Rule Three:
Roll With the Punches

In boxing, a fighter moves his body in the same direction as his opponent’s punch,
so as to lessen the blow. In budgeting, you do the same. Be flexible and address
overspending before moving on to the next month. This helps you stay in the fight.

Rule Three

How it Works

When you overspend in a budget category for the month, roll with it!  You make and change plans all the time. If you plan a weekend beach trip with your kids, but the day turns out to be rainy and cold, do you still go to the beach?  Of course not!  When circumstances change, you change your plan. Your budget is no different. If you overspend in a category, look through your budget and move some money around. Remember, you’re the boss!


You budget your standard $300 in ‘Groceries’ for June, but end up spending $325.  Why?    Maybe you were out of more food than you realized.  Maybe you had to host a dinner party.  Maybe you went shopping while incredibly hungry and went a little crazy.

Without Rule Three:

You feel like a failure. Budgets don’t work. This whole idea of watching what you spend, trying to “guess” what you will spend, is a complete waste of time. You don’t “need a budget”, you “need a raise.”  If you only earned just a bit more money, everything would be fine!  (Those last two sentences are dripping with sarcasm. More money does not help money management problems.)

With Rule Three:

Your budget says—in an überfriendly voice—“Okay, that’s fine. It’s cool. I see you went over in ‘Groceries’ so go ahead and move some surplus money from ‘Clothing’ into ‘Groceries’." If you don’t make any adjustments, YNAB automatically deducts overspending from next month’s money.  You don’t feel like a failure. Budgets do work. You just haven’t ever budgeted like this ;)

Why it works

You don’t have to be perfect! Not even close!

There is no expectation that you’ll ever have a single month without overspending in one or more categories.  Rule Two will have you looking ahead and seeing the foreseeable, but please don’t judge yourself by your inability to predict the unforeseeable at the beginning of a month.   The value in budgeting doesn’t come from managing the easily foreseeable (though if ignored, these will nail you).  Value comes from managing the unforeseeable more effectively.  It’s all about how you handle months that are not normal. Hint: they’re never normal.

At the time of writing this, Julie and I have been budgeting for 106 months. We haven’t had a single month go by without overspending somewhere. Join us in our budgeting “mediocrity.” :)

Flexible, but Responsible.

Rule Three is flexible. It’s OK that you overspent somewhere. Make adjustments where you can. If you can’t, or choose not to, YNAB will take it ("borrow") from next month’s money. However, if you perpetually overspend, you’ll reach a point where you literally can’t afford the next month. This has happened in the past, and it’s those moments where the card is swiped, and the dance with the plastic devil begins. And no, that was not overly-dramatic.

Rule Three is proactive and responsible. You make adjustments first, and YNAB then makes gentle, monthly corrections to cover the rest. If you overspend in a big way, you’ll feel it in a big way the following month.  That’s just part of facing the music; it’s a really important reality check.

Rule Three is your green light to be flexible with your budget.

The value in budgeting doesn’t come from managing the easily foreseeable. It comes from managing the unforeseeable more effectively.

Engaged to his sweetheart, this young entrepreneur decided it was time to make a serious financial plan for his future family.
Read the full story >

Common Questions About Rule Three

How do I implement Rule Three, and roll with the punches?

You can change any number in the budget column anytime. If the original amount isn’t working for you, change it!

Isn't it cheating if I change my budget?

The "old school" approach to budgeting is rigid and unforgiving.  It leaves you in a reactionary position where all you can do is look back and see what happened. This new way is a proactive approach.  You see a problem creep up, so you adjust immediately and take care of it.

How will I know where I’m overspending if I keep changing the budget?

Honestly, when you’re first starting out, don’t worry about this. You’ll learn over time how much to budget in each category only through trial and error. Adjustments are expected. The longer you go, the more accurate your guesses for category amounts will be.

If you want to see the overspending, don’t make adjustments.  The overspending will still be corrected by YNAB before the next month starts.

If I’m planning ahead by following Rule Two, why do I overspend and need Rule Three?

All right, you got me. Rule Two is a crystal ball that lets you gaze into the future and plan for large expenses. But Rule Three helps you handle the fact that the crystal ball is a bit foggy at times.  Now please stop examining my metaphors so closely.

When I “borrow from myself”, where is the money coming from?

That’s up to you!  Remember, you are building surpluses in other categories. Borrow from those as you see fit.  This is really a “priority exercise.” 

You’ll want to look over your budget and weigh things carefully.  Perhaps the overspending is very small and you see that you have a surplus in clothing that you don’t need, so you borrow from there.  If you don’t make any adjustments, YNAB will automatically deduct overspending from next month’s money, which may be just fine with you!

Obviously, you’ll want to try to protect your rainy day funds so that those continue to grow, but  overspending may be large and unavoidable.   Any time you overspend, you’ll assess your budget and determine how best to handle it.  You make those decisions better than anyone!

If you’re just getting started, those balances may not be very large, so watch things closely. With the help of Rules One, Two, and Four, your checking account balance will climb until the day-to-day worry over the balance disappears.

Now raise your hand and solemnly swear that you won’t be mad at yourself, or quit, because you overspent somewhere in your budget.