YNAB, or You Need a Budget, has been a life-changing software for me. (Note: I did work there for 7 months or so this year, but I was a fan before working there and I still love the software like crazy!)
You see, prior to my divorce, I had gotten into this comfortable zone of being in a double income household that didn’t really have to think too much about saving. We paid our bills and then pretty much squandered whatever was left in our account after doing so. It wasn’t until living on my own, paying for my bills and caring for a baby, that I realized just how much I didn’t understand about money management. I did some Googling, found /r/personalfinance on Reddit, and kept hearing smart financial folks talking about this little thing called YNAB. What the heck was it?
So let me try to explain YNAB in a nutshell. With normal budgets, you map out all of your expenses ahead of time and then you pay your bills when you get them. With YNAB, you only map out expenses that are paid with the money you have right now, which sounds simple but it’s actually a pretty difficult concept to grasp.
With a tool like Mint, you get a very basic budget where you can see where your money spent in the past has gone. You can also say “this month I want to spend $400 on groceries” and then throughout the month you can watch your bar meter tick closer and closer to that magical number.
With YNAB, you take a look at the money you have in your account and ask yourself – “what does this money have to do before I get paid again?”. It’s a very simple question but it’s actually a pretty challenging concept to grasp.
Today I just got paid. We’ll just say it was a $2000 check for simplicity’s sake. I asked myself – “since it’s the 15th, what do these $2000 dollars have to do before I get paid again on the 30th?”. I know that my internet bill is coming up, so I assign $60 of it to the internet category. I know that I’m going to need to have $1100 for childcare on December 1st, so I put $500 of this $2000 toward that so that I’ll “fully fund” the category with another $600 during my next paycheck.
The net effect of this is that I never look at my actual bank account. I look only at my YNAB app. In the image above, the person has $730 available in their ‘grocery’ category, which means they’ve already allocated $730 of their hard-earned dollars that are already in the bank to that category. So instead of looking at my bank account and thinking “I can spend $3,000 on groceries if I wanted to”, I’d know that I actually can only spend $730 because the rest of my money is already allocated to a job.
With the YNAB method you never overdraft (if you’re doing it right) because you’ve only assigned dollars that you already have. You also realize the benefit of not squandering an extra $200 at Target just because you have it, but instead flipping forward to the next month and “pre-funding” one of your categories there.
For example, in my $2000 paycheck..maybe it only has to do $1500 worth of jobs before I get paid again. The previous me would think that I could go spend $500 on whatever I want, because the money is there in my bank account. But instead, I flip to December 1st and I put $500 into next month’s groceries. BAM, now my entire grocery budget for next month is already paid for — with money I normally would have wasted on a new video game console or a Sephora trip.
YNAB has made me think about every dollar I spend. It’s created a buffer in my finances, where I’m living off last month’s pay. It’s made me more secure in my purchases, more frugal with my choices, and also is allowing me to pay off credit cards and loans faster. I’m a huge fan of YNAB and I highly recommend checking it out!