Vic wasn’t always the Budget Jedi that he currently is. (Nor did he always talk in the third person). For years my wife and I tried to budget. We tried Mint and Excel spreadsheets. Yet no matter what we tried and how motivated we were, nothing ever stuck.
It wasn’t until YNAB (You Need a Budget) when everything clicked. YNAB is not just a software for budgeting, it’s a philosophy on how to spend your money. While other budgeting programs simply give you a tool to budget, YNAB is based on a methodology that shows you how to actually stick to a budget. The Four Rules of YNAB have completely changed how I think about budgeting.
YNAB’s Four Rules
1. Give Every Dollar a Job
When creating your budget for the month, you allocate every single dollar. This includes EVERYTHING, from necessities such as rent and groceries to more “fun” spending like video games and going out. When you know where every single dollar is going you can save more, invest more, and better plan for your future. Doing this allows us to prioritize our spending on what we value most such as vacations, eating at nice restaurants, and buying the occasional WWE T-Shirt.
2. Save for a Rainy Day
How many times have you been “surprised” with big expenses that happen once or twice a year like taxes or car insurance? How about Christmas shopping? What about things like car repairs that you know you’re going to pay for eventually?
YNAB helps you prepare for these irregular payments by treating them as monthly expenses. In October we have a $2400 tax payment due and I’ve been saving $200 each month for it since last year. Other expenses that I’ve been saving for are Christmas ($600 already saved), home repair ($750 saved), and car insurance ($582 saved).
3. Roll with the Punches
One of the reasons why budgets didn’t work for us before is because they felt restrictive. When we spent more than we budgeted or something unexpected came up, we would feel like failures and quit. With Rule 3, you simply roll with it. When things change in your budget you adjust by pulling money from another category to cover or adjusting next month’s budget to compensate for the overspend.
4. Live on Last Month’s Income
If I could get nerdy for a second, Rule 4 is Budget Nirvana. Everything you make in the current month gets put towards next months spending. While we weren’t living paycheck to paycheck before, my wife and I were always timing bills according to when we would get paid next. We would have to double check our bank balances before we could make any payment. By living on last month’s income, we don’t do this anymore. We only budget with money that we already have. Now, any bill that comes up gets paid immediately. This method is far less stressful 🙂
YNAB vs. Mint
When it comes to budgeting tools, Mint is probably the most popular. With Mint, you connect all your accounts and it automatically tracks your spending. I tried using Mint several times to budget but it never worked for me. I got frustrated because categories were often wrong, and it didn’t really handle cash transactions very well. In my opinion, Mint was more reactive than proactive. Mint showed me what I spent on, but it didn’t really change my spending habits.
YNAB worked for me because it forced me to be active with my budget by manually entering in each transaction. This creates hyper awareness as I’m always mindful of how much is in our accounts at all times.
While some might think it can become cumbersome entering every single transaction, it really isn’t. It takes SECONDS to input info in the mobile app. YNAB encourages you to enter transactions as they happen as the app remembers your location. So when I’m at the grocery store, I quickly open YNAB as I’m leaving and all I have to enter is the amount. Everything else (account, store, memo) is already populated. Pretty damn neat YNAB. If you’ve ever spent time with me you probably haven’t even noticed me updating my YNAB in public since it’s so quick.
Yes, YNAB Costs Money
At $60, YNAB does costs a pretty penny ($54 if you use my referral link). So why would a self-professed cheapskate even consider spending that much on a budget program when he can probably replicate it in an Excel spreadsheet? Easy. Because YNAB has more than paid for itself many times over. I have never felt more in control of our finances until we started using YNAB. In a previous post I talked about all our budgeting successes since our daughter was born, and YNAB was what we used to achieve that. The fine folks at YNAB also do a fantastic job training users on their program and methodology with online classes, video tutorials, forums, and customer support. If that $60 was an annual fee, I would gladly pay it (note to YNAB staff, please don’t do that 😉 )
If you download the program and follow the Four Rules, you’ll easily “find” that $60 in your budget. Even if you don’t use YNAB, these four rules can still help you budget. I downloaded the free trial and bought within a week. I can’t imagine using any other budgeting software, ever.