134 thoughts on “What Does the Ideal Budget Look Like?”

1. I was just thinking about the categories I have- I used to track all my toiletries, cleaning supplies, etc separate from my groceries, then I realized that I don’t really need to know the breakdown. I now pop it all into the grocery budget with the understanding that the number will be higher (and it’s not all spent on food). I used to spend so much time separating out receipts (which I still do if I buy a birthday gift or something) but simpler is better. Love YNAB- I recommend it to everyone!

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2. I wish that YNAB had the ability to merge categories. It’s something that I’ve been wanting for a while. Seems like it wouldn’t take a whole lot to program. Re-categorize expenses in the old category to the new category; add the budget amounts from the old category to the new category; delete the old category. I’ve been tempted to write my own XML parser to do this, but haven’t had the time to learn the schema or the patience to break my budget file, haha. Consider this my vote for a new feature ;-)

   And thanks for the insightful article!

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   • Yeah, I started really wanting that while working through this :) And also, please don’t invest too much time in learning that schema! It will change :)

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     • yes, the option to merge categories would be highly appreciated by me as well. I’m often making smaller and bigger modifications to my category structure and merge them manually now, but sometimes that is quite some work.

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     • After reading the article and trying to reorganize my Categories, I also missed the option to merge them.

       +1 on this feature request.

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3. Very insightful article, and the timing couldn’t have been better. I consolidate several categories which helped me to simplify some budget planning I needed to work on. It’s this kind of insight that makes YNAB more than just a program; it’s a lifestyle.

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4. I needed this article! I take FOREVER each week breaking down receipts and doing my budget! However, I like knowing how much I’m spending on certain things…control freak! But I know I can consolidate some more categories to save more time! I use my credit card as my bank card in order to keep my checking account as safe as possible. Plus, even though interest is nothing right now, it’s at least a few dollars extra keeping most of my money in my special savings account. Also, using my credit card for everything has provided me with Disney vacation money!

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5. This may be a WordPress thing and beyond your control, but your blog insists that I am using Mobile Safari and won’t let me out of the mobile theme even though I am actually using a rebranded version of desktop Firefox.

   Also, the section on cash is confusing. I’m not sure what it is you’re doing with those categories that makes them “cash” and whether you mean a YNAB “cash account” or not. (Which I use and have found no more error-prone or tedious than any other type of account.)

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   • Hi Barrett, sorry about the wordpress issue. At the bottom of the site, you should be able to turn it off (not sure why it’s on, honestly though). Another idea is to clear your browser cache and see if that helps.

     Now, regarding the usage of cash, it’s NOT a cash account. I don’t want to track how much cash I have in YNAB. I want to budget $1,500 for all of those cash categories, then withdrawal that money immediately, and record the outflow of $1,500 against that budgeted amount (so the balance would be zero). I’d then just spend the cash where needed, but wouldn’t worry about recording each transaction. Hopefully that makes more sense. The only tedium the cash account has over other accounts it that you need to count exactly how much cash you have, in order to reconcile it. I find that part tedious, and particularly error-prone. It’s not a one-size-fits-all approach though. Many people get along just fine tracking cash as its own account.

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     • There’s another benefit of a “cash” line item – each month, instead of $1500, you budget enough to bring your cash on hand back to $1500. It will likely be $14xx some months, but it’s likely that other months you will only need to pull out $1000 in cash because you only spent $1000 last month.

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     • I’m currently tracking my cash, but all input is always rounded up / down a bit.

       Whenever I nearly reach 0 $ cash I simply post the difference to my ‘various’ budget. I has never been more then around 10$ per month, so it’s not worth the effort to track every penny.

       This actually works well vor me. A friend of mine (which I converted to YNAB) just tracks in 5$ steps, wich also works for him.

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6. I’ve combined YNAB with the advice from Elizabeth Warren (All You’re Worth) and Dave Ramsey’s Baby Steps. I have my budgets major categories split in to Education/Must Haves/Wants/Debt&Savings. (rent,food,etc are in must haves, for example) I aim to keep my ‘Must Haves’ at 50% or less of net income and I split ‘Wants’ and ‘Debt&Savings’ at 25% each after I deduct the expenses for my education that month. Sometimes I even spend less on wants (clothes, entertainment) and more on debt. Though Warren does suggest 30% for wants and 20% for debt&savings, I don’t have the time to do as much as I ‘want’ with being in school and working!

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   • That is EXACTLY what I do. It came as a bit of a “eureka!” to me recently, because I also was finding my budget pretty cumbersome and too distracting. It did NOT bring my focus into those categories that I needed to bring awareness to–it really did the opposite and was more work for me, too. So I did exactly what Marie has done: consolidate using All Your Worth and Dave Ramsey principles and cut down subcategories as much as possible

     So, now I have broad categories that I generally look at in “collapsed” mode so I can get a quick read on how I’m doing. The broad categories are–in order of importance:
     Taxes (I’m self-employed)
     Giving
     Needs
     Business-related expenses
     Debt Snowball
     Wants
     Savings (i.e. my car replacement fund, IRA)

     My budget is set up to reflect the proportions I want to devote to each one, such as Taxes (25%); Giving (10%); Needs (50% after taxes); Wants (20%); Savings/Debt Snowball (30%)

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     • Combining these philosophies was a Eureka moment for me, too! Jesse’s system (especially about spending last month’s income this month) plus Warren’s big picture ratios and Ramsey’s debt snowball philosophy have meant that I no longer worry over my finances. I am still looking to add income strategies and investment strategies for my savings and will have a complete picture (and will feel like I can stop worrying) when those are in place.

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     • LOVE getting a quick view of my budget collapsed:) I know instantly if I’m on track or not! Micro-management of individual categories is no longer a focal point.

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       • I definitely love this way of organizing budget categories. Traditional main headings like “Housing” never worked for me because that could cover Must-Haves like the rent/mortgage and maintenance, Savings like fund for a downpayment on a new home or a major improvement, AND Wants like nice but not necessary furniture or decor. Then when I wanted to check if our spending was in line with the Balanced Money Formula, I’d have to manually go through my categories and divvy them into Must-Haves, Savings, and Wants anyway.

         It’s a lot easier to let YNAB do the math for me. :)

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         • Maggie! have you been peeking at my budget LOL!?!

   • Ditto. The Elizabeth Warren + DR method is working wonders for me… especially the big cash withdrawal that Warren recommends and Jesse appears to be dipping his toes into.

     My savings went up HUGE when I switched to this method. I just literally paid of my wife’s student loan and my car loan. I’d call DR to scream but that’s not my style. :)

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7. Nice write up. I recently consolidated my catagories also and it has been a real time saver. As I mostly use ynab in my iPhone it helps to have quick access to everything so I can enter my spending while I am waiting for a transaction to complete. One question though. I noticed you had lifelock as an expense. What do they do for you that you yourself cannot do? Don’t they just renew your freud alerts every three months? I do that myself. Maybe they offer some other benefits I am not aware of?

   Thanks

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   • Apparently, if there is an issue, they’ll help you resolve it. But other than that, yes, I believe it’s just renewing the fraud alerts. I know they do some more comprehensive stuff now, but haven’t looked at it in a while. I’m honestly not sure if the expense is worth it.

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     • I’m not sure what you pay for LifeLock, but I’ve been very happy with (and found value in) Identity Plus through Costco. If you have a Costco membership, it’s $9.99 per month with our membership level (Executive).
       It emails me anytime a new account is opened, address changed, public record created (i.e. foreclosure/lawsuit), and also gives me a free full credit report every 3 months. When we moved, I was amazed at how quickly it alerted me once we started changing addresses.
       I also use BillGuard, a free service that is another layer of alerting. It is a lot like Mint where you setup all your accounts and it monitors transactions, but it also scans transactions for possible fraudulent or incorrect charges using its database of everyone else’s transactions to evaluate them. It’s kind of like anti-spam technology for your accounts.
       I think protecting your identity is important, and I thrive on being frugal, the two solutions above are the product of those two standards.
       I don’t get a referral or affiliate fee or anything, so do with that info as you wish.

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       • Costco already has a bunch of my money, so sending them $10 more seems like a no-brainer :) Thanks for the tip Todd.

