My Sister’s (Book)keeper: Learning the Rules
A very important step.
This is the second in a series of articles about sisters and budgeting (read the first post here). Genie, a frugal 28-year-old, attempts to mentor her sister Kate, a spendthrift 31-year-old, in the messy and confusing world of personal finance. How do you help your family manage their finances without going insane or completely destroying your relationship? We’ll find out.
Genie
Once Kate moved into her new apartment and was feeling a little more comfortable with the amount of rent she was paying, it was time to tackle the bigger picture of her financial lifestyle. I recommended she use the same budgeting system I had fallen in love with — You Need a Budget (YNAB) — and after hearing how it had specifically helped me to handle credit card debt, she agreed.
Kate
One thing I do not have is self discipline, and this new budget lifestyle was going to take some serious self discipline. I agreed to try YNAB because Genie was familiar with the system — meaning I could skip reading most of the tutorials and let Genie teach me the basics.
I should mention here that YNAB does have a yearly subscription fee which I complained about (very loudly) at first. However, after using this system for over two years, I can honestly say it’s worth it to have a system that 1) is relatively easy to understand, 2) can sync itself to your bank account, and 3) brings you one step closer to looking like a real adult.
Confession time: Some of the YNAB elements are not completely intuitive. I would have been lost without Genie’s help (or maybe just forced to read the tutorials).
Genie: The First Rule is to Give Every Dollar a Job
Since Kate refused to read any tutorials, we started by walking through the 4 principles of the YNAB system. The first is to give every dollar a job. When you get new income, you budget all the dollars you have — no more, no less.
With this rule, we were doing something Kate wasn’t used to. Any budgeting apps she’d used in the past were focused around category amounts and estimates — $300 for groceries, $625 for rent, etc. Your category amounts may or may not add up to what you make every month. They might be less, they might be more, it might change from month to month. You’d still need to check your bank account balance to make sure you have enough money any time you spend.
YNAB wants you to budget with the money you have right now. Everything you spend comes out of what you have now. This can be a scary concept when you haven’t budgeted this way before, and an intimidating concept if you aren’t making a lot of money.
The ultimate goal is that you only need to check your budget when you spend, not your bank balance.
Kate
As much as I hate moving and packing, finding a cheaper apartment was the easy part. The hard part was changing the way I approached my budget each month. I had been living in a world of estimates and approximations. Can I afford groceries? Look at my bank balance. Can I afford to go to the movies? Look at my bank balance. YNAB (and Genie) wanted me to plan where my money was going as soon as it appeared in my checking account.
We started on payday and divided my paycheck into categories addressing payments owed at the beginning of the month. Immediate expenses: rent; groceries; transportation; Netflix subscription; one student loan payment out of three; and one credit card payment. There wasn’t much left over, but knowing me, I probably added money to dining out. That wasn’t so bad. I started to fill in more payments that would be due towards the middle of the month, like the rest of my student loan payments and my electric bill. I thought I was so smart to account for these expenses early, but the amount of money to be budgeted at the top of the page went from a friendly green color to a menacing red.
“You don’t have that money to spend yet,” Genie explained.
“But I will after my next paycheck. Shouldn’t I plan for those expenses now?”
“Let’s just worry about the money you actually have now.”
I guess Genie had figured out that I wasn’t good with hypothetical money.
Genie: The Second Rule is toEmbrace Your True Expenses
This is all about preparing for big expenses in the future. It could be unexpected expenses, like saving for potential car repairs, or it could be for an annual bill that you want to be ready for, like renewing your car tags. So along with setting aside what you need for this month’s bills, you could be setting aside a small amount each month to be ready for this big bill when it happens.
Following this rule requires two things: acknowledging and planning for the bills that are coming up in the future, and not pulling money out of this category to pay for something you want now. It has to become an amount that you don’t even notice, like a savings account you aren’t allowed to touch (but it’s in your checking account). This is where looking at the budget instead of your bank balance really helps.
Kate
“Embrace your true expenses” was just another way to say plan ahead. If planning ahead was easy for me, I wouldn’t be in this financial mess, would I? This was actually the rule I needed the most help with. I was basically able to cover all of my immediate expenses with the money I was bringing in each month. But if an emergency expense came up, I was doomed. And guess what? Emergency expenses come up whether you can afford them or not.
