My husband and I are the biggest fans of budgeting software You Need A Budget (YNAB). I am certain that I will dig into this software on many occasions in the future, but today I’d like to focus more on budget philosophy. YNAB promotes four guiding principles, which you can read about here.
One of YNAB’s “rules” is the first and possibly most important one…Give Every Dollar A Job. And yes, this means Every. Single. Dollar. Even those dollars that you don’t need to pay the bills this month? Yes. Absolutely. What are they for?
Before using YNAB for budgeting, I used it strictly for tracking expenses. My savings account was just a big ol’ blob of money. Some months or years it was bigger than others. But it had no true purpose. It was just…there.
Without a purpose, I felt comfortable spending from it whenever i needed it. Oh, vacation next month? We’ll just take it from savings. Oh, the car need new tires? No problem…we can cover that with savings.
Of course, you know what happened to the savings account, right? Yup. The blob shrunk a bit.
So, starting to use YNAB to its full potential as a budgeting tool really forced us to think about what that money was for. A large chunk of it was what we considered an Emergency Fund. Of course, our definition of “emergency” was flexible based on our current needs. We decided to redefine that as “My Income Has Stopped Emergency Fund”. In other words, we shouldn’t touch that money unless one of us lost our income unexpectedly. And only once in the last six years have we broken that rule. I’ll confess that splurge purchase to you at some point. Maybe.
Anyway, we quickly assigned most of our savings to the emergency fund job. Whatever was left over was put into categories to replace one of our vehicles, save toward a large vacation, or renovate the kitchen.
Almost all of my longer-term savings dollars have very specific jobs for retirement or college tuition. The college tuition target date will be here before you know it, and the retirement target date…well, we’re trying to see how much we can pull that in! That will be for another post. We have set a goal to try to save half a million dollars in five years! #500in5