There are a lot of reasons why people don’t start a budget, but I think the biggest culprit is often the perception that budgeting will take a lot of work. You’ve got to spend time thinking about your priorities (and that’s the real work), make decisions about your savings goals, and you’ve got to budget when you get paid. But the worst of it is keeping up with all those accounts, right?
We find that a lot of people struggle with budgeting because they just have too many accounts to keep up with. It’s easy to reconcile one or two accounts every day, but most people have a lot of accounts. Pretty much all of us have a savings and checking account at the very least. But some have multiple checking accounts—one for bills, another for fun money, and another for everything else.
Then there’s credit cards. Every company seems to be in the credit card business now, and you can’t avoid their sales pitches whether you’re buying clothes at Kohl’s or trying to get a little sleep on an American Airlines flight. And there’s always a new card offering rewards that are just a little better than what you have now. It’s no wonder we end up with so many.
Savings accounts are the big culprit though. Some have six or seven of them! One for taxes, one for the emergency fund, one for that Disney vacation, that online savings account they got for the sign-up bonus, and so on. We often call this “budgeting with accounts” and a lot of people do it. Without a budget, there’s just no way to keep track of all your savings dollars other than divvying them up to an ever-growing number of savings accounts.
The Cost of Too Many Accounts
What people don’t realize is all this craziness has a cost—and I don’t just mean bank fees (which can really add up, by the way). The real cost is your time and your energy. Managing that many accounts takes a lot of both. And you do have to keep up with them, whether you’re budgeting or not. What with managing a dozen transfers every paycheck, making sure we don’t accidentally overdraft anywhere, and remembering what account is for what purpose, it can be a nightmare.
So why are we, as a culture, so focused on accounts? Well, because we all need a budget, but most of us don’t have one. We all need some kind of a structure to manage our money. Most financial institutions aren’t that interested in helping people budget (it might cut back on their super-lucrative overdraft fees), so the only tool they offer to provide that structure is more accounts (which, of course, comes with more fees to pad their accounts).
But there’s a better way.
Trust Your Budget and Close Some Accounts
Your budget can provide the structure you need, and you don’t need so many accounts. And if you’re worried about accidentally spending money if you don’t hide it away in a savings account, you don’t have to be. Your budget solves that problem too (and does a better job of it, to boot). If you trust your budget and make your spending decisions by looking at your categories, not your account balances, your budget will protect your savings dollars.
If you trust your budget and make your spending decisions by looking at your categories, not your account balances, your budget will protect your savings dollars.
So when people avoid budgeting because they’re afraid of actively managing a dozen accounts, they’re operating under a false assumption. With a budget, you don’t need such a complex account structure. Imagine if you only had a couple accounts to deal with and your budget provided the structure you need to manage your money. You wouldn’t have to spend so much time on chasing fees and transfers and you could spend more time on what’s really important—deciding what you want your money to do for you.
But Why Stop There?
In fact, aside from a few situations where a separate account is absolutely necessary (HSA’s, retirement accounts, money market accounts, etc.), you really only need one account.
That’s right. I’m just going to come right out and say it—if you have a budget, you don’t need a savings account at all.
All your money can sit happily in your checking account while your budget keeps track of the jobs they have to do, whether that’s saving for a new car, buying groceries this weekend, or just sitting around indefinitely in case you suddenly lose your job.
But what about interest? Well, yes, it’s nice to earn interest on the money you’re saving anyway. That’s why for the past 15 years at YNAB, we’ve recommended folks keep one checking and one savings account. But we’ve always dreamed of the day when we could cut that down to just one account. In fact, in a similar blog post from way back in 2010, Jesse said this:
“Honestly, if I could find a checking account that paid a higher interest rate, I’d have one account and let my budget take care of everything else.”
Ladies and gentlemen, for many of us, Jesse’s dream has become a reality. Many legitimate online banks are offering checking accounts with 2.25+ percent interest rates (at the time this blog was written). SoFi and Aspiration Bank are just a couple of the more-popular options not to mention a host of smaller, regional banks and credit unions that can sometimes do even better. Now, these may not be right for everyone, but they could be just right for you. I myself just opened one of these high-yield checking accounts and I’m very excited to finally achieve the ultimate YNAB goal of having just one account for all my savings and checking!