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         • Cool–I appreciate that tip. The full protection is $11.49/mo for lowly Gold Card members like me, but probably worth it. I’ve been taking identity theft pretty lightly, but I do so much e-commerce these days that it’s probably only a matter of time.

       • Is Identity Plus aka Identity Guard w/Costco?

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         • I get some of the BEST in ID Theft Insurance from Dave Ramsey recommended, Zander Insurance. Individual plans from as low as $6.50/month or $72/year which is what I have (=$6/mo). Check it out!

           http://www.zanderins.com/idtheft/idtheft.aspx

8. It’s funny it took you until now to consolidate down to 25. A few months after I got my wife on board, I realized we had to make things simple otherwise we wouldn’t be a happy couple when it came time to do the numbers each week. So, we consolidated and simplified. She didn’t like it at first, but it worked out well. As it turns out, we have just one fewer category than you do. As of now, I don’t really see anywhere we can consolidate without losing value so we’re humming along nicely at 24.

   Our 7 master categories, with >subcategories:

   The Basics
   > Supermarket, etc. (basically, anything you can buy at Wal-Mart, including groceries); > Rent; > Insurance (Combined; so, renters, personal articles, auto, life, everything)

   Debt
   > Student Loans (ETA for hiding this category is sometime in 2013/14 thanks to accelerated payments!)

   Transportation
   > Maintenance; > Fuel; > Registration

   General
   > Entertainment (anything from dinner to a day trip hiking in the woods)
   > Medical (everything… co-pay, Rx, actual big whopper bills, the works)
   > Gifts; > Subscriptions & Dues; > Fun Money – His; > Fun Money – Hers; > Miscellaneous; > Clothing, Shoes, Hair

   Utilities
   > Electricity; > Gas; > Phone & Internet

   Savings
   > Vacation; > General Savings, > Investing; > Moving (I hope someday to hide this category once we’re settled somewhere)

   Holding Account
   > Reimbursables (you know, someone forgot their wallet dining out, and you spot them the cash so they can pay you back later… this category is valuable because it rolls over month to month and reminds me that someone owes me money)
   > Business Expenses (under “holding account because I always get reimbursed for business expenses, so I don’t want to pay a penny more than I have to)

   So, 24 categories in total, rolled up into 7 masters that are actually useful. Every one of these categories has a reason for being broken out into its own.

   Thanks for the post. It’s always helpful to see how others are doing things because sometimes we pick up a golden nugget that we can add to our own routine.

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   • Oh one more thing. My wife and I operate with a joint Checking and Savings, and we also have a Cash account and a PayPal account–otherwise we’d forget that we even use PayPal). So 4 accounts in total.

     If my credit card company offered the ability to download transactions as they happened rather than in one monthly lump sum, we’d add that as a 5th account and be using that for as many purchases as possible (to accumulate reward points, since it has a decent program) but alas, they’re stuck in the stone age.

     Since transactions would be captured in that account instead of Checking, there’s really no extra complication except for 1 extra transaction in our checking account: payment of the card in full each month.

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9. Thank you so much for this article! You have provided answers to some dilemmas for our budget that I’ve been facing. My biggest problem at the moment is that pre-YNAB, we used multiple bank accounts (checking/savings) to ensure the budget. Having to deal with all of these accounts is going to be my undoing! Cross-reconciling through all of these is practically a full-time job. I’m going to be working on some major spring cleaning on my budget today! Thanks again!

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10. Does anyone have advice on how to categorize YNAB for keeping track of rental income/expenses/repairs, etc. for several rental properties. I think I need to keep these items separate from our personal expenses. Would it be better/easier to have a separate YNAB setup for these items or to keep separate categories in our personal YNAB set up?

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    • I’d probably keep it in a separate budget file, and maybe have master category for each property? Just shooting from the hip though… :)

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    • II had a separate biz master category with expenses under it when I was self employed. Income is income in my situation so I didn’t need to re-invent the wheel.

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    • this blog entry may help

      http://www.youneedabudget.com/blog/2012/moving-ynab-to-ynab/

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    • I have a master category for each property with expenses broken down and the income is combined with all our salaries. That way I can get reports on what I’m paying for each property, or on all of them.
      Also we use our credit card for anything we can (pay it off each month). We have just claimed $1200 worth of fuel vouchers. That is going to help my wedding budget! So we find it worthwhile.

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11. I have quite a few, but I like seeing the historical patterns – bit of a numbers geek. My master categories are Monthly Variable, Rainy Day, Monthly Fixed, Savings, Debt, Housing and Deductions. The latter is tracked in a dummy cash account and contains 401k, Employer 401k match, healthcare premiums and FSA account contributions, so I get a truer picture of my savings rate.

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12. Great post and very helpful! Been using YNAB for a month now and love it. I love the way that you and the program think of credit cards and how this will help me pay them down and not have the balance go up anymore:) The only thing is since the whole mindset is that if i spend money on my credit card, its on something that I’ve budgeted so the money is there to pay it off immediately, then wouldnt it make sense that once I recorded the transaction that it would automatically update the budget for my credit card? For example if I spent $100 on groceries where I have a budget of say $400 and I spent that $100 on my credit card, my grocery budget should go down $100 and my credit card budget should go up $100. Then I wouldnt have to calculate how much to put on my credit card. Just saying… would be useful.

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    • or am i doing something wrong? does the software do this somehow that I’m not seeing or is there something else I should be doing instead?

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      • Normally you’d have a credit card as another account. When I spend on groceries it is a transaction coming out of the credit card account with a category of groceries. When it is time to pay off the credit card for the month I list it as a transfer from my checking account to the credit card account.

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      • sounds like you had existing debt on the card when you set up YNAB, so it is an off budget account. On budget credit cards work as you are describing – you categorize the transaction as groceries or whatever, and it is immediately reflected on your budget page.

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13. This gave me new insight into why I have a budget. When I started using YNAB I was smitten with the idea of knowing (and no longer guessing) about where my money went. Now, after reading this article, I realize having so many categories is a time waster and doesn’t affect how I spend my money. Good stuff.

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14. I’m not sure I agree with the decision to consolidate your categories so much because it makes it harder to budget for that category. For example, how much should you budget in the utilities category? To answer that question you will have to figure out how much you will need for each utility and add them up to get a sum.

    If you have a separate subcategory for each utility it is simpler to answer. How much do I budget for Electricity? That is easy, I am on the budget plan and it is a fixed cost each month so I can easily answer that and put that number in YNAB and let it do the addition for me.

    I agree that if it is things that you buy at the same time it is silly to separate them. For example separating out food and cleaning supplies instead of just lumping them as groceries.

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    • It’s true Dale. The way I see it is that I figure it out once (summing the utilities together), and then only ever have to budget the same amount each month. So for the first month it’s a bit of work, and then after that, it saves me some typing and deciding.

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      • In my case, our electric and other utilities can vary by as much as $100 per month. So it is impossible to decide once how much to budget for those accts.

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        • I have actually used the YNAB system to look at overall costs for utilities for a year, averaged it out and set aside the same amount of money each month in that category so that there is money in that “envelope” to cover the months where the bill was higher (like when the A/C runs in the summer). It helps to smooth out the budget so that I’m not surprised by a big hit in one category. I guess my husband and I have used multiple categories as a planning tool to help think about the upcoming expenses and plan for them in a more organized way so we are not surprised by those once in a while expenses. I suppose over time as our thought processes are more streamlined, we can look at ways to collapse categories. This is a good thing to think about as our lives constantly get busier.

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    • Believe it or not, I had to get down to food, non-food (cleansers and paper goods), toiletries, hardware/household, and VITAMINS before I realized that the vitamins were the main thing inflating my grocery budget! I still budget vitamins separately because they’re lumpy and expensive (high-quality doctor-directed stuff for thyroid, etc.). I like to tease out food, too, to watch for my tendency to start buying lots of frozen and convenience food when I could be cooking for myself. But the rest–cleaning supplies, paper goods, toiletries–I’ll merge those together again, now that Jesse made me think of it!

