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Budgeting In Order To Meet Your Financial Goals

YNAB Makes Budgeting Too Easy

To be truly successful you must set goals, break down the steps towards the goals, set milestones along the way and be able to evaluate outcomes.

I am not naturally frugal. Leave me to my nature and I will wake up and walk to the coffee shop, order a pastry with my coffee and buy something online if I’m bored. I will eat most of my meals outside of the house. I may buy a nicer pair of climbing shoes if they are on sale and I will accept most socializing invitations with friends and pick up tabs when I’m drunk enough. If you are inherently frugal then budgeting is a waste time for you.

A financially successful person should, in my opinion, have a goal of achieving financial independence. Once that goal is achieved then there is no longer a need to accumulate wealth. As a matter of fact, if you continue to do so then you are being selfish. One should have a budget in mind and a savings goal. Once you achieve that then you are financially independent and can focus your resources on helping those around you.

Spending – The 21st Century Drug

Spending is one of the toughest categories for most people to conquer when it comes to personal finances. I have identified 3 reasons for this:

  1. We aren’t very good at mentally keeping track of expenses.
  2. We are bombarded with ads and constantly being pushed to spend more.
  3. Now there are 1-click systems to part you with your money even faster.

I got myself out of a spendy lifestyle by signing up with YNAB. I realized that I was spending far more than I thought and I was able to fight back by using ‘budgeting’ as a fix. When friends asked why I didn’t want to go on that expensive skiing trip the answer was simple, ‘sorry, it’s not in my budget for this month’.

Back in 2012 YNAB was a software you had to download and access on that particular operating system. Nothing wrong with that but for those of us with ‘spending problems’ it’s important to have a more intimate relationship with our budgeting software (it’s currently open in my other browser tab).

Spending Less vs. Making More

As urgy docs we can pick up more shifts and make more money. However, this exposes the average provider to more risk, more stress and less sleep. Your extra income also gets taxed at a higher rate because we have a marginal tax system which means that as your income increases your rate of taxation also increases.

My income for 2015 was approximately $260k. After my AGI gets above $250k I will be hit with AMT (alternative minimum tax) which is quite disadvantageous. So, I would have to make quite a bit more than $250k to justify the extra work.

On the flip side, spending less doesn’t take any more of my time, doesn’t require more energy and comes with the added benefit of making me less reliant on income. Frugality isn’t forever, it’s most important in the accumulation phase.

Do You Need To Budget?

You should at least try it. You may think that your household is operating at around $50k a year, but once you do the math and calculate in the dental work, the new transmission, the tank-less water heater and the recertifacation exam you may be closer to $75k.

Once you get good at budgeting and have ways to measure your performance you will naturally let go of it, it will be replaced by a positive habit instead. Some time last year I found myself needing to get back to YNAB. I was under the assumption that I was spending around $2k/mo and after compiling all my receipts the actual number was over $3k/mo… ouch.

My Budgeting Style

I think the tracking method works great for some people but it is not a budgeting method. You enter how much you spend every day into a big spreadsheet. At the end of the month you will know exactly where your money went. The problem with this is that you aren’t doing any planning and you would need quite a few months of data before you can make any adjustments.

YNAB is very unique in that it uses 4 steps (rules) to get you from where you are at to a very efficient CFO of your finances. In Rule One you give every incoming dollar a job. In Rule Two is about factoring in expenses that you don’t even know may come up. Rule Three is called rolling with the punches, making budget changes as needed. And Rule Four is called aging your money which basically creates a buffer or emergency fund in an indirect way.

I will write more about YNAB in an upcoming post. I am very satisfied with it and at $5/mo it’s a steal. The company is a very well-run organization, it is based on honesty with a mission to really help the customers. There is absolutely no up-selling. They have free videos and free online classes that you can participate in.

If and when the shit hits the fan I would rather know how to lower my expenses as opposed to knowing how to increase my income. Either one is plausible, however more people look for ways to increase their income and have a harder time lowering their overhead. And in a bad economy increasing your income isn’t always easy.

One last word. Succeeding in any entrepreneurial ventures require you to work with budgets. Either you will work with the budget of a client or you will have to budget your overhead to ensure a profit margin.


How do you budget your expenses currently?

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