So what about you? Is your account structure giving you a headache? Why not start by closing just one account today. And if you do, let us know on Facebook, Instagram, or Twitter. We’d love to hear from you.
There is a tremendous amount of data that can help you make better investment decisions. One strategy I used was the FS20 guide for property buying. Another interesting data source is the Yelp Economic Average report for buying stocks. Let's discuss!
A sinking fund is a fixed amount of money you save each month to prepare for a non-monthly expense like a car repair, or a twice-a-year insurance payment.
(Side note: Sinking Fund would also be a great name for a boat. I might add that as a wish farm goal.)
Anyway, I know the car will eventually need repairs. We all know that. Although it always feels like a surprise when it happens, it’s actually a known expense. How much will these repairs cost? I have no idea (hopefully very little).
I know that our life insurance premiums are due annually. It’s a known expense. How much will the premiums cost? We have term insurance, locked in for at least a decade, and it comes to $840 per year.
Some other common examples of sinking funds are home repairs, medical expenses, vacations, Christmas gifts, building an emergency fund, or even an Amazon prime membership.
Based on past experience, let’s say we spend $2,000 per year on car repairs. That means I need to be socking away $167 into my Car Repairs savings account (or YNAB category, but we’ll get there). For the life insurance premium, $70 per month means we’ll be able to pay for that premium easy-breezy.
Why Do I Need a Sinking Fund?
Picture this: you open your mailbox, see a bill, and all of a sudden you need $700 for a car insurance premium! If you don’t have the money, what’s the first thing you do? Pull out your credit card, and into debt you go! It’s disheartening, to say the least.
But how about this instead of borrowing money, you just set aside a manageable amount for a number of months to reach your goal. The bill arrives, and you have money sitting there ready to pay for it.
Yes, it’s utter bliss. Already have a sinking fund? Well, consider it a badge earned on your sash of personal finance accomplishments. Want one? Keep reading, we’ll tell you how to set one up.
How Do I Create a Sinking Fund?
How do you start establishing a sinking fund? Some non-YNABers advocate setting up a separate checking account or savings account and then keeping a lot of separate “accounts” within that checking account for all of your Sinking Funds. If it’s a large amount of money for a long term expense (say, for a new car or a down payment on a house), it can be beneficial to save money in a high yield savings account or money market fund to take advantage of higher interest rates.
This can be a great setup, but depending on your bank, it may be a little complicated to get just right. Instead of having 24 different bank accounts for all your savings goals and financial goals, we set up ours in a YNAB budget (see an example here), which gives an all-in-one view that feels a whole lot simpler to manage.
The beauty of the YNAB system is that all of these accounts can be easily managed right in your budget. When you’re setting up a sinking fund, you just create a Car Repairs category in YNAB, and then you just “sink” or set aside money into it every month and watch the balance rise.
In order to keep the number of physical accounts down at our household, I only use a separate account for our New Car Fund (I wish). All of the other accounts are small enough that I don’t bother earning any interest. It’s your personal call though.
At the end of the day, implementation details aren’t the important part. What’s important is that you’re looking ahead and actively planning what your money is going to do and when.
You’ll then find that all of those “emergencies” that used to knock you off your financial feet are now not a problem at all. Expect your “unexpected” expenses by setting up a sinking fund to pay for them when they pop up.
Want to start getting ahead of your bills instead of constantly playing catchup? Start your YNAB budget to streamline your sinking funds and simplify your financial life. Try it free for 34 days!
Need to figure out how to make a budget for separation? You might be dreading this moment, or it just seems so darn complex that you’ve put it off as long as possible. If you and a partner are separating, it’s no secret that money can be a thorny and painful issue.
This post will guide you some basics on how to budget for separation including:
Initial steps to get organized
Making a plan for upcoming bills
A budget template for starting your financial life over as an independent person
But first, one long, deep breath.
Got it? Holding it there?
And exhale.
Right, we know this topic can feel super heavy or overwhelming, and just one nice deep breath gives us a little push forward.
Ok, let’s dive in.
