Get Off the Financial Roller Coaster by Following YNAB’s Rule 2 and Embracing Your True Expenses
Hey there! This is Part 2 of a four-part series on You Need a Budget’s (YNAB) four rules. Last week, I talked about Rule 1: Give Every Dollar a Job.
As I explained, Rule 1 is the foundation of zero-based budgeting. However, Rule 2 is definitely my favorite rule. Why? Well, in my personal journey with YNAB, it was the one rule that helped me reduce my stress about money significantly.
Do you ever feel like your budget is a high-speed roller coaster ride, with expenses popping up out of nowhere, leaving you hanging on for dear life? Picture this: you're happily cruising along, thinking everything's "fine" with your finances, and suddenly, bam! You need to buy extra flowers in May (yes, need ha ha), or your car registration comes due. These unexpected expenses throw your entire monthly budget off, and you find yourself struggling to cover your regular monthly expenses. Isn't it frustrating?
Well, my friend, that's where Rule 2 comes in. In this post I’m going to share with you what it is, how it works in YNAB, and how it works in real life for my stepfamily (blended family).
What is YNAB's Rule 2?
Before I discovered the benefits of zero-based budgeting, I thought I had everything under control (well, most of the time I did). I had a fancy Excel spreadsheet listing my usual monthly expenses and some savings categories, and in theory, I had enough money coming in to cover it all. But you know what? Things always seemed to surprise me! Organized me! From those unexpected May flowers to car registration fees, I found myself caught in a never-ending cash flow struggle. But then Rule 2 came into my life.
So, what exactly is Rule 2? Rule 2 is Embrace Your True Expenses. It means being realistic about where your money goes while keeping your dreams and goals in sight. You see, true expenses are those large, less-frequent financial commitments that tend to sneak up on you. They can be expected bills, like yearly subscriptions or memberships, or less predictable but inevitable expenses, such as the new winter tires you need or the fridge you need to replace. Rule 2 encourages you to set aside money each month for these infrequent expenses so that when they do show up—and they will—your dollars are just sitting there waiting to do their job.
How Does Rule 2 Work in YNAB?
Now that you're intrigued by Rule 2, let me show you how it works within YNAB. It's a straightforward process that will help you get off the financial roller coaster.
Here's the step-by-step breakdown:
Create categories for your true expenses: In YNAB, create specific categories for all your true expenses. Whether it's car repairs, holiday gifts, or that annual summer camp bill, give them a category.
Set targets: Determine how much money you need to allocate each month towards these categories. Most commonly, you would assign them a "yearly spending target."
Fund those categories: When income comes into your budget (i.e., you get paid), assign your dollars to those categories.
Pay for the expense. When the expense comes along, assign it to the category you created for it.
How Does Rule 2 Work in Real Life?
Rule 2 isn't just some abstract concept confined to the digital realm of budgeting apps. It's a principle that can transform your real-life financial situation. Take a moment to sit down and think about all those true expenses that tend to creep up on you. Think about all of your yearly bills (for example, your annual subscriptions), yearly savings goals (for example, Christmas gifts), and all of those expenses that will happen, but you're not quite sure when (for example, your car will break down). It might help to go through your bank statements from the past year and identify your spending patterns. Then, set aside money each month for these expenses. For some expenses, like car repairs, you will have to take an educated guess. Don't worry, you can always adjust this amount later. Then, when the expense comes along, you pay it!
For my stepfamily of six, we have a whole array of true expenses, most of which revolve around the kids. I save up for the kids' annual summer camp bill ($$), special events throughout the year, and Christmas presents. But it doesn't stop there. My husband and I are also setting aside funds for car repairs, new heat pumps, home maintenance, and a family trip. By embracing Rule 2, we've created a safety net, ensuring that we are always prepared for whatever financial surprises come our way, and this has significantly reduced my stress about money.
Conclusion
Embracing YNAB's Rule 2 has the potential to transform your finances. By recognizing and allocating funds for your true expenses, you're equipping yourself with a powerful tool to maintain a stable budget and bid farewell to the unpredictable financial roller coaster.
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