YNAB rainy day funds – Your weapon against stress

August 19, 2013 at 10:45 pm Leave a comment

YNAB uses the “Rainy Day Fund” concept, a really simply concept that makes big bills easier to swallow.  The idea is to simply divide big bills that are due every 6 months or year (or whatever timeframe) by the time you have until the bill is due, and just save that much each month until you have enough saved to pay the bill.  It’s an easy concept to grasp, but can be difficult to follow through with, especially without a tool like YNAB tracking it for you.  I have a friend who did this by moving money to a separate account, but when you are saving up for multiple things at once, the line between categories can get blurry, or worse yet, you forget that some of that money is for bill X, and spend it on something else.

Anyhow, I started using YNAB in March, but I didn’t start saving for my Property Tax and Home Insurance bills until May, dropping $100 into each category.  I knew my Home Insurance was due in September and expected it to be around $1250, so I tried to quickly step up the contributions to this fund, adding $200 in June.  This left me only 3 months to save the final $950, so I had it planned out at $300 per month with the final month absorbing the extra $50.

But, the bill arrived in June and it was about $270 more than I expected. I didn’t panic, though.  I just re-prioritized.  Instead of $300 in July and August, I raised them to $400 each, with September being $420, lowering down other less pressing categories for those months.  I’ve already written the check out, placed it in the envelope, and it is now waiting to be mailed on September 3rd.

How would the “old me” have handled this problem?  Easy, just pay that much less on the credit card and write out a check for the whole balance.  And yes, that means it essentially became more credit card debt that I would struggle with for the next few months to pay down.

The big difference between these two approaches?  The stress level of handling it with YNAB is nearly zero.  On the other hand, having to essentially add $1500 of credit card debt for something as mundane as homeowners insurance, then struggling to pay that down over the next three to four months (with Christmas coming up, no less)… Well, you can imagine that would have been pretty stressful.

Whether you use YNAB or not, you should definitely use this concept.  It makes life so much less stressful.

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