Step One: Get Organized
Earmark a couple hours on the next rainy day to get everything consolidated. It might require some password summoning and a few frustrated treasure hunts to find account statements, but hang in there, keep the fidget spinner nearby, and the good news is that this is usually a one-and-done activity.
1. Make a List of Your Finances All in One Place
You’re gearing up to separate your finances, and a good place to start is knowing what’s in the pile in the first place. This list should include:
Checking and savings account balances
Cash on hand
Credit card balance(s)
Outstanding loans/mortgage
Retirement accounts
Brokerage accounts, HSAs, stock options, business
Whether you do this step with your partner or on your own is up to you and your situation. Depending where you are in the separation process, these financial accounts might be closed or about to be closed (and it’s a good idea to download statements and open your own bank accounts, and definitely talk to a lawyer earlier rather than later).
Splitting up assets is for the court to decide, but for now, you want your records neat and tidy.
To illustrate how this all works, we’re going to take a look at a hypothetical couple—Tanya and Mark Scissors—as they prepare for financial separation. Tanya and Mark have one elementary-school child, own a house, and they both work and make similar salaries. (Go Tanya! Slay that wage gap!).
First things first, all their accounts and loans are listed out in one place, shown here in their YNAB budget.
Mark and Tanya’s current finances are put in one master list, shown here in YNAB
Like many folks, the Scissors have a little bit of credit card debt, a handful of car loans and student loans, some retirement savings, and some liquidity in their home. If you’ve never seen your finances in one spot, this is a strangely comforting activity to see it all in one place. Who knew.
2. Get Granular With Your Expenses
After creating this big-picture financial view, it’s time to drill down into your current bills and expenses. This granular list will give you a clear and tangible picture of how much your current life costs each month and help you plan out the next few months’ of cash flow. Create a guesstimate of your current expenses, including things like your rent or mortgage, loan payments, bills, and both your monthly and non-monthly expenses.
The Scissors created a list of expenses and bills that had been paid for jointly up to this point.
For Mark and Tanya, their list of expenses totalled about $5,500/month. That includes the money needed to pay their bills on time, cover the payments on their loans, buy food and gas, any childcare expenses, and it includes non-monthly expenses too like car insurance and software subscriptions. It’s easy to forget those last few, but this is key to getting the true cost of expenses for a month.
3. Determine Each Person’s Split of Current Bills
For expenses they shared, like the mortgage payment and the monthly bills, the total of shared bills was $2,500. This is an important number—this means if they split current bills evenly, each person is responsible for $1,250. We’ll come back to this number.
Step Two: Split Your Immediate Financial Responsibilities
This is the hairy part that can sometimes become a monster with teeth. We’re not lawyers, nor are we financial planners, so those details of “who gets what” will be hashed out by those professionals.
However, between now and then there are some financial questions leading up to the official divorce you need to figure out. Although nothing decided becomes official until a judge makes it so, the bills don’t get put on hold just because of divorce proceedings.
Questions to consider: from now until the divorce is finalized,
Who is responsible for car payments (if applicable)?
Who is responsible for debt payments?
How will you divide shared expenses?
Who is paying the mortgage?
Who will be responsible for the house bills?
What other bills need to be paid for the next six months?
Will one person transfer money to the other for expenses? If so, how much?
Who is responsible for childcare expenses?
What is your current financial situation? Do you feel secure?
How much cash do you need to make it through the next six months? (We’ll drill down into this one in the next step.)
Are there any accounts that need to be changed or statements that need to be downloaded?
Between now and the finalized divorce, the Scissors divided bills and expenses like this:
Tanya:
Staying in the house (with their child), mortgage payment split evenly
Drive the Jeep, responsible for Jeep loan payment
Responsible for her student loan payments
Responsible for half of shared expenses (totaling $1250/month)
Mark:
Moving out, getting his own place
Drive the Prius, responsible for Prius payment
Responsible for his student loan payments
Responsible for half of shared expenses (totaling $1250/month)
Step Three: Make Your Budget for Separation
Financial health is yours for the taking. Even when it feels like everything else is out of control, your current money management is within your control. First up: add your expenses operating independently from your partner and on your single income. Whether you’re anticipating child support or alimony, the best step is to operate only under your current reality. That means if you’re not getting those payments now, don’t make your budget including those payments until they start hitting your account (which could take many months).
