The quick (sort of) and dirty guide to YNAB

I've been selling a friend on YNAB. Unfortunately, against my advice, she started trying to use it without letting me help, and I strongly suspect without reading anything or the Budget Template link I sent her. I woke up this morning to a frustrated text of "I hate this! It won't even let me put in our income, and it says I can't afford anything!" I'm preparing to walk her through it this afternoon, and as I'm getting my thoughts in order, I thought it might help others as well.

 

First: YNAB shows REALITY

This can be frustrating, because traditionally, you budget based on what you expect to make. And you CAN do that with YNAB, it's just different than you're used to (more on that later). The beauty of YNAB is that it works equally well for variable incomes without having to resort to averages as it does for steady incomes. But YNAB shows you what you actually have. You don't forecast because you don't have that extra money yet. The reality is what you have right now. That way when you look at your grocery budget, you know that you actually DO have the money available, not just that you SHOULD have it available based on your income.

How to reflect that reality

First, set up that Budget Template. Put goals on absolutely everything. They can be monthly goals (things like groceries or miscellaneous), or monthly by date (your insurance bill due in four months, the kid's back to school supplies), or just a goal you want to get to (car repair fund, though some do that as a monthly goal). The first two will show up to the right as Total Monthly Goals and Underfunded. Super helpful later on as you wonder how your budget matches up to the reality of your monthly income. Also put in upcoming or recurring transactions under "Accounts"

Then you put in your bank balances, credit card balances, all of your liquid accounts (non-liquid accounts can be put in as tracking accounts if you want to see your net worth) This shows you exactly how much you have to budget with. Make sure to have the most current balance, not just your last statement, as normally charges will have happened since then. Make sure to deduct any pending charges. This is reality. This is what you have until your next income.

Next, budget for all the bills and necessities until your next paycheck. We're really tight at the moment, so for this month I could only fund the first half of the month (we're paid semi-monthly). So I budgeted mortgage, phone, utilities, electricity, and a yearly bill for Sam's Club coming out before the next paycheck for now. And I put in half of our expected grocery and miscellaneous. Next paycheck in the middle of the month, I'll top of the grocery and miscellaneous, budget for the monthly student loans (ugh) and another yearly expense that comes out later in the month. 

If you have a credit card, the next thing you want to do is put in how much you want to pay on it. Ideally, so that you're not "riding the credit card float", it should match exactly what your credit card is negative, except it'll show positive (because that's what you're budgeting to pay on it). But that money is not always immediately available, and that's ok. Just put in how much you want to pay for now, and work up to getting the balances matched when you can.

Next, if you have an account that's purely for savings, go ahead and make a category called "Savings", or whatever you're saving up for (can be one category or many), like "New Car" and allocate the amount in your savings category here. YNAB doesn't care where your money is, it can all be in checking, or all be in savings, or a mix. I have eight different accounts - four checking and four savings. My bank is awesome and gives about 5% on the first $500 of each account, so I split it up and it's not based on what I'm saving for. I only say to allocate the amount in your savings to there because if you already have a purpose for it, you want to reflect that amount. From now on, it won't matter where your money is actually stored. You can add to the savings category or take away from it however much you want regardless of what your saving's account says.

That's it! Now all you have to do is budget whatever the rest of your To Be Budgeted is on the other categories in order of priority. I personally do them for my true expenses by order of upcoming date. YNAB is AWESOME in that it does the math I used to spend hours on with monthly goal by date. If it's January and I'm budgeting $60 for a Christmas present, it will tell me to put in $5 this month. But what if I just don't have that, and don't until July? Well, then it will tell me to put in $10 instead. No more recalculating everything because I couldn't afford one of my true expenses this month! Likewise if you have extra you want to put toward a goal, it will recalculate for a lower amount later. And of course this is all by priority. If fun money is more important to you than a true expense due 11 months from now, and you know you'll have a tax return to fill it up by then, by all means put it in fun money first, and the true expense later. Or savings, or... anything. Because...

