Published on January 28th, 2012 | by Kyith1
4 steps to making a plan to save cash money with You need a budget (YNAB)
There are some important lessons not taught in school but are necessary in life. One of them is to manage your cash and money well.
One of the greatest problem faced in the twenty first century have been how debts have taken such a great hold of people’s lives. People start asking the questions how do they get themselves out of so much debts.
The answers presented in many personal finance sites are largely the same.
You take responsibility in how you use and manage your money
- Do not carry debt. Except perhaps mortgage. We should avoid credit card,car loans and home renovation loans as possible
- Have adequate emergency cash. You want to build a large buffer cash slowly so that in the event of a situation you have something to fall back on
- Start your investment warchest. I always said create a nest egg early. Pay yourself first and learn to invest and put your money to grow
- Be insured. You do not know when illness and tragedy will strike and when they do you will need a sum of money that you will have difficulty to come up with. Hedge that risk by buying cheap low cost insurance
- Develop a budget. Manage your money in a systematic way. Give each dollar a job
- Boost your income. There is no point just saving and scrimping. It will be massively easier to upgrade yourself, focus on how to carve a great career and earn a better income
You need a budget as your personal finance manager
One software that understands how to help you make sense of your finances have been You need a budget (YNAB). It is a personal finance software that focus heavily on budgeting and help you get out of debt.
It is highly flexible to accommodate to your budgeting methodology. For myself I tried many methods of saving money and I find that by following envelope budgeting, I can allocate my paycheck to virtual envelopes and prevent me from spending over the limit.
1. Find out your spending pattern
The first step is to identify how you currently spend your money. Collect all the receipts from recent purchases for 1-2 months. This will let you know what you spend on typically.
With that you can generalize them into spending categories
2. Give each dollar a job
The next step is to break your monthly income from your salary, passive income, dividend income into virtual envelopes or YNAB categories
YNAB provides a default set of spending categories that you an extend to two levels. You can also specify your own
Basically, each of your transactions will be tag to a category and you can monitor at the budget screen whether you are overspending it.
What if you do not spend enough? The amount will be brought over to next month. In this way if you overspend you will face with a deficit and if you underspend you will face with a surplus.
That means next time you need to spend less if the amount gets negative.
If you get a lot of surplus, it means u can indulge and spend on big ticket items.
3. Enter daily spending in transactions
Every time you spend money, take note of what you spend on. At the end of the day come back home, fire up the PC, fire up YNAB and record your transactions.
Some people find it difficult to do that but, with smartphones nowadays you can enter your transactions into an iPhone or Android YNAB app or record down in a notepad and enter them at the end of the day.
It is a good habit to record these transactions and I don’t think you need to spend a lot of time.
4. Review your spending pattern
On a quarterly basis, review whether you are meeting your goals.
- Your emergency cash category should be rising
- You should be paying yourself first and building up a nest egg
- You should be paying down your debts through the debt accounts
- Your hobbies account should not be exceeded
These are some review items to evaluate. You should also evaluate whether some accounts warrant an increase or decrease in amount.
Saving money and clearing debt need not be filled with anxiety and despair. The first step is the most important. Follow the 4 step process to kick start a sensible money management plan.
YNAB can be a great companion software because it is ubiquitous. It is available on the Windows and Mac which means you are not tied into one platform.
YNAB also have Android and iPhone apps that allows you to record, review and sync transactions to the desktop.