Words Of Wealth

I started seriously looking at my bad financial habits in December 2009. My first step was to start studying wealth books: Personal finance books, books about how other people became wealthy, business growth books and self improvement books too.

One of the first books I picked up was Dave Ramsey’s “Total Money Makeover.” Now I’ve personally never had problems with credit cards because I haven’t used them over the years, and browsing other reviews, blogs and websites online I quickly discovered that not everyone agreed with Dave Ramsey’s wealth plan but that didn’t matter to me. Many things in that book struck home and I’ll reveal those in a later review, but one of the first things I realized was I needed to get a better hold on my day to day finances.

I’ve been a self employed freelancer/home business owner since 1997 and anyone who has worked for themselves can attest: The financial aspect of this lifestyle is an up and down roller coaster. Sometimes you’re more than flush and other times you’re “between deposits.” This ebb and flow can create some seriously bad habits with money too though. You have a great week or month so you go blow a few thousand dollars on a new computer. Or you have a slow week and you put off paying the electric bill. You don’t necessarily worry about how much is coming in from one day to the next because you know you can simply go work a few extra hours to make whatever money you need for the next bill that’s due.

That approach definitely does not build wealth though. And if you find yourself in a tough stretch, things can get pretty scary. So I finally decided to knuckle down and do what Dave Ramsey and hundreds of other experts say is the first thing you should do: Create a budget.

I wanted software to help me do this and I’d decided I was going to go back to the old-fashioned “envelope budgeting” method for as much of our expenses as I could, because using the debit card alone wasn’t working for me. I’d look at how much money was available in the account and think along the lines of “this max balance is our budget.” So if I had $200 in an account and my husband was going grocery shopping I’d tell him our limit was $200.

BAD way to budget right? :)

I knew if I went back to a form of envelope budgeting I’d look at the given “envelope” or “account” for groceries, and tell him that was the budget. So the real accounts could have hundreds or thousands of dollars in them, but if my grocery account just had $20 then that would be the budget.

I knew there were online software applications that were set up like an envelope budgeting system so I went looking for them. I ended up coming across a variety of message board conversations and reviews that pointed me to something I fell in love with: You Need A Budget, nicknamed YNAB.

Most of the other envelope budgeting solutions were online only, and required an ongoing subscriptions. Both were strikes against in my book because when I’m traveling I sometimes go without an Internet connection for an entire week. And going that long without looking at, planning or adjusting my budget was just asking for more bad habits to develop.

YNAB on the other hand, is a desktop software. And it rocks! You set it up with payees, categories and so on just like you would any regular checkbook or accounting software, but the budgeting aspect is where it shines the brightest. You can set up main categories and sub categories, and assign a given budget amount to each one as you go along. It effectively ends up segregating your money into various virtual “envelopes” that makes it amazingly easy to keep track of.

Each time you enter a transaction into your register and tag it with a category, the budget area is updated to show that you’ve spent a given amount from a given budget area. So you see how much you’ve spent and how much is left–or overdrawn if that’s the case :)

You can even set up a variety of different types of accounts: Assets and Liabilities, to keep track of your overall accumulated debt and net worth.

The YNAB software is designed to help you adopt a powerful money system that will build wealth over time. It’s a lot like Dave Ramsey’s approach with a few differences. The YNAB philosophy is essentially this:

1. Stop living paycheck to paycheck - This alone is worth it’s weight in gold. Instead of getting a check and then figuring out what has to be paid first and what can be pushed aside till later, you work your way into a position that allows you to have everything planned for–and paid up to date–before your paycheck is even in your hands.

2. Give every dollar a job - YNAB works on a zero-budget system, which means you earmark every single penny of your income to a given area of your life–whether it’s a bill due today or a special splurge fund you want to have available when you go on vacation.

3. Save for a rainy day - This part of the system helps you gather up money for bills that come around infrequently like insurance or car tags.

4. Roll with the punches - This part of the system helps you build up money to deal with emergencies, and acknowledge when you’ve overspent somewhere.

Using YNAB makes it easy to get an emergency fund built up, save for an important purchase such as a down payment on your home, plus have the money available and waiting for every bill before it even arrives. It’s a fantastic tool that should be in anyone’s arsenal if they want to become wealthy too.

Tags: budget, habits, money management, personal finance, success

This entry was posted on Wednesday, February 3rd, 2010 at 9:14 pm and is filed under Wealth & Money, Wealth Reviews. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.