Update: YNAB now offers a Free 34 Day Trial instead of the previous 7 day trial!
I can easily say I’m a new fan of YNAB (You Need a Budget)! I heard about this home money management software from other bloggers, but honestly, didn’t pay much attention until I recently investigated the best money management software available to people today.
I decided to write a YNAB review because what I had initially found in my investigation was extremely good. In fact, after downloading my free YNAB trial and now after purchasing the software, I’m sort of scratching my head and saying “where have you been all my life, YNAB?”
Simply put, YNAB is budgeting software focussed on helping people to stop living paycheck to paycheck. YNAB is built upon four important rules that help you proactively manage your money. Let’s take a look at those in more depth since they form the foundation for using the software and you’ll understand more about why I’m now a big fan.
The Four Rules of YNAB
1. Give Every Dollar a Job
YNAB stresses the importance of you managing your money proactively, which I really appreciate. How do you do this? Each month you take 20 minutes to give every dollar a job. In other words, once you receive and enter your income into the application, you then decide how you’re going to use every dollar of that money.
2. Save for a Rainy Day
With YNAB you can eliminate the ups and downs in your budget by saving for expenses that only occur once or a few times a year. For example, you know Christmas occurs once per year and so you decide to budget $1200 this year. Divide by 12 and assign $100 to the Christmas savings job each month to level your expense across 12 months instead of one. Each month the balance of the Christmas category is carried over.
3. Roll with the Punches
Rolling with the punches is about realizing you’re going to overspend in certain categories each month. This is when the extreme budgeter often beats him or herself up. But, YNAB says roll with the punches! Here’s why: It’s inevitable that you’re going to spend more for certain categories than planned every month. For example, you might spend $30 more for groceries for whatever reason. YNAB says roll with the punches and don’t get down on yourself! YNAB will start your grocery category over next month at a $0 balance because it deducts this overspending from a monthly buffer (more on the buffer below). If your buffer doesn’t cover the overspending, the money is automatically taken out of your income next month leaving you with less to budget. It’s up to you to decide where you want to reduce spending as the manager of your money.
4. Stop Living Paycheck to Paycheck
The primary feature that helps you stop living paycheck to paycheck is called the monthly buffer. The software helps you create a buffer (start by budgeting less than you need for the month) that can be rolled from month to month. Eventually the buffer grows to equal the amount of one month’s income. At that point, you’re living off last month’s income and using this month’s income to plan for next month and so on. There is great freedom in knowing you have money in your budget to meet extra expenses and can therefore avoid credit card usage for unexpected purchases.
[box type="info"]I like the idea of keeping the buffer separate from your emergency savings fund which is protecting you against longer term financial disaster.
Let’s take a quick look at what’s involved in setting up YNAB.
Setting Up YNAB
YNAB provides an easy to follow tutorial to help you get started using the software which takes about 10 minutes from creating an account to setting up a budget. They make it simple to get started by (you don’t have to wait until the beginning of the month) following this simple pattern: 1) Enter income; 2) Budget to zero; 3) Record spending
You start off by adding a financial account such as your checking account and enter the starting balance. Next, you set up a a budget. When you set up your checking account, YNAB will ask you if it should be included your budget or an off budget account which you won’t use in your budget. If it’s part of your budget, you can assign your starting balance or give all your dollars a job. You do this by assigning them to YNAB’s suggested budget categories or you can create your own categories.
[box type="info"]Free YNAB 34 Day Trial[/box]
That’s all there is to it. I set up my checking and savings account and family budget in about 20 - 30 minutes.
Budgeting with YNAB
Let’s take a closer look at the budgeting capabilities of YNAB.
I think YNAB makes it easy to budget and it’s actually fun. The software tells you how much money you have available to assign to your budget categories. Any money you don’t assign to a budget category gets added to your budget buffer which is rolled over each month and ideally grows to one month’s income.