For the Scissors, Tanya set out creating a budget (who knows what Mark is doing), and she made a list of her expenses for the next few months that looked like this:
Tanya created a budget for herself in YNAB
She added the bills she’s responsible for paying for (the full amount), added in costs she knows are coming for the divorce and lawyer, and even included some fun money for some guilt-free and much-needed treats. Thanks to her list of expenses together, she has an idea of the cost of her current standard of living and can make any adjustments needed.
Add Your Accounts
Next, tally up the money that is currently in your possession (in which you’re the sole owner) by adding current account balances.
For Tanya, it looks like this:
Tanya sees her individual finances in one place in YNAB.
Since the credit card is in Mark’s name, she’s taken out a new credit card and has no balance currently (the credit card debt will be sorted out in the divorce proceedings. For now, Mark is just paying the minimums).
Add Any New Inflows
Tanya’s paycheck from work clears the bank, and Mark has (thankfully) just Venmo’d her for his half ($1,250) of the bills.
Add in inflows as they arrive, shown here in Tanya’s YNAB budget.
Give Every Dollar a Job
Now we’re about to start really budgeting, and it’s about to get kinda fun. YNAB’s first rule of budgeting is to Give Every Dollar a Job. What does that mean? Picture this: you have a pile of cash and a bunch of little paper envelopes with category names written on them. You’re going to divvy up the money you have into these envelopes.
In YNAB, we do that all digitally. Let’s take a look at Tanya’s budget. With all her cash combined, she’s got $7,430 to start with.
One big important note: Tanya isn’t budgeting any money she doesn’t have: that means no upcoming paychecks, no anticipated alimony or divorce payout. Just the dollars she currently has, and that’s what gives her the clarity she wants to make decisions.
Tanya’s budget in YNAB, before she’s decided where to allocate the $7,430 she has.
Here’s a look at Tanya’s budget before she assigns money to categories. Next, see how she allocates the dollars she has and see what her budget looks like next:
Tanya has fully funded her budget this month, and still has $1,520.66 left to assign.
Now Tanya’s budget is filled with happy green bubbles which means each category is fully funded for the month. This even includes earmarking $1,600 for divorce expenses and already saving $80 toward an emergency fund.
Budget to Zero
Now, to fill up all her expenses for the month, she didn’t need to allocate the full $7,430—her monthly expenses cost less than that. That means she’s got $1,520.66 to go. Give Every Dollar a Job is YNAB’s Rule Number One of budgeting, and that means we’re not done yet! From here, Tanya can either:
Beef up a category like lawyer expenses or emergency fund
Start budgeting into next month
She opts to get a head start on bills and puts the money towards next month’s bills. With the money she has right now, she’s able to fund almost half the mortgage and almost all her bills for next month. She’s budgeted to zero and now has a plan for her money!
Tanya decided to fund some of her bills for next month.
If you can’t fund your full month yet, absolutely no worries—most people can’t when they start. Just ask yourself: “What does this money need to do before I get paid again?” and fill up your categories according to that mantra. When your next inflow arrives, budget it by asking the same question.
Step Four: The Next Few Months of Your Budget for Separation (What to Expect)
Financial and marriage separation is a tangled process, and this budget will give you a plan all the way to the divorce, and it’ll adjust and grow as you do too.
When Tanya gets paid again, or gets another inflow from Mark, she’ll repeat the same exercise and just keep budgeting down her categories until she gets to zero.
If you go through divorce proceedings, there will be divorce-related expenses like retainers and court fees. If you need to shuffle money around, then you’re doing it right. When overspending occurs on a category, or an unexpected expense comes up, just move money from one category to another to cover it. This is another one of YNAB’s core rules: Roll with the Punches. No need for a broken budget, just dip, dive, dodge, and duck and keep going!
It also might feel like your life is in a holding pattern, but there’s no reason you can’t start building a strong financial foundation right now. Ask yourself, what can you do so your finances are better a year from now, five years from now?
Better yet, be inspired by one woman who called it quits on her marriage, then traveled to 26 National Parks (some multiple times), lost 60 pounds, and got herself the best financial shape she’d been in for years, all the while waiting for her half of the house payment to come through. Read it now.
