14. Guilt-Free Spending: Mastering YNAB’s Original Rules

Feb 3

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On today's episode of the podcast, I am going to walk you through YNAB's original four Rules for Simple Budgeting.

Alright, so if you've been around my world for any amount of time, you probably know that YNAB is my favorite budgeting software. Not only do I use it personally—and by personally, I mean I have our household budget in it, plus one for each of our two businesses—but I have taught the majority of my clients how to use it as well. I’ve found that once they're able to learn the ropes, YNAB can be a total game-changer for their budgeting.

But why is that? It's because YNAB, while yes, it's a piece of software that helps you see your numbers, also has a system. And they originally started with four rules. YNAB has actually been around for 25 years, I believe it has been now, and they started with these four rules. You know, "rules" sound a little restrictive, right? But they're really meant to guide your budgeting success. So, here are the four rules and how I interpret them into my own budgeting. And then next week, we'll talk a little bit about the shift they've moved into and the five questions that they now follow.

Rule number one: Give every dollar a job.

You've likely heard me say this if, again, you've been around here for any amount of time. While this sounds simpler than it is, this is really also the key to taking control of your money. It just means giving every dollar a purpose. By doing this, you gain clarity on where your money is going, and you can eliminate any wasteful spending.

The way YNAB helps you do this is by letting you divide your checking account balance into categories. This is crucial because mental accounting is a real problem, right? We've all been there. We think we can afford something because we have a couple thousand dollars in our checking account, and then boom—a bill hits that we totally forgot about, and you're a little on edge. YNAB helps prevent this by showing you exactly what you have available in every single category, and sometimes that's nothing.

So here's how it works: You are shopping. You see a shirt. You go to your clothing category in YNAB and you see $20. Your shirt costs $18. You're good to go, right? Maybe it’s even on sale for $14.99. Even better! I love a great sale. You can go ahead and buy that shirt guilt-free.

Mental accounting adds unnecessary complexity to managing your money. You can simplify your finances with YNAB and its first rule. YNAB provides a user-friendly tool that allows you to see exactly what your money is doing with a quick glance, making your budget straightforward and eliminating that overwhelm of trying to remember everything—because we can't all remember everything.

Rule number two: Embrace your true expenses.

Beyond your immediate needs—those bills, mortgage or rent, cell phone bill, electricity, things like that—effective budgeting involves preparing for the "unexpected" expected expenses. This is where Rule Two comes into play. This tackles those irregular costs that often catch us off guard and end up feeling like an emergency. These could be things like holiday shopping, car repairs, vet bills, back-to-school shopping, or home maintenance. We know they're going to happen; we just don't know exactly how much they're going to cost or when.

By consistently setting aside a small portion of your income, you can take those potential financial surprises and turn them into manageable events. Don't let irregular expenses derail your progress. It's so common to be going along, things are going great, and boom—that expense pops up and it feels like everything is off the rails. By following Rule Two, you are encouraged to plan for those true expenses. It gives you a format to do that right within the software by setting up categories for things like car maintenance, annual subscriptions, and holiday bills. You create a reliable system that replaces those pop-up reminders on a post-it note that you eventually forget about. This helps you get clarity and control.

Rule number three: Roll with the punches.

Many people think that budgeting is restrictive, but Rule Number Three allows you to remove that thinking. It acknowledges that monthly spending fluctuates. That’s where the myth of budgeting being restrictive comes from—normally, you would sit down and put yourself in a box and say, "This is exactly what I'm going to spend every single month." Then, when something goes wrong, it feels like you've lost. It feels like you failed.

Maybe you budget $500 for groceries this month but spend less next month. Maybe the following month you'll spend slightly more. That's okay! YNAB provides the solution with flexibility. Not only is it easy to move money between categories, it's encouraged if needed. You don't have to stress over small overages like an extra $20 spent on groceries. YNAB lets you quickly move those funds from one category to the next while maintaining your overall budget so you can still see where everything else is accounted for. It's this ease of moving money around that keeps you in control and positive about your financial progress. Flexibility is key. This proactive approach helps you manage your money more effectively, making small corrections before they become big problems.

Rule number four: Age your money.

Imagine a life beyond the paycheck-to-paycheck struggle. That's the power of Rule Four. Basically, what we're doing is creating a time buffer between when you get paid and when you spend that money. This helps you build a financial foundation that allows your money to work for you, and it helps relieve a lot of stress.

The ultimate aim is to reach the point where you can live comfortably on last month's income. The paycheck that came in last month is what you're using to pay your bills today. If you get paid tomorrow, that money isn't turning around to be spent immediately; it is being budgeted for next month's expenses. That's where things start to get really great.

Breaking that paycheck-to-paycheck cycle is vital. If you're tired of what I lovingly refer to as "banking roulette"—that nerve-wracking game of which is going to hit first, your paycheck or the bill—I've been there. It's not a place that I recommend anyone being. YNAB's Rule Four offers the solution by creating that financial cushion. It helps you avoid those close calls and those fears of overdraft fees, providing the financial peace of mind you’re looking for.

Let's do a quick recap of the four rules:

Rule Number One: Give every dollar a job. Know exactly where your money is going by assigning a specific purpose to every single dollar, whether that's $50 or $5,000.
Rule Number Two: Embrace your true expenses. This rule emphasizes planning for irregular but predictable expenses and helps prevent them from derailing your entire budget.
Rule Number Three: Roll with the punches. Acknowledging that life is unpredictable, this rule encourages flexibility and adjustments to your budget as needed. It's not a failure; you are making informed decisions with new information.
Rule Number Four: Age your money. This rule focuses on building a time buffer between earning and spending, allowing you to move away from the paycheck-to-paycheck cycle and gain stability.

Of course, this process takes some time and dedication. Achieving financial mastery with these rules requires consistent effort. However, I promise you the reward is well worth it. The increased awareness of your spending habits often leads to reduced spending and increased savings for your long-term goals—those "Greatest Life" things we always talk about. What is it that you truly want more money for? That awareness creates a positive cycle of financial growth. Instead of fearing these guidelines, take a moment to let them digest and then embrace them as a starting point for your journey to financial freedom. With patience and commitment, you can build a more secure and prosperous future.

There you have it. Those are our four original YNAB rules. Like I mentioned, next week we will talk about the new five questions they share.

If any of this resonated with you, I would love to invite you inside my membership on Skool. It is a supportive place to heal your relationship with money, get practical help using YNAB, and finally feel confident in managing your finances. You can check it out at theexuberantelephant.com/emc for Empowered Money Circle, and I will leave that link in the show notes below. Thanks so much for joining me today. I will talk to you on the next episode soon.

RESOURCES MENTIONED IN THIS EPISODE:

❇️ Join The Empowered Money Circle on Skool! ❇️

https://www.theexuberantelephant.com/emc

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DISCLOSURES

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YNAB Disclosure: I am a YNAB Certified Budgeting Coach, which means that I have been trained to coach people on using YNAB software and the YNAB budgeting method. I have met select requirements of You Need a Budget LLC in order to receive this certification, which means that I have the ability to competently coach YNAB to others. I am not an employee of YNAB, and all non-YNAB related opinions and recommendations are my own. My views do not reflect the views of YNAB and its employees or affiliates.

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