Four Rules to Budget By from YNAB

I recently stumbled across these four rules by YNAB that you can use to help drive your budgeting process. They create a nice framework of standards to shoot for when you’re first getting started with your finances.

Strive to Live Beyond Paycheck to Paycheck

At some point in our lives, we all live paycheck to paycheck, whether it’s just out of college, or after a financial hardship. In other words, we need the next month’s paycheck to cover next month’s expenses. There is no reserve. You’re not “a step ahead”.

As long as you consistently spend as much, or more, as you earn you will remain in this state. How do you break free? How do you stop living paycheck to paycheck? There are two approaches to take: either reduce your spending or increase your income. Actually there’s a third approach: do both.

Regardless of your approach, if you do it consistently from month-to-month, everything else being equal, you will stop living paycheck to paycheck. As for your budget, you get beyond paycheck-to-paycheck by budgeting less money in expenses than you receive in income.

Give Every Dollar a Job

Giving every dollar a job is assigning every dollar that comes into your budget (i.e. income, found money, lotto winnings) a specific place to be used. “Give every dollar a home” is the phrase Dave Ramsey uses, I think.

For instance, let’s say you have $5,000 in income. To give every dollar a job, you would assign money to your known (fixed and variable) expenses, giving, saving, and even assign money to some unknown or unexpected money.

At the end of your budget process, you will have $0 left over. This does not mean you haven’t saved or given though, because you have specifically assigned dollars to those categories. And because there is zero left over, this is often called a “zero-based budget”.

Save for a Rainy Day

The save for a rainy day concept is a familiar one. We should each set aside some money from month to month that is reserved for the unexpected. This can be for a job loss, car repair, medical expenses, lump sum expenses, whatever.

Everyone at some point is going to experience an unexpected loss or need to pay for a big expense all at once. By saving for a “rainy day”, you’re more prepared for when that time comes. I typically refer to this as an emergency fund.

Roll with the Punches

Got to love a good boxing analogy. Rolling with the punches is all about taking life’s financial ups and downs in stride. Budgets are not about perfection. They’re about improvement.

Creating a budget sets up a standard in your life. Sometimes we don’t live up to that standard. That can be because we failed or it can be through no fault of our own. The key is to have the standard in the first place. Then, make it up next month and not give up.

Believe me, even people who live and breath personal finance every day make mistakes with money. It’s how you respond next month, and over your entire financial life, that makes the difference.  Hat tip to the folks at You Need a Budget for sharing these 4 rules. If you are in the need of a proven budgeting software system, be sure to take advantage of You Need a Budget’s Free Trial.

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.


    Speak Your Mind


  1. This is great advice. I hear them almost everyday from my parents, but never knew how hard it is to implement until recently. I devised a “funnel system” this past 2 months so that on the last day of the previous month I would just transfer money from my savings to my checking to pay for the upcoming month’s bills. This way all my deposit goes to savings and its much less tempting to use it. Makes me feel not so poor! 😀

  2. Rolling with the punches is tough when you are living paycheck to paycheck or already deep in debt! We have finally socked some cash away to ride out the ups and downs. My stress level is so much lower. Thanks for sharing the tips.

  3. Are you trying to say that I should give you all of my lotto winnings? Cuz I will if you want, but I’m afraid you’d have to pay me back in beer 😉 Although at this rate we’re not even filling up a 6 pack!

  4. Jo/GaelicWench says

    I have YNAB 3 (beta), and I cannot say enough about this budgeting software. IMO it is the BEST user-friendly budget software I’ve ever bought. It’s worth every penny. I think the four rules are the foundation from which to go by when starting a budget.

    I think my favorite approach he discusses is the importance of building one month’s worth of your income, so that you can easily stay ahead of the game. That is truly an excellent strategy; when spending below one’s means and setting aside what is left over, it is easy to achieve this.

    I highly recommend YNAB, especially his latest upgrade.

  5. Great advice. I especially like the information on saving for a rainy day.

  6. I guess you do! 🙂

  7. Keith Morris says

    Me too, Michael. 🙂

    I spent some time with YNAB this week, and I think it’s fantastic. I prefer it to a system like Mint, because it’s a very proactive, rather than reactive, way of budgeting. I tried Mint, and it’s so automated that I found myself not using it at all. I need to be mindful of what my money is doing in real-time, rather than simply tracking and then looking back at all the mistakes I made over the month. Maybe that has more to do with my mindset than the software, but YNAB makes it easier in my opinion.

    There’s a lot of helpful information on budgeting over at LifeTuner as well.