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YNAB Completely Changed How I Think
About My Money
My name is Vic and in a previous life, I hated budgeting. I used to think that budgets were restrictive, time-consuming and complicated. All I did in the past was look at my bank account balance and make sure we had enough money to pay the next bill.
While my wife and I made decent money and lived comfortably, there was never a sense that we were making any progress when it came to our finances.
That all changed when I discovered YNAB (You Need a Budget). To say that YNAB is simply a budget software would be an understatement. YNAB is built on a set of principles that not only shows you how to budget, but WHY you should even have a budget. The Four Rules of YNAB have completely changed how I think about money.
Rule #1: Give Every Dollar a Job
When you start your budget with YNAB, you assign every single dollar to a budget category. This includes necessities such as rent and utilities, to fun spending such as Netflix and my monthly WWE Network subscription (it’s true). By following Rule #1, I’m able to save more, invest more and put more towards my daughter’s college education.
Rule #2: Embrace Your True Expenses
In the past, expenses that came up once or twice a year, such as taxes and insurance, often sent our finances into a tailspin. We didn’t save for unplanned expenses like big maintenance bills. Even though we knew these things always came up, we didn’t prepare for them. This often led to a lot of stress as we would be left scrambling to find enough money to pay for everything.
When you Embrace Your True Expenses, you treat these irregular expenses as a monthly budget item. Last Christmas, for example, we estimated we would spend about $1,200 for gifts, traveling and other holiday-related events. In January, we started saving $100 each month to account for this so we would be completely budgeted by Christmas.
However, at the end of December, we ended up spending about $1,600 on Christmas-related expenses, which leads to…
Rule #3: Roll with the Punches
Budgets are dynamic and can change every single day. Rolling with the punches gives us flexibility in our budget to move money around as our situation changes during the month. While being $400 over our Christmas budget definitely hurt, we simply adjusted. We pulled money from other categories and budgeted less money the next month to compensate.
Rule #4: Age Your Money
With the Age of Money, YNAB calculates how old your money is before you spend it to show how much of a financial cushion you actually have. The goal is to create a buffer in your accounts that’s at least 30 days old, which means you’re saving about a month’s worth of income before spending it. This allows you to stop living paycheck-to-paycheck. You’re no longer checking your bank balances before you pay a big bill. You just pay it. It’s pretty damn sweet.
For all intents and purposes, YNAB is a glorified Excel spreadsheet. I say that as the highest compliment possible. As a data analyst at my day job, I spend 99.9% of my time staring at some pretty badass spreadsheets. I can SUMIFS and Index/Match with the best of them. ;)
So why would I happily fork over $50/year for something I can replicate?
Easy. YNAB has added so much value to our lives that I can afford to give up that extra latte each month.
Unlike an Excel spreadsheet, you don’t have to be tied to a computer (or a clunky spreadsheet app on your phone) to access your budget. I can view YNAB anytime, anywhere through its web app and phone apps. This allows my wife and I to be more active with our budget as we can view and update YNAB at a moment’s notice. There’s even a nifty Apple Watch app where you don’t even have to pull your phone out to check your budget! (Note to self: Budget for an Apple Watch.)
YNAB works for us because it is designed for you to manually enter each transaction. This creates a lot more awareness as we always have an idea of how much is in our budget. I’m a lot more mindful of our money so that we’re spending on what we value most. While people might think that this process might be a chore, it isn’t that bad. It only takes me a few moments to enter a transaction.
You’re actually encouraged to enter transactions on the spot, since the app will remember your location. So when I’m at Target, I can quickly fire up the app and all I have to do is enter is the amount. Everything else (store, account) will be pre-populated. It’s pretty sweet.
Managing Multiple Accounts
Whether you have one account, or twenty, YNAB doesn’t care. All your accounts (cash, checking, credit, savings, even gift cards) are consolidated into one “Budget Account” number. This makes managing multiple accounts easy as it teaches you to focus on your category balances, not your account balances. It comes in handy when you’re a travel hacker who currently has 24 active accounts! (Not a typo.)
The New and Improved YNAB
In December 2015, the new version of YNAB was released. For users of the old version (YNAB4) who are still on the fence, I highly recommend the upgrade. There are a few killer features that make YNAB better than ever:
The App is now web-based – You no longer have to download a separate program and link your Dropbox account to YNAB. This makes YNAB a lot more accessible as I can now view my budget anywhere.
Direct Import – YNAB can now connect to your accounts and import your transactions. This makes reconciliation even easier as YNAB now matches your manually inputted transactions against your bank. Even though you could theoretically import every single transaction (which I wouldn’t recommend), YNAB does force you to review and approve every transaction so you are still an active participant in your budget.
[I think this one feature also helped improved my marriage! As much as I rave about YNAB, I still can’t get my wife to input transactions on a consistent basis. Direct import now captures all the transactions that my wife might not have entered, and I no longer have to bug her anymore to input them.]
Goals – While YNAB always encouraged you to Embrace Your True Expenses (Rule #2), they didn’t make it easy for you. In previous versions with future goals you would have to manually break down how much you need to save each month. With this new feature you simply put in the amount you want to save by what date, and YNAB will tell you each month how much to save to achieve that goal.
The one minor gripe I have about the new version of YNAB is Rule #4 (Age of Money). In previous versions this rule was “Live on Last Month’s Income” which is a lot more straightforward. Even in the current version, whenever I get income I just dump it into the next month’s budget. While I understand that the higher your AoM the better, this metric doesn’t really add that much more value vs. Living on Last Month’s Income.
How YNAB’s Changed My Life
Since we started using YNAB about 2 years ago, we achieved these goals:
- Paid down $60,000 of principal on our mortgage
- Maxed out our retirement accounts in 2016
- Paid $19,000 in cash for a pre-owned Toyota Camry
- Made home upgrades of about $3,000
- Filled my 2-year-old’s 529 plan to $12,000
- Filled my unborn son’s (due April 2017!) 529 plan to $1,200
That’s just the tip of the iceberg. My family has a lot more goals to achieve such as early retirement and traveling the world. Using YNAB has not just changed my finances, it’s changed my family’s life. The Four Rules have shown me that budgeting isn’t about what you can or can’t buy; it’s about living the life you want.
You can try YNAB free for 34 days here.
When Vic is not nerding out about Budgeting, you can find him at home playing with Elsa and Moana dolls with his lovely daughter. You can check out Vic’s random thoughts on his blog Dad is Cheap.
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