With my initial trial, I’ve found using the budget extremely straight forward. As with any software it takes a little bit of time to get used to the look and feel, but I felt quite comfortable after playing around with it. My wife thought it was easy to understand as well.
The spreadsheet style budget allows you to quickly review each of your categories and assign the appropriate dollar amount while keeping an eye on the Available to Budget balance. YNAB claims this budgeting process should take you 20 minutes per paycheck and I completely agree.
YNAB also makes it easy to update your budget throughout the month. As the manager of your money, it’s perfectly okay to modify your budget and move money around. It’s up to you to decide. For example, if you’ve over spent in the Food category and under spent in the Clothing category, you can decrease the Food budget by the amount you’ve under spent and simply add it to the Clothing category. Again, YNAB makes it very easy to proactively manage your money in this way.
YNAB will also tell you when you’ve overspent the dollars budgeted. Rule 4, or Roll with the Punches handles this well by deducting overspending from your buffer before the next month begins so you can start those over spent categories back at zero (Rule 3: Roll with the Punches).
Managing Transactions with YNAB
Entering financial transactions for your accounts in YNAB is a manual process, but I’ve found it isn’t difficult. YNAB automatically remembers your payee so you don’t have to type them every time you enter a transaction. You can simply select and assign categories for the inflow (deposit) or outflow (spending transaction). You can also split transactions across multiple categories and schedule transactions that recur each month.
It’s important to mention YNAB doesn’t integrate with your financial institution so it doesn’t automatically download transactions as a lot of personal money management software does today. However, as an alternative, you can download your transactions from your financial institution and upload them to YNAB.
YNAB makes it easy to reconcile transactions with your bank. At the bottom of the register for each of your financial accounts, YNAB keeps track of three things: cleared transactions (these should match your cleared bank balance), uncleared transactions (total of transactions that the bank doesn’t know about yet), working balance (total of your cleared and uncleard transactions and is the money you have left to work with).
YNAB iPhone App
YNAB has a handy iPhone application. It requires some manual steps to sync with your computer since YNAB isn’t web-based, but the functionality provides you what you need to check category balances and enter transactions on the go. You can manage your money from your iPhone as needed and sync it up with the application installed on your computer at night.
I’ve also found the support tools quite helpful in learning more about the product. While some of their support pages are a little bit light in weight, they seemed to answer most of my questions just fine. You can also find some helpful videos, plenty of discussion in the forums and can even sign up for an online class.
To wrap this YNAB review up, let me quickly summarize what I like best about YNAB and some opportunities for future features.
What I like Best About YNAB
- Simple budget software. It’s not a comprehensive personal finance application that provides investing management, etc. But it’s focus on budgeting makes it a great product for home money management.
- Great design which makes sense to my wife who often stays away from such software.
- YNAB nailed it with the 4 rules and they make budgeting fun and help you avoid the frustrations! So, the underlying principles make for a strong foundation.
- YNAB amazingly went mobile even though this isn’t an internet app. I wouldn’t have expected this, but appreciate their creativity.
YNAB Opportunities for Improvement
- As mentioned, YNAB doesn’t automatically download transactions from your financial institution. Honestly, this doesn’t really bother me as I always enter my receipts, but for some people this is a concern.
- While I love the iPhone app, you do have to sync with the application over a wireless network at home and it requires a few manual steps.
- Bill pay has always been a handy feature in products like Mvelopes. It would be nice to seek this feature in YNAB.
- There is a cost for both the application and iPhone app. The application costs $59.95 and the iPhone app is $9.95. This certainly competes and eventually beats the cost of subscription based software which you pay every month. Personally, I think the value is there for the price of point of the software. I think they can do a lot better on the iPhone app price.
Overall, I really struggled to think of some opportunities in this YNAB review. As I mentioned, I’m a new fan of YNAB and recommend you check out the free YNAB 34 day trial to see for yourself!
Have you used YNAB? If so, what do you think about this money management software?
[box type="info"]Free YNAB 34 Day Trial[/box]