What do you want your money to do for you? Do you want to travel the world with it, or buy a house for your family? What about taking art classes, or donating to causes you believe in? Is there something stopping you from achieving those goals? I know that for years, I never felt like I could save for those things, because I didn’t know if I had enough money. I didn’t know where my money was going, so I was afraid to use it for anything more then bills. If you are worried about covering your bills, then how can you set money aside for the bigger goals?
This is the second article in the YNAB Series, and I’m going to talk about YNAB’s first rule – Give Every Dollar a Job.
You can read the rest of the series here:
- What is YNAB
- What is the Purpose of Your Money?
- What Are True Expenses?
- Make Your Budget Fit Your Life (not the other way around)
- Aging Your Money
One of the main ways that budgeting helps us manage our money is by illuminating our money situation and our money habits. If we don’t know where we stand right now, and we don’t know our goals, we’ll never be able to plan how to get from the starting point to the end point. So the start of our budgeting practice is “Give Every Dollar a Job”. But what does that really mean?
First, “Give Every Dollar a Job” implies that we are giving the money we have right now jobs. By only working with money we currently have in our possession, we avoid “projecting” our budget. In many traditional budgeting systems, you start with the month by asking “OK, what money do I think I will get this month?” Even if you have a steady salary, that is a risky thing to do, because it roots your budget in a somewhat imaginary number. I think most of us know that in the back of our minds, and it undermines our confidence in our budget. Even more, when we budget money we don’t yet have, we can’t guarantee that when we spend from a category, that that money actually exists.
Second, giving every dollar a job means we are very intentional with our spending planning. We think through what we need to spend until the next time we get paid. When we put money into those categories, we can rest easy, knowing that the money will be ready when we need it.
Third, by giving every dollar a job we can trust our category balances. In other words, if I have all of my bill categories funded, if I go to the clothing store and look at my clothing category, and it says I have $100, that means I can spend up to $100 without having to worry if I’m somehow cutting into my rent money, or utilities, or anything else. All those categories are funded with real money, too, so spending money on clothing will have nothing to do with what you can spend later in those other categories. Again, the same as if I’m projecting my income, if I budget more dollars then I have, I can no longer trust my category balances.
Why is this rule so important?
Giving Every Dollar A Job is the most fundamental method of envelope budgeting – When you get money, you take all of that money and put it in envelopes. When you need that money, you take that envelope with you, and spend it. This is the same thing, but instead we’re using software, because it’s more flexible and fits into modern life.