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15. First, a HUGE kudos to Marie for using Elizabeth Warren’s book as a “guide” for budgeting purposes. Secondly, Michael Paul, I wholeheartedly agree that reading Jesse’s great posts and then the follow up comments from others allowing one to gain that little nugget of insight. Just by reading both Jesse’s and your thoughts of how to simplify certainly gives me ideas on going about spring cleaning my budget.

    I have my work cut out for me, but I know it’ll be well worth it. YNAB all the way!

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    • Agreed! Lot’s of great insights. LOL I promote YNAB so much someone on my FB page msgd me that my page was hacked and spammed!

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16. Ok Jesse, I get a conviction that you lost grip of the budgeting truths with all this simplifying. Ok we can all create a category and not use it, so just hide it as you say. But mixing things like childrens and adults clothes expenses, that perhaps fine for now but when they get to 10 yrs old they have their own shopping lists in mind!
    Perhaps if one has really messed up in the initial setup which a year on bears no reality, then transfer all your balances into a new file and make it a fresh start.
    Blessings from France, keep going ;))

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    • This is true. The spring cleaning should be done annually, not just once and then never adjusted again. My kids are all seven or younger at the moment, so our budget is very small. :) The higher-level takeaway is to look at categories that represent minuscule portions of your budget, and perhaps consolidate them down. If you see that category growing (as the kids grow!), it might make sense to break it out again. It’s all about tradeoffs. The fact that everyone here is so acutely aware and opinionated about their budgeting makes me very, very happy :)

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17. I’ve started using comments to divide categories and give me insights into narrower sets of data. For example, in my “restaurants” subcategory, each note will say breakfast, lunch or dinner, allowing me to search and filter for where I’m spending the most, if i ever need to make adjustments. Also I’ll put in the notes “lunch w/ (person’s name)” if i pay for them too. Notes are very helpful if used systematically.

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18. Another one of those “why didn’t I think of that” ideas… Consolidating would minimize my effort drastically. Two quick notes:

    Utilities: They are always variable and quite a bit, at that. I budget them monthly based on the average monthly expense over the past three years. Obviously some months I will be way over budget (e.g. winter with a high heating bill), but then 6 months later I am way under budget. I review that monthly average once a year. That works fairly well. Since I have a holding account I can deposit and withdraw from it makes this method work with the month-to-month variability. I will continue to do the same it will just be one number instead of four.

    Baby: Diapers, formula, wipes, etc. are virtually a “fixed” expense, but I kept them chose to keep them separate for one primary reason that eventually paid off. My younger brother [who will be a new dad soon] came to me asking “how much did you spend a month on ______?” Referring back to YNAB for those numbers made it easy.

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19. The only item I disagree with is combining the car license into another fund. It’s a tax deduction so I keep it seperate so I don’t have to go searching for it when it’s time to prepare my taxes.

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    • That’s a tax deduction?! I’ve got to talk to my adviser.

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      • some of it, depending on your state. Here in CA about a third of it is a deduction for us – if you itemize, of course

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20. I’m kind of confused by this when I hear about it from other people (the too many category thing).
    I have 6 categories. Within those categories, when I spend, I record it. That’s it. I don’t understand the point of having, for instance, Clothing:Kids and Clothing:Adults categories. Why not just a Clothing category? Am I not picking up something you’re putting down?

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    • Therman, some of us are just slower, that’s all ;)

      Are you serious that you have six TOTAL categories? Please do share.

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      • We had “clothing” for several years, but then when to “clothing:kids” for about a year before starting to simply write a check to each kid each month. “kids clothes” became “kids earnings” and if they ran out of money we introduced them to thrift shops and yard sales!

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        • Ah, I like that! Noted for when my kids are older.

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      • Here are my six:
        -Giving
        -Saving
        -Envelopes (when we were doing physical envelopes this is the money we’d have to take out in cash, so the title is still there) (btw, there’s 8 envelopes)
        -Debt
        -Bills
        -Personal (toiletries as some have mentioned, ballet, haircuts/dos, anything kid related, etc)

        So we now do virtual envelopes. So let’s say we went to target for some stuff. I’ll break out my phone (at the end of the day usually), record the transaction against the correct envelope, and I’m done. So while I have a personal section that covers many categories, I only consider it the Personal category. Break it down past that would get waaay outta hand for me to keep up.

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21. Hey Jesse,

    I use yours and reconcile it with my main one because our month doesn’t start in in the start of a particular month, it starts at the end of the week in that month.

    Also I combine what you have to Gail Vaz-Oxlade’s (canadian thing) and get the best product! Love it!

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22. Hi Jesse:
    Thanks for this. Excellent timing. I also am needing to consolidate.
    Annamae

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23. Thanks for the article. I have followed a wise poster on your board (sorry I can’t give the proper credit) and my categories are broken into Fixed Mandatory (tithing, mortgage, auto payment, savings, Car Insurance/Licenses – all fixed amounts I can’t control; Variable Mandatory (Utilities, Auto Repairs, Petrol, Medical/Dental, Home R&M – expenses I really can’t predict, avoid or control) and Discretionary where I have control and pay the most attention to (Groceries, personal spending, gifts, pet, clothing, holiday, etc.).

    I do the cashback creditcard thing with 2 cards but I know I have the amounts budgeted so we pay it off, I don’t find the admin a hassle when I’m getting $100 cash or I can get $50 to Landsend for only $40 “reward” for school clothes shopping – it seems like “money for nothing” and the admin is worth the hassle for me. I recommend YNAB to everyone, it’s incredibly helpful and I thank you for all your efforts.

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24. I have had debit card numbers swiped twice, which is why I NEVER use a debit card for purchases apart from the food coop, which doesn’t take credit cards. The first time -many years ago – it took ages to get my money back – at least a month. The second time (different bank), I was credited immediately. So it’s worth checking your bank’s policy. I suspect more banks are crediting immediately these days, as they want people to use the cards, and the risk of having your account emptied out and waiting weeks to get the money back is a severe disincentive for debit card use.

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25. Still waiting for a descent printing facility………

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    • Amen. Or a way to specify the output PDF file name (YYYY-MM Budget.pdf, anyone?)

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26. Thanks for opening us up to your own system, Jesse.

    For myself, I’m ambivalent about having more or fewer budget categories. On the one hand, simplification does cut down on administrivia; on the other, it’s nice to have in YNAB how much we’re spending in car insurance v. life insurance, so that when the rates change we can easily reconcile the bill they give us v. what we think we should be paying. I know, I could include that information in the notes, but having separate categories is cleaner to me. (For my clients, I encourage them to make their own decision regarding budget categories.)

    Re: cash — so all of those cash categories are lumped into the same “category” once you pull them out? So, for example, if you want to go out someplace really nice in the middle of the month, you have to run calculations to make sure you have e.g. grocery money at the end of the month? How do you see that playing out in practice?

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    • Re: the cash question, yes they’d all be in one account. It all comes down to proportions for me. If eating at expensive places is a fairly significant portion of my budget, it wouldn’t be worth it. I would NOT want to be doing mental math in my head in that regard. Things would need to be fairly “slushy” for me pull the trigger on using cash, to be honest.

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27. This couldn’t have been more timely or insightful for where my wife and I are. Thanks for sharing what you’re learning! Tonight or tomorrow night is when we’ll go through our categories and say goodbye forever.

    Fraud on a debit card hasn’t been a hassle for us to clean up thus far… it has worked the same as a credit card fraud for us. Banks reimburse what was taken out of your account, so as long as you’re checking it periodically it takes care of itself.

    Lastly, we’ve been using cash for 6 months. With envelopes, it’s been cumbersome. So next month we’re doing what you suggested and making it where if cash is used, then we don’t have to do a corresponding transaction. We’ll still save receipts if we need to return something, but it should speed up our budgeting. We’re excited about it!

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28. Thanks Jesse,

    I agree with most, except the consolidated “Cash” category.
    - This really only works for the utterly self-disciplined.

    ‘My friend’ used to budget for several categories using Cash – unfortunately, Cash is like water and slips through the fingers if not handled carefully – by week 3 of the month, the ‘Cash’ was gone, and there was no money left for the ‘Essentials’ that had been budgeted for. And like money-laundering there was no paper-trail month-after-month to show where they were going wrong. Unlike electronic transactions that leave a more permanent reminder – it’s harder to ignore the bank statement!