 

Second, YNAB is about PRIORITIES

YNAB really forces you to take a look at your priorities, because you have to budget from reality. You can want to have a manicure, go to the movies, go out to dinner, AND still have room for your groceries all you want, but if you don't have enough, you don't have enough. So which is the most important? If you have to have your monthly manicure that's great! Just know that you might eat a few more beans and rice this month, or not get to see that movie right when it hits the theater. If the manicure is the most important in the list for you, by all means, keep it! That's the beauty of YNAB. You're not restricted at all, you just have to be honest that "this" is more important to you than "that".

 

How to make sure your budget fits your income

This seems to be the biggest hangup for most people - not being able to budget ahead. How do I know that my budget is realistic? This is actually WAAAAAY easier than people think. Here are my Category Groups (I've actually got 157 total categories - yes, I have clinical OCD, lol)

  • Expenses (groceries, miscellaneous, gas)
  • Kids (kids miscellanseous, school lunches, school supplies, allowance)
  • Fun!
  • Monthly Bills
  • Non-Monthly Bills
  • Savings
  • Giving
  • Youth Events (camp, church activities, etc)

If I have all of them selected, I can look to the right and see my Total Monthly Goals is $6,556.78. I have a monthly income of $3947.40 (I actually put that in my Budget title so that I can refer to it easily). Clearly, I'm not going to meet all my goals. So I uncheck Fun!, Savings, Giving, and Youth Events, because everything else in my budget is a NEED. It kills me to give up giving, but for me, I know that God would want me to feed my kids and keep a roof over our head. I've already examined my expenses and culled out anything unnecessary for our family. As soon as we're able, that will be the first thing checked. Priorities again! Anything that is not a top priority gets pulled out of the budget and put into a wishlist of sorts until my budget fits with reality. So that puts me down to $5,030.35. Hmmmm. Still not good enough. Now I examine my priorities again and take out the true expenses that are the farthest off. That new car I'm saving up for in '37? It can probably be put on hold for right now. Car registration is in two years, so off it goes, and I probably won't need a new laptop for another three. It can wait on funding as well. And so I trim down by priority until get down to under that $3947.40. Now my budget is realistic.

That's all well and good, but will my next paycheck be enough? Now I just check the things I know for sure I need in the last half of the month. I know my next paycheck is $1973.70. Will I be ok? I check off Expenses, Kids, the rest of Monthly Bills, and the Non-Monthly bill coming due in the second half of the month. This time instead of looking at Total Monthly Goals, I look to the right at Underfunded. It says I'm Underfunded for all those by $473 as of right now. Awesomesauce! That's a lot less than the $1973.70 that I know I'll be getting before I need that money. Looks like I get to take care of a few of those true expenses (or savings, or debt repayment, or whatever the priority is) after all! But not until I get paid again, because THAT'S when it becomes a reality I can allocate.

 

I really hope this was helpful and not too long. Wish me luck that my friend has it click and gets the awesomeness that is YNAB!

10replies Oldest first
  • Oldest first
  • Newest first
  • Active threads
  • Popular
  • I forgot to deal with reimbursements, and I don't know how to edit my post. I thought I saw you could within the hour, but I'm not seeing how.

    Reimbursements are another thing that a lot of people struggle with. Especially since everything zeros at the beginning of the month, and and red categories show as zero instead. Where did that money go? It either got put into negative To Be Budgeted (if it was cash/checking/savings) or out of how much you wanted to pay off your credit card. Because what it comes back to is REALITY. If that money was in cash, you don't really have that money anymore. And if it was on credit, then you just increased your debt.

    My husband is at a conference right now, and he had to pay his own money to go. He'll be reimbursed for the full cost, but the upfront money was on him. It is so so so so tempting to just let that category go red because I know we'll get it back, so it's not REALLY red, right? Ah, but it is. Because WE DON'T ACTUALLY HAVE THAT MONEY RIGHT NOW. It's not the reality. So the rest of our budget allocations won't be able to be trusted. Especially in a case like my husband's, where he has to pay for the conference months in advance but doesn't get reimbursed until a couple weeks after he goes, if I let it stay red, I would be depending on money that doesn't actually exist. What if there is a huge emergency in the meantime and it depleted our checking account? Because I would take that money from our emergency fund category, I would think that we had say $1000 more in our emergency fund than we actually had in the bank. Bad news.