When your car needs all of the brake pads replaced, it has to happen right now. You may not have $600 for parts and labor, but you also don’t want to have your brakes give out in the middle of traffic. (I actually did put off getting my car serviced because of money, but having your brakes respond too slowly in the middle of a busy intersection really puts your priorities into perspective.) Too many times I had put these emergency expenses on a credit card with no specific plan of paying off the balance. And sometimes I called my mom for help. I’m not proud of that, but it happened.
Genie had me start small. A category for emergencies and a category for savings. Little by little (because I only had a little to spare), we would build up a reserve.
Genie‘s Third Rule Is to Roll With the Punches
Understand that unexpected expenses and mistakes will happen, and be okay with a little flexibility.
This rule is really meant to be a helpful one. Life happens. If you overspend on dining out, no problem — pull money from another category, maybe clothing, and then spend less there for this month. One splurge doesn’t mean you failed and one unexpected expense doesn’t break everything.
But this is not a limitless reset button. You still have the same number of dollars to budget, and if you overspend in too many places, there won’t be enough money to pull from other places and cover the issues.
Kate
Flexibility! Finally a rule I could get behind. Life happens and editing is necessary. In YNAB you can adjust your budget as you need. You really want to grab that drink with your buddies? That’s fine, but when you go over your dining out budget by $20, that money has to come from somewhere. I liked this rule SO MUCH. It’s like YNAB knew I was going to screw up and that was perfectly okay.
But like Genie mentioned above, this is not an endless reset button. I made mistakes, but attempted to justify those mistakes without really adjusting my budget in a helpful way. I only went a little over budget here and there, so that shouldn’t be a huge deal. But every little bit can add up quickly. For the first three months I was using YNAB, I consistently pulled from my emergency and savings money to cover my overspending. Most of this overspending was because I was still looking at my bank account balance. Wait, I have $150 in my account. That means I can go to the movies, right? No, Kate. No! That isn’t your ‘fun money’, you’ll need that money to buy a tank of gas in a week when your fuel gauge is on empty. I had to pay attention to my budget categories — YNAB even has a nifty phone app to make this easier. But even with all these tools at my disposable, change takes time.
Genie: The Fourth Rule Is to Age Your Money
The final rule, and, for me, the most exciting one (yes I’m a nerd for this stuff) is to age your money. The ultimate goal is to build up enough money that can be budgeted at least one month ahead. No more timing bills with paychecks, no nervous sweats the last days of the month waiting for the next check — you simply have enough to pay all the bills on the first of the month.
This is also a very ambitious goal. Not only does it require a lot of planning and self-discipline, it requires money, plain and simple. I once read a recommendation for reaching this goal: aiming for one month of as little spending as possible and throwing every extra dollar possible at next month’s budget.
That’s really hard to do, and not something I wanted to try. After budgeting with YNAB since March of 2015, I finally aged my money 36 days, but I partly got there because a grandparent died and I received $3,000 from the sale of her house.
But I can say from recent experience that it is extremely comforting to get to a place where you can make it through low-income months with little difficulty because you’ve planned ahead. This is what I ultimately want for Kate, to help her get out of the paycheck-to-paycheck cycle and build up a buffer.
Kate
This one is the most difficult. Genie has been giving me budgeting advice for over two years now, and I am nowhere near achieving the coveted “one-month buffer.” I think the most I have “aged” my money in YNAB is 20 days, and that’s not bad. Except, right now my money is aged 8 days and I’m definitely going to be holding my breath a bit until I get paid at the end of February (thank God for short months).
For years, I had been coping with my money problems by just denying they were real. Eliminating bad habits of any kind takes time and bumps in the road are guaranteed. I was starting to realize how much time and dedication it would take for me to achieve more financial stability, and that was extremely overwhelming. One step at a time, right?
Coming up next in My Sister’s (Book)Keeper: After going through all the rules of the YNAB system, Kate and Genie get into the nitty-gritty of connecting accounts, acknowledging student loan debt, and figuring out how the hell we should handle credit cards.
Genie Leslie is a writer and actor living in Seattle.
Kate Leslie is a theatre educator and director living in Chicago.
In between budgeting sessions, they host the podcast The Musical Version with their younger sister, who has not sought out any financial advice at this time.
