Do you work for your money or is it the other way around?
If you spend your time working to earn money without further action, then you’re not growing your wealth effectively. A business without employees is doomed to fail, and your financial health is no different. You should start viewing each dollar as your employee, and put it to work.
It sounds crazy to think of a non-living tool as your employee, but once you have your mind shifted to think this way you’ll start making more effective choices. YNAB (you need a budget) does a great job at explaining this further and has workshops, podcast, guides to educate users on budgeting.
I attended one of their workshops where they taught me how I should prioritize my money. Some of the material I knew, but I did gain new perspectives on how I can make my money work for me. YNAB’s methodology boils down to 4 key points which I will discuss later.
I’ve heard of YNAB in the past, but I figured it was just another budgeting software tool like Mint or Personal Capital. I quickly learned that it wasn’t the case. YNAB emphasizes on making money work for you tomorrow as opposed to how it has worked in the past.
I eventually caved in and decided to try their 34-day FREE trial. So far I’ve learned the basics on creating budgets, and goals for each month. It sounds simple, but this can prevent you from stressing each paycheck allocating your budget for the next pay cycle.
So before you set another budget or work for your next dollar hear me out on how you can make your money work for you.
1. Making Money Work For You
As previously mentioned, it’s important that you start viewing money as your employee.
I actually learned this concept after reading “Rich Dad, Poor Dad” from Robert Kiyosaki, but YNAB also does a great job in covering this in detail. The point is that if you don’t give your money a “job”, then you essentially become the “employee” of your money. You’ll blindly work hard month after month, and become clueless on why you’re not financially better off.
YNAB refers to a “job” as the category that you’ll allocate your money into (car payment, clothes, vacation, etc.). By giving each dollar a job you diminish your chances of wasting money on unnecessary items. Instead of letting your balance decide your actions, you’ll rely on your budget.
Working harder doesn’t necessarily mean that you’ll end up with more money in the bank. The sad truth is that most people do a poor job planning their budget and overspend their funds on items they truly can’t afford.
With this in mind grab a blank sheet of paper and write down your 2–3 most important financially goals (big or small). For instance, saving up for your vacation by the end of this year, or to have enough money to buy Christmas gifts. Next, you’ll create a goal for much money you’ll need to have saved up.
You can use an Excel spreadsheet, a blank sheet of paper, but I’d recommend that you check out YNAB’s budgeting tool. If you’re on a tight budget they even have a FREE 34-day trial.
2. Save For A Rainy Day
In the perfect world, nothing goes wrong.
You and I both know we don’t live in a perfect world, and for this reason, we should prepare for the unexpected. Saving for a “rainy day” or an unexpected expense requires discipline and a specific goal in mind. This is YNAB’s second golden rule to prioritizing your money to work for you.
Start by budgeting an amount you’re comfortable with such as 3–12 months of your monthly income. Because everyone’s situation is unique pick an amount that you’re comfortable with. The YNAB budgeting tool also makes this easy since you can create a “rain day” budget and create your goal with a completion date.
3. Money For The Unexpected
You need to be able to adjust when unexpected changes happen.
YNAB’s Rule #3 states that it’s ok to make mistakes. For example, you may find yourself overspending on your Christmas gift budget by $50, but you’ll justify the difference using a different budget. Instead of taking money from your savings account, you’ll prioritize which of your budgets can make up for the loss.
When your situations change you adjust along with them.
The YNAB budgeting tool allows you to do this in a snap! You don’t have to spend hours reviewing your budgets to determine where you’ll take the money from. It’s only a matter taking a quick glance at all of your budgets using YNAB’s tool, and decide which one you need the least at that given moment.
I’ve become frustrated in the past reviewing my budget calculations using a sheet of paper so using YNAB’s budgeting tool is a no-brainer for me.
4. Live On Previous Month’s Income
Using your previous month’s income to pay your current bills is empowering.
This is YNAB’s #4 rule, and probably the most challenging in my opinion.
You’re probably thinking “How the heck is I supposed to use my last month’s income when I’ve already spent it!?” I know, I know, I’m right there with you.
The simple answer to this is that you’ll need to create a buffer, and this takes the time to build. You’re not expected to do this especially when you’re just starting out. However, budgeting $25-$100 a pay cycle or month can add up quickly.
Similarly to other budgets, you’ll have to create one for your buffer account. For example, if you’re total amount for bills each month is $2,000, then this will be the amount to shoot for. Once you have reached your buffer goal, you’ll then use this each month to pay your current bills.
The goal of this buffer account is to create a gap between using your current income to pay for bills. Since you’re using you buffer account to pay your bills, your current income is left untouched and budgeted for the next month.
Pretty Cool, huh?
You literally won’t be living paycheck to paycheck since your current income is left untouched, and assigned to different budgeting buckets.
Employ Your Money
Many of YNAB’s methodology is already familiar to most people, but they still have a unique twist to them.
The most important thing you can do is to start changing your mindset about money. Don’t just work for your money and blindly create your budget each paycheck. Remember if you don’t assign your money to a specific “job” or category then you’re essentially gambling that it will be spent as intended.
YNAB’s budgeting tool makes it easy for anyone to start creating budgets. There many people who recommend budgeting using the 50/20/30 rule, but everyone’s situation is unique. Plus, not everyone earns the same amount of incomes, so it doesn’t make sense for everyone.
YNAB helps you create your custom budget, and allow you to start employing every dollar before it even arrives!
I’m a firm believer that to reach financial independence one first needs to be a master at managing the money they currently have. While YNAB is a great tool to have it’s certainly not a solution for all your personal finance needs. I’ll still continue to use Personal Capital to track my wealth, but I’ll now start using YNAB’s budget tool to create and manage my budgets.
I challenge you to start using YNAB’s budgeting tool. It costs $50 a year, but you can start today with their 34-day FREE trial. I have no affiliate association with YNAB, but I had to share my experience with you.
It’s time that you finally make your money work for you, and not the other way around.
I know that you have what it takes to reach financial independence otherwise you wouldn’t be reading this post
How Are Your Currently Budgeting Your Money?