Okay so by now you should have your first month’s budget entered and ready to go. But wait! Does this budget really cover every expense? Think about your budget on an annual perspective, there are a lot of expenses you incur infrequently, even once per year. These also need to be included to ensure you have the money available at the time you need it, right?
Oh yeaaaaah, predicting when I have to blow $1,500 on car insurance is a blast!
So let’s really think about what other expenses you might incur throughout the year. A few we normally have to consider are vacations, gifts and car insurance. You might have more, but for simplicity I’ll stick with these.
You need to add these budgetary categories to your monthly budget as you did with your usual categories of rent, groceries etc. I used a main category of “Infrequent Spending”, then entered the subcategories below like so:
But how do I budget for these on a monthly basis when they’re not for another 6 months
Easy! This is where I will introduce the “goals” feature of YNAB. If you read the BHAG and SMART goals articles you should already have a pretty good idea what your goals for the year are in terms of savings, but here we’re going to consider expenses. Let’s use car insurance for example. I know my car insurance is due every August and usually costs around $1,500, so I can create a goal whereby I will have $1,500 available in my bank to pay that bill. To do so, click on car insurance (or whatever account you’re using) and in the bar to the right, you will see “Create a goal”. Click that and you have 3 options. The options are as follows:
- Target Category Balance – This goal says “I want to have $X available at some point in time in the future”.
- Target Category Balance By Date – This is the same as the above, only it wants the money available by a specific date rather than a random point in the future.
- Monthly Funding – This goal essentially just says “I want to budget $X towards that category every month”.
For my car insurance example, I’ll be using the “Target Category Balance By Date” goal. So click the goal, enter the target balance ($1,500) and the date it’s needed by (August 2017). It should look like the below:
Once you click okay, YNAB works its mathematical magic to calculate how much you need to budget each month in order to meet that goal, as follows:
How easy was that?! I need to save $136.37 every month until August 2017 in order to pay that bill. So, you enter $136.37 in your budget for the month. Once you’ve entered it into your budget, YNAB will calculate how close you are to the goal and the goal will turn green to show you are on track. This is a great way to make sure you are considering all of your future expenses every month. If you go off track, YNAB will remind you with ugly yellow/red colours to tell you!
Now for the other infrequent expenses. In terms of gifts, these often come throughout the year at various times so you can’t really say you need $X amount at a certain time, or at any point in time for that fact. But if you understand your past you should know how much you spend on gifts in a given year, so you can say to yourself “I spend $1,000 a year on gifts for people”, which divided by 12 is $83.33 per month. You can then use the “Monthly Funding” goal for this!
Finally, for a vacation goal, you might have a vacation in mind that you know will cost around $2,000. You’re not entirely sure when you’re going to go but you know you want to go. This is the perfect scenario for the “Target Category Balance” goal, without setting a date. Set the goal at $2,000 and YNAB will track every month how close you are to reaching that goal based on the amount you budget under vacation. For example, if you budget $200 towards vacation this month, next month YNAB will say you’re 10% of the way there and that $1,800 more is needed. If you budget another $200 next month, you will be $400 of the way there etc.
Once you’re done entering all your goals, it’ll look something like this:
Note that if you change your budget to an amount whereby you are no longer meeting the goal, the “available” amount will turn yellow and you will be told to the right how much more you need to budget to stay on track.
Now you have completely finished budgeting not only the current monthly expenses, but also future months, your budget should be pretty water tight of any one off expenses. That being said, a budget can never prepare for anything and everything life throws your way.
OH MY GOD THE BIG NEGATIVE RED BUTTON OF DEATH JUST GOT BIGGER!!!
Yep! When you consider future expenses into your current budget, you’ll have even less money to work with each month, but the money will be available for those large one off expenses when you need it. You might not be too enthused when you realize you’re actually saving a lot less per month than you thought, but at least you will now be fully prepared for whatever large one off expenses you will incur down the line. Finally, once you have finished with the entire budget for the month, it should look similar to this:
Phew! We’re done, finally!
Erm…let’s to move on to the next part shall we?