The Wonder of YNAB

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You Need a Budget, aka YNAB, is the most important and most impactful program that I have ever bought. It sounds like hyperbole to say that this program has been life-changing, but it is no less than the truth. YNAB brings envelope budgeting into the computer age and makes it easy to incorporate credit card spending into your budget cleanly and effectively. For those of you unfamiliar with envelope budgeting, it’s an old-school concept of taking the cash you have and divvying it up among various envelopes (groceries, gas, etc.) and spending from those envelopes. Need more groceries but you’re out of cash in the grocery envelope? Well, you have to take extra from another envelope to cover the difference.

My Background

I actually used to do this exact envelope style of budgeting when I was in college and grad school, with actual cash and envelopes (I used one of those coupon organizers). As I acquired a more complicated financial life and credit cards came into the picture, I switched to a static, spreadsheet-based budget. Each month I’d plug in my numbers for all my expected expenses and income, but it was easy to miss the big picture and there was no real accountability for my spending. I was living on what is known as the “credit card float.” I did all my spending on credit cards to get reward points, and then paid the cards in full at the end of each month. But I was essentially paying for the previous month’s expenses with next month’s pay. What would have happened if my pay had been delayed one month, or if I lost my job? I would have been behind before I even started.

Still, I was doing pretty well. I owned my own home (along with the bank, of course), and was saving regularly for retirement in both a Roth IRA and the Army TSP (like a 401(k)). However, every unexpected expense that wasn’t in my original spending plan sent me into stress mode, and expenses that only came up once or twice a year also caused a high amount of stress. I was worried and stressed about money and finances almost all of the time, even though I wasn’t deep in debt or living beyond my means.

Enter YNAB in the August, 2013. I can’t remember where I first heard about the program, but I think it must have been on an early retirement forum that I frequent. I decided to plunge right in with it, eschewing the 34-day free trial the company offers and buying it outright. It is $60, which seems high at first, but it is worth every penny of that and more. Also, it is frequently on sale, so be sure to do a search to see if there’s a discount.


I immediately fell in love with the program. There is a bit of a learning curve when going from a forecasting mode to an envelope mode, but for anyone who’s having trouble, the community forums are a treasure trove of help and advice, as well as the website’s free classes. I spent the first few months getting a feel for the program and refining my categories, and I was very lucky that I was able to have a buffer from the beginning (more on that coming up…). Instead of spending on credit cards and paying the whole balance somewhere before the next due date and then figuring out how all of that actually relates to your planned expenses, you enter the expense into YNAB as soon as your card is charged, and then at some point when you pay off the card, you indicate that in YNAB by entering a transfer between your checking account and the credit card account. This is also great for checks – who hasn’t had a check hit their account months after they wrote it (and had forgotten all about it)? In YNAB, you enter the check in and then mark it as cleared whenever it clears – whether 2 days or 2 months later. YNAB assumes the money is gone as soon as you tell it you spent it, not whenever it clears the checking or credit card account. So all of your spending decisions are made with absolute clarity as to how much you have available to spend in that category. You still know which expenses haven’t actually gone through your bank or credit card yet, because they stay uncleared in your ledger until they actually hit your account, but there is zero doubt as to how much money you actually have to work with at any given time.

When you start with YNAB, you really only need to concern yourself with one main question: “What does my money need to do before I get paid again?” YNAB has four rules, and they explain the method perfectly.


Rule One: Give Every Dollar a Job

This is basically what I just mentioned – assign all of your dollars to their needed jobs, and sometimes their job is to sit there for 7 months until your Amazon Prime membership renews, for example. My amorphous “Emergency Fund” account stayed as an “Emergency Fund” category for a while – until I realized it made a lot more sense to put some of it into Car Repairs, some of it into Vacations, some of it into Vet, etc. If I ever have a true emergency that fits none of my categories, I have other accounts that I keep out of YNAB that are easily accessible but intended for long-term investing and saving.

Rule Two: Save For a Rainy Day

These are the irregular and/or infrequent expenses, both expected and unexpected – car registration fees, annual membership dues, wine clubs, car repairs, electronics replacements… As an example, I mentioned Amazon Prime above. I put $8.25 into that category each month until it comes due and I magically have the $99 fee just sitting there, ready to be paid.