Step Five: Survive and Thrive
You’re taking it one day at a time, and before you know it (ok, maybe you’re aware of every step of the way), it will be behind you. When things feel confusing financially, just keep following the YNAB Method and it’ll serve as your helpful compass through bogs and fogs and financial swamps. You’ll start seeing your progress compound, and you’ll have your independence, your freedom, and the chance to thrive financially, better than you ever have before.
Want to take a trip to Fiji? Put it in the budget. Make it happen, pay for it in cash. Send your kids to private school? Buy a cottage in the country? Maybe you just want to make it through today, feeling just a little more in control of your money. And that is a worthy enough goal in and of itself.
Find clarity in financial chaos: organize your money in a YNAB budget—try it free, no credit card required.
This post is not meant as legal advice and is to be used for educational purposes. We recommend you talk to your lawyer or financial advisor about the details of your financial separation during divorce.
You Need a Separate Business Budget (YNASBB—nope, that doesn’t work. Let’s let it die here.)
YNAB will serve your small business well. It has mine. It gave me what I call, “pile-of-money clarity.” Several years ago, YNAB was profitable with a very small team, and I couldn’t have been happier. Then I moved YNAB from Quickbooks to YNAB. That move was a game-changer for me. I suddenly had clarity surrounding the business checking account balance. I no longer had to wonder if we could hire, because I could see that our category for payroll was doing just fine. I saw I could be more aggressive with advertising, because I saw that we had advertising dollars where they were supposed to be.
We went from a company with seven part/full-time team members, to a company with 27 over a two-year period.
All because I used YNAB, where it settled my stomach, and helped me conquer the natural risk aversion I had to hiring people, and growing the business.
Yes, I believe YNAB (the software) will serve your small business very well. It will help the risk-avoider take calculated, comfortable risks. It will help the risk-taker pull back a little bit, and be more calculated in his or her risks as well.
How to Use YNAB for Your Business Budget
In order to do this right though, you need to set up a separate business budget. Unless you have the teeniest of tiny little side operations (where a separate master category for the entire business suffices), you need to set up a separate business budget.
Go to File -> Create a New Budget… and get started.
Keep your business budget separate. It will make everything easier (taxes, reconciliation, personal vs. business expenses, etc.)
Wait a Minute, YNAB Won’t…
YNAB won’t send your invoices for you (though you can actually track them pretty well in YNAB). YNAB won’t track your time for you. YNAB won’t track your mileage for you. YNAB won’t handle your asset depreciation. It won’t print checks. It won’t integrate with your accountant’s tax software. YNAB won’t run your payroll for you. YNAB won’t track your inventory for you (it could, and maybe I’ll write about that later).
Well sheesh Jesse, what will YNAB do?
It will add value to your business by giving you the insights you need to clarify your priorities, cut wasteful spending, boost spending where profitable, and maybe even show you that you can take a steady salary. It will give you peace of mind, as it relates to your business’ cash flow. Besides finding great people to hire these past several years, the best business decision I made was to move YNAB to YNAB.
A P.S. Regarding YNAB’s “Won’ts”
YNAB, strange as it sounds, is a multi-million dollar company now. Here’s how a multi-million dollar company handles all of the things that YNAB won’t do. (Hint: an end-all-be-all software package can, many times, be harder to use than approaching your software needs a la carte.)
Bookkeeping.
We do our books with YNAB. As a result, YNAB has a healthy buffer, keeps spending in check, and the entire team gets to spend a week in Costa Rica this year (Rule Two applied over an 18-month period!)
Invoicing.
We don’t send many invoices, but when we do, we use Freshbooks.
Time-tracking.
YNAB has just started tracking time on a new project, and we’re using Harvest (Adam, our CPO, likes them.)
Mileage tracking.
I track mileage for the four months after taxes are due, and then give up. When I do track mileage, I use an app on my iPhone. Come tax time, had I faithfully recorded the year’s mileage, I would send my tax accountant the mileage report.
Depreciation.
YNAB has a few assets that require depreciation. Our tax accountant tracks that for us each year. (Any accountant worth their salt will do that. As most of you probably know at this point, Casey Murdock handles YNAB’s taxes, and a bunch of the team’s personal taxes as well.)
