Monday, March 03, 2014

Rule 4: Living on last month's income

Had a pleasant surprise this March.

When I opened my YNAB to do my monthly budgeting, I realised for the first time that I'm having a $0 for my budget from Mar instead of having a negative number. For those who don't have YNAB, you might not realise how fulfilling this situation is. Since they are using a system where every dollar has a job to do, having a non-negative starting budget value for the start of the month means that I've succeeded in using last month's pay to settle all the expenses of this month, without including any income stream for this current month. Since I've a variable income instead of a fixed salary, I really have to take a much longer time to get to this state. Exactly 7 months is how long it took to have a non-negative starting value for a new month.

Rule 4: Live on last month's income

This is a sort of gamification to make personal finance fun and interesting. By setting intermediate goals or achievements, similar to playing a game, you'll make it through the tougher months where you feel like giving up. For this case, if you're using YNAB, there's 4 big achievements or Quests to be done:

1. Give every dollar a job

Easily done really, just that I don't use a budgeting system in the past until I started using YNAB. I use the 'pay-yourself-first' system where every drop of income I have I'll transfer some to my savings first. Whatever is left is whatever I spend on. I changed because I see a point in budgeting. Budgeting can average out your expenses for all the months of the year because you break down one-off expenses (like annual insurance payment, planned travel etc) and spread it over 12 months. Easily to handle for those with tight cash-flow. Easier for me too since I've variable income.

2. Save for a rainy day

Not a problem for me because I've been saving way before using this software. Makes it easily to track everything though. You can even save for different things. Really reduce the possibility of doing mental accounting down to zero.

3. Roll with the punches

This is manageable for me - basically this means that you need to cut yourself some slack on months that you can't fit your budget. If you spend above your budget, then whatever excess is subtracted from next month's budget. Conversely, if you spend below, you get to spend more the following month. Great system, I must say.

4. Live on last month's income

Ah.. this really took me some time. To achieve this, you need a combination of saving, reducing expenses, increasing income and really proper budgeting. It's hard to appreciate this without the software really.

Still love this software after 7 months. For those who tried this, any feedbacks on how YNAB makes your life better? Care to share with me?


la papillion said...

Drizzt made a post to comment on this. Thought I'll share it here:

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