Rule Three: Roll With the Punches

Overspend in Eating Out? Better pull some from Groceries, or Miscellaneous, or wherever you have a little cushion. This process is affectionately referred to as “WAM,” for “Whack-a-mole.” In the first few months of YNAB, frequent WAMing is a common occurrence, as irregular bills you’ve forgotten about need to get added into your budget. The important thing to remember is that this is a natural part of the process, and it in no way indicates any sort of failure on your part. I mean, who really budgets $400 a month for groceries and then spends exactly $400.00? This also means that every spending decision has consequences, and it really helps you weigh your wants versus your needs. You learn to ignore what your checking account balance says and instead pay attention to category balances.

Rule Four: Live on Last Month’s Income

This is not essential to successfully use YNAB, but it has been the most important one for me to reduce my stress, and it’s worth striving for. What this means is that every dollar I earn in January gets sent to be budgeted in February, and so on. That means I have a “buffer” of one month’s expenses in my account, and it also means we have time to adapt to a lower income from my freelancing or a smaller check from our property management company because of an unexpected repair. In the past, I would freak out whenever something like that happened, because I would have already made plans with money I didn’t have yet (huge, huge no-no in YNAB!), and then I’d have to adjust on the fly and feel all stressed out about it. That being said, plenty of people happily use YNAB, and have for years, without a buffer, so don’t sweat it if you don’t have one. You can start a “Buffer” category and start saving for one!

The Nitty Gritty

If you’re still reading and interested after all of that, I will share with you how I set up my budget, as I like it better than the template YNAB gives you. I have five master categories, and I use them all a little differently.

1. Monthly Flexible: These are the categories that I use regularly and consistently every month, but the amounts vary. Groceries, Gas, Eating Out, Entertainment, Miscellaneous (a small amount for things like trips to the post office), Vitamins, and Fun Money for both my husband and me. Other than the Fun Money, these categories get “zeroed out” at the end of each month if I have anything left. I then sweep those amounts into another category that needs it, such as Car Repairs or Vacations. Our Fun Money builds up so that we can save for personal wants, if we so desire. To make budgeting easier, the category names give me a guide to how much to drop in each month, adjusted for circumstances (e.g. “Groceries $400”).

2. Build-up Flexible: These are categories that I like to build up to a certain amount, and then let sit until I need them. Once I spend from them, I start saving into them again until they’re at my preferred level. Some of mine are: Toiletries, Alcohol, Viola Repairs & Supplies, Gifts, The Unexpected (mostly used for when a friend is doing a charity event, but it comes in handy for forgotten expenses as well), Clothing, Ella (our cat), Car Repairs, Electronics, Moving (we’re an Army family, we need this more than most), Vacations, and so forth. As in Monthly Flexible, the category names tell me my goal for each category – “Car Repairs ($1000).”

3. Monthly Fixed: These are the monthly bills that are the same (or close to it) every month: Rent, Electricity, Internet, Phones, etc. For the most part, these are my “set it and forget it” categories that need very little fussing with. Due to my OCD tendencies, these category names are actually rather complicated. I like the name to show when the bill is due and how much it is, so an example of one of them would be, “(10) Netflix $7.99,” where the “10” indicates the bill gets paid on the 10th (or close to it) of each month. These are all listed in order of when they are withdrawn from my account, and I believe every single one of these payments is on an automatic payment schedule.

4. Annual Fixed: These are the items I pay once a year or at regular intervals throughout the year. I save for each of them each month, and I include my Christmas savings in here instead of in “Build-up Flexible” because I like to contribute a fixed amount to that each month and treat it as an annual bill. These category names are the most complicated of all because of all the information I want the name to convey. As an example: “(Jul) Car Registration $129.50/$10.80 mo.” The name shows me everything I need to know – this bill is due in July and I have to save $10.80 each month to have enough.