    The superior advantage of Cash is the inability to pull an ‘Overdraft’ – Few Credit/Debit cards come with this security / sanity-check.

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    • Excellent point Jay. It would need to be monitored closely and I’d only do it really if I didn’t care (there was so much extra cash that it truly didn’t matter. That will be the day!)

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29. Thanks for sharing that! I think it’s great that you’re so happy with how streamlined it is, and I’ve recently also streamlined by getting rid of about 7 (yes, seven!) bank accounts at 3 different banks. Yikes! It was a nightmare! But now I have Checking, Savings, Credit Card, Cash, and Paypal. I don’t see why cash accounts or savings accounts are any problem. The savings account hardly sees any activity that needs to be tracked, other than transfers occasionally, and the cash sits in an envelope next to my desk with a register on it which is updated in pen whenever anyone takes any out, with the payee and category, and functions just like a checking account. Your method of taking out a big chunk of cash at the beginning of the month would be a nightmare for us! How would we know what that cash is intended for? Which person in the household would keep track of it? Where would it be stored? It gives me hives just thinking about it!

    I have upwards of 40 categories, and I like it that way. I have never understood why having fewer categories is better. It makes it MORE complicated! If I’m buying laundry detergent, kitchen supplies, and pasta all in one category, how do I know if I have enough money in there for something not quite necessary (a new spoonula) without infringing on the money reserved to feed us? That’s just an example, but it goes across the board. If all of our clothing purchases for all the members of our family come out of one category, one person is bound to get stiffed while the others see the money in that category as available. Breaking out more categories essentially allows us to separate needs from wants and decide to spend our money on the needs first.

    Just my two cents. :)

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    • The hope is that the category, regardless of its makeup, would start to normalize and you’d know you need “about X” in there each month. Things need to be pretty spacious for that to work though. They’re not yet spacious enough for us to pull the trigger on it. At least not with such broad consolidation.

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      • That may be true for people who don’t underearn, but for those of us just emerging from Never Having Enough Money and not quite there yet with the Buffer — knowing what’s coming up and how much is there to spend on it is essential. I come from a background of being extremely vague with both the money I have and how I spend it, so keeping a larger number of categories and subcategories is holding me accountable. Suddenly discovering how much I actually spend on my home coffee habit may very well help me to set a more realistic monthly amount so that my grocery money won’t be a hundred dollars more (or less by YNAB principles) because of impulse buys.

        Eventually I’ll have enough YNAB behind me and a solid buffer where I can fund my categories every month and be done with it. For now, it’s a week to week process — but I have savings, my bills are paid on time, and I am taking a planned-and-paid-for vacation in a month!

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        • Your comment is spot on. This is a very subjective process. As you need more awareness, your granularity should increase. Absolutely.

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30. I started using YNAB again after a 6-month hiatus (talk about feeling lost and misdirected!) and was reviewing my categories last night…remembering why I felt budgeting was so painstakingly difficult. This post couldn’t have come at a better time! I just need to consolidate some categories and get over the need for so much detail.

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31. This is a great article that made me think about whether and how to simplfy categories. Yuo may want to consider a post in the future on reward credit cards and how they work so well with YNAB. If you only use them to charge regular expenses (that you are paying for regardless), then NOT using a rewards card is just like throwing $$ away. I use the AmEx Blue for just about everything and reap over $1000 in cash rewards each year. I download the transations every few days (love that they import into YNAB automatically) and I have the account set to be paid in full automatically each month from my checking. Because I download every few days, it operates like a 2nd checking account that I just put $ into at the end of the month, not the beginning. Simple, hassle free. And it gets me $1000+.

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32. I have always been a budget freak, I mean a control freak. :-) but the budgeting goes even farther for me because I like to be to use all my hard work in the budgeting program to print reports for tax time. So I use lots of categories in order to facilitate that. However, if I can indeed use notes for the same purpose and therefore lump categories so that the everyday budget is less overwhelming for my husband to look at, I think we might be miles ahead of where we are now.
    So, is it true that YNAB notes can be used for reports regardless of the categories?

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33. Like Marie, I also have my budget set up based on Elizabeth Warren’s Balanced Money Formula with top level categories of Must-Haves, Savings, Wants, and Job Expenses (not part of the BMF, but my husband travels a lot for work and is reimbursed monthly for those expenses and I didn’t want those transactions to skew our other main categories). I used to have a bunch of fussy main categories like most budget templates do–housing, utilities, food, clothing, education, personal, etc.– but just paring down to the four above and putting my line items into one of those simple categories is much easier and makes it simple to see in the graph report if our percentages are going sideways.

    Must-haves are mortgage, utilities, groceries, auto, insurance, personal care, and baby care.

    Savings are retirement and sinking funds.

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34. …
    Wants are everything else, including fun money, restaurants, internet, entertainment, books, and music.

    If things ever get really bad, we can easily cut back to just our Must-haves (conveniently grouped together!) and get by on less than 50% of our take-home.

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35. Thanks for this post. It will be a long time before I’m ready to streamline my categories but it’s a nice thought… anyway, I wanted to second the question about YNAB notes being searchable and/or being able to generate reports from them.

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    • The notes aren’t searchable, and you can’t report on them in any way (at the moment). Though, of course now my gears are turning :)

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      • Being able to search and sort on notes would make it much easier to have fewer categories and still be able to track in a more detailed way. I would really like to be able to do this.

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      • Perhaps I’m reading this wrong, but I think Miriam and a prior poster are referring to the “Memo” column within the register which is in fact searchable. I do have some related suggestions that might help expand on what they are looking for that I will put in a new post at the end.

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36. About debit card fraud – it probably depends on your bank. When we were living in France, both my husband’s and my debit card numbers were stolen. Our bank (American bank) actually caught the charges before we did and contacted us to verify them. When we confirmed they were fraudulent purchases, the bank immediately cancelled our cards and FedExed (internationally!) new ones to us. The charges never even cleared, they were still pending when the bank caught them, although they did tell me that they do replace money from fraudulent charges immediately. I have no qualms whatsoever about using my debit card with that account.

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37. “I’m not talking about the percentage of your take-home that should be spent on groceries.”

    But you know what? I WANT THIS. Not how much I should spend on groceries, but I’d like to see what the average family like mine (two parents, one 5 year old) spends on groceries. Maybe even what they spend on groceries in a city of comparable size. This is where I think the process really breaks down. A budget is great to control costs, but without a reference for comparison, I never know how much better I could do (or how much better I’m doing).

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    • Hi Greg, I’m sure you could find that information around somewhere! Once you know it, you kind of know it and can use it (or ignore it). I don’t think we’d ever build something like that into YNAB. I recognize the curiosity/baseline factor though.

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    • The USDA keeps track of how much it costs to feed families of different sizes. The link to the data is http://www.cnpp.usda.gov/usdafoodcost-home.htm.
      We use this information to get an idea of rising grocery bills and what is reasonable to spend on food.

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      • Fantastic…thx!

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    • Greg, the USDA actually publishes this information. The most recent report is from Jan 2012, found at: http://www.cnpp.usda.gov/Publications/FoodPlans/2012/CostofFoodJan2012.pdf. The page with links to each month is at: http://www.cnpp.usda.gov/usdafoodcost-home.htm. These totals do NOT include restaurants. Hope this helps!

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      • Wow! I loved the USDA link. Thanks! It shows me that for me and my husband (a household of 2), we are spending only HALF of what the average 2-person household spends on food. It helps to buy at discount grocery stores.

        I also like having a few more categories – I believe you still have the same number of entries from your checking or credit card account, and more (thought-through) categories help see a clearer picture. If I had lumped all my actual food expenses along with my non-food grocery expenses (some of which are very expensive like shampoo, etc), then how would I have such a clear picture? Guess I’m like a few other posters who like to see more detail. I like to track things like how much I’m spending on gas and how much that particular expense has increased — exponentially! — due to no fault on my part!!!!

        So having a “cash” account akin to my credit card or checking account helps me to still track every budget expense by category. After all, sometimes I pay for something like gas with cash, sometimes with credit, but I still want those numbers to show up under my gas category, not just a wishy-washy cash category that doesn’t tell me how much I’m spending in the categories.

