YNAB budgeting

Financial Apps to Check out – You Need a Budget (YNAB) – Part II

SET Financial is committed to helping our customers better manage their personal finances and what better way to do that than use software built specifically for that task? This article is part of a series to help you learn about mobile apps we have found that you may find useful for budgeting.

Let’s take another look at one such software tool – You Need a Budget (YNAB) and how it may be able to help you stop living paycheck to paycheck. If you haven’t read our first post about YNAB, you should read it now.

The YNAB Method of Budgeting

As I mentioned on the prior YNAB post, YNAB is based on a set of four principles:

  1. Give every dollar a job<
  2. Save for a rainy day
  3. Roll with the punches
  4. Live off last month’s income

Today, I am going to be drilling down into principles one and two.  Lets go ahead and get started!

Giving Every Dollar a Job

The software is only software. It can’t make you change your spending behavior. You’ve got to do that. That’s why understanding the four principles is so key to being successful with YNAB. Let’s start with principle #1. By ‘giving every dollar a job’, you are now allowing yourself to spend money. It’s not only about NOT spending money but about knowing where your money is going to be spent. That can be very freeing in a way.

You don’t have to feel bad about buying yourself some new shoes or new window curtains. As long as you have funded all the monthly bills and expenses you need to cover, any other money you have left over that particular budget category, then you can go ahead and spend the money. It’s that simple. You get paid, you fund those monthly bills and recurring expense categories and make sure you have them all covered.  Then if you have any extra money left over, you can fund some of those other ‘rainy day’ budget categories or ‘savings goals’ categories.

Saving for a Rainy Day

Principle #2 is a bit more familiar to most of us. Think, like I mentioned in the prior post, of each of these budget categories as envelopes with the name of the category written on the envelope. During any month when you get paid, you take all that cash you have in hand and put it in the various envelopes like:

  • Mortgage (due on 10th)
  • Auto insurance (due on 15th)
  • Water bill (due on 17th)

If you have funded all these important, non-discretionary spending categories (think ‘envelopes’) and you still have some cash on hand, go ahead and fund some of those ‘rainy day’ and ‘savings goals’ categories like:

  • new blinds for house ($1,000 goal)
  • unexpected car repairs ($250 goal)
  • new laptop computer ($1,500 goal)

You can see how these categories look in YNAB below.

Maybe you can only put in a few dollars in each of these categories, but these amounts carry over into the following month so slowly but surely you can build up the money in each of these categories until you want to make the purchase.

Don’t Confuse Categories and Bank Accounts

What can be quite strange about YNAB when you first start using it, is the fact that ‘categories’ are just placeholders in your mind for viewing your money in your checking account. For example, when you are creating those savings goal categories or rainy day categories we discussed above, you are just defining how you want to spend a portion of your checking account money. You are not actually moving money around in your various bank accounts.

Keep a watch out for Part III

Stay tuned for the follow up article that continues to do a deep dive into YNAB principles three and four.

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