5. Vacations: This master category sits unused at the bottom of my budget the majority of the time. As I mentioned, I have a “Vacations” saving category in Build-up Flexible. When it’s time to plan a trip, I budget what I need in the Vacation categories such as Food, Hotel, Transportation/Parking, Airfare, Rental Car, and Entertainment. That gives me a big red number at the top of my budget, let’s say $1,058. I then negative-budget (enter “-1058”) into my Vacation savings category and I am good to go. Because I keep my Vacation savings in a separate account, I also make sure to do a transfer of that money between accounts, as well (both in YNAB and with my bank). When I’m ready to go on vacation, I move this category up to the top of my budget so that it’s the first thing I see when I open the app on my phone.

More little details

If you have credit card debt and you still use your credit card regularly, it can be quite complicated to figure out all the ins and outs of the process with YNAB. I don’t know much about it, but I see a lot of posts on the user forum regarding this issue. It works in the program, but be sure to watch the class about it and have a good understanding of how it is handled before diving in. Just an FYI, if you use a credit card and pay it off every month, when you add that credit card, even if the balance is zero, YNAB immediately creates a “Pre-YNAB Debt” category. If your balance is zero, just delete that category and don’t worry about it.

YNAB has a calculator built in that you may not discover at first. Just type in a transaction or a category, and as soon as you hit a “+” or any other simple mathematical symbol, the calculator pops up right there. So if you’re trying to figure out how much to save every month for your $132.74 annual fee, just type in “132.74 / 12”, or if it’s due in 7 months, type in “132.74 / 7”. You get the picture.

What if you go to Target and buy groceries, clothing, and household goods? Never fear, you can split that transaction in YNAB to show exactly how much was spent from each category.

Remember: every purchase needs a category, every income item needs a category (though your choices are only “Income for (this month)” or “Income for (next month)”, and transfers never need categories (because you’re just moving your money around, and YNAB doesn’t care where your money is, only how much of it you have to work with).

Income: I see a lot of complaints on the forum that you can’t create categories for income. I have no problem with this, as my Payees make it easy to search for all my Teaching income vs. Gig income, etc. However, use the memo field if you want more details! I highly recommend putting something like, “#taxes” in the memo field for every transaction that has bearing on your taxes. Then, when it comes time to pull everything together, you put in a search for “#taxes” and voila! It’s all right there.

Scheduler: I enter all of my monthly automatic bills in the scheduler so that I don’t have to retype the same thing each month. They enter my account ledger on the date I have them scheduled, and I just approve them as they come in. However, I caution against putting your income in the scheduler, no matter how reliable you think it is. If it comes in a day or two later, but it entered your ledger already, you will be making spending decisions based on incorrect information.

Accuracy: I love the mobile app, and use it to enter my purchases as I’m leaving a store. If you wait until you’re home and then use the figures on your bank or credit card website, be careful of restaurant charges especially – the pending amount usually only shows the actual bill amount without the tip, and if you enter and clear the bill amount thinking it’s accurate, you can really snarl up your account when you try to reconcile it.


This was a long post! If you made it this far, congratulations. You’re probably ready to try out YNAB and see if it works for you. I will say that everyone I’ve recommended it to loves it, though some people took longer than others to really embrace it. Feel free to ask me any questions about it, and I’ll do my best to help you out or steer you in the right direction for more information. As I mentioned earlier, the user forums are filled with lots of great people who are eager to help and very good at it.

2 Replies to “The Wonder of YNAB”

  1. Wow what a thorough post. At the start of reading this I was thinking that a budgeting app like this just wouldn’t work for me, but by the end of it you had me seriously considering it! I can see how it would really help to curb spending and to save, and to keep track of where you’re spending your money. I don’t know if I’d have the time or the patience for it, but I can definitely see my boyfriend using something like this. He’s really good at tracking his spending. Will send this to him and see what he thinks!

    1. It can take a while to set it up in the beginning, but once you’ve got everything the way you want it, it only takes a couple of minutes a day and maybe 20 minutes a month to set up the budget for the next month. Having the mobile app to enter purchases on the go saves a lot of time – the people who can’t or don’t do that do end up spending a lot more time entering all of their purchases in batches. Let me know what your boyfriend thinks of it!

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