Everybody, Meet Harriet. Does She Need YNAB?

One of the last comments on my post about keeping Monopoly money out of your budget was from Harriet, whom I’d classify as a borderline financial rock star. Read on to get a sense of her situation, then help me help Harriet decide whether she needs YNAB.

I am trying to decide if I should buy this software, and am having trouble understanding how it works. I took the intro class, and I’m still confused.

The deal with us is that we have a year’s living expenses either in the bank or fairly easily accessible.

I have set up all of our regular bills to be paid automatically.

I keep track of all of this in my checkbook, generally recording payments way ahead of the time they are due.

On the rare occasions when the balance runs a little too low in the checking account, I move money from savings to make sure there’s enough there. When I get an unexpected bill (e.g., medical co-pay), I pay it right away. If we want or need to buy something outside of regular expenses, we usually put it on a credit card for convenience (in fact, we use cards for almost everything), but I know the money is there to pay for it, and those CC bills are paid in full each month. I have operated this way for years, well before I got married.

In essence, we ARE paying bills on previous income. We don’t have any debts other than mortgage. Included in the regular expenses are transfers into a savings account, with some of that earmarked for larger expenses later on (contributions to IRAs, home improvements).

My interest in trying YNAB out was to get a better handle on where smaller amounts were going — for eating out and things like that. It’s not that we can’t pay for those things, but I have been feeling like we may be frittering money away without thinking about it.

So is there anything YNAB can do for us that we’re not already doing? Thanks — Harriet

Harriet, your main goal in trying out YNAB was to manage your discretionary spending more effectively, wanting to avoid “frittering away” (great phrase) your hard-earned and hard-saved cash.

Here are three big benefits you’ll enjoy by adding YNAB to your life:

1. The Observer Effect Will Automagically Reduce Your Spending

Have you heard of the observer-expectancy effect? Here’s the gist: people perform better when they’re being watched. In the case of YNAB, we’re using our budget to watch ourselves.

When you establish a spending ceiling for a given category (eating out, for example), your spending in that category will naturally decline simply because you’re watching it. I recently confessed to eating out like a Wild-eyed Burger Demon in 2012, spending over $300 per month at restaurants – often on food I didn’t even like.

Last month (April, 2013), my wife and I spent a total of $70.96 at restaurants. I’m sure our “steady state” spending on restaurants will be as much as double our April amount – but that’s half our historical average. YNAB gets the credit for helping us spend more consciously.

2. Clean Categories Create Consumption with Clear Conscience

My mom (whose transition to YNAB we’ve recently discussed) is loving the program. She (like you, Harriet) has always been financially mindful, but at times she goes to the extreme of feeling like she can’t (or shouldn’t) spend any money – especially on herself.

Thursday night we were chatting about YNAB, and she said “I have $300 in my clothing category, and I can see that everything else is handled, so now I get to go shopping guilt free.”

Right on, mom.

3. Budgeting Your Discretionary Funds Frees Your Mind

Your system works, but I’d wager it requries too much thinking and pen-and-paper reconciliation. Based on your description of pen, paper, and checkbook, you’d find YNAB a breath of fresh air.

Here’s how I use it:

  1. Money comes into my life (usually in the form of a paycheck).
  2. I assign dollars to jobs (categories) until there all new money is spoken for.
  3. I spend money, logging transactions on my phone.
  4. I take three to five minutes every couple of days to reconcile my checking and credit card accounts against YNAB, ensuring all is square.

With this workflow in place, I’m shocked at how little time I spend thinking about my expenses, bills, due dates and the like. YNAB lets me think about other things; it’s a major stress reducer.

Overall, Harriet, I’d say you’re doing great. Add YNAB to your workflow and you’ll find yourself spending more consciously and with less anxiety, while reducing mental overhead.


17 Responses to “Everybody, Meet Harriet. Does She Need YNAB?”

  1. Meredith

    First…way to go Harriet on getting a full year’s buffer!!

    In the past, I never thought budgeting was necessary for me because I knew that I was as careful as I could be (or thought I could be) with spending (especially the small stuff).

