My Budgeting Story

My Budgeting Story

Today, budgeting is one of my core habits that powers my whole financial life.

But it wasn't always the case.

I had to go broke in a painful way to learn the magic of budgeting.

Here's my relationship with budgeting:

The history of me and money

I was raised in a loving family, but we weren't exactly wealthy. So, I was never taught much about finances. At least I don't remember anything about it. My mom might have a different take on it.

And it's not like budgeting is an important childhood skill. When your only expenses are Coke, ice cream, and Donald Duck magazines, you're alright. Sure, it would have spared me from going broke later in life, but as a kid I didn't care.

Allowance wasn't really a thing for me in school times, so I didn't bother to learn about money management either. And whatever occasional cash gifts I'd receive, I would spend them on internet cafes, computer components, game CDs, and food.

Later in high school, I did a few stints as a manual laborer with my classmates, but it wasn't anything huge, and I wasn't a fan of having a job anyway. I was definitely not one of those kids eager to get a job early and life to be independent. Life was good at home, and so I didn't see my first actual money until after college.

I graduated college, and the idea of getting a job at home didn't feel exciting enough. So, I left for Germany with a massive bag of my stuff and a few hundred euros in my pocket.

The plan was to move to Germany for good, and I even had a bunch of anarchist online friends in Leipzig I could live with. After about a month of living in the backroom of an anarchist bar, I got a job as a software developer. The salary was good, and the expenses were negligible. Life was good.

Except that it really wasn't, because I had no idea how to be an adult and living on my own back then. It's a story for another time, but I ultimately lasted less than a year in Germany before I had to return home.

All of this was a dumb chain of events, but it got me back home with a certain amount of money in my bank account. And so for the next couple of months, I was able to just chill and enjoy life. No job, no stress, no responsibilities, little expenses. I didn't have a single life goal either, and I still remember this time as possibly the most blissful period in my life. Naïve, but blissful.

Three things happened over the course of the next few years:

  • I started freelancing, which was an extra income stream.
  • I then started a small software business, which got moderately successful.
  • I got a little extra cash from a relative in exchange for real estate help.

I kept my personal expenses low, and in the early stages my business was a one-man show, so I also had little business expenses. The only two numbers I saw were my bank account statements, and they looked alright, so I still didn't bother to learn budgeting.

I was becoming complacent.

How to go broke and stay there

Can you afford not to budget?

Kinda. If your income is much greater than your expenses, you can get by without budgeting. But would you really bet on it staying this way?

Watch out for:

  • The loss of income. You get fired, you get divorced, your business goes down.
  • The increase in expenses. You start living above your means, you experience an emergency, you make a big purchase.

In my case, it started with my expenses.

I got complacent and increased my personal and business spending over the course of a few years. It wasn't anything huge, I didn't buy a yacht or anything, but that's the thing

When you're not paying attention to your finances, it's easy to lose track of your expenses. And even relatively small expenses add up quickly. They compound.

I started traveling and took up a few expensive hobbies. My business spending also increased as I started hiring people and initiating new projects. And I had the money in my bank accounts, so why wouldn't I?

It wasn't sustainable in the long run, but it wasn't a problem as long as the revenue kept growing.

And it kept growing.

Then it stopped growing.

Then it started falling.

It wasn't any single decision that finally did it. It rarely is. And it wasn't exactly sudden. It was a chain of my decisions over the course of a couple years that did it.

First, I realized I can't afford to pay myself what I had been paying myself. The business just wasn't generating enough revenue anymore. Alright, not great. But I was convinced it was just a temporary downturn, so I didn't do anything about it.

Then, the revenue stream dried up to the point where I had to cancel a few of the ongoing projects and put a few contracts on hold. It was sad, but I wasn't too worried about it still. I cut my salary some more and poured some of my personal funds into the business. I reduced my own expenses and started working more than ever.

Yet it wasn't getting better.

At some point, I became worried about my ability to pay my core team. And I was right. I ran out of money. Fortunately, I had a few friends I could turn to to help me out. I got a few loans and extended my runway a little. I wasn't desperate yet. I had a strategy. It had to be merely a bad period.