Check-writing.
We have a book of (free) checks, and when we need to write one, Chance (our COO) grabs a pen from his desk and fills out the check. I sign it, then enter the check in YNAB. If we need to send a lot of checks at once, we use the free business bill pay service of our bank.
Tax filing.
YNAB doesn’t integrate with our tax accountant’s tax software, so do you know what we make him do? We send him a spreadsheet of all of our inflows/outflows of the year, and we make him do “accountant-y things” and build a pivot table to aggregate category spending and manually enter the numbers into his software. It takes him a few minutes, and he checks for accuracy along the way, instead of checking the accuracy of an import after the fact. (I re-read this and admit that I sound quite snarky here. It’s a pet peeve of mine, letting your accountant’s two hours of work for your taxes dictate your entire year’s financial workflow.)
Payroll.
We run our payroll through Paychex. I pull up the monthly payroll report and enter the outflows into YNAB. It takes me a few minutes. I like hand-entering all of our team’s pay, because it makes me happy they’re on the team.
Inventory.
We don’t have any inventory to track, but if we did, I’d buy a separate piece of software to track inventory (if it was a lot), or I’d use YNAB to do it (if it was just a small bit of inventory tracking). Cash outlays for inventory would be entered in YNAB, obviously, because YNAB handles your cash.
Question: How long will a set of temporary paper blinds (the kind you first put up in a new home before you install the permanent window coverings) last?
Answer: At least six years. I’ll let you know when they fall down or disintegrate, but they appear to be going strong.
The paper blinds hanging in my bedroom (that happen to be about a year older than my almost-kindergartner) perhaps could’ve been replaced a long time ago.
Instead, we keep them.
My temporary paper blinds with real staying power.
Why We’ve Kept Our Temporary Shades
I’ve had this conversation a couple dozen times with my wife as we’re headed to bed:
Do we have the money to get some permanent window coverings in here?
I don’t know – probably? How much do they cost?
They’re pretty expensive. $800 – maybe more.
Well, do what you have to do. That’s a pretty good chunk of cash – wouldn’t hurt to wait a while.
So, we waited a while. Because temporary blinds are pretty cheap. And permanent window treatments are not so cheap.
And while we waited, $800 passed through our hands many times. But we never bought permanent window coverings.
Window Treatments Just Didn’t Seem That Important to Us
All because every time we considered the purchase, it just didn’t seem all that important. It didn’t really line up with our priorities, there were other things we’d rather spend the money on, and the temporary blinds were working just fine.
And this frequent decision wasn’t just a hypothetical floating around in our heads. We use a zero-based budgeting system that clearly lays out everything we need and want to spend money on. So that $800? It literally got earmarked somewhere else every time.
I don’t know about you, but purchases in the $200 to $1,000 range always trip me and Kate up. They seem too big to just run out and buy, but too small to save up for. So they get pushed off until we finally give up and just buy them. Or, in the case of the long-living temporary blinds, we stand our ground. Neither makes sense.
A Solution That I Can Live With for Window Shades
I’ve figured out a way to have my cake and eat it too when it comes to getting new window shades. After all, those temporary blinds will need to get replaced eventually. In my budget, I set up a category called Home Repairs & Improvements. I set aside $50 a month, and eventually we’ll have however much money we need to buy permanent window coverings.
Even better than having the money, we’ll have given ourselves permission to make the purchase. And until then, our six-year-old temporary blinds are working just fine.
Start setting your mind at ease for those big purchases that feel too small to save for with your own budget in YNAB, an award-winning budgeting app. In the meantime, enjoy those temporary blinds and see if you can outdo me. Six years people…let’s see if you can set a new record.
When you’re setting up a budget and trying to get specific on your long-term financial goals, you might wonder how to treat your savings account in your budget.
Well lucky for you, it’s actually pretty simple to start saving. Here at YNAB, we think about things a little differently—especially how something like your bank account fits in with your budget.
We’ve got a provenmethod, and the reason that it works so well is because it helps change the way you think about your money, which leads torealbehavior change.
The thing is, change can be hard sometimes!
