One reason budgeting gets a bad rap is that traditional budgeting often makes people feel like failures. When the month’s spending doesn’t match the amount you projected at the beginning of the month, it’s easy to decide that budgeting just doesn’t work.
Traditional budgets set spending levels in each category at the beginning of the month. This can be frustrating because those decisions feel rigid and unchangeable, at least for the month. It feels like cheating to increase a category limit midway through the month.
When you set your grocery budget at $300 and end up spending $360, you feel like a budget failure.
When in one month you go to both a wedding and a birthday party, and spend more than allocated on gifts, you wonder why you even try.
Continually going over-budget causes discouragement, and discouragement makes people give up on budgeting altogether.
A flexible budget, on the other hand, allows for variations without ruining your bottom line or making you feel like a failure. When unexpected expenses come up or your priorities change, your budget should change accordingly.
It’s perfectly fine to change your category limits — it would be foolish not to. With our flexible budget, we are confident that there will never be a single month that our expenses exactly match our beginning-of-the-month projections, and that’s just fine.
Flexible budgeting is not failed budgeting — it’s realistic, guilt-free, liberating budgeting.
Keep Your Budget Reliable
On Day 7 of the Frugal Fresh Start Challenge, we covered the YNAB budgeting method in which you allocate your actual, on-hand cash to your highest priority budget categories, consistently enter spending for those categories as you spend during the month, and check potential spending against the available category balance before making a purchase.
Remember, while we love YNAB, you could also use your own spreadsheet, written ledger, or cash envelopes with YNAB rules and enjoy the benefits of the philosophy.
Since we rely on the category balances to tell us exactly how much of our real money is available to spend in that category, it’s imperative to keep up on recording your spending as it happens.
Because you are budgeting with actual money rather than expected income, and recording expenses against the categories as you spend money during the month, you can implicitly trust your budget to show exactly how much is available in every category, every time you look at the budget. Your budget is a reliable indicator of your spending ability.
Changing Budget Category Allotments
Before spending money, we check our category balances in the YNAB app to see if we have sufficient funds allocated for the proposed expense. If you’re a cash envelope user this is as simple as checking the cash in the envelope for that category.
If we have the funds remaining in that category, we know we can make the purchase. If we don’t have enough money in the category, we need to decide if this purchase is really a priority for us right now. If it is a priority, we have to find something in the budget that is a lower priority and take money from that category to fund the purchase.
In today’s new video, Mike and I are talking through a few practical examples of how the reallocation works. (Two are real examples and one is fictional. Can you guess which is which?)
Feeling Empowered by Your Budget
Remember that changing your category allotments and moving money around throughout the month is part of the plan. It’s all about your priorities and being empowered to make decisions as they come up. Making changes multiple times every month is normal. It’s not a big deal. There’s no need to fret.
This is a healthy way to use your resources. An unhealthy way is to arbitrarily set a number at the beginning of the month, let those arbitrary number choices govern your priorities during the month, and feel like a failure when real life doesn’t match your beginning-of-the-month guesses.
With flexible budgeting, you get all the benefits of living within your means (what budgeting is really about) and all the freedom to decide, guilt-free, what you want to do with those means as real life unfolds around you during the month. You get to make the choices, rather than being constrained by strict rules and untouchable category limits.
Pay Attention to What Matters
Traditional budgeting would compare the amount set for each category at the beginning and compare it to the actual spending to decide if we were “on budget” or not. But by that point it doesn’t matter anymore. It’s history!
In a flexible budget, the amount we set on the first of the month isn’t important by the end of the month. What IS important is that as we make choices during the month, we keep our total spending lower than the total amount of real money we have allocated to all the budget categories together. It doesn’t matter how the allocation of that money has changed as long as it’s going to our priorities.
Every month, we set priorities, make initial projections, and then modify our budget to match our choices as real life meets our best guesses.
Challenge—Day 11
Look at your budget that you set up on Day 7. Are there any changes that you need to make? Don’t hesitate to move money around if you need to. In the future, you can make changes (moving money from one category to another) as the need arises. Remember that your budget categories contain real money, so you should not spend more than is allocated to the category.
- Have budget “failures” discouraged you in the past?
- Have you tried a flexible budget before?
“When unexpected expenses come up or your priorities change, your budget should change accordingly.”
^^ Coming to understand this — like, really understand it — has made a WORLD of difference for us when it comes to budgeting.
Back when I finally accepted that the budget in my head wasn’t going to cut it and I needed to get something on paper, I used to get hung up on variation. But the more flexibility I’ve allowed, the more I have been able to stay on track and actually reach my goals.
Anyway, this post is great and I feel like it will definitely help people reach a point where they’re empowered by their budgets instead of discouraged!
I’ve heard a lot of good things about YNAB. I have not used it myself. I should definitely review it. My life is about flexibility. It’ must be. I can totally relate.
We love YNAB! It has made a huge difference for us!
Great question Britney! This system works perfectly with sinking funds. In fact that’s what Day 13 is all about. When you allocate money to your sinking funds categories, the money just grows each month and when you spend it, you just record it under that category. It works really well!