    I think one of the most beneficial things that budgeting has done for me and my husband is the ability to manipulate where we want our money to go. When we started budgeting, I realized for the first time that 50% of our take home income was going toward vehicles and other transportation expenses. I was blown away and disgusted. My husband and I decided that we didn’t want that much of our income going toward that category so we buckled down and got one of our cars paid off and sold our second car. We now spend less than 10% on vehicles…I can handle that.

    Budgeting with YNAB allows you to put your money where you want it to go. You control your money rather than it controlling you. It’s a beautiful thing!

  2. Brenna

    Although I’m not quite the rock star that Harriet is, I have a healthy buffer, and am lucky enough that my husband and I generally know we have enough to pay the bills and save as well. But I’ve found YNAB to be very helpful, for the three issues mentioned in the article. I agree with Merideth as well, It’s quite enlightening to see where the money is going, and make reasonable adjustments accordingly. We also recently built a house, and I’m using YNAB to help put money aside for the large projects, while keeping us in financial check.

  3. Iron Mike Sharpe

    Yes. It will help her. I have an emergency fund that contains about a year’s worth of living expenses. What YNAB is helping me do is putting aside money for future home repairs (new furnace or roof for example), saving for my next car, accounting for out of pocket health care expenses that could happen, planning for gifts like bdays, Xmas and Mother’s Day, taxes and fees, and other things. Then I now how much I can actually move into long term investments. Without knowing all of these other planned or buffer amounts, I wouldn’t put as much away for my future self and I would wait longer to retire. Or I would put too much in and not have enough on hand for an emergency situation.

  4. saveourskills

    Ok Jerk alert! Sorry really not trying to be a jerk, but I’d like to look at this from an angle that I don’t see anyone else addressig:

    Does it make sense to carry a years worth of cash?

    I’d pay down that mortgage. Sorry, not trying to take anything away from you, but I could have a full year of buffer+ if I considered my investment accounts and home equity into the mix.

    It’s great to have an emergency fund but we have to balance this risk against opportunities, such as paying less interest on a loan.

    Just my 2 cents. Keep on rocking!

    To answer your question directly, YES if you want to see where you “fritter” your money it’s going to solve that.

    • Marily

      I agree with this. 3-6 months of an emergency fund is very generous. I think YNAB is a great tool for someone like Harriet who is smart with their money. But, if Harriet employed a budget she could set some big financial goals and really make some exciting things happen, like paying off her mortgage and living completely debt free.

    • Ronnie

      I think it depends on your situation. If that’s what makes her sleep well at night, then that’s what she should have. I have 3 months and I’m uncomfortable. Six months would still make me uncomfortable. I’d love to have a year’s worth in the bank and move on. My husband and I are both self-employed, so if things take a dip they tend to take a HUGE dip. Without knowing more, we can’t say that she’s unrealistic in having that amount in savings.

      That said, without YNAB we wouldn’t have 3 months in reserves in the first place. And we’ve got huge student loans (upward of $300k) that YNAB has let us begin to pay down without sacrificing other goals. So I definitely think it would still help even someone like her who appears to really have her act together.

      • saveourskills

        There are other vehicles to place your money that may not be immediately liquid but if things took a turn for the worse you can still get at them. If your holding cash you have to pay the inflation tax on it.. yes a necessary evil because there is room for liquidity in any sane person’s life.

  5. Emily

    Quick response that no one else has mentioned to this point. YNAB has a free trial period. Why not just test out the program and see if it helps. We lie the program and the trial period was very appealing when we first started because its always importnt to see if the program is going to work for each individual situation. The program has been a dream and I wouldn’t go back to not having it ever. Who knows, after the first month’s use, you may have gained enough knowledge about theory being frittered away that you have the $60 to purchase YNAB. Definitely worth the shot.

  6. Lynn Davis

    My situation is very much like Harriet’s and I have found everything you said to be true. YNAB is much easier then pen and paper. Do I spend less, yes but I appreciate and get more enjoyment out of what I do spend and there is no questioning or guilt.

