If you couldn’t tell we at Cents of Time are very big fans of Dave Ramsey. He gives you a plan and hope that you can accomplish what seems impossible. With that being said if you buy into everything he says, you start to see that his information and teaching is somewhat basic. It’s not that that is a bad thing and it works for many people, but there is a next level you can take a lot of his teachings, while still staying true to his core principles. The one area we want to talk about regarding this is budgeting.
We did not start budgeting until we found out about The Total Money Makeover and how important a budget is. When we started we tried all different budgeting apps, but all of them were complicated and had technical issues or limitations that made them hard to use. We never did the cash envelope system (although we probably should have) because at the time we had excess income and always made more than our budget was. We used that money to attack our debt. Eventually though that extra income started to go away. I stopped working a part time job and we had some extra expenses pop up that were not there before. Slowly, but surely we started to not really trust the budget anymore. How did we get there?
Enter Everydollar- We actually started listening to Dave Ramsey right around the time his Everydollar app launched. We tried to use it in the beginning, but we actually really did not like it. We stopped using it and after some more apps we tried, we came back to it. Doing a zero based budget for the month to get started budgeting is a great first approach to budgeting. Take what you expect to be your total income for the month, put money in all of the categories you will spend on, and do your best to follow them! If you have budgeted for any amount of time you will notice that it is very rare that your budget actually goes the way you planned it. Something comes up that was unexpected. If you don’t manually adjust your budget, you start to lose trust of the budget and don’t follow it. It’s a vicious cycle that you can easily fall into. Hoping you make it, but not really caring if you don’t.
Time to Change- After some months of making the budget and some months not (most not) we kept pulling out of savings, but we did not have a good idea why some months we could make it and other months we were way off. What where we doing wrong? In anything in life you want to set yourself up for success by having strong systems in place. If the system isn’t working, you can’t make excuses without admitting that maybe you need to make a change and find a new system. Enter You Need a Budget or YNAB for short.
There are two huge fundamental concepts about budgeting we took from using YNAB and learning about the 4 rules they teach. One of the biggest problems with Everydollar is that when you go over budget in a category, it turns red and let’s you know you went over budget, but it doesn’t really get on you that you went over budget. We started to just look at how much money we had remaining overall compared to actually addressing the over budget categories. YNAB screams at you if you are over budget in a category and makes it extremely easy to move money from a category that has funds to the category that does not. It actually makes it fun and definitely keeps you on track.
YNAB has 4 rules that we will cover in depth in another article, but the biggest lesson we took was from rule #2- Know Your True Expenses. What does this exactly mean? If you remember above some months we did make our budget. Obviously for those months we analyzed why we were able to make the budget work that month. When we went way over in a month we would look at what categories we overspent in and would say things like “Oh yeah, that renewal was due.” Or “The kids needed new clothes, they are growing.” “We went over in groceries this month, we will do better next month.” These are just some random examples, but this rule makes you think in a proactive way vs a reactive way. It forces you to really think and plan out what you spend in a given month and plan ahead for future purchases. Making repeating transactions (which Everydollar does not have) makes it much easier to plan for those repeating items.
We want to illustrate one finally point that using YNAB taught us that we were not doing before. We have a decent amount of money in savings, however it was not really designated towards anything. It was part down payment, part new car fund, part emergency fund, and part anything we went over or did not save for in our regular budget. Since the main point of savings is the emergency fund we actually calculated how much we would be able to cover using true expenses. Doing this allowed us to really know that we could cover expenses for a few months and then also see a realistic picture of how much we had for a down payment, a car, and we created some savings goals that we hope to not pull out of savings, but if we needed too we could. Instead of just a lump sum of money that was just sitting in savings doing nothing, it still is that same thing, except every dollar now has a job because we know our true expenses.
Budgeting is tricky and not easy. Your budget will change because your life will change. It needs to constantly be updated. You need to know where your money is going. We say it all the time, but a budget should not feel restricting, it should be freeing. If you want to go out with friends, but are also saving for a new car, a budget will show you that if you go out you may not be able to save as much for the car. Then YOU can make that trade off if you want. Maybe before you felt guilty when you went out with friends, but by doing a budget now you realize you actually have enough money to cover going out and meet your savings goals. It works both ways.