My YNAB Review – Using YNAB To Get Our Budget Under Control

YNAB ReviewMany of you have probably heard of YNAB. Also known as “You Need a Budget“, this is a software program that will help you to get your finances under control and keep them under control… so long as you follow their rules. After using the software for several years, I felt it appropriate to post this YNAB Review.

My Wife and I have been “using” YNAB for the past several years to help manage our personal finances. By “using” I mean entering transactions and monitoring cash flow. We barely looked at the budgeting part of the software, which meant that developing a budget, let alone sticking to it, was pretty much non-existent for us.

Bottom line… we weren’t following the system that YNAB intended for us to use.

Here was the way that we used YNAB – when one of us bought something in the joint checking account, we entered the purchase in YNAB so that the other person would never overdraw the account.

That’s it.

No budgeting, no reporting. Heck, I’m not even certain that all of our categories were up to date.

This is not exactly the way the founders of YNAB intended for their software to be used.

During the past month, we have upgraded to the newer online version of YNAB and started using YNAB the way it was intended – with the budgeting tool.

The results have been, quite honestly, amazing. Both my Wife and I are starting to realize the limitations of our budget, and we’ve even decided to cut almost $300 in recurring monthly expenses so that we can add more payments to our debt snowball.

Here’s a quick rundown of how YNAB “should” work, and how we are now using the software in line with our budgeting and financial goals.

This is not a paid product endorsement, nor am I an affiliate for YNAB. This is an honest assessment of how we are using YNAB to make our financial lives better.

How We Got Our Budget Under Control with YNAB – A YNAB Review

The traditional method of budgeting assumes that you earn a certain amount of money each month, and then you allocate the money you are expected to earn to different budgeted categories.

For numerous reasons which I won’t get into here, this method doesn’t work. In this YNAB review, I wanted to explain the system and method that YNAB teaches, one that actually works when it comes to budgeting.

YNAB teaches four basic rules to get your financial life in order and your budget under control. Here they are:

  1. Give Every Dollar a Job
  2. Embrace Your True Expenses
  3. Roll with the Punches
  4. Age Your Money

Let’s take these one at a time.

Rule #1 – Give Every Dollar a Job

The first rule of YNAB is to give every dollar a job. In other words, when you get paid, you decide how that paycheck will be spent, ahead of time.

What most people do when deciding how to spend their money is to check their bank account and see that they have some money in it. Since they have money in the account, they can afford to go out to eat or have a night on the town or pay some bills or whatever else they want/need to spend money on at the time.

It’s a very “knee jerk” method of handling finances and is unsustainable in the long term no matter how much money you earn.

That’s because after that money is spent, it’s gone. Then a day later some bills come in the mail that they aren’t prepared to pay. By failing to plan, you don’t have any money left to pay those bills until you get paid again.

This is a vicious cycle that causes people a lot of stress and financial worry and puts people into a lot of debt.

However, with YNAB, you decide how you are going to spend your money as soon as you get paid. If your friends ask you to head out on the town with them, you can make that decision knowing whether you have the money to spend, and if you do, how much you can afford to spend while you are out.

Can you see how planning your spending ahead of time can give you a lot more peace of mind and security?

Rule #2 – Embrace Your True Expenses

The basic idea of Rule #2 is to start accounting for those larger, infrequent bills that come every quarter, every six months, or even annually.

Here are a couple of examples:

  • Life Insurance
  • Car Insurance
  • Homeowners Association Dues
  • Real Estate Taxes (if not escrowed through your mortgage)
  • Homeowners Insurance (if not escrowed)
  • Birthdays
  • Holiday Spending
  • Vacations
  • School Tuition
  • Car Maintenance

Not all of these expenses may be applicable in your situation, but some of them probably are. Here’s a real world example to help you understand.

My Wife and I each have a term life insurance policy. The total owed on both is approximately $600 every six months. The payments are due in June and December (great timing, right?). So how does this work within the YNAB system?

We take the total payment for both policies, $600, and divide it by 6 months. This equals $100. That means that every month we need to budget $100 to our life insurance category. Then, the next time a bill comes due, we will have the money in our account to pay for it. No stress, no worry, no credit card to make up the difference – just a happy insurance company that receives their check on time.

Make sense?

This same strategy can be applied to irregular bills, holiday spending, a rainy day fund, etc. The options are unlimited.

Got it? Good, let’s move to Rule #3.

Rule #3 – Roll With the Punches

This one is actually quite easy. If you allocate a certain amount of money to a category and then you spend less or more than you expected, you adjust your budget.

For example, during our weekly budget meeting, we allocated $40 to pet food (we’ve got a dog and four cats). When I went to the store yesterday, I didn’t spend that entire amount, but we did exceed our grocery budget (groceries are a never-ending battle for us). So we take the amount that we underspent on pet food and apply that amount to the grocery budget to cover our overspend.

This is a rule that you will come to love. It’s what will allow you to stick to your budget, even if you feel like you are making mistakes.

Rule #4 – Age Your Money

This rule used to be called “live on last months income” because that’s essentially what you are trying to do. Basically, once you acquire enough money so that you can cover all your bills with the money you earned the previous month, you will be in great shape financially.

I mean, think about it – the basic idea here is that you don’t even need to earn any money this month to cover your bills because you have already covered them from the money you earned last month.

I have not yet been able to attain this goal. It’s probably the hardest to achieve, but one that you should definitely strive for. And with YNAB, it is easy to do. You simply spend less than you earn and budget this month’s dollars to expenses for next month. Once you have at least 30 days of expenses budgeted for, YNAB will let you know!

Final Thoughts On YNAB for Budgeting

YNAB is the budgeting software that I wish I had available to me a LONG time ago, and that I wish I had been using properly for the past several years.

It’s an incredible tool and one that is sure to help you and your family get and stay on track with your budget.

The conclusion of this YNAB Review? I highly recommend it.

Questions about YNAB? Do you use it? If so, does it work for you? Please comment below and let me know!