When Life Throws a Curveball, YNAB's Rule 3 Keeps Your Budget in Fighting Shape

Picture this: It's the end of the month, and you've been budgeting like a pro. You've diligently assigned your dollars to your different categories all the way down to zero (hello, Rule 1), and everything is going really well. But then, out of nowhere, life throws a curveball at you. Your trusty car breaks down, and you don't have enough funds set aside in your car repair category to replace it. Ouch! That's where YNAB's Rule 3, "roll with the punches," comes into play.

In this week's blog post, I'll dive into the world of rolling with the punches and will show you how Rule 3 can bring some much needed flexibility into your budget.

What is YNAB’s Rule 3?

We can plan and organize all we want, but let's face it: life is full of unexpected surprises. Murphy's Law is always lurking in the shadows, waiting to pounce when we least expect it. That's where YNAB's Rule 3, “Roll with the punches”, shines. It's all about flexibility. Rule 3 allows us to pivot when an expense comes up that we didn't plan for, which will happen. It's the budgeting equivalent of rolling with the punches in the boxing ring - you move with the direction of the punch, in order to lessen the blow. I’m definitely not a boxing expert, but it makes sense to me. 

We’ve had a few unexpected financial surprises since discovering YNAB where Rule 3 was deployed. I remember waking up in the middle of the night a few years ago to what I thought was a fog horn (we live near an active harbour). Nope, not a fog horn. It was the compressor of our heat pump, dying a slow death. This wasn’t a repair that could wait, so we moved funds from our new furniture category to cover it. The furniture could wait. (And I’ve very excited because we did save for the furniture, and its coming soon!)

Rule 3 is not just for major hits to the budget, either. Rule 3 can come into play with relatively minor overspending as well. For example, near the end of last month we had overspent on our grocery budget by about $200. All good though, I moved the money from our “gas” category to cover the cost and we waited until the month rolled over to fill up again. Easy peasy and no guilt.

How Does Rule 3 Work in YNAB?

Now that you understand the essence of Rule 3, let's see how it operates in YNAB. It's a simple three-step process:

Step 1: When faced with an unexpected expense or after you’ve overspent a category, take a moment to decide where the money to cover it will come from (you need to cover it, because you only have so many dollars and this is zero-based budgeting). The best practice is to figure out where the money will come from before diving into your pocket but if this is not possible, you can fix it all up afterwards. Let’s say that in order to cover the car repair, you decide that you’re going to use the funds that were set aside for an upcoming trip (double ouch).

Step 2: Once you've identified the source, simply reallocate the necessary funds from that category to cover the new expense. It's like shifting your weight from one foot to the other to maintain your balance in the ring (too much?). 

Step 3: If this new expense is something that is likely to come up again, consider adding a new category in your budget or, if you already have a category but there aren't enough funds to cover the expense, consider increasing the target amount. By doing this, you'll be better prepared for similar situations in the future, and they won't catch you off guard. 

What Rule 3 Isn't

Now, before you go all out with Rule 3, I really want to make something clear: Rule 3 is not an excuse to live recklessly and overspend without considering the consequences nor is it an invitation to always be plundering the dollars set aside in other categories. For example, if you keep moving money from your true expenses to cover overspending, you are not going to be very successful in covering those true expenses (why hello, Rule 2). Rule 3 is more like an option to make a strategic maneuver—a well-thought-out roll with the punches that keeps your financial foundation intact.

Conclusion

So, the next time life throws you a curveball, don't panic and certainly don’t feel guilty. Your budget is flexible! Take a deep breath, assess the situation, and remember the power of Rule 3. It's the rule that keeps you nimble, flexible, and ready to tackle whatever comes your way.                                 

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