Except that it wasn't.

The next year and some were really painful. My strategy didn't work, so I tried a different one. And another one. Now I was desperate. I kept trying stuff, and none of it worked.

Eventually, I had to start laying off my core team. In the end, I had to get another loan from a friend to pay the salaries I owed. That was the least I could do.

This was the end of my business. It was also the end of my relationship. And a few other things. And since my identity was tied to my business, I fell apart, too.

I was broke, burned out, in debt, and depressed seemingly beyond repair.

That was the biggest identity crisis of my life.

The problem with expense tracking

The story of my recovery is a story for another time, but let's talk finances.

From the outset, I knew that one of the reasons I ended up where I did was my lack of financial literacy. It wasn't the main one, but it was a big one. I was careless with money, and I lost it.

Then and there, I made a promise to myself: I'll do everything I can to make sure I never again end up broke due to poor money management skills.

I committed to figuring out how to budget.

Why budgeting, and not just expense tracking?

Because I knew expense tracking isn't enough.

I had a few brief periods in my life where I tracked my expenses. Yet I never lasted long, and it always felt like a waste of time. There was the reason for this: I didn't really have a reason to track my expenses.

Here are my two problems with expense tracking:

  • When your finances are good, expense tracking provides relatively little value.
  • When your finances are a mess, expense tracking isn't enough to save you.

Let me explain.

When you're not struggling financially, you don't exactly have a major incentive to track your expenses.

Yes, it does tell you how much you spend on certain things. And if you're into data, it's cool to see your expense breakdown, with charts and everything. But you don't need it to survive.

Knowing you've spent $350 on dining out last month is cool, but it's just a number. Is it a lot? Who knows, but also who cares when your bank account looks good. (The thinking that got me into the trouble.)

But the opposite is also true:

When you're barely making ends meet, mere expense tracking won't save you. Track all you want, but knowing you've splurged on takeout last week isn't helpful when you're seeing $3.50 in your bank account a week before the next paycheck.

It might make you kick yourself one more time, but it won't stop you from doing it next time. The feedback loop is just too long. Seeing the numbers post-factum doesn't help you address the underlying problems with your spending.

NB! I'm not saying expense tracking is useless. It still makes you more mindful about your finances. Stick to it long enough and you'll start seeing patterns, which may prompt you to change your behavior. But it doesn't help in the moment.

That's why expense tracking never stuck with me. I was either doing good enough financially that I didn't care about the individual numbers, or I was broke and tracking my expenses wouldn't have made any difference.

I needed something better than expense tracking.

Budgeting was the answer.

Budgeting is the way

If expense tracking is post-factum, budgeting is whatever the opposite of that is.

(Ante-factum? Pre-factum? Whatever, you know what I mean.)

Without a budget, you categorize your expenses as they happen. Later, you get a neat expense breakdown. It's useful, but it's not immediately useful.

When you're budgeting, you categorize your expenses before they happen:

  • As soon as money lands into your bank account, you break it down into categories you expect to spend it on.
  • Entering an expense transaction immediately deducts it from the respective category, updating the remaining balance.

This makes you immediately aware of how much money you have left in every category. If you've overspent, you have to transfer money from a different category.

Budgeting creates an immediate feedback loop:

  • Splurge on takeout, see your budget go into negatives.
  • Be forced to replenish the takeout category with money set aside for utilities.
  • Kick yourself mentally, vow not to do it again.

After a while, you'll learn to stop yourself from spending on things you haven't budgeted for, and it will become a habit.

There's one more big benefit of budgeting. Since your budget gets updated in real-time, you're fully aware of the state of your finances at all times. This not only prevents you from accidentally overspending, but it also gives you peace of mind. No more worrying about having enough money to pay your bills at the end of the month.

When you're budgeting, the only thing left for you to worry about when it comes to your finances is making sure the actual income's there.

And it's very liberating.

You Need a Budget

I've first heard about budgeting and You Need a Budget during my initial expense tracking experiments, but it felt like too much effort back then.

