You need a budget (YNAB) advice thread

hiddenshadow

I don't know if you've read/heard of Dave Ramsey, but I like his approach to debt (investments is another story!). His recommendations are (in order):

1. Save £1,000 to serve as a RDF
2. Snowball debts
3. Save a bigger RDF once you're debt-free
4-7 (move on to MFW, retirement savings, etc)

His point (and it was certainly true for me on my DFW journey) is that it's no good going hell-for-leather snowballing against debt if any unexpected expense/emergency is going to set you back. You're better off setting aside funds ahead of time to handle the unexpected and then you can snowball with determination because you know that you can roll with the punches, as YNAB says.

Rosylee

Thanks hiddenshadow...I had heard of David Ramsey, and his RDF of £1000. It seems so insurmountable to raise that quickly...my worry is it could take me a long while to save £1000. The most I can save is £150 to £200 per month. That is 8 months (at least) of saving before touching the debt at all. But I suppose in some ways it's no different trying to fill the RDF categories as suggested in YNAB. The amount I save will be the same whether they are saved as a collective £200 or divided amongst the categories for car service, school uniform etc. Is this right do you think.

hiddenshadow

Rosylee wrote: »

But I suppose in some ways it's no different trying to fill the RDF categories as suggested in YNAB. The amount I save will be the same whether they are saved as a collective £200 or divided amongst the categories for car service, school uniform etc. Is this right do you think.

Yes, exactly. Right now our "Emergency Fund" category sits at £0. We've got a lot of RDF categories, though - home maintenance, car, vacation, pets, etc. So in a true emergency we'd have a fair bit of money set aside to cover an expense (provided there weren't emergencies in each of our RDF categories simultaneously!).

FWIW, £1,000 can be relative as well. If you know that your most expensive emergency (say, the excess on your insurance) is £500, you could probably get away with that as your starter amount. (Average salaries in the US are higher than the UK, so you have to moderate Dave Ramsey's expectations a bit - also, thankfully, no health-related emergency expenses here!)

The nice part about snowballing is that it can backup your RDF categories as well. If you have £500 set aside in various RDF categories and are snowballing £50 towards debt, you can essentially handle £550 worth of emergency and still avoid more debt.

SeduLOUs

In my opinion, and Martin Lewis', Dave Ramsey has got points 1 and 2 completely the wrong way around.

As a general rule, it doesn't make sense to save money when you are accruing interest on debt. If ALL of your debt is at 0% then it's a slightly different matter.

See: http://www.moneysavingexpert.com/savings/pay-off-debts

Rosylee

Thanks hiddenshadow. I have decided to stick with the RDF categories but keep the money in a separate on budget savings account. That way I am keeping an eye on the overall total too. I am not quite ready to trust myself with it all in my one account.

As for my buffer, I have £61 in my credit union account so that will become my new buffer as I save a £10 every month without fail. It might take forever to get to that magical place of not relying on my pay check...but hey you have to walk before you can run.

hiddenshadow

SeduLOUs wrote: »

In my opinion, and Martin Lewis', Dave Ramsey has got points 1 and 2 completely the wrong way around.

As a general rule, it doesn't make sense to save money when you are accruing interest on debt. If ALL of your debt is at 0% then it's a slightly different matter.

See: http://www.moneysavingexpert.com/savings/pay-off-debts

Mathematically this makes the most sense, but personal finance isn't always about math. It's about what keeps you moving forward at the end of the day. If pursuing the best mathematical result is what gets it done for you, great (and Martin Lewis' post is spot-on there). If having the peace of mind knowing that your debt will NOT increase even if you get a flat tyre or a burst pipe, then it's worth delaying debt payoff enough to save some sort of emergency fund.

There's no one true answer - what works for one person won't work for another.

Rosylee

While I do agree with you and Martin to an extent Sedulous, and I struggled with this decision, the thought of getting more in debt or worse reusing the very same money I have just paid off because I did not have the spare cash to handle my car service just makes my heart pound.

It is very early days and to be honest I am keeping an open mind. I will see how I get on. As hiddenshow said it is about what works for you. This may work or it may not, but I am going to give it a go. Besides I am only going to be doing it for the next 3 to 4 months before doing a proper snowball.

I don't have many big expense true expense categories. The biggest one is the car service, vets bills (although I have insurance too) Christmas and birthdays. The rest are smaller ones like glasses, school uniform. I am not even bothering with vacation because we just won't be going...that's a luxury we cannot afford.

So we will see how it goes, trial and error, as long as my debt is going down and not up, I am OK for the next short while.

Blue_Bird

hiddenshadow wrote: »

Definitely. I think my favourite feature is the source-independent aspect of money. It doesn't matter if I suddenly found £100 on the street - if I didn't allocate that to Eating Out it has to do something else. I try never to carry cash because I will just spend it mindlessly, but now that I have to enter every transaction and account for it in the budget, it's not an issue for me.

I try not to carry cash because it's too much effort to record/decide what to categorise it to :rotfl:

I'm quite liberal with certain aspects - eg: went for dinner with a friend, she paid her half to me in cash and I put the total on my card. I only recorded my half as outgoings in 'Eating Out' and hers will just sit in my purse. I'm not sure how else I'd record it, things like that are infrequent and pretty small amounts, so I don't think it matters too much, but it does bother me! Must find a way around it!

Blue

Rosylee

Blue_Bird wrote: »

I try not to carry cash because it's too much effort to record/decide what to categorise it to :rotfl:

I'm quite liberal with certain aspects - eg: went for dinner with a friend, she paid her half to me in cash and I put the total on my card. I only recorded my half as outgoings in 'Eating Out' and hers will just sit in my purse. I'm not sure how else I'd record it, things like that are infrequent and pretty small amounts, so I don't think it matters too much, but it does bother me! Must find a way around it!

Blue

Blue, hopefully I understand you correctly, but in that situation, I would record the whole amount as it is leaving your bank, and then (assuming you have an account called "my purse" I would record her half as an inflow into the my purse account. That way your bank will reconcile nicely with YNAB . Its a bit long winded but then I like to be quite particular with my figures

Iwani

Rosylee wrote: »

Blue, hopefully I understand you correctly, but in that situation, I would record the whole amount as it is leaving your bank, and then (assuming you have an account called "my purse" I would record her half as an inflow into the my purse account. That way your bank will reconcile nicely with YNAB . Its a bit long winded but then I like to be quite particular with my figures

Yes that's how I'd do it too. But I also detest dealing with cash now as it doesn't suit my budget at all!

I owed my boyfriend £15 for half of a gift and annoyed him deeply by insisting on a bank transfer, as taking out £20 from a cash machine for him would leave me with a £5 problem in my wallet :rotfl: