YNAB’s 4 Rules – Part 2: Embrace Your True Expenses

Welcome back to our series on YNAB’s Four Rules. In Part 1, we discussed the importance of giving every dollar a job. Now, let’s dive into Rule 2: Embrace Your True Expenses. As a YNAB Certified Coach, I know firsthand how crucial it is to face those “infrequent” costs head-on and ensure they don’t derail your budget or cause financial stress.

The Shock of Unplanned Expenses

We all have expenses that catch us off guard, even though they shouldn’t. Think about it—your car and home will need maintenance, holidays will come, and you’ll eventually need new clothes. These aren’t surprises; they’re inevitable. According to a 2019 report by the Federal Reserve, nearly 40% of Americans would struggle to cover a $400 emergency.¹ That’s an eye-opener. Even high earners can find themselves in a bind if they don’t plan for irregular expenses.

This statistic highlights the importance of Rule 2: Embrace Your True Expenses. It’s about acknowledging these costs and incorporating them into your budget, so they don’t catch you off guard

Making True Expenses Part of Your Budget

The key to embracing your true expenses is breaking them down into manageable monthly amounts. Here’s how you can do it:

• Identify Irregular Expenses: Start by thinking about all the costs that come up throughout the year. These could include:
  • Insurance Premiums: Annual or semi-annual payments for car, home, or health insurance.
  • Vacations: Whether it’s a summer getaway or a holiday trip to see family.
  • Home Repairs: Routine maintenance or unexpected fixes.
  • Gifts: Birthdays, holidays, weddings, anniversaries, and other special occasions.
  • Medical Expenses: Doctor visits, dental work, or eyewear.
  • Car Maintenance: Oil changes, tires, brakes, license tabs, and other necessary services.

Look back at your spending from the previous year to identify patterns and predictable expenses. Some true expenses are predictable, like birthdays, while others, like car repairs, are not. This will give you a comprehensive view of your true expenses.

• Break It Down: Once you’ve identified these expenses, the next step is to break them down into monthly amounts. For instance, if your annual car insurance is $1,200, you’ll need to save $100 a month. By doing this for all your irregular expenses, you’ll spread the cost evenly throughout the year, making them easier to manage. It will also give you a more accurate picture of your true monthly expenses. 
• Fund These Categories Monthly: Treat these funds like any other bill and allocate money to them every month. This ensures you’re prepared when these expenses arise, without feeling the pinch all at once. It might seem daunting at first, but once you get into the habit, it becomes second nature.

The Benefits of Embracing Your True Expenses

Planning for true expenses has several advantages:

1. Avoid Debt: By setting aside money for big expenses, you won’t need to rely on credit cards or loans when they come up. This helps you avoid the debt trap and the high interest rates that come with it. Instead, you’ll have the funds ready when you need them, giving you financial peace of mind.
2. Financial Security: Knowing you have money set aside for these expenses provides a sense of security. You’ll be able to handle life’s surprises without panic, knowing you’ve planned for them. This security allows you to focus on other financial goals, like saving for retirement or investing in your future.
3. Smooth Cash Flow: Your monthly budget becomes more predictable, reducing the financial rollercoaster effect. Instead of having months where you’re scraping by and others where you have a surplus, your budget will be more balanced and steady. This smooth cash flow makes it easier to stick to your budget and achieve your financial goals.
4. Better Communication with Your Spouse: Being on the same page with your spouse about your true expenses fosters better communication and teamwork. It ensures both partners understand and agree on priorities, reducing conflicts and creating a more harmonious relationship.

Practical Tips for Implementing Rule 2

To make Rule 2 work for you, here are some practical tips:

• Use YNAB to Set Up Targets: Utilize YNAB to set up targets for your infrequent expenses, eliminating the need for separate accounts and automatic transfers. This helps you allocate money efficiently and keep track of your goals within a single platform.
• Review Regularly: Periodically review your budget and adjust the amounts you’re setting aside as needed. Create a routine of meeting weekly with yourself, your partner, or your spouse, to review your spending and make adjustments to your budget. Life changes, and so do expenses. Make sure your budget reflects your current situation.
• Stay Flexible: Be prepared to adjust your budget if an unexpected expense arises. The goal is to be as prepared as possible, but sometimes life throws curveballs. Having a flexible mindset will help you handle these situations with ease.

Start Planning for Your True Expenses Now

Struggling with unexpected expenses? Learn more about implementing the GPS Cash Flow Mastery Proven Process and see if it works for you. By embracing your true expenses, you’ll take control of your financial future and reduce the stress that comes with unexpected costs.

It All Starts When You Set Up a Complimentary Conversation with Me.

Stay tuned for Part 3 of our series, where we’ll explore Rule 3: Roll with the Punches. We’ll discuss how to adjust your budget as life happens, keeping you on track toward your financial goals. Until then, start embracing your true expenses and experience the peace of mind that comes with being prepared.

¹Federal Reserve. (2019). Report on the Economic Well-Being of U.S. Households in 2018. Retrieved from Federal Reserve. Read the study.