Part 5: Creating Your Own Budget: A Practical Guide using YNAB Principles

Welcome to the final part of our financial empowerment journey! In the previous articles (see links below), we explored the transformative power of budgeting, establishing a solid financial foundation, taking control of your financial destiny, and choosing the right strategy to repay your debts using the snowball or avalanche methods. Now, as we reach the end of our journey, it's time to apply these principles in real life and create your own budget.

Budgeting is essential for financial stability and achieving your money goals. I've been using a handy app called YNAB (You Need a Budget) to manage my finances effectively, and I'll use its principles as a roadmap to help you create your own budget. Even if you don't use the app, you can still follow YNAB's core ideas to build a manual budget that fits your needs. In this practical guide, I'll walk you through the steps of crafting a budget inspired by YNAB's principles, just like planning the perfect route for your road trip.

Rule 1: Give Every Dollar a Job

The first rule of YNAB is simple: Give each dollar you earn a specific purpose. Here's how to do it:

1. Calculate Your Monthly Income: Start by figuring out how much money you make each month, including your salary, freelance earnings, and any other income sources.
2. List Essential Expenses: Make a list of your must-pay monthly expenses, like rent or mortgage, utilities, groceries, transportation, insurance, and debt payments (refer to the article I wrote on debt repayment strategies - Part 4: Choosing Your Path: Snowball vs. Avalanche Debt Repayment.) Assign a specific amount of money to each category based on your actual expenses.
3. Allocate Money to Categories: Divide your available income among these expense categories until every dollar has a job. Make sure not to exceed your total income. If you have money left after covering essentials, consider putting it into savings or towards paying off debt.
4. Set Savings Goals: YNAB also encourages you to save for bigger, less frequent expenses, such as annual payments or holiday gifts. Create separate savings categories for these goals and allocate funds to them each month.

Rule 2: Embrace Your True Expenses

To prevent financial surprises, YNAB suggests saving for expenses that don't come around every month. Here's how to handle it:

1. Identify Non-Monthly Expenses: Make a list of expenses that don't happen every month but are necessary, like car repairs, replacing your car tyres, yearly subscriptions, or vacations.
2. Calculate the Annual Cost: Estimate how much these expenses cost in a year. For instance, if your annual subscription is N$600.00, set aside N$50 each month in a "Subscription" category.
3. Monthly Contributions: Regularly put money into these categories so you're ready when these irregular expenses pop up. This way, you won't have to dip into your emergency fund or rely on credit cards for unexpected costs.

Rule 3: Roll with the Punches

Life can throw curveballs, and that's why YNAB's third rule encourages flexibility:

1. Regularly Check Your Budget: Take a look at your spending and budget categories each week or as needed. If you spend too much in one category, you'll need to move money from another to cover it.
2. Make Adjustments When Needed: If your priorities shift or unexpected expenses pop up, feel free to change your budget categories accordingly. The goal is to keep your budget in tune with your current financial situation.
3. No Need for Guilt: Remember, budgeting isn't about being perfect. It's about making smart choices and adapting when life changes. Be gentle with yourself and focus on making progress.

Rule 4: Age Your Money

1. Create a Safety Net: Start by saving enough money to cover all your expenses for one month. This means you'll be using last month's earnings to pay this month's expenses, providing financial stability and reducing stress.
2. Plan Ahead: Once you have that one-month cushion, put any extra money you get into future months. This way, you can prepare for big financial goals like paying off debt, saving for retirement, or buying a home.
3. Keep Your Safety Net: As you put money into future months, make sure you still have that one-month safety net. The more you can save ahead, the more financial freedom you'll have.

Conclusion

Great job on completing this journey to financial empowerment! Along the way, you've learned about budgeting, building a strong financial foundation, taking charge of your money future, managing debt smartly, and aiming for financial freedom. Remember, success with money is an ongoing journey, and your path to building wealth keeps going.

As you continue on your money journey, remember these important ideas:

• Save regularly and make sure you have money set aside for emergencies.
• Be smart with your investments and don't put all your eggs in one basket.
• Set clear money goals and make plans to reach them.
• Stick to your plan, be patient, and be ready to adapt when things change.
• Don't hesitate to ask for help from experts when you need it, and never stop learning.

Financial freedom is possible, and by following these ideas, you can start moving toward a more secure and prosperous future. Keep moving forward, keep learning, and enjoy the ride!

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Disclaimer: The information presented in this article is intended for general informational purposes only. While every effort has been made to ensure its accuracy and reliability, I do not take responsibility for any errors, omissions, or inaccuracies within the content. The content is provided on an "as is" basis without any warranties of completeness, accuracy, usefulness, or timeliness. The use of this information is at your own discretion and risk. Always seek professional advice and conduct thorough research before making financial decisions.