        And by the way, I just started using YNAB but have been budgeting the YNAB way for 10 years using an Excel spreadsheet I created. YNAB is thousands of times more user-friendly, but uses the exact same principles I’ve been using for years. So call me a category geek, but I want to know. But I do love YNAB!

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38. I like this post. It is exactly how I manage my budget. For me I think budgeting is 90% knowing how much you have left to spend. The 10% that is what you spent, is valuable to see your trends and figure out ways to cut back, but really doesn’t help much. With that in mind I set up my budget so that I could manage it from a high level and strategically plan how to spend my money. I don’t care if I spend more money are clothes or food. Both are necessary. However I do care, how much I spend on discretionary versus debt. That high level knowledge matters a great deal.

    I have these categories for my budget.

    Debt (all debt payments)
    Discretionary (expenses that we could do without)
    Variable Spend (groceries, repairs….expenses that we have to pay monthly but often vary)
    Fixed bills (insurance, utilities…things that are the same every month)
    Savings (this is a barometer for how wisely we are living)
    Giving (the barometer for how we value our money)

    These 6 categories are really all we need to manage our budget. I simply track the percentage each of these 6 categories takes out of our total monthly income. That is incredibly valuable. Sometimes with a detailed budget you don’t realize that you are saving 3%, spending 30% on discretionary and have 50% going to debt. But with the above budget category plan, you know that. For me, if I spend all my discretionary money on eating out, a new tent or gas money for a road trip….who cares, as long at it stays in the 10% of my total monthly income I’ve allocated to this category. I think this keeps me on track at a better level than lots of detailed budget accounts.

    By the way I think withdrawing cash once a month is great. We do exactly that. I don’t track what I spend it on. After all, I don’t really care. It’s the amount I have decided upon and when it’s gone, it’s gone. It does take a little bit of foresight so you don’t run out of grocery money on the 15th of the month, but most people are able to gauge how thick the stack of bills in the wallet is versus what day of the month it is. That’s the beauty of cash. A debit card makes it easy to forget about transactions, but cash….well that pile of crisp bills keeps disappears oh so fast, and I can’t help but be aware of. Even if you don’t remember what you spent it on (which, again I say who cares) you know how much you have left.

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    • NICE!
      Mark, it looks like our situations mirror each other. Those are pretty much the same categories we budget into. And I feel the same way you do about what is necessary to analyze.
      One difference is that I no longer take out cash, for two reasons.
      1- I can break out my phone anywhere and see what’s what as opposed to the grocery envelope sitting at home in the drawer.
      2 – I have ZERO discipline with the cash on me. Wegmans is the number one culprit. My fun money would be gone in less than two weeks when I kept cash on me.
      So, like you, I don’t care what I spend on exactly, I just care about the overall picture. I like to look at last month and say “oh, we spent this much on debt?, well we have this much extra this month, let’s move it to the debt (or not, or whatever)”.

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39. Instead of the credit card and checking account set up you have, I opted for two checking accounts. My primary checking has the debit card I use on a regular basis for anything “point of sale” (in a store or online) like gas and groceries. it doesn’t have a large balance so if the debit get swiped, there’s a limit to the damage. And then there’s the “Holding” checking account. This gets one huge transfer to it immediately after we get paid for all of those bills which happen on a regular basis. Mortgage, cell phone, power, insurance, etc. This way I can’t spend the money I’m going to need for bills, it holds the money for those bills that happen every other month or quarterly, and I rounded up all the bills so I’m saving a buck or two every month on each bill for the unexpected (what the water line under the house burst and has been leaking for weeks and my bill is $200! No problem) it also holds the funds budgeted for things like the veterinarian that I know will happen, just not when and I transfer those funds back to the debit when we need it. For the two categories I have the hardest time staying on budget for we get a cash allowance (His/her hobbies and eating out)

    The Holding account makes it much easier for me to see what our variable/miscellaneous spend habits are in out debit account. And the cash allowance reminds me weekly to think about what I’m spending

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40. I like using a second credit card for email purchases, with a $500 limit.

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41. Loved this post. Has got me thinking about the times that I get overwhelmed from so many catergories that I fail to enter them! I then get frustrated with myself as I’m not tracking properly and now I know why I am having these issues.

    Thank you Jesse and the YNAB team! Great program and I have even recommended it to friends. :)

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42. I agree with everything except the Cash account. I would rather keep separate categories. Combining them won’t save much effort and it introduces a risk of losing focus. But that’s personal preference.

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    • You’re spot on Danie, you WILL lose focus when you combine categories, and doing so with cash, even more so. I am loving how much thought everyone is putting into this.

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43. Wow! This is a great topic. I read every word from every one! And all I had planned to do was clean out my email in-box and then clean the litter boxes!

    I have 8 categories:
    Housing

    Food
    >groceries >coffee >shite

    Transportation

    Heat & Lights
    >electric >wood >propane

    Communications

    Personal

    Medical

    Cats
    >food >supplies >vet

    Recreation

    I have about 5 sub-categories under each main category. I sampled a few above.

    I don’t even earn 1500.00 a month. I have sub-categories “coffee” and “shite” (tired morning grabs and thoughtless POS candy/ice cream grabs respectively. I track to this minute degree because every literal nickel has real value at my pay range. I have to make decisions about not buying a candy bar or not being able to safely pay for my heating wood come spring. I have to know if I can buy the cats a catnip mouse or if I need that extra two bucks towards property taxes.

    Saving is a serious challenge for me although some months I manage. I spend between $250.00 and $300.00 a month just driving to my job! It is my largest chunk of expenditures (20%) (Think rural Maine, people.)

    YNAB has helped me learn that I CAN live within my earnings, have NO debt, own my 8 year old car and 600 sq. foot home outright.

    Retirement? Well YNAB has to be able to do a lot more that it already does to get this 58 year old any semblance of a retirement fund.

    So, for me, it’s about using YNAB in a way that works for each of us. After reading Jesse’s post and using YNAB for a couple of years, maybe breaking out every nickel can change for me. I had never KNOWN where it all went. Using YNAB to my specific degree of detail has been invaluable. I finally KNOW how much a year I spend on wood, or on frivolous (but tasty) coffees, or on cat toys or my property taxes!

    Thank you Jesse. And all the rest of you for your great ideas! In fact, I got my main categories from someone a couple of years ago on the forums!

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44. Einstein is reputed to have said “Make everything as simple as possible, but not simpler.” To that end I have a checking account with the local credit union, a savings account with them (required for CU membership), a Visa card, American Express – used at Costco and for cashback rewards, and a checking and savings account with ING – better interest rate, and those are where my bills are paid from. This way, if a business does not take Amex, I have another card as backup, and if I need more personal service than ING offers – cashier’s check or the like, I can go in the Credit Union.

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45. Hey Jesse,

    Great article! I was just trimming down my categories two nights ago. And I’m constantly thinking on how to optimize further.

    I’m not sure what to do about cash though. I currently have it setup as an account and although I have been using YNAB for almost 3 months now, it has been tedious to keep up with it. The cash that I usually carry does not have a specific plan.

    Lets say I withdraw $100 from the ATM. I will use that cash for different things. it might be at a restaurant or groceries, etc. And I use it differently every month.

    How can I do this without a cash account?

    Thanks!!!

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    • I just split the cash withdrawal as I spend it into different categories. I just guesstimate. Then, instead of saying $100 for cash, now it says it’s split between 55 for clothes and 45 for cash.

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    • I was having a hard time tracking cash, especially what my husband uses while at work (he works long hours away from home and has a nicotine habit [boo!])

      My solution: Say I take $100 out of the ATM (or cashback purchase). If I know I’m giving that to somebody specific, I just record the transaction into that category (ie kids allowance, etc.)

