From Chaos to Clarity: How YNAB's Rule 1 Can Help You Master Your Money
Last week, I wrote about budgeting, and zero-based budgeting in particular, and talked about a few tools that you can use for zero-based budgeting. As a reminder, zero-based budgeting involves creating a plan for every dollar you have, by assigning each dollar to a specific expense or savings goal. This method can help you prioritize your spending and ensure that your money is in alignment with your values and goals.
Are you wondering what my favorite tool for zero-based budgeting? Well, as a certified You Need a Budget (YNAB) coach, my tool of choice is of course YNAB. Getting set up in YNAB and learning how to use the tool is a game changer!
The app is great, but the real life-changing aspect of YNAB is its four simple, but life-changing rules. Over the next four weeks, I’m going to explore these four rules. This week, I’m diving into Rule 1: Give Every Dollar a Job.
Rule 1: Give Every Dollar a Job.
Rule 1 is really the main premise behind zero-based budgeting. This rule means that you give every dollar in your bank accounts (yes, including your savings account) a "job." These jobs could be groceries, your rent, a yearly expense like Christmas presents, or a long-term goal like your children's university tuition. When new dollars enter your bank account, you assign them to their jobs right away. Give your dollars their marching orders! It's really all about prioritizing your spending according to your goals. Obviously, you need to make sure that your bills are getting paid and you have food to eat. The magic begins when you start prioritizing how to spend your dollars after the basics are covered.
For my family, we definitely have many possible “jobs” for our dollars. At this stage of our lives, with both my husband and I working full time and four older kids (my baby is 10, how did that happen?), many of our dollars are going towards keeping the home running (including our very big grocery category), kids activities, and other kid-related expenses. We also save for a yearly trip in the summer. This year we are going to go whale watching in a beautiful part of our province!
How Does Rule 1 Work in YNAB?
Giving your dollars their jobs is a crucial part of using YNAB. It’s pretty straightforward. When money comes into the budget (e.g., you get paid or you acquire income some other way), you would assign the new transaction to the category "Ready to Assign" (this actually happens automatically). Then, over on the budget screen, you then simply move those new dollars from “Ready to Assign” at the top of your screen into the categories where you want them to get to work and do their jobs. It’s a simple but really important process. One helpful thing to think to yourself is “What do these dollars need to do before I get paid again?”. You shouldn’t leave dollars in “Ready to Assign” so once the money comes in, open the app and assign them right away.
How Does Rule 1 Work in Real Life?
So say you have everything set up in YNAB and your dollars have been dutifully assigned to your priorities in the app. But how does this actually work in real life? The key is to use Rule 1 as a guide to help you make your spending decisions.
Have you ever been at a store scratching your head, maybe feeling slightly overwhelmed, and wondering whether you can “afford” something? Do you ever do these mental gymnastics trying to remember all of your upcoming bills and other expenses? Living by Rule 1 actually makes this decision making process a little easier. Instead of looking at your bank balance, you look at how much money is available in that particular category. You are no longer at risk of spending money on something only to later realize that you really needed those dollars for an important bill.
For example, I have a category for fast food in my budget. Fast food is not a huge spending priority for me. But, I do like to have a little bit of money set aside for a few trips to a certain coffee and donut chain (yes, that one my Canadian friends) each month. My kids are well aware that this category fills up with dollars at the beginning of each month but it is limited. So if I get a request for fast food, it's just a matter of quickly pulling out my phone to see how much more I have available for fast food for the month - and then saying “no” if there is no money left (yes, that’s the hard part). There is usually some grumbling, but I talk to them about our priorities, including that trip to go whale watching we are saving for.
Conclusion
YNAB’s Rule 1, give every dollar a job, is a simple but life-changing rule that forms the foundation of zero-based budgeting. By assigning your dollars to specific categories based on your priorities, you can ensure that you are making intentional and informed spending decisions. Using a tool like YNAB can make this process even easier, by allowing you to see how much money you have available in each category and making it simple to assign new dollars to their jobs.
To learn more about my money coaching programs, please visit freshstartmoneycoaching.com.
