YNAB: You Need a Budget

YNAB (which stands for ‘You Need A Budget’) is a tool designed to help you sort out your finances and stop living paycheck to paycheck. You can use YNAB to track spending on your PC, Mac, or while on the go using your mobile phone. By understanding your spending habits, it’s much easier to plan your expenses, avoid nasty surprises and start saving for the future.

A free, fully functioning 34 day trial of YNAB is available. If you decide to continue using the program after this time, readers of Financial Independence can save 10% off of the usual $60 pricetag.

The four principles of YNAB

YNAB focuses on four basic rules for budgeting. To get the most out of YNAB, you’ll need to understand and commit to these basic principles:

YNAB Rule 1: Give every dollar a job

Have you ever thought you had plenty of money in your account and treated yourself to a nice dinner or new outfit, only to have a whole pile of bills roll in a few days later? By assigning each dollar to a category in advance you can avoid viewing your account balance as a whole. Instead you’ll see money designated for rent, bills and recreation. By knowing what your money is ear-marked for, you can be sure that you really can afford your purchases.

YNAB Rule 2: Save for a rainy day

Rather than just focusing on your finances until your next paycheck, look long term. Many large expenses such as car registration or utilities are paid quarterly or even annually in advance. Instead of panicking about how to find $500 for car registration every January, wouldn’t it be easier to put $40 aside each month? There is no ‘normal’ month when it comes to budgeting, but smoothing your expenses over the course of the year will make your life much easier.

YNAB Rule 3: Roll with the punches

Rather than getting disheartened when you overspend in a budget category, dust yourself off and keep going. If you’ve spent too much on christmas presents, look for other areas to cut back. Perhaps reducing your clothing budget for the month or staying home on a Saturday night can help your finances get back on track. Budgeting needs to be flexible to be successful, as long as you make up any overspending.

YNAB Rule 4: Live on last month’s income

Ideally, at the end of each month we want to have some money left over. Rather than impulse spending this excess, carry it forwards to the next month. This will give you a bit of breathing room to cover unexpected expenses or blowouts in the future. Now imagine that surplus slowly adding up until you have a whole month worth of extra expenses built up. This buffer will provide the security and comfort which comes with not living paycheck to paycheck. No more waiting until payday to be able to pay the gas bill – you’ve got the funds set aside to pay it straight away.


How does YNAB help you achieve these goals?

YNAB is essentially designed to help you achieve these four goals. The software aims to help those who need assistance creating a budget, tracking their expenses and reporting their progress. YNAB isn’t designed to handle investments such as stocks or investment properties – it’s purely focused on budgeting. There are three main sections to YNAB, each doing exactly what you’d expect in a simple and straightforward manner.

Creating a Budget

Creating a budget in YNAB is simple. It is worth spending some time filling the “Budget” tab out accurately – these figures make up the backbone of your plan. By default YNAB displays a list of common expenses, you simply type in the amount you wish to allocate to each one. The list is quite comprehensive, but if anything is missing you can add new categories or items. The program automatically totals your budget and provides a net surplus or deficit. This figure is shown in nice big numbers at the top of the screen. As you record your expenses, YNAB’s budget tab automatically updates with your actual costs – showing areas you are over (or under) spending. At the end of each month, YNAB carries forwards any surplus (or defect) to the next month. The goal is to eventually carry forwards a whole month worth of expenses.

YNAB: You Need a Budget - Budget Tab

Creating a budget in YNAB is as simple as filling out a form

 

Tracking your expenses

Unfortunately YNAB won’t automatically sync with your online bank statements, but entering them is relatively easy. Every evening you simply input your purchases for the day – a process which only takes a few seconds. When assigning spending to a budgeted category, the dropdown list automatically shows how much is available in each area. This makes it easy to see as you get close to your limits and avoid overspending.

YNAB: You Need A Budget - Recording transactions

When recording transactions in YNAB, the program displays your remaining allowance for each category

 

You can schedule regular transactions (such as rent or car repayments) to automate this process. After inputing the amount and frequency, scheduled payments appear automatically so you only need to input variable expenses. If you’d prefer to track throughout the day, YNAB provides iPhone, iPad or Android apps which allow you to record as you go – syncing back to the desktop version.

