, your taxes pay for it. But it's also child care (and up to two meals a day).
As any working parent who played the house of cards known as child care when the kids were too young for school knows, it takes tremendous time, effort and lots of money to make sure your child is cared for — well cared for — while you are at work. And it eats a significant chunk of your pay.
The first rule of Data Club is don't go over your monthly data allotment.
The second rule of Data Club is if you do go over, only go over a little.
The third rule of Data Club is hope Dad doesn't notice we've gone over our data allotment because he will be mad and will give us a talking-to. Ah, data. The modern-day parents' nightmare. In my parents' day, we had a phone bill, and that paid for the phone. One phone. In the house, attached to the wall. A decade or two later came the cable bill, which paid for that giant box on the top of the TV that allowed us to endlessly watch the same seven movies on what was then called Home Box Office. Those were good times.
Last month, the December 2015 Consumer Confidence Index ®, showed improvement over the previous month:
“Consumer confidence improved in December, following a moderate decrease in November,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “As 2015 draws to a close, consumers' assessment of the current state of the economy remains positive, particularly their assessment of the job market. Looking ahead to 2016, consumers are expecting little change in both business conditions and the labor market. Expectations regarding their financial outlook are mixed, but the optimists continue to outweigh the pessimists.”
But just a couple weeks into the New Year, with the stock market still reeling, people may be more concerned about the economy. So now that we're smack dab in the middle of the first month of 2016, wherein we at Get Rich Slowly are concentrating on taking charge of our finances, I wonder how it's going for everyone. Do you have the same confidence?
Is this the year to focus on saving more? If you've been disappointed when you've checked out your savings account balance, let's change that this year by figuring out how to save money each month.
How Much Should I be Saving?
Actually, advice on the topic of how much you should be saving differs based on who's giving the advice. At a minimum, most people recommend saving 10 percent of your income. Dave Ramsey recommends saving 15 percent of your income as a good goal. Still others recommend 20 percent. However, no one will complain if you save as much as you possibly can.
It used to be quite rare to find a pet in the cabin of a plane; but according to the U.S. Department of Transportation, about 2 million pets are transported by air every year in the U.S. Out of curiosity, I went to a couple websites to see how much it costs to travel with a pet:
- Southwest - $95 per pet carrier
- Delta - $125
- American - $125
- Jet Blue - $100 (non-refundable, but the fee also earns 300 points/segment)
So if your holiday plans include a trip to see family or a well-deserved vacation, you can take Fifi along for another $190 to $250. If you're staying at a hotel, tack on another $10 to $85/night at a Holiday Inn.
Hypothetically speaking, a family flying with a pet next week could pay an extra $260 to $845 if they stay at a hotel for the week.