Finances, Tiny House Builds, and YNAB

Let’s talk about finances.

I know that’s what everyone wants to hear. I bet right now you are settling in with a cup of tea or coffee and going “oh yeah, this is going to be goooooooood.”

Just me?

I love personal finance. My mom and I have always joked that I missed my calling as an accountant. My life is in spreadsheets. I love a good spreadsheet, and have had a budget spreadsheet that I have kept (in some form) continuously since getting my first real “big kid job” in 2006.

And yet, somehow I (and eventually we) never seemed to make any significant progress towards financial independence, financial security, or any big goals. We always just seemed to be treading water. Things were okay, and we have been very fortunate in that we mostly did what we wanted and were always able to purchase the things we needed. There weren’t any major disasters, but there never really seemed to be any progress either.

How was this possible?

I tracked everything. We had a BUDGET. It was right there in a SPREADSHEET. So why was I still always harboring some low level of stress about whether we had enough buffer in our checking account to absorb some random (but not really unexpected) expense like the quarterly car insurance bill? Or were we going to need to move some money over from our (never really growing) savings? This didn’t make any sense…

Financial security and independence seems to be a pretty common goal in the tiny house/alternative living community, and we are no exception. We have known for a long time that some of our major goals were to own our home and our property outright, and to be debt free and financially independent. That’s easy to SAY, and we knew we really WANTED it, but somehow we still weren’t really taking any concrete actions to actually be working towards that goal. Instead, we just kept saying we wanted that, I kept on going with my budget spreadsheet, and we kept on living on the credit card float and buying random things that we didn’t really need (mindless REI browsing, anyone?), and maintaining our overall level of financial stasis. For all intents and purposes, we could keep doing this indefinitely. But we were never going to get to where we ultimately wanted to be.

On October 20, 2019, our financial lives (and by extension, many other aspects of our lives) changed for the better. That was the day we started using YNAB. (For the record – we have no affiliation or partnership/sponsorship with YNAB. We just love it that much.) To be fair, this was my second attempt at using YNAB, but the first attempt never really got that far because finances are reeeeeeeeal scary when you are in grad school and at that point I preferred to quickly stick my head back in the sand and see if it got better on its own. (Spoiler alert: It didn’t.)

What is YNAB?

YNAB is a budgeting tool (stay with me here!) that, if you stick with it, absolutely WILL change your life. YNAB stands for “You Need a Budget.” It works a little differently from the budgeting tools you are probably used to using. Instead of setting amounts to spend that month based on the money you are anticipating you will get, YNAB works like a digital envelope system, where you give every dollar that you currently have a job. The key here is that you have to decide what things are the top priority between now and the next time you will get paid, and then assign dollars to those jobs. Do you need to pay your rent/mortgage before you get your next paycheck? Buy groceries? Get gas? Assign dollars to those jobs. By budgeting with the dollars you have right now, you keep yourself from spending money you don’t have yet, and ultimately stealing from your future self. There’s a lot more that can be said about this, but YNAB already has a lot of great resources on the ideas behind the method itself. Not to mention, a boatload of great YouTube resources. But there’s one other game-changing resource that I’ll link to below.

One of the truly beautiful things about YNAB is the flexibility and the idea that nothing is off limits. It’s all about prioritizing and making conscious decisions when it comes to where you put your money. If you want to save for a vacation, have a daily coffee fund, go out to dinner regularly, or buy yourself or a loved one a gift, that’s completely fine – as long as you are assigning dollars you already have to those jobs, which may mean taking those dollars away from some other job that is a lower priority.

However, the YNAB system and interface itself is… a bit overwhelming at first. It’s not uncommon for people to want to give it a try, and then get confused and give up. That was a large part of why I didn’t make it too far the first time I tried to use it back in grad school. So how did we manage to get past the overwhelmed confusion this time?

Enter: Nick True from Mapped Out Money

This guy should seriously be the go-to for anyone new to YNAB. His “How To Use YNAB and Budget Like a Pro” playlist was an absolute game changer. Our first day with YNAB, I found this playlist, and absolutely devoured the whole thing that evening. I opened up a new blank budget in my YNAB account and followed right along with his YNAB for Beginners Quick Start Guide (video below) and by the end of that 34 minutes, I was confident that I understood how things worked, and how to make them work for us.

Grab a beverage of choice, open up a new blank YNAB budget, and follow along. You won’t be disappointed.

Okay, that’s cool and all, but what the heck does this have to do with a tiny house build?

Let’s circle back to those long-term goals, shall we?