As you input your expenses, YNAB automatically recorders them back on the budget tab. You can easily jump back and review you’re spending month to date. Areas you have spent too much in automatically highlight in red. For the purposes of this review, I’ve started a new YNAB budget – these numbers aren’t my actual spending.

YNAB: You Need a Budget - Overspending

YNAB allows you to see where you are overspending at a glance

 

Reporting and reviewing your budget

It’s important to know how you’re going and keep up to date with your progress. Using your budget and transaction history, YNAB is able to generate a number of different reports. Spending by category, spending trends, income vs expenses and change in net worth reports are present. Where applicable, the program generates a simple graph to illustrate the data. I found this particularly useful as the visual data made it easy to explain our progress to my partner.

YNAB: You Need a Budget - Reporting

YNAB creates a number of reports to track your progress

By reviewing these reports at the end of each month is it easy to adjust and fine tune your budget. You can adjust future months to budget based off of previous spending, prior outflows or make manual changes as you see fit. I found this feature really useful to make small changes to increase accuracy in future months. All reports can be printed or exported to .CSV format for use in Microsoft Excel, OpenOffice or any number of finance programs.


Is YNAB worth the money?

The full version of YNAB costs $60, but it’s a worthy investment. YNAB focuses on the sole area of budgeting, great for those trying to get a grip on their spending. Unfortunately as it isn’t designed for investment management, YNAB isn’t as suitable for those already running a solid budget. It’s easy to create your budget as well as tracking and reporting your expenses.

I love the simpleness of the program. Within an hour of opening YNAB for the first time, it is easy to get excited about budgeting and not be threatened by hundreds of complex options. I would have liked YNAB to automatically connect to my bank accounts and populate transaction history, however the mobile interface means I can enter my expenses while they are fresh in my mind.

At the end of the day, you get what you put in with YNAB. If you are willing to commit to regularly inputting your expenses and reviewing the feedback provided, you’ll see great results. If you want a ‘set and forget’ option, YNAB isn’t for you. I would definitely recommend YNAB for new or intermediate budgeters. You can try YNAB free for 34 days. After this period, readers of Financial Independence can save 10% off of the $60 price.

Follow on Bloglovin

6 comments

  1. I don’t use a software to budget, I use an excel spreadsheet. I’m old fashioned but it works for me and I enjoy doing it!

    • Evan says:

      I used to use an excel spreadsheet with some success – the major difference I see using YNAB isn’t in the creation stage, but the tracking stage. Being able to quickly see not only how much money you have left for the month, but also how much of it you’re allowed to allocate to going out to dinner is great. You could probably build this functionality into excel using conditional statements, but it would be hours of messing around. Of course if excel is meeting your needs then there is little need to change!

  2. I love this! I wanna try this one cause I’m using also a cell phone application for tracking all my expenses on my Android phone. I downloaded a free software application but I wanna try to use your YNAB! Thanks for this one!

  3. Ben says:

    I’m a big fan of YNAB. I’ve been using it for almost 6 months now, and it has been really useful in helping my wife and I to keep track of our day-to-day spending, plan for big one-off expenses and meet our monthly savings goals.

    We recently went through a couple of months of increased expenses on a single income (moving to a new city). I found that YNAB was perfect for this, as it allowed us to see exactly how much money we had coming in the door, and easily identify where we could adjust our discretionary spending to cover the increased expenses associated with our move.

    As you’ve pointed out, YNAB is only really good for day-to-day budgeting, with no real capacity for investment planning or tracking like other software. It does this job exceptionally well though. As you’ve summarised in the article, a large part of the value is the philosophy behind the software: I think that embracing these principles sets a strong short-term foundation for the long-term goal of financial independence.

    Glad to see an Australian-based site giving this fantastic software a plug :)

  4. FI Pilgrim says:

    I’m a HUGE fan of YNAB, and just wanted to point out that while the software won’t “automatically” download your transactions from your bank, it will still import them from a downloaded QFX (Quicken) file, which most banks and institutions provide.

    It takes me about 20 seconds to import mine, which I do every 2-3 days.

    Great review Evan, I’d love to see more sites putting YNAB out there!

  5. EmBee says:

    Does YNAB update the bank accounts automatically without having to “click” on anything. Perhaps a nightly update of all accounts from the bank to all YNAB devices.

Leave a comment

All fields marked (*) are required