This time, I finally decided to look into YNAB.

And it completely changed the way I treat my finances.

Before I got on board with YNAB, I spent a few weeks reading the stories and checking out the reviews. Most of them mentioned three things:

  • It will absolutely change the way you manage your finances and help you get your financial shit in order, making your life immensely better.
  • It's a little more complex than expense tracking, and wrapping your head around the concept of budgeting and YNAB may take some effort.

This made me a little anxious.

At the time, I was still struggling with my Great Depression. I had just gotten on board with daily journaling, and doing even that consistently took some effort. An app with a steep-ish learning curve that required me to be precise and meticulous felt intimidating. Besides, I was broke, and YNAB was more expensive than many of the alternatives.

But I didn't have a choice, really. Poor money management skills were one of my flaws, and I had to figure it out if I wanted to get my life back together. Basic expense tracking just wasn't enough, and using a popular budgeting tool was an easier option than using an Excel spreadsheet.

So I bit the YNAB bullet and signed up for a trial.

And in line with what the reviews promised, it took me a bit of time to get into it.

During the first few weeks of my trial, I had two main problems with YNAB:

  • I had close to zero income at that time, and most of it was getting spent on my financial obligations before I even had a chance to think about it.
  • Whatever income I had was irregular, which made it even harder for me to wrap my head around the idea of assigning money to categories beforehand.

But I expected this, and I kept going.

A few weeks later it clicked.

You know that feeling when you struggle with something for a while, and then it suddenly makes sense? The puzzle pieces come together making you go "Eureka!"

As soon as I got budgeting, I there was no going back. It became my core habit, just like my diary had become a little while earlier.

Tips to make YNAB work for you

Today, YNAB powers most of my money management.

I'd be royally screwed if it disappeared tomorrow. In fact, I liked it so much I got a few friends hooked on budgeting with YNAB, and it worked wonders for them, too.

There's the thing, though:

YNAB can feel overwhelming at first, especially if you're not familiar with the concept of budgeting. It wasn't immediately straightforward to me, and it took my friends some time to get used to it as well.

But it's not difficult, either. You just have to get it, and once you do it's a piece of cake. In this section, I want to share a few tips that make my YNAB budgeting experience more enjoyable.

If you've never tried budgeting, YNAB will feel overwhelming at first. It's fine. It's expected. That's what most reviews say. Simply commit not to quit. As soon as you wrap your head around it, it will become your second nature. I promise.

Now, if you're like me, you're not a fan of tutorials. If that's the case, make an exception for YNAB and go through their official tutorials. At least check out the Getting Started one. They're great, and they make it that much easier to get started.

At first, keep your category structure as simple as possible. I made the mistake of overthinking categories. Don't do it, start with just a few categories e.g. Rent, Utilities, Groceries, Gasoline, Other. The default category structure is alright, but you can simplify it further.

YNAB allows you to link your bank account and sync transactions automatically, but I strongly suggest entering them manually, at least at first. Not only this makes you more mindful about your expenses, it's also a better way to learn YNAB.

These are my four main tips, and here's the full list.

Here are my 11 tips to make You Need a Budget experience enjoyable:

  1. Accept that it may feel overwhelming at first.
  2. Go through the official tutorials, they're very helpful.
  3. Keep your category structure as simple as possible.
  4. Enter transactions manually, at least at first.
  5. Try to enter expenses immediately or by the end of the day.
  6. Reconcile at least once a week, the more often the better.
  7. Use YNAB web and app, both versions are useful.
  8. Start with just the checking account if you're feeling overwhelmed.
  9. Be meticulous about reconciliation, hunt down the differences.
  10. Don't worry about negative assigned too much.
  11. Don't worry about goals too much at first.

Thank me later!

It took me going broke to learn budgeting and money management.

That's not the way I recommend doing it. If I may suggest a better way, it's this:

Check out You Need a Budget and learn the basics of money management today so that you don't have to go broke.

I promise you it will change your life, and it's much easier than it sounds!

Happy budgeting.