  1. Debt freedom
  2. Financial independence
  3. Owning our home outright

Building a tiny house is no easy task. And despite what YouTube may make you think, they don’t all cost $5000 to build start to finish. Those are incredible feats of resourcefulness and patience. It takes a really long time and a whole lot of hard work to gather and refinish all those reclaimed materials. We have a massive amount of respect and admiration for people who are able to do this, and while we want to incorporate reclaimed materials into our build as much as we can, it’s just not realistic for us that we will be able to build this house for a relatively small amount of money given our full-time work schedules, the current pandemic (we don’t love the idea of meeting random craigslist people or digging around at thrift shops and reclaimed materials stores to the extent that we would have if there wasn’t a pandemic going on), and our general 1-2 year timeframe for building.

So knowing that we were going to end up spending a significant chunk of money on our house build, we had two options: 1) take out a loan, or 2) cash flow the build.

We went with door #2.

We are working very hard to pay down the debt that we currently have (student loans and a car loan), and we are also working very hard to not accrue any new debt. So for us, the choice was obvious. We want to pay for everything in this build as we go. With cash. None of it has been or will be floated on a credit card or paid for with a loan. YNAB allows us to do this because we know exactly where all of our money is going, and exactly how much we can allocate to the build at any given time. Every month we make sure that everything for the upcoming month is accounted for and has dollars assigned to it before allocating anything to our build. For example, all of our November expenses are accounted for in October – in YNAB-speak this is called living on last month’s income. We budget for everything coming up in November before we allocate any new money to the house build during the month of October. That way, we are only spending what we can realistically afford to spend on the build at any given time, and not overspending and stealing from our future selves who also have to pay the car insurance bill, pay the vet for annual checkups and booster shots (fur babies aren’t cheap!), and replace the tires on the car in a few months.

The additional upside of using YNAB during our build is that we can track our build cost down to the penny. And we know where every single one of those pennies went. Everything is categorized and logged, and nothing gets lost. Want to know exactly how much we spent on fasteners and Simpson ties? You got it! Electrical supplies? No problem. All the metal framing? Sure! This is actually something we are really enjoying looking at as we go along, and something we plan to write up in a detailed report once our build is complete. So stay tuned for that one…

So what did we do in our first year of YNAB?

Today marks our one year YNABaversary, and it’s amazing to look back at where we were a year ago and compare to where we are now. In the first year of YNAB, we have been able to:

  1. Get off the credit card float (Don’t know what credit card float is? Read this!)
  2. Pay off $20,478 of debt (car and student loans)
  3. Save $12,396 towards our eventual property purchase
  4. Roll with the punches to the tune of an $8,600 vet emergency for one of our dogs, without having to resort to a credit card. (He is totally okay now, thank goodness.)
  5. Increase our (still negative – we have a way to go still!) overall net worth by over $50,000 (For simplicity, we aren’t including any physical assets in this number, like vehicles or the house itself)
  6. Pay for $39,418 of our house build to date – all with cash

And this is only in the first year. We are extremely fortunate to have stable employment (which is unfortunately not a given in 2020) with good (but pretty typical) pay. However, aside from the house build, this is a pretty common list of accomplishments for a first year with YNAB. You can check out more success stories here and on the YNAB forum. And now that we are at the end of our first year, it’s astounding to look ahead and think about what we will be able to accomplish over the next few.

It seems a little out of nowhere to write a post about a budgeting tool on a tiny house build blog, but honestly without YNAB we would not have been able to do this project and also simultaneously work toward our goal of debt payoff and not accrue any new debt. Taking control of our finances and finally having the right tools is what has allowed us to get this far in this build. If we were still operating with our old ways, we would have been able to save up the money to buy the trailer, but would most likely now be dealing with a high level of financial stress while also racking up credit card debt by buying materials we weren’t really ready for. (Bonus: buying materials with cash has also kept us from ending up with too many materials and nowhere to store them!) Taking the time over this past year to really adapt our approach to our finances has put us in a much better position to be successful with this project, and made it far more likely that we will actually someday achieve our goal of debt freedom and financial independence. This house build is part of that journey, but we never would have gotten this far without the right tools and the right mindset (which is completely created and reinforced by those tools). So despite being “just a budgeting tool,” YNAB really has been a critical component of our house build process.

If you are interested in checking out YNAB, you can use our referral link to get a free month (in addition to the initial 34-day free trial). Also, college students can get a year of YNAB for free! (I wish I had really sat down and started using YNAB back when I was in school. that would have made a huge difference.) And if you do check out YNAB, don’t wait to head over to Nick True’s Mapped Out Money YouTube channel and check out his How to Use YNAB and Budget Like a Pro playlist – I promise you won’t be disappointed.

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