    What it comes down to is reality. Keep all of your categories in the black, so it shows what things really are. Whatever you are being reimbursed for was a higher priority to spend on at that moment than something else. I personally make a category called "Nate Conference" and put in the notes how much he's owed. But until we get that money back, it doesn't get to fund any other category in the meantime.

    Reply Like 3
  • So far it's going great! Although she's frustrated by the learning curve and things not being intuitive. Also, that there aren't recurring options for 3 and 6 weeks.

    HOWEVER: A lot of my above instructions hinge on knowing the Total Monthly Goal, which comes up right under Total Inflows. THIS IS ONLY AVAILABLE THROUGH THE YNAB TOOLKIT FOR CHROME OR FIREFOX!!!!!

    YNAB, this feature is SUPER important, please, please, please add it to the actual YNAB. I can't fund all of my goals every month, and without this feature it would be incredibly difficult to figure out what I able actually able to fund.

    Reply Like 5
      • Aritavashkai
      • playing with numbers makes me happy
      • aritavashkai
      • 1 yr ago
      • Reported - view

        Faness  I hope I'm tagging the right person. I feel like I've seen this name in the forums.

      Reply Like
    • Hi Aritavashkai !

      Yes, I stalk the forums on a regular basis! :)

      Would you mind submitting that feedback through our Feature Request form? That actually goes directly to our development team so they know exactly what you're like to see going forward.

      Also, this is wonderfully thorough! I hope it helps the users that stumble upon it! Jesse often says, forget everything you know about budgeting when starting YNAB, which I think isn't the easiest to do, but you outline the Reality part very well! :)

      Reply Like 1
      • Aritavashkai
      • playing with numbers makes me happy
      • aritavashkai
      • 1 yr ago
      • Reported - view

      Faness Thank you! And done. 

      Reply Like
  • It's difficult to write a an introduction for getting started with YNAB, because everyone's financial and budget realities and goals will be different. But the Budget Template is very useful, though I didn't start using it until recently. The template is helpful for quickly filling in budget goals. As for my categories, I organize mine from required monthly expenses  to yearly true expenses. Some of my goals don't have deadlines, such car maintenance and donations. 

    Reply Like 1
    • Kate
    • Joyful Technical Writer 🌴
    • sweet_sunshine
    • 1 yr ago
    • 2
    • Reported - view

    I LOVE this. I need a refresher like this every now and then even though I've been using YNAB since 2014. Thank you so much! 🙌

    Reply Like 2
      • Aritavashkai
      • playing with numbers makes me happy
      • aritavashkai
      • 1 yr ago
      • 1
      • Reported - view

      Kate I'm so glad it helped!

      Reply Like 1
  • I am 1 month in on YNAB and loving it. But getting myself muddled up using the budgeting feature as I have been historically been budgeting from the 25th of the month to the 25th of the next month (from one paycheck to the next - bad I know but I am getting there!) Should I rather be doing my budgeting on the first day of the new month? to work better with YNAB? Feeling confused.

    Reply Like 1
      • Aritavashkai
      • playing with numbers makes me happy
      • aritavashkai
      • 1 yr ago
      • 5
      • Reported - view

      Spring Green Pony you can do it on the 25th of the month. It's not bad at all! In fact, doing it when your pay comes in is exactly right. What you want to do is FIRST budget in whatever is due before your NEXT paycheck. For you on the 25th, you'll probably need to go ahead to the next month to fill some things up. THEN start filling things up in order of priority. If you have enough to find all your goals, it's really easy - just push underfunded (or average budgeted or average spent if you prefer) and it will all fill in. 

      An alternate way of doing it, if you do want to start on the 1st of the month so that you're not switching between months is just take that paycheck on the 25th and put it into a category called Next Month's To Be Budgeted (or whatever you like) and "release" those funds on the 1st by moving them back to To Be Budgeted. 

      Reply Like 5
Like12 Follow
  • 12 Likes
  • 1 yr agoLast active
  • 10Replies
  • 1619Views
  • 9 Following