How I Set Up My Budget in YNAB

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In my last post, I shared how YNAB has helped me get a better handle on my finances. Today, I want to share how I’ve organized it.

When you start using YNAB, they pre-populate your budget with a selection of recommended categories. I’ll be honest, I didn’t find them all that helpful. Having not read the book yet, I actually found them confusing because the category group names, like true expenses or quality of life goals, are terms people generally don’t use outside of the YNAB community. Additionally, not all the categories were relevant to me. For these reasons, I deleted them all and started over.

I structure my budget categories and groups in a few ways:

  • Category groups are listed from highest priority to lowest.
  • Category groups are also arranged based on where the money lives (i.e. checking vs. savings).
  • Within each category group, categories are named with and listed in order of their due date.
  • Each category has a goal.

Structuring my budget this way allows for two things:

  1. I can fund my goals from top to bottom as money comes in, always knowing my money is going to the next most important area.
  2. I can verify how much money needs to be in my checking account or should be in my savings account at all times.*
  3. I can use the quick budget feature to not only quickly budget my money when it arrives, but also quickly estimate how much money I need to set aside each month.

*Technically YNAB will tell you that your budget is only a plan for your money and where you keep your money is irrelevant in terms of the budget, but given I don’t want to overdraft my account or miss out on interest I could be earning, I don’t buy into that.

So what are my category groups?

  • Current Baby Step – This is where I put my top priority savings goal according to Dave Ramsey’s Baby Steps. Currently, I’m on Baby Step 2, paying off my car, so this is where car payment lives. Once I’m done paying off my car (hopefully by the end of the year), this group will include building up my 3-6 month emergency fund. I separated this out to call extra attention to my main financial goal. Whenever I’m done funding the upcoming month’s goals, I dump any extra money I may have leftover towards this goal.
  • Credit Card Payments – YNAB automatically creates this category. Because my cards are paid in full, I don’t actually need to budget any money for these categories. Anytime I make a purchase on a card with the money I’ve already budgeted for, YNAB automatically moves that money to these categories so that I’m able to pay off the credit card when the bill is due.
  • Monthly Bills – This is where my fixed monthly expenses live (e.g. my mortgage payment, my Spotify subscription, etc). Anything in this category group is something that costs exactly the same amount and is due on the same day of each month.
  • Variable Expenses – I think of these as my cash envelopes. These are categories like groceries, gas, or eating out where I may spend more or less each month, but I aim to spend less than a certain amount.
  • Upcoming Expenses – These are fixed, recurring expenses that occur less than monthly, but will be due in the next 30 days.

I want to take a break here to point out that the category groups up to this point represent my checking account. Moving forward, the following categories switch to my savings account. As mentioned previously, I use this separation of category groups to quickly see how much should be in my accounts at any time and help me to know exactly how much to transfer between accounts.

  • Subscriptions/Recurring Expenses – The previously mentioned Upcoming Expenses and this category work together. Again, these are expenses that do have a fixed amount but occur less regularly (like my yearly Amazon Prime subscription). For GTD fans, these two categories essentially work as a tickler file. Once I’ve paid a recurring expense in the Upcoming category, I move it back to the bottom of my Subscriptions/Recurring Expenses category and reset its goal for its next due date. In this way, everything is ordered by date, so I always know which subscriptions are coming up next, how much to pull out of savings to pay them, and I can begin saving for them again right away.
  • Sinking Funds – This is where I save for expenses that will happen eventually. I just don’t know when they’ll happen or how much they’ll cost (e.g. home maintenance, health, vet bills).
  • Long Term Savings Goals – This category is where I keep future savings goals like my 3-6 month emergency fund, our house downpayment fund, and my future Tesla fund. (A girl can dream…) Right now, I’m focusing on other priorities, but I look forward to the day when I can actually fund these. (For now, this category group is hidden from my budget since I’m not actively contributing to them.)
  • Wish Farm – I’ll just link to YNAB’s explanation of a Wish Farm as it’s easier to let them explain what exactly a Wish Farm is.
  • Wish List – This is exactly what it sounds like. Anytime I want something I put it here, and eventually, it may make its way to my Wish Farm to be funded. (I also keep this group hidden to keep my focus on my current goals).
  • Gift Cards – This category keeps track of the money I have on my Starbucks and Dunkin cards that I use for rewards points. I also keep track of my Amazon gift card balance, as well as Apple Cash. Whenever I make a purchase using these categories, I move the money to one of the appropriate categories above to accurately categorize the spending.

One of the rules of YNAB is to “roll with the punches,” so YNABers (people who use YNAB) are actually encouraged to adjust their budget as needed, and I adjusted my categories quite frequently during the first month or so. I’ve since settled into a groove with this category structure, so that’s how I structure my budget in YNAB (at least for now).

I hope everyone’s doing well during this time. Well at least as best as well all can. Stay safe everyone. Until next time.

