How We Budget Using YNAB

Ah, everyone’s favorite topic… budgeting, right? Haha, we know it’s daunting. However, having financial goals is one of the main reasons why Katerina and I are able to travel so much and the key to achieving that is budgeting. I was a decent saver, or so I thought, up until I met Katerina. Katerina helped take my savings into overdrive after we met. She used a specific budgeting style known as zero-based budgeting. Once we started budgeting with You Need A Budget (YNAB), we were delighted to find an app that uses the same philosophy as us! 

As most of you know, we spent the better part of the past few years looking for a new home-base. Once we settled in Miami (read more on that here), our financial priorities shifted from traveling to finding our future home. This was a huge step for us in our financial life. We were in uncharted territory. Neither one of us had ever saved for a house, it’s a little different to saving for trips! We needed help navigating how to save more on top of what we were already currently saving for. Which is why YNAB was such a life saver for us. Instead of the typical budgeting app that only tracks what you spend. We found that YNAB takes a more proactive approach to your financial well being. 

By using the YNAB budgeting app we’ve managed to be more organized with our bills, debts and overall budgeting life. Our financial goal to save for a house has become a much more realistic goal now that we have a better understanding of what our budget and finances look like. We have a clearer picture of our savings and what specific spending categories we can change to reduce our budget.

You Need A Budget (YNAB)

YNAB budgeting app started in 2004 and has since become an award winning budgeting program. It’s frequently noted in the top picks for budgeting apps in Forbes, New York Times and Investopedia. What makes YNAB unique is its 4 philosophical values the app is centered around:

1. Give every dollar a job, also known as zero-based budgeting
2. Embrace your true expenses, this means accounting for those infrequent but large expenses like twice a year car insurance in your monthly budget
3. Roll with the punches, become a pro at moving your monthly budget around to fit your monthly needs
4. Age your money, break the paycheck to paycheck cycle and start paying for this month’s expenses with last month’s pay check

With these 4 values at the forefront of our minds we were able to navigate the murky waters of our financial life, felt more at ease, in control and actually excited to look at our finances. Think of YNAB as the digital version of the traditional envelope method to saving.

Admittedly YNAB does have a higher price tag than other budgeting apps ($84/year or $11.99/month), but they offer a 34 day free trial, so you can try it out before fully committing. The $84 investment has paid for itself multiple times over since we’ve been using the YNAB budgeting app.

The App

When you first sign up for YNAB budgeting app, you get straight into their First Value, which is “Give every dollar a job” by assigning all your money to the relevant categories. They have pre-filled categories for you, but you can easily change them to fit your lifestyle needs. 

All you’ll need to start, are the following:

• Bank login details,
• Monthly bills and when they are due,
• Non-monthly bills and when they are due, (think taxes, bi-annual insurance, annual subscriptions etc)

Steps to Setting Up the App

Step 1

With all those on hand you can start your financial plan. The idea is to provide a category for every dollar you have (zero-based budgeting). Then you can allocate appropriate spending targets (your estimated amount you think you’ll spend) for each category. An example would be adding in your target for your monthly rent and when it’s due.

Step 2

Your next step would be to add in the non-monthly bills mentioned above. There’s a section dedicated to non-monthly bills that you can input your one off expenses, bi-annual, yearly etc. YNAB then calculates how much you need to be saving per month to ensure you don’t get a nasty surprise when your car insurance is due! This is their 2nd Value, “Embracing your true expenses”.

Step 3

You can now link your bank account or opt to enter it manually. Upon linking your bank account you’ll have an option to auto-assign your money. This is a pretty cool feature as it gives you a recommendation of where YNAB thinks your money would be best utilized. This takes us to the 3rd Value of “Roll with the punches”. This step really teaches you how to appropriately move money between categories. Some months we were spending less on travel but more on entertainment while our out of state friends were in town. Your budget needs to be a living thing and flexible!

In terms of security, YNAB uses bank-level encryption for all data. They use Plaid to link your bank account with their app. If you don’t feel comfortable linking your accounts you could also upload a QFX or OFX file of your transactions from each bank or card you want to add, but you would have to complete that on the desktop version. 

Step 4

Now that the framework is dialed in, you can either manually enter in transactions as you spend or the app will automatically allocate your spending. Admittedly it takes some getting use to, but we’ve noticed a huge difference in our spending habits. By allocating each transaction it keeps you accountable for your spending, and you’re less likely to impulse buy. It takes you from being a passive participant to an active and proactive one. We were so surprised how many miscellaneous items we were purchasing without even thinking about it.  Through this app we found that purchases under $15.00 really snuck up on us and add up, but this was also a great place for considerable savings!

This page lists all the transactions you’ve made, the amount and what date the transaction was made

Step 5

Now it’s time to link your other accounts like your savings account or credit card. By adding in these accounts you’ll have a more holistic picture of where your Net Worth is (not including your investments, 401k etc). It might seem strange, but you actually categorize your savings account. For example, we had a category for future baby expenses and savings for a new home.

The credit card function is a great one for those who need help getting control of their credit card debt. YNAB breaks down the payments into more manageable monthly amounts. You’ll have a couple options of how to achieve your goal of paying off the balance.

1. You can set a date in which you want to pay off the balance, and the app will tell you how much per month you need to allocate to pay everything off by the date you set.
2. Or you can set a monthly amount you want to pay each month and the app will tell you in how many months you will pay off the debt.

We found the app is lacking in the debt function because it does not take into account interest. If you only pay the minimum amount each month, you won’t be hit with a late fee. However, if you don’t pay off your entire previous balance, you will incur interest charges, which over time makes it challenging to get out of debt.

Final Thoughts

YNAB budgeting app uses a unique technique to only budget what you have in your bank account (zero-based budgeting). In doing so, this helps you have a realistic understanding of what you have today. Not what you foresee your account to look like in the coming month. By marrying your budget and your bank account together, you’re able to better manage your expenses. Leading to YNAB’s 4th and Final Value of “Age your money”. By getting out of debt and paying for your current expenses with last month’s pay check, you’re naturally building an emergency buffer for any unforeseeable events. 

As you can see, YNAB isn’t your typical budgeting app. It keeps you accountable and acts like a financial advisor. Another great added resource YNAB provides are educational training videos and blog postings to help with your financial literacy located directly in the app. Between YNAB’s podcast, online forum, and weekly live workshops you can be fully immersed in a like minded community of peers also striving for a better grip on their financial well being. Not to mention their incredible customer service, should you have any issues or questions you need help with. 

Between using the app & following their 4 values we were able to save at a rate that even we didn’t think we could! Now that we have our savings in shape, we’re no longer window shopping on Zillow but taking the next plunge in finding a new home! So whether you’re fully committed to taking control of your financial life, or still testing the waters of other apps, we highly recommend utilizing their 34 day free trial.

Click here and begin your financial journey!