I love this idea! Going over budget really stresses me out. Question though…how does this concept work with sinking funds? We have seperate bank accounts for various sinking funds (categories that vary drastically throughout the year, including travel, gifts, health care, car repairs, etc). I’d love to implement this flexible monthly budget idea, but not sure how it would work with our allotted contributions (and occasional use of) our sinking funds.
We have already moved money around in ou budget. I forgot to budget 10 month pictures for our babies and our internet was not as much as we budgeted so that helped cover some of the cost of pictures. We have tried to budget before but always spend it. This is our first time using a flexible budget and I’m finding it difficult dealing with two currencies it takes me 5 minutes to do the math and figure out how much we spent in dollars. Also I have more money in my account than my budget in YNAB and I can’t figure out why. I’m glad it’s more than less but still it’s $50 extra so now I’m scared to spend any money because I’m worried I left something out and we don’t have a buffer yet.
Did you write a check? Sometimes I’ll forget to record that. You can go through your online statement and “reconcile” with YNAB. We’ll talk more about reconciling next week actually!
I absolutely love it when you do the screen shots of the YNAB software.. it’s so pretty and makes this nerd incredibly happy!
Ha ha! Love it Monica!
For me, the key is to be flexible (I use YNAB too and think this is one of its most valuable aspects) but not *too* flexible. Certain things, like the contribution I’m making to my e-fund and travel fund, are sacrosanct. I can move money around within “spending” categories, but I can’t make lower contributions to my savings goals. Otherwise, I’m inclined to be too indulgent! I’d actually rather go into debt a little and make up the shortfall from next month’s money than lower those savings contributions.
I agree! You can’t let the flexibility make you lazy! You still need some self-discipline, especially with saving!
The whole concept of moving money between categories is new to me. I’ve always been an ‘I’ve got a budget of $X and I’m not going over it’ type. I’m interested to learn more about the practicalities of this approach. Do you have separate accounts for specific categories? Do you use a high interest savings account to make the most of money waiting to do it’s job? I’m ever so keen to learn more.
Great questions Candice. Before we used YNAB, we had lots of separate accounts for different savings goals and sinking funds. The beauty of YNAB is that we could simplify. We have one checking account, so the money for our YNAB budget is all in there. The money is divided by the categories in YNAB. Since we spend according to the categories (not the checking account balance) and make sure to record all of our spending in YNAB, we don’t have to worry about the money not being there or getting “mixed up.”
We have a Capital One 360 savings account where we keep our emergency fund. We don’t worry about moving our “buffer” for living on last month’s income in and out of the savings account though. When we have a big savings goal (instead of paying off debt like we are now), we will keep the money in our savings account (you can have lots of separate savings accounts with Capital One).
For me my family started using YNAB almost a year ago when I found you site. I too love the flexibile budget concept, because for the first time I was truly aware of where I was spending. With quickens and other formats I new how much money I had, but didn’t easily know what I was saving for or what the money was for. We are now working towards living on last months income and it has been a challenge getting there I’m hoping to in the next couple of months. Love reading your site you help keep me on track.
Yes! With our debt payoff it has been really nice to be able to put the maximum toward our debt each month thanks to YNAB. Before using YNAB we were never sure how much we had “extra” in our budget each month.
I am loving YNAB, I downloaded the free version to try and have been using almost daily. I created my budget, with the bulk of the money in the “spending money” category. This way if something I hadn’t thought of comes up I can create a category and just move it from the spending money. Thanks for the tip on moving money, I am still getting used to this program. Hopefully, after a few months I will have all my categories listed.
I wanted to say also, that I was pretty hesitant to try YNAB, after reading a few reviews that stated it is for getting out of debt and not necessary if you use something like Quicken. But I kept reading reviews and found others who use it in addition to their checking software and love it. I like it because I really want to see where I’m spending money, although I can track it in Quicken, I found their budgeting tools were cumbersome. With YNAB, I can open it up and quickly input my purchases and continue using Quicken weekly to monitor all my accounts.
I wouldn’t say that YNAB is just for people who are trying to get out of debt. I know lots of people who use YNAB who have no debt at all. People are able to save more money generally (whether it goes to their IRA or their debt) with YNAB because they know where all their money is going so those dollars don’t get “lost.” I’m glad you’re liking it!
I really enjoy the new flexible style of budgeting. I tried budgets in the past, but I did feel like a failure because I would, let’s say, project $100 for groceries and end up spending $120. Then, I felt like the whole thing was a total disaster because I couldn’t remove $20 from another category (that wasn’t what you were supposed to do). I think that older style of rigid budgeting is why so many people hate on budgets.
Once I started to understand that it’s ok to be flexible and massage the amounts to work for what’s really happening, I felt so much less pressure, and I started to see the progress toward my goals that I really wanted to see. I still try, of course, to stick within the amounts projected, but now, I’m not throwing the whole thing out if suddenly, I realize I forgot to budget for an oil change this month.
Awesome Amy! I’m glad that you discovered flexible budgeting so you could give yourself a break and not let an oil change throw everything off! 🙂
I’m a planner, I hate surprises, so this was the hardest part of budgeting for me to accept. I still have a hard time moving money from one category to another (especially if I had big plans for the original category!). But this way is so much better than spending every dime in the original budget and then charging the rest.
Yes! It’s way better than charging it for sure! 🙂 And you really do get to weigh your priorities and choose how to use your money.