      If I don’t have a specific plan for the cash (I don’t usually carry cash without a purpose because it seems to magically disappear from my wallet), I record the transfer to the cash account. I made a checkbook register on my computer with a column for my checking acct and a column for my “cash” acct. I record every single transaction, cash or debit. I even use it for credit card purchases, in addition to saving the receipt. It’s a little tedious, but I fall into the camp of having extra categories so I know what I spend. I’ve spent thoughtlessly for so many years, and I’ve only been using YNAB for 3 months. My thinking is if I track everything for 6 months to a year, I’ll start to see the trends (how often do I really need to buy toilet paper… what’s the average on toiletries/groceries/clothing or laundry soap, etc) and be able to budget more realistically. At the beginning of this process I couldn’t have told you how much I spent on ANYTHING. I guess what I’m saying is that I can imagine eventually being able to streamline the process the way Jesse has, but if I try that now, I’ll be playing Whack-A-Mole all month long and it would be even more tedious that what I am currently doing.

      I’ve been accurate with the cash account to about $.20, but only since I started writing everything down in the register… {I realize this is harder for men to do unless they carry a “man-purse” :)}

      For my husband’s work expenses and personal bad habits (lol) he takes an “allowance” in cash and it is all one category “Work/Tobacco/Expenses”… I don’t have time to micromanage every convenience store purchase he makes and I don’t want him (as the primary wage earner) to feel like I’m the budget Nazi. I do show him how much he is spending each month, since if he runs out of money, he just gets more… hopefully over time he’ll make his own adjustments without me nagging… (it is better to sleep on the corner of the roof than in the house with a nagging wife… )

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46. Pingback: Abundantly Lush » Five Posts to Inspire You

47. Thanks for the post – got my brain thinking about my own categories. One feature that I’d love (perhaps it exists – I’m still a relative YNAB newbie!) is a way to have alternative roll-ups of Categories with the same underlying budget. e.g. Car Insurance – I roll it up under “Bills” today, but, someday I’m going to want to add up “how much does it cost to run my car” which is insurance, gas, servicing, tax, etc. which are currently spread out across different Master Categories. Or “what do I spend on Insurance?” which includes car, life, house, etc. The low-level categories are fine, I just want different views of how to consolidate into Master Cateogries and a way to toggle between these views. Is this possible?

    Loving YNAB by the way – easily the best budgeting software I’ve seen by far! Thanks!!!

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48. Ynab has been fantastic! When my wife and I got married, I was already using YNAB for my personal expenses, so when we got married, we had 2 savings account, 2 checking accounts, several debt accounts (i simply put these as off budget accounts, and gave them each an individual category, I would “transfer to “debt 1″” and categorize it, then I could easily see where my balances stood, also I had an easy view of our net worth) I had a car with a trade in value, and a gas card (again the gas card was on budget, it just gave me rewards and savings at the pump, so it was as easy as an on budget transfer to “pay it in full” each month.) We had close to 35 in detail categories, and I would spend a hour each morning entering transactions, and making sure everything was on point. Our consolidation took some time, but we are now down to one joint checking and one joint savings account. we have a credit card to earn points, and we still have the gas card, although I’m thinking about getting rid of it because the benefits are about the same as the credit card. We were able to consolidate all of our smaller debts into one debt account, interest free (technically a trusting family member) and have out one car loan. The debts, my car (listed as a positive value so I can see net worth) and my retirement account are all off budget, and the balances only change once a month, so they are well out of the way. From my on budget account, I just transfer my “payment” and assign it the appropriate category. on the car loan, I add a transaction for the amount of interest I paid on that payment, and my balance is always current, takes 5-10 mins once a month.

    I had just set my accounts up this way when this wonderful post arrived, it was time for some serious surgery!

    My prior budgets were very in depth:

    I had rent, electricity, city utilities, phone, internet, debt 1, debt 2, emergency savings, retirement, groceries for food, fast food, restaurants, other groceries, his, hers, home improvement, car ins, health ins, rental ins, gas, repairs, tires, and the list goes on. I realized that for most of this I was not getting any insight, or affecting my decision making, so my wife and I sat down to do some surgery, the result:

    GOALS
    >Get out of Debt (debt payments combined)
    >Vacation
    >Retirement
    >Emergency Fund

    BILLS
    >Fixed (rent, insurances, phone, internet)
    >Variable (city utilities, electricity)

    DAY TO DAY
    >Groceries (food and other)
    >Fast Food & Restaurants

    TRANSPORTATION
    >Gas
    >Repairs & Tires

    PERSONAL
    >Tithes and Offerings
    >Entertainment (combined many subscriptions, and other categories)
    >Medical
    >Clothing & Apparel
    >His & Hers
    >Other (all the other stuff, really wasn’t useful to know that in one month I spent 300 on home improvement, and nothing since)

    Our budgeting meeting was much easier, and by combining, it was easier to see how much of our money went to necesities, and how much to other things, the bills never change, neither do my debt payments, or any of my goals for that matter, so we went from 35 categories down to 16! The only problem I have now, is what I should do with the hour I used to spend every morning? ;)

    That was a bit of a rant, but hopefully someone will glean something from that :)

    Thanks Jesse!

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    • I loved your categories and the division of them so much that I wrote them all down. I started YNAB about 10 months ago and gave up in confusion and despair–we had 7 credit cards at the max and 4 other loans and were spending like insane drunken sailors–I was exhausted just trying to get all of our bank, credit card, and other accounts set up, downloaded, and tracked. I am about to start it up again in a fresh, new file, and I love the idea of the simplicity of what Jesse referred to, but I take to heart what others have said about being accountable. I think your categories, Thomas, are going to make life a lot simpler for me, and will get us further down the road to making our money work for us, rather than the other way around.

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49. You really nailed it Jesse! You have a few areas in your budget that I was not paying enough attention to and I have added them to mine. Thank you!

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50. I realize I need MORE categories. Thanks for the insight on your budget categories. It helps me to see how others use it.

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51. I agree with consolidating as many categories as possible. However, the issue that I have is remembering which category contains which item or my wife figuring out where I put something. Honey, where do you put Lifelock? There is a place to add notes to a category, but that is only for the current month, it is not carried forward. Is there a way to attach notes to a categroy that will stay with the category regardless of the month?

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    • Ron, you can add notes to a category, at the category level (vs. the category-month level you mentioned). Hover over the category and you’ll see a note icon appear, click that and type away :)

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      • Glad I read through all these replies! I had the same idea as Ron and thought that there was only the monthly note that wouldn’t carry forward.

        This blog post has reminded me that I’ve got to get back to YNABing. I stopped using it when my son was born and lately I’ve only been entering transactions (I figured it was the least I could do with little thought ;-) ). It has been several months now, so I don’t really have an excuse not to jump back in!

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52. I use 9 top categories and then about about ~30 sub categories or about 4 per category on average.
    Auto, Clothing, Communication, education, Food, Healthcare, household, Insurance & Leisure. Some subcategories I have taken down to 0 even though I have tracked these in the past (diapers etc.) – The largest % is household at 30% of the budget (not of my income thankfully), then 25% for leisure followed by ~21% for food. Auto or transport is at 11%.

    Also since I have an HSA and health costs are mostly deducible I track healthcare and childcare (have a deductible account too) separately.

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53. For tracking cash I have a cash in hand account that I transfer to when I take $$$ from an ATM to my pocket – Then when I spend it I categorize it each time I spend it – this makes sure I accurately track each $ when I actually spend it in the right category – have done this for 10 years and seems to work for me.

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54. One thing I did recently was move all my direct debits and standing orders to the 1st of each month. So most of the work is done in a short intensive spell.

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55. Great write-up; I’ll be combing over it as I do my overhaul soon. I noticed that in your decisions you sometimes mentioned whether you cared about *what you are spending in a category*, but other times it was whether or not you cared *to know* what you are spending on a category. May sound nitpicky, but I see these as 2 separate issues.
    I think the purpose of a budget category should be whether or not we can make a decision about how much should be allocated to that category–and as you said, a simplified budget would have fewer, broad categories. However, often I want to be able to analyze my spending on certain things, but NOT have to budget for them separately. Ex) I want to have a simple “toiletries” category that I can easily budget for based on my average expenses. I don’t want to budget “makeup” and “diapers” separately. But I later, I DO care about looking up/analyzing what I’ve spent on makeup vs. diapers sometimes.
    -> One of my most-wished for features is a way to “tag” expenses (separate from the budget categories)–allowing me to analyze/create reports, but not forcing me to allocate separate budget amounts, just because I care about “knowing what I spent” in a category.
    Maybe that made sense. Also, maybe there is a way to do that already…?

