You need a budget. Come on now, of course you do. We all do! If you are a long-time reader you will remember that I once wrote a blog post called On Money where I shared with you how I used to do my budgeting. Well, that post is no longer around. This new system is much better and I don’t want you to follow my old advice.
Enter: You Need A Budget.
YNAB had been on my radar for a few years, though never enough to make me check it out. However, it got a whole new surge of buzz in December last year when they were launching a brand new online version of their software. I did some research, and learned that what makes YNAB different is that it is both a budget for what you plan to spend and a way to keep track of what you actually end up spending. This way you can always check and make sure that your budget and your spending are aligned. It also refuses to deal with future hypothetical income, because you are only supposed to budget what you actually have. Know you’ll get that paycheck in 5 days? Too bad, you’ll have to wait another 5 days to enter it into your budget. We don’t play with pretend money.
But before I ramble on about my experience with the software, here’s what makes YNAB’s method so different. As usual I will refer to money as “martian pesos” because it is my preferred imaginary currency.
The four principles of YNAB
- Give every dollar a job. This means that if you have 13.000 martian pesos in your bank account you are going to place those martian pesos into different categories in your budget until there’s nothing left. The idea is that if you know what each peso is supposed to do you will be much less likely to spend it on something else.
- Embrace your true expenses. This is where you smooth out your cash flow by breaking down larger, less-frequent expenses, and treating them like monthly expenses by saving for them each month. You thought Christmas only came once a year? Wrong. You set aside money for Christmas every month. Birthday presents? Every month. Car repairs? Every month. Vet bills? You get the idea.
- Roll with the punches. You will go over budget sometimes. It happens. The idea is, if you overspend in your one category, like”groceries”, you will have to cover it by subtracting from another category, like “fun money”. This way you don’t overspend on your total budget, and you visually suffer the consequences by suddenly having less money in your “fun money” category. Smart? Yes.
- Age your money. How old is the oldest martian peso in your bank account? YNAB will tell you. The basic goal is to have money that is 30 days old, which means you could get by for a month without income at your current spending rate. This won’t be the case for everyone of course, but it is a nice goal to have. It is also a smart little piece of gamification: you’ll want to see that number grow.
I’m a YNAB convert
I have used YNAB religiously since January 1st, so I’m writing this after using it as my only budgeting tool for 7 months. It is kind of amazing. I have never had this much control of my finances, and I have never been this motivated to save. I don’t really have unforeseen expenses anymore, and when they do pop up it is no biggie. It also gives me a pretty brutal overview over what I spend money on, which in turn motivates me to make changes for the better.
You might be hesitant to sign up because it is a subscription service with a monthly ($5) or yearly ($50) fee, but trust me when I say that in the long run YNAB pays for itself. And when I say “in the long run”, I mean within a month or two. It’s that good. With the 34 day free trial you will have plenty of time to test it out before you decide to commit, and I strongly urge you to give it a go. It isn’t possible to set up your budget using the Android or iOS app, so do all the setup work on a desktop computer and then track your spending on your phone. In the end, if you use YNAB correctly, you will consult the YNAB app before you make spending decisions instead of checking your bank account.
- The YNAB website
- Apps for iOS and Android.
- The YNAB YouTube-channel (super helpful, start here. The online version of YNAB was launched in December 2015, but some of the older videos are general enough to be well worth watching)
- The YNAB forums (because you WILL have questions)
- The YNAB fan Facebook group (ditto)
P.S: I have a referral link. If you sign up using it we both get a free month of YNAB.