You Need a Budget (Yes, You Do)

I just searched in my email and found the original receipt for my purchase of YNAB. . . 5 years ago (April 2013) for version 4 of the software. YNAB stands for You Need a Budget. It was originally a set of spreadsheets sold by Jesse Mecham, and its latest incarnation is a dual role as an online software-as-a-service web application, as well as a philosophy on personal finance (their website has great resources; they have an active blog, YouTube channel, podcast, newsletter; Jesse wrote a book recently).

I think I can say without much doubt that using YNAB has had incredible, life-changing benefits. So how do we use YNAB together to help us stay proactive in our family’s finances (and achieve financial goals)? YNAB has surprising depth in the application, so I’ve highlighted 5–6 features and tips that Lesley and I regularly use.

Give Every Dollar A Job

The folks behind YNAB call this Rule 1. It truly is the key; we get to be the boss of our money and income (versus just being curious about what we were spending cash on).

The first step behind giving every dollar a job is to come up with some buckets or categories or priorities that the money will be allocated to. For instance, some priorities that are going to need money distributed to every month might be:

• mortgage/rent
• groceries
• utilities

YNAB offers up a few starter categories (like the above), but we can add whatever is needed to meet our needs. Some random ones in our current system:

• Girl Scout dues
• school lunches
• Summer trip
• Christmas (more on this later)

It is important to note that no actual money or dollars is being “moved” when prioritizing to these buckets. YNAB doesn’t take the place of a checking account (or savings account or even cash in your wallet); you’re simply letting YNAB aid in remembering (and doing the math) of how to best divvy up your hard-earned money.

Goals

If I was forced to pick my favorite feature, the ability to set specific goals for a category would be it. The best way to explain this might be through a specific example.

Ready or not, the holiday season comes around the same time every year. And usually, without fail, we spend a fairly large chunk of money in December. But what if we could smooth out that dip into the reserves (and definitely avoid using credit cards)? This is where YNAB’s goals feature comes in clutch.

In January, Lesley and I will sit down and review (some of November and) December and add up what we spent on “the holidays.” This can include:

• presents, of course
• decorations
• special food
• travel
• wrapping paper
• a partridge in a pear tree

We will then gut check if the totaled amount seems reasonable for this coming holiday season. Whatever we decide upon as an appropriate amount (let’s say $500, for example) for the end of the year goes into YNAB in a Christmas category with a goal of $500. (YNAB has three different goal types. . . this type would be a target amount by a date). With the goal set, every month when updating our categories in the budget, YNAB will automatically calculate the best amount for us to contribute to stay on track to reach our “Christmas” goal. If it is January, it’ll recommend $42 or so; and doesn’t $42 sound so much better than $500 all at once? (If for some reason a month gets skipped, YNAB intelligently calculates the proper amount moving forward).

Another frequently used type of goal in our budget is the monthly funding goal. This comes in handy when there isn’t an already scheduled or recurring bill to be paid. For instance, say we want to typically spend or stay below $1500 a month in groceries and household goods. We would set a monthly funding goal of $1500. YNAB would then prompt us to fill that category appropriately throughout the month (like if we only committed $700 at the beginning of the month, YNAB would ask that we allocate $800 more when more income is available).

Direct Import and Reconciliation

A new feature that came out with the latest version of YNAB is the ability to link the app with banking and credit card providers (as well as investment accounts). Then, on a recurring basis, transactions from these accounts can be imported into your YNAB registers to be categorized and reconciled.

This reconciliation piece is pretty key to our workflow, too. In order for YNAB to exist as a trusted system, we have to have faith that the amounts entered in YNAB match up to what we have in the bank. YNAB makes this painless (as long as you’ve stayed on top of entering and importing your transactions).

Oh, yeah! You can manually enter transactions, too. In fact, we recommend you use their mobile apps to enter a transaction when it happens (like at the grocery store or gas pump) and not necessarily wait for the import to take place. Sure, the import is fantastic (and allows you to quickly clear and reconcile your transactions). But entering the transactions manually gives you an extra understanding and level of intelligence regarding your personal finances.

Partner Business Meeting Agenda Item

Lesley and I will touch base on the budget briefly throughout the week to answer any questions, etc. However, every Sunday as part of our partner business meeting, we’ll do a deeper dive, check that we’re on track with our goals, adjust any categories as needed (see YNAB’s rule of Rolling with the Punches). During that meeting is also where we’ll keep ourselves accountable.

Other features

YNAB has numerous other features. Some — like reports — I don’t use often (if at all). Others — like the ability to create multiple budgets — I’ll dip into depending on certain seasons of life. When we were getting ready to move house last year, the ability to start a new budget, play around the numbers, share it with Lesley, then delete it — all without touching the one true budget — was key.

And that’s reminds me. . . while at any given moment it feels like there is a one true budget, YNAB makes it super easy to do a “fresh start” if needed. If categories begin to feel stale or you haven’t touched the budget in a long time, give yourself permission to have a do-over. I’ve done several fresh starts. . . and I like to give my budgets names from comic book storylines (Project: Rebirth was around for a while; we’re currently on Mark IV).

Partner Perspective

YNAB has really changed the way Lesley and I communicate about money. It gives us a central hub around our family’s personal finances. It also gives us a chance to discuss our values and our goals. . . and quite literally put our money where our mouths are.

In Part 2 of this article, Lesley will share her experience with YNAB.