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    • I wholeheartedly agree! Since so many above said similar statements, YNAB should look into this, please!

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56. Thanks, Jesse, from your Australian fans here. Twice in the last six months our VISA Debit cards have been compromised. No money was taken, but on both occasions our bank notified us immediately by phone that they had cancelled the card, advised us to cut the now defunct card up, and to look out for the replacement card in the next few days.

    So, it’s a very good point that you make here.

    What my wife and I have done is tried to safeguard the VISA Debit card damage by taking some steps. Firstly, we have a daily withdrawal limit of $1,000 on the card. That means the crooks are going to have to use the card ten days in a row if they want to steal $10,000 from us. Secondly, we never have $10,000 in there ever, just to make it even harder for the crooks. The most we ever have in there is $3,000, thanks to YNAB helping us to budget. Thirdly, our Visa Debit card is totally separate and unlinked to our OTHER account, where we DO have all the money, which we can only access by physically going downtown to the bank and making an over-the-counter withdrawal. Fourthly, I monitor both accounts every single day by visiting my balances and transactions over the internet (but, obviously, ONLY here at home). Finally, thanks to YNAB, because we know exactly what our budget is, and by definition what our spending will be, the final safeguard we have adopted is to put ALL savings that we don’t really need in a high interest fixed term deposit, which we just keep rolling over every six months.

    Before YNAB, our finances were a mess and we owed the bank $430,000. Like a lot of folk, we bought the lie that our house had all this equity locked up and raring to go, and that equity was just going to grow and grow anyway, so why not use that equity to buy a lot of investment properties. So we did! We bought five different parcels of land. Suddenly we went from owning our little home and about $10,000 in the bank to having five mortgages hanging over five different investment properties. Every day we would look at the $430,000 that we suddenly owed, and it just never felt good. We didn’t see five parcels of land about to make us rich, we saw instead the huge potential to become very poor very quickly. We didn’t really sleep too well. Our greatest fear was, What if there’s a downturn in the economy and property prices crash and we go underwater? So we made the goal to be debt-free and the first thing we did was buy YNAB (the very first version, if we remember correctly). And we sold off three of our five property investments as soon as we could. That turned the tables for us, but it took three years to get there! Now we owe the bank zip, and we still own our home, and we now find we own two small acreages that are sitting there doing us no harm at all, and we have $109,000 in a fixed term deposit earning us 6% pa interest.

    We count ourselves as the lucky ones. We invested, and the investments grew, but we also tested the limits of our comfort zone. We simply do not like being in debt. Today we would still be in huge debt, with an investment portfolio possibly even underwater, if we had listened to the so-called financial experts who kept telling us to buy, buy, buy. We were advised to buy a dozen properties! But we listened to that small voice of reason, a paid attention to our gut instincts, and we realised we were never really comfortable having $430,000 debt around our necks. So we stopped listening to the financial experts and actually went against the flow. We sold, sold, sold, and were ridiculed in the process. “Don’t you two know that property never goes down? It always goes up. Why are you selling off a perfectly good investment portfolio?” Well, because it’s our lives, it’s our happiness, and, with respect, sir, we are not greedy people. It’s funny, but the financial experts have gone very quiet of late.

    All through our 32 years of marriage we’ve been in debt and we’ve been debt-free. Looking back, we can honestly say the times we were debt-free always made us happier.

    Stick to your budget and live within your means. You can’t put a price on a good night’s sleep. Oh, and maybe think about safeguarding your VISA Debit card with a few easy steps.

    Jesse, you and your team are leading the way! God bless America. Here in Australia we wish you all the very best.

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57. Its great to read the above entries and see the similarities in peoples (and my own) mindsets! i thought this was a great blog entry, and would like to say that, I have used YNAB for nearly 3 years now and to be honest the first couple of years werent very successful for me, as I wasnt strict enough, and I didnt have particular goals for my budget….
    I now have a set of Categories that I adhere to, and i fully believe in them, so i will never have to add more, take any out or merge them. This means that i can draw up my yearly savings forecast in advance and keep track of it, using it almost as a pace maker, and to be fair, i am bang on my targeted, and scheduled savings amount, because my budget is defined and functional. There are occasions where I have to buy something that doesnt have a particular budget, but i do have generic categories that take care of this, and i make use of the MEMO function on the iphone to make a note of something if need be. For instance, im not going to budget every month for GIFTS, but if somebodys b’day comes along and i have to buy something, i put it in my Entertainment category and take the hit personally on not going diving that week, or whatever suits, this way i cant make mental exceptions for myself for spending more than my allocated amount and my target savings is kept up to scratch.
    So far this year since using my YNAB in its fully functional state, I have saved 70% of my salary, and I suddenly have a cushion of 6 months, if work dries up, this is something i have never had before, and i truly believe its because of 2 things.
    – YNAB and the iPhone (or Mobile solution)
    – Because my Categories work for me, and i make my budget fit my categories, not continually adjust them to match what i spent.
    Make a decision, stick to it.

    Great to see so many YNAB’ers on here

    JW

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58. Jesse,
    Appreciated the general intent about creating categories that make sense in understanding one’s spending, but not your “less is more” attitude about it. YNAB is a great budgeting application and once you’re set up with categories and accounts, the overhead is really only minutes. What’s the purpose of say, clumping cleaning supplies in with the food you buy in a grocery store? I’ve tried it and realized that it masked how much we spent on food alone, so I couldn’t make an informed decision about my spending: am I doing average or am I overspending? I was a bit freaked out about food in general because I thought that our family of 2 was spending too much on food (not to mention the upward trend over the last 3-4 years). When I peeled out the dish soap and laundry supplies, as well as the toothpaste and other toiletries (which I do buy at the grocery store), I realized we weren’t spending as much on food and that my occasional splurge on an expensive cheese did not need curbing. YNAB is just software, and with the terabytes of memory in a computer these days, more records are definitely better in understanding how you spend and where to intervene to adjust a spending habit. Anyway, maybe I am obsessed with data, but luckily YNAB can help there :). BTW, we only have one checking, one savings, two credit cards, a Paypal and a half dozen investment accounts that I track and look at twice monthly. Number of categories is probably closer to your initial 30+. Time spent doing this? Maybe 15 minutes monthly.

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    • It’s a completely personal call! If you want to track spending in groceries separately because it 1) adds some surety or 2) helped you spend less (and you care about spending less) then less is not more for you :)

      I need to write a following to this to really carry it home. If you’re hitting your larger goals can you let the minutiae slide? Maybe!

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    • I agree with you, Ann, at least mostly. The only question is what you need to track. I think Jesse was being a little hyperbolic by calling it The “Ideal” Budget, because as we all know, the ideal budget is the budget that works for the person who’s using it. I’m definitely into reducing accounts, but if it takes 50 categories to give a budgeter enough information, more power to them!

      I started out with a lot of extra categories that didn’t end up helping because I was simply wrong about where I needed to examine my spending, so there’s a lot of stuff that needs to be weeded, not merged. But like you I had grocery spending issues, and it wasn’t until I broke groceries down into 4 different subcategories that I found the culprit. With Jesse’s post as a goad, I’m going to clean that up and reduce my current 39 categories (excluding debt cats) down to maybe 20 or so, but…

      Some of those break-outs are about feeling secure that I have enough available for critical expenses and am taking care of some long term savings goals, and are likely to stay there forever. And down the road I might need to break some categories apart with changes in my lifestyle and situation. But simple is a good principle–so long as it works!!

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59. Jesse,

    Really appreciated the article AND the comments that spawned a few ideas :)

    For years I have been using a small but concise book written by a couple of ladies in Vancouver BC. The book is not really about budgeting but more about a filing system. (At your Fingertips! A Household Filing System That Works for you; ISBN# 0-9685727-0-7 for anyone interested). From this book, and cross referencing my Canadian Tax requirements (I have my own small business), I was able to develop a system that categorized everything I needed into a total of 22 categories with 13 subcategories.

    Along came YNAB! I went to my filing drawer, determined my “money” categories and set up YNAB using those categories and subcategories as I had set up 12 years ago for my filing system. The net result – I have 8 “money’ categories and a few subcategories, all of which tie in directly to my files.

