Embrace Your True Expenses: Mastering YNAB’s Second Rule

Budgeting isn’t just about scraping through the month; it’s about paving a smooth financial path into the future. YNAB’s second rule, “Embrace Your True Expenses,” reimagines the day-to-day rigor of Rule 1 by projecting it into the future. If Rule 1 is the microscope focusing on the present, Rule 2 is the telescope that helps us navigate the financial cosmos of the coming months and years.

The Philosophy Behind True Expenses

True expenses represent more than just bills that come due; they are the cornerstone of breaking the paycheck-to-paycheck cycle and preventing future debt. By planning for expenses that are not monthly but are inevitable—like holiday gifts, car repairs, or that bi-annual insurance premium—you transform potential financial surprises into expected events.

Pro Tip #1 Treat these true expenses just like any other bill. It’s not optional or extra—it’s essential. This mindset shift is key to mastering your budget.

How to Implement This Rule

Identify and Forecast: Start by identifying all the non-monthly expenses you can anticipate over the year or even further out. This might include things like property taxes, a cruise, biannual vehicle servicing, a new roof, or your kid’s braces.
Break It Down: Once you have a list, break these costs down into manageable monthly savings goals. For instance, if your car insurance is a twice-a-year $600 payment, setting aside $100 each month means you’re ready without a scramble.
Allocate Funds in YNAB: Use YNAB to create categories with targets for each of these true expenses. This systematizes your approach, turning large, irregular payments into small, manageable parts of your monthly budget so you’re always prepared.

Pro Tip #2 If you find extra money in your budget—say, from a lower utility bill than expected or a tax return—don't rush to spend it on splurges. Instead, bolster your true expenses funds. Over time, this discipline pays off, reducing stress and increasing stability.

Why It Matters

Focusing on true expenses helps you avoid the financial whiplash that can occur when ‘surprise’ expenses pop up. Instead of being hit with a massive car repair bill you hadn’t planned for, you find peace knowing the money has been accruing silently, waiting for its time to shine. It’s not just about being reactive; it’s about being strategically proactive.

Try YNAB For Free While the YNAB rules can be implemented with pen and paper or a fancy spreadsheet, the YNAB app has been designed to make living out these rules easier than ever. If you’ve never tried it, you can get a 34-day free trial (and an extra month free by using my link if you sign up after the free trial). Give it a shot and start giving your dollars jobs today!

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Progress Not Perfection

As you embrace true expenses, remember that perfection isn’t the goal—progress is. In an ideal world, each true expense would be fully funded by the time its bill comes due. However, in reality, you might find yourself with only part of the amount saved. Don’t let this discourage you. Having some of the money set aside is infinitely better than none. For instance, if an unexpected car repair costs $2000 and you’ve managed to save $1800, you only need to come up with $200 more. This is a far less daunting task than finding the full amount last-minute and is actually a huge win.

Pro Tip #3 Regularly review your true expenses funds. Life changes, and so will your needs. A biannual review ensures your budget reflects your current reality and future expectations, allowing for adjustments as necessary.

Connecting Present to Future

While Rule 1 of YNAB helps you assign every dollar a job for more immediate needs, Rule 2 extends this assignment into the future. This forward-thinking strategy ensures that when future bills become present realities, they don’t derail your financial train but merely confirm the route you planned all along.

Wrapping Up

“Expect the Unexpected” is more than just a catchy phrase; it’s a fundamental principle of savvy budgeting. By embracing YNAB’s second rule, you’re not just surviving financially; you’re thriving, equipped for whatever lies ahead. Remember, a well-planned budget isn’t restrictive; it’s liberating!

Need Help Planning Your True Expenses?

I'm here to help you set up and optimize your YNAB budget to master both the present and the future expenses with confidence. Reach out today, and let’s build a budget that anticipates every twist and turn on your financial journey.