Photo by Katie Harp on Unsplash

The Last Frontier of Organizing – Budgeting with YNAB

In most areas of my life, I’d say I’ve always been fairly organized – maybe a little too organized if you ask some people. My budget, however, is one area that has lurked like a terrifying junk drawer in the back of my mind for as long as I can remember.

I want to start by saying that I realize I’ve been luckier than most to have gotten where I am without student loans. If it weren’t for that, I know I would be in a completely different situation financially, and I probably would have been forced to confront my financial situation sooner. I realize this is not the norm for a number of people, and I truly can’t imagine how difficult it must be to get by on a daily basis while also dealing with the amounts of debt I’ve seen some of my friends and family talk about.

With that out of the way, I will wholeheartedly admit, I’ve made a number of mistakes financially over the years by acting as if the money in my bank account was Schrodinger’s cat, and despite having a well-paying job, I still fell victim to credit debt, a car loan, a mortgage payment I could just barely afford, and impulse buys galore which ultimately resulted in me living paycheck to paycheck.

I’ve always had plans to pay off debt. I understood how debt payoff worked, but no matter what I tried (ahem… Mint…), I never became one of those success stories of paying off thousands of dollars worth of debt in 6 months.

This year, one of my goals was to really get serious about a budget. I decided to retry You Need A Budget, or YNAB as its users like to call it. I’m happy to say, this time finally clicked. Happy may actually be an understatement. If it weren’t for being in quarantine, I’d be singing its praises to everyone I meet. Until then, this post will have to do.

As a former Mint user, my #1 piece of advice for anyone trying YNAB has to be forget everything you know about managing your money with Mint or anything else.

If you’re looking for a place to start, I can’t recommend their videos and Nick True’s videos on YouTube enough. I have to credit them for retraining my brain for the YNAB way. (The book is also a good resource.)

I think of YNAB as a sort of “reverse” Mint. Instead of looking at your transactions to see how you’ve spent your money and trying to budget from there, YNAB asks you to look at the money you have right now and plan out exactly how you need to spend it down to the very last dollar – Give every money a job, as YNAB likes to call it.

The key to this is you’re not budgeting the money you expect to earn for the month, only the money you have available right now, which took quite some time to wrap my head around. Budgeting for all my expenses as I typically would have with Mint resulted in quickly being told I was over budget. I had to stop thinking in terms of hopeful money, and more in terms of what my actual money needed to do first and foremost until I got paid again.

By giving every dollar a job, suddenly things didn’t seem so grim. In fact, they looked surprisingly manageable. In fact, I could clearly see just how much money I had leftover after bills rather than mentally calculating whether I had enough for every purchase. I began to set that “extra” money aside for actual jobs (my car’s next oil change, my fiancé’s birthday, our wedding…). Suddenly opening my budget was less like opening a junk drawer and more like finding $100 in the couch cushions every time.

The YNAB website says that “On average, new budgeters save $600 by month two and more than $6,000 their first year.” I’ll be honest, I didn’t learn this until after I started seeing it mentioned on the YNAB subreddit. Had I seen it before I started, I probably would have dismissed it as a typical marketing ploy. I still want to, and yet in the first two months of using YNAB, I was able to find money to pay off not one, not two, but all THREE of my credit card balances in full (almost $4000). Of course, a big portion of that is due to a couple of windfalls (including tax refunds and a stimulus check) and not going out due to the current state of the world, but without YNAB, I’d have without a doubt blown that money on something stupid. Instead, I was able to use it to further my goals. (Oh, by the way, speaking of goals… Mint’s goal function had me thinking it’d be a struggle to pay off ONE card by next January…)

The other crazy thing is I paid off those card balances while still using those cards for bills and other expenses. This is IMO the real genius of YNAB. YNAB treats credit cards like debit cards, meaning you’re expected to budget for any spending (even credit card spending) with money you actually have. Once you spend in a budgeted category, YNAB automatically applies any that money to the card’s payment to cover your balance. This is what lets you account for paying off the existing balance AND any continued spending. As an example, say I planned to pay $400 towards my existing balance, and also charge $60 in groceries. As long as I’ve already budgeted $60 for groceries, YNAB will move that $60 of real money I had set aside for groceries to cover the additional charges on the card, increasing my total available for payment to $460. This was huge for me.

Debt repayment aside, YNAB has shown me the importance of setting up sinking funds for all my long term expenses, and yearly subscriptions, and other recurring expenses that I hadn’t included in my budgets before. Anytime I come across a subscription renewal or big-ticket item I will need down the road, I add it to the budget now. Not only has this forced me to come to terms with my subscriptions and recurring expenses, but I can also now budget for them little by little over the course of a year rather than having to come up with the money all at once.

I realize money’s a touchy subject, and budgeting is a little different in terms of topics I’d normally cover here. That being said, I’m curious if this is something you’d like to hear more about on the blog. Right now, I’m thinking it might be interesting to see how my categories stack up in YNAB, and how I typically budget a paycheck. Let me know if this is something you’re interested in or not in the comments below.

Also, if you’re interested in trying YNAB, you can score an extra month for free using this link.

Photo by Fabian Blank on Unsplash