    I am currently in the process of setting up a Business category with subcategories that do 2 things: 1; follow your general guidelines from your March 13, 2012 posting and 2; reflect my business tax categories as I file on my Canadian tax returns. Now when I look at YNAB, be it on my Andorid, or on my computer and I need to reference something physically, the YNAB file matches what I have in my one drawer filing cabinet! What a deal when it comes to tax time…… I know where everything is!!!

    I am a huge fan of YNAB. I have used Quicken and Quickbooks over the years and always found them too cumbersome for the task at hand. And the budgeting portion of Quicken left a lot to be desired. I have told many others about YNAB and I know a few friends (including 2 bank employees) are now using YNAB and extolling its’ virtues.

    Thank you for the article and keep on YNABing!!

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60. I absolutely can’t stand taking out cash. I am a military spouse living in Germany and we use both USD and Euro. When I withdraw Euro, I record every transaction that the money is spent on; however, I have to convert the Euro to USD using whatever exchange rate I withdrew that money out at. I have been using YNAB for less than a month (just purchased yesterday – WOO HOO!), so I hope as I learn the system I can figure out a better way to do this. In the States I would rarely take cash out, but most establishments here, even some large department stores, do not take debit/credit cards. If anyone has any experience with budgeting with two different currencies, I would love to hear!

    Consolidating categories could help with this… but being so new, I think I will keep detailed categories until I get a good feel for this!

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61. ‘ve gained a lot of ideas and insight reading Jesse’s post and the many comments but perhaps what is clear going through all these is that perhaps the greatest characteristic of YNAB is the ability to customize it to fit your own methods and needs. However, I noticed while reading the posts that some YNABers are still feeling limited by two main things:

    1. The folder structure of categories/subcategories
    2. Individual transactions are only singly categorizable (meaning each line for split transactions)

    I think the solution to this could be in the implementation of tagging in two places. The first would be for each subcategory and the second would be for each transaction register line. I believe the addition of these should be able to address many of the issues and challenges many have mentioned in this thread while still preserving all of the current structure used by YNAB.

    One example of a solution provided by adding tags to subcategories would be the ability to implement alternate groupings. For example, it sounded like some people liked to be able to budget and analyze main categories such as Must Haves, Savings, Wants, etc while at the same time would like to be able to break down things by functional categories such as Housing, Transportation, Entertainment, etc. The addition of subcategory tagging would enable this and potentially many other functions our fellow YNABers might see helpful.

    Tagging of individual transaction lines could provide similar functionality from another angle. One thing this could address is the desire for many YNABers to keep their subcategories fairly broad and simple (as was the point of Jesse’s original post) but still be able to delve into analysis of specific spending habits that they wouldn’t want to specifically consider during every budgeting session.

    Overall, I think this would preserve YNAB’s current structure and simplicity but add greater flexibility and customization for those who want it. Comments are welcome and if Jesse is reading I’d be happy to provide further ideas and input relating to this.

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62. This is so useful. I’m going to go home and simplify, simplify, simplify. Thanks!

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63. I have found that even though I use and like YNAB, I also went back to using envelopes, as I found that we were spending everything in the checkbook, and I never could figure out how or why. Any suggestions?

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64. This has been so helpful! I did start to get annoyed by so many categories because I honestly HATED having to scroll and scroll and scroll. It drove me nuts! My biggest problem seems to be the grocery spending. Somehow we always spend $900/month for just my husband & I and my 14 month old daughter. BUT we do include all of the toiletries, diapers, cleaning supplies, so I never really thought about it, but maybe that’s not so much? I will have to check out that link above w/ the average, but I am not sure I want to go by that, because almost everyone I know overspends on groceries so if the numbers are counting those people, it won’t be a good frame of reference of where I think I should be. I have really got to start couponing!

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65. This is so frustrating, I am trying to simplify but it will not let me edit any categories inside of a split transaction. For example, I am trying to combine clothing expenses into one category, but when I try to change category, it will not let me , it changes it, but it won’t save it (there is no “done” button).

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    • The way I’ve done it in the past is to create the consolidated category first, then go into the checking or credit card account that has the categories you are consolidating. Click search type the sub-category name.

      Ex I have Housewares, Toiletries & Cleaning Supplies. I want to consildate them all into Housewares. I go into my checking account, searh on Toiletries. The entries come up showing only those lines that have toiletries included in the sub-categories of the Split Category for each transaction line. Open the Split Category list, find the Toiletries line and change it to Housewares. Do it for each line. Then search on the Cleaning Supplies and change those to Housewares.

      The Toiletries and Cleaning Supplies now have zero expenses in the budget and can be deleted.

      One caveat — I used to use my Debit Card for purchases at Safeway. Now I use my Credit Card instead. So I have to do the process written above in both accounts to make all of the changes.

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66. I like the way you reasoned your way through this, Jesse. The only place I really differ is in converting so much spending to cash. First, I just don’t feel safe having a lot of cash around. If I lose my debit card or have it stolen, my account is locked as soon as I call the bank and I’ll get the money back within 3 business days (checked with the CU to make sure), while if someone breaks into the apartment or steals my bag and gets a wallet full of bills, that money is gone forever. I’m also a control freak, and not having some breakdown of that money would make me nuts.

    I just counted, and I have 39 categories, excluding my 4 pre-YNAB debt accounts! I’d say about 10 of those represent diagnostics that revealed money leaks, and 5 or 10 others are almost meaningless, although they seemed to make sense when I created them. I started with what I call the subject-matter method (household, transportation, personal, etc.) because it gave me an easy structure at the start, but I’m familiar enough with my finances at this point that I can roughen things up again. I don’t expect to get down to 10, but I can certainly make the list a lot simpler!

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67. Pingback: For those of you that are feeling overwhelmed. | YNAB

68. I decided I needed to simplify some, which I’ve done, but now have a rather large amount sitting in category balances of my hidden accounts. What do I do with the balances — I would like to “transfer” the balances to the new “merged” categories.

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69. Great idea to simplify your budget. In case you’re interested, my wife and I have taken it a step further. We recently consolidated our YNAB categories from 9 masters, each with multiple subcategories to a new, simplified system of 5 categories with no subs. It has been liberating! We no longer waste time deliberating over what granular subcategory to use for a spending item. If we are concerned about traking how much of our “Food” category was spent on “Fast Food” vs. “Restaurants” vs. “Groceries” we can sort by Payee and figure it out that way (I understand that YNAB 4 lets you graph/report by Payee which should make this even easier). The biggest improvement for us, however, was a new Category that we call “Untouchable.” Here we budgeted for predictable and required monthly expenses, such as, mortgage payments, insurance, utility bills, and others all lumped together (as an aside, we also set up each recurring bill to automatically debit our bank account – this eliminates late fees and requires much less time each month sorting out payments). Now it’s super easy and fast for us to update our YNAB files and track our Budget with no bickering over what category to use. When it’s easy, we update more consistently and more often. This method may not be granular enough for serious budget geeks or people just starting out since you need to be confident in what your recurring expenses are, but it works great for us. We’re looking forward to YNAB 4.

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70. Re-read this blog post having upgraded to YNAB4 and decided to take the plunge!

    I’m now down to <10 master categories and must have removed about 15 sub categories. Still think I've got room to go fewer, but will see how this works first.

    Feels good having less to look at :)

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71. As for the fraud issue with a debit card tied to a large balance account. Banks to place limits of the debit card. I work for a bank and we limit $500 per day for ATM or PINed transactions. and $2500 per day for non-PIN transactions (ie you run it as credit).

    On top of that when a fraud transaction occurs you can go to the bank and fill out a form (yay paperwork!) good news it its usually about a page maybe 2 depending on your bank. The teller or a personal banker can help you fill it out. Then you sign it and they will fax it in to their fraud dept. By law they have 10 days to either make a determination on your dispute or provide you with a provisional (temporary) credit for the disputed amount. But they can issue the provisional credit sooner, and some will as soon as they receive your form.

    So the way I see it is limits prevent someone from draining you account too fast. Your buffer should kick in here to cover you til you get the provisional credit. So I think having a large balance in your account helps you more than it hurts you here.

    As a fall back a credit card can work in a pinch to cover things until the provisional credit it applied.

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