And, one of the more confusing issues for new budgeters is how to handle savings. They worry about including their savings account(s) in their budget for fear that they’ll accidentally—or not so accidentally—spend it. But nothing could be further from the truth.
Let me tell you why and give you a tour of how to manage your saving account with a zero-based budget like YNAB:
Saving is Not The Same as Savings Account
If you asked the regular Joe what it means to save money, what would they say? Probably something like “Putting money into a savings account.”
YNAB’s method teaches you togive every dollar a job, and thatincludesyour savings dollars—pretty much the opposite of letting your dollars lounge around in a cushy savings account without purpose. Right?
So, here’s a new definition of saving: “Deferring the use of your money for a later time, for a specific purpose.”
Your dollars just breathed a happy sigh of relief—nobody’s happy without a purpose.
Your Savings Account Doesn’t Matter …Much
With our new definition of saving, the question of location is moot. As far as your budget is concerned, it doesn’t matter if your dollars are in your primary checking account or a savings account. Confused? You’re not alone.
If you’ve never used a zero-based budget before, you’ve probably come to view a savings account as a safe space. Tuck your dollars away in savings, and they’ll be out of sight, out of mind (and still in your possession because you won’t accidentally spend them!). So, it’s no wonder that you’re nervous about including your savings in your budget.
The thing is, your budget is actually how you can protect, and even grow, your savings! Once you’re using a zero-based budget like YNAB, you’ll use your budget to inform your spending (not your bank balances, which can lead you thewrong way).
That big number, your bank balance, doesn’t tell you the full story. It can’t tell you how much cash you have to spend on groceries because it isn’t aware of your obligations and priorities. But your budget? That’s it’s job! Your budget can tell you, down to the cent, exactly how much money you can spend at the store. It knows, because you told it!
So, forget your bank balances, forget that balance on your savings account. Trust your budget. And, that brings us back to your savings account. It’s completely unnecessary to hold your dollars in a separate account because your budget will identify what each of your dollars is supposed to do, including being saved for some future purpose.
Keep in mind, too, that more accounts means more moving parts to keep track of. The more you use YNAB, the more you’ll see that having more accounts only adds unneeded complexity. For now, just remember that the location of your money doesn’t matter as much as the purpose you assign to your dollars.
So How Should I Save Money?
There’re a lot of folks out there (not me) who are natural savers. Even non-budgeters can be pretty good at saving money. But, often, they don’t save with a purpose. Non-budgeters typically save because they’ve been told they should. So they sock away money in a savings account because it feels like the right thing to do.
Putting money in a savings account makes them feel like they’re protecting those dollars. But that’s an illusion. When they see a shiny, exciting thing on Amazon, there’s nothing stopping them from taking that money and spending it. Why? Because that money didn’t have a purpose. It didn’t have a job.
Your savings account might look like this in your budget.
So, give your savings dollars a real job, and be specific! Don’t just create a category called “Savings,” create acategory group! And, under that group, set up categories with clearly-defined purposes like “Hawaiian Vacation,” “New Jeep,” “New Android Phone,” “Big Christmas Donation” or whatever gets you excited.
Why be so specific, you might be asking?
Because it’s a lot harder, emotionally, to pull money out of your Hawaiian vacation fund than it is to take it from your savings account. You’ll think twice about if the purchase isreallyworth it to you. That’s why. You might choose to take the money out, but only after you’ve carefully weighed your decision and Hawaii, for whatever reason, didn’t take priority.
Every Category Is a Savings Category
And how’s this for mind-blowing: your budgetisyour savings account! Think about it, every category is a savings category. Referring back to our new definition of savings, each dollar in your budget is given a specific purpose for a future use.
… the only difference between youreverydaydollars and yoursavingsdollars is how long you plan to save them. For example, the electric bill’s due on Monday, and you plan to buy that new TV in six months. And, then there’s youremergency fund.
All of the dollars have a job, but some will hang around longer in your account. (In the case of your emergency fund, hopefully it will be a very long time!)
The bottom line is that you’re intentional with every dollar. Give them a purpose, keep them happy, and I think you’ll be a lot happier, too! (It’s hard not to be when you’ve got total control of your money.)
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