Chad K. Park's Blog

29, January 2012

Financial happiness

Filed under: Uncategorized — chadkpark @ 12:59 am

YNAB changed my life for the better.

I’m terrible with money.  But I’m much better and getting better at getting better.  I hope you were sitting down when you read that last sentence.

Anyway, You Need A Budget came up when I was browsing the Lifehacker news feed late one night and it eclipsed every other personal budget software in a popularity poll so I checked it out.  It’s a free 1 month download now (I think), but it was only a week when I bought it in August 2011.  It also has a great little page-turner of a story on their website.  The guy who wrote it feels real genuine in the story.  It has four simple rules.  It works for me.

This last holiday season, we lived through it without bending a card – once.  And that’s not including the 6 day trip in November to Santa Barbara complete with wine tastings (and buyings) and surfing lessons for the ten-year-old terror.  It was all done with the extra paycheck we get in December and the buffer I had built up since August.

Ah… Buffers.  I should start with the four rules.  But don’t take them from me or here – they are much better enunciated on the YNAB site.

Rule 1. Give every dollar a job.  This means that you get $X and you probably know what you want and what you have to pay for.  So you make it match.  You give $ real life jobs though, by putting them in categories like, ‘home upkeep’, and ‘restaurants’ and ‘beer’ as well as ‘mortgage’ and ‘electricity’.  This helps because you don’t feel guilty about buying a book for yourself – if you still have enough in that category.  And if (and when) you go over, you will be borrowing from other categories like ‘vacation’.  So it goes.

Rule 2. Save for a Rainy Day.  This is a tricky one and the link explains it better than me.  Partly, it’s keeping a historical record that you actually use.  For instance, car registration comes up suddenly – crap!  I have to pay n-hundred dollars?  Well, there goes the extra money I thought I had to buy my wife a present and now I have to use a credit card as well.  The rule works when you live through an instance like this and you add it to your budget and you divide up the bill among the billing period.  My trash gets billed every three months so every month I put in (give a job to) 1/3 of the typical recurring cost.  I pay car insurance every 6 months; I pay car registration every 12 months.  I even budgeted in ‘firewood’ so I can buy a cord of wood every year.  It only costs about $20 / month.

Rule 3. Roll with the Punches This is a weird one to figure out.  What happens is that you may overspend in some categories.  You may overspend in all categories.  Well that total $ amount is subtracted from your starting budget for next month.  Ie., you have to try to build next months budget accounting for last months’ overspending.  The idea is that after a few months, your habits get aligned with your budget and you start being able to build up a reserve of $ whose job it is to be the ‘buffer’.

Rule 4. Stop Living Paycheck to Paycheck. OK, this is the holy grail.  When I heard how the damn buffer works I thought, ‘Damn!’  You have enough of your buffer to go a month (or n-months if you’re a boss) without any income at all.  That’s what let us go on a spur-of-the moment vacation and pay it all with the debit card and still *know* I have enough to pay all the bills (mortgage, electricity, schooling….) when I get back.  I used to go on vacation stressing over the bank account and racking up credit cards for hotels and it was never a relaxing time for me.  I hated it.  Because I knew when I got back home, I would be *this* close to overdrafting the bank account.  With the buffer in place there was a sublime piece of mind that really really helps the stress levels.

A key aspect to all the happiness this software entails is finally getting a way to discuss the budget with your significant other.  We had tried a logbook (which I still keep up) and my preferred online stuff (but I’d like to switch from WFargo).  But with YNAB I just bought a copy for my wife (there was a steep discount for two) and I send her the budget every week.  Then we can discuss it whenever we like because we both have all the up-to-date numbers.  Sure I have to keep adding in stuff, but it became a habit when I was still in the trial period.  I love YNAB and the peace of mind it bought for me.

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