A Tribute to YNAB’s Rule #1

rule-oneToday I wanted to pay a little tribute to the first rule in YNAB’s budgeting methodology: Live Off of Last Month’s Income.

Look ‘tribute’ up in the dictionary.  It says that a tribute is “an act, statement, or gift that is intended to show gratitiude, respect, or admiration.  To that end, I share a story from this month’s budgeting journal.

Our budget was rolling smoothly, and so was our car, until the beginning of the month came around.  It happens once a year for everyone and happens for us every June:  registering your vehicle with the state.  Usually no big deal right? You pay your $50, get some new stickers, and you’re on your way.

Well being that this particular car is an older one, we have to get it inspected each year.  So after getting it inspected, much to our surprise, the mechanic fails the car and details out about $300 worth of repair work that needs to be done before he’ll pass it so we can drive it.  Ouch.

About this same time we also get a letter from our dentist in the mail detailing just short of another $300 in dental work that I had done the previous week.  Double ouch.

I’m sure that many of you have had very similar things happen and been found in very similar situations.  What normally happens? If I have a savings or an emergency fund, I dip into it a bit to pay the bill and plan on “paying back” the savings over the following few months.  If I don’t have any savings, I’m either 1. not driving my car and I’m calling the dentist to see if I can make a number of small payments or 2. I’m asking for financial help from friends or family.  Not very fun.

But thanks to YNAB’s rule #1 (which is to live off last month’s income), I don’t have to do any of these things!  I have a whole month’s income as a “buffer” in my bank account.  I was able to immediately repair and register the car and immediately send the dentist a check.  This put us WAY over our month’s budget, but I didn’t have to dip into my savings one bit!

I was grateful for YNAB’s system for two reasons:  1. It encouraged me to have enough money (rule #1) to pay the unexpected bills.  2.  Using the YNAB budget system, the overspent amount ($600) smoothly comes out of my budgetable amount that I have for next month (or the following couple months if needs be).  That way I’m able to “take the hit” over a longer time frame, budget a little tighter, and not have to touch my savings at all.

In the end, I’m happy to report that not only did we not have to touch our savings account, but we were even still able to stick to our goal of putting 15% of our income into savings.

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