  7. Brian

    I’m fully convinced that anyone who wants to improve their personal financial situation should be using YNAB. I say this both as a CFP® and as someone who (humbly) manages his family’s financial affairs very well: you can always find ways to be more intentional and more thoughtful with spending.

    As well, I truly feel that using YNAB and the YNAB app is actually easier than not using YNAB at all. My wife and I are on the same page, we’re able to make spending decisions from the same reference point, and best of all, we rarely have to think about our cash flow because we work from the same mental financial system (the YNAB way) and know that if we follow the rules (combined with other prudent basic financial planning), we don’t have anything to worry about.

  8. William Disharoon

    I still try too hard to live well above my means. What YNAB does for me is helps me recognize not that I have or have not the money to spend, but through the buffer technique reveal what the purchase will do in the future. I use it to try not to spend more than a given amount – thats obvious – but for me its a lower number than I could live off of. I use it to try to cut spending back. I’ve given up on a lot of wants just to meet needs. Though Harriet seems to have life and knowledge of money well under control, I think it would benefit her as a supplement for those times when she and her family intend on purchasing something – vacation, dining out, or new shoes.

  9. Patzer

    If I think back to how I managed money before YNAB, I had a lot of similarities to Harriet. I had money, I didn’t buy what I couldn’t pay for, and I didn’t have a clue where the little stuff was going.

    Unlike Harriet, I had a strong impetus to try my hand at budgeting. As described in my journal on the YNAB forums, on 1/1/2008 I went from comfortably putting a pile of money into savings each paycheck to needing to spend most of my income each month. I was worried about dis-saving. While I could use my extensive historical Quicken records to see where the money had gone, Quicken was a poor decision making tool when it came to deciding whether I could afford something.

    YNAB exceeded my expectations. Not only did I avoid dis-saving, I managed to save something each and every month. More importantly, YNAB changed the way I thought about my money. Now, I don’t think I have a year’s worth of buffer. I have a year’s worth of an e-fund, and half a year’s budgeted expenses built up in various rainy day categories. Result: When I went into the basement about a week ago to check out an odd running water noise and found that my water heater had died, I could just place a phone call to get it replaced the next day. Scheduling the work and laundry was a concern; paying for the water heater wasn’t. The money was already budgeted for home maintenance.

    And that money was sitting there waiting for home maintenance to be needed because that was one of my priorities in the budget. Controllable stuff like eating out and groceries had been controlled for over four years, and the the funds were just *there* for the unexpected.

    Of course, the money would have been there pre-YNAB as well; but with YNAB, I can spend without guilt and without worry. I know I’ve got that water heater covered, and I know that replacing it does not require me to change how often I eat our or how I shop for groceries, or how I save for my next car. Everything is covered.


  10. Cdub

    This raises an interesting question…. can YNAB change the definition of an emergency fund… Could you per se – have your emergency fund budgeted? have a 3-6 month buffer already budgeted in…. does that make sense to do?

    • Rolo

      That’s how we have ours (it’s both, emergency and buffer since the buffer would likely drop in a big enough emergency anyway).

  11. Rolo

    I think YNAB would definitely benefit Harriet:
    – The paper method doesn’t provide an overall picture or a running budget total like YNAB does or generate reports to find those holes in one’s wallet
    – After YNAB is set the way one likes, it should be far faster than paper
    – YNAB enables one to premeditate what one wants to spend and to evaluate right before one does spend so one doesn’t wonder, “Where did all my money go?”

  12. Harriet

    I was surprised to check in here and see my story being discussed!

    I am almost at the end of my free trial and still trying to decide whether to buy YNAB. It’s fun to use, but I’m still not sure. I think one benefit would be my husband would become more involved in handling our money; he really has no idea what’s going on unless I tell him. He’s fairly frugal but definitely spends more than I do.

    RE the emergency fund: I agree, that’s too much cash to be sitting in a savings account earning .75% interest. However, there have been a few changes there since my last post here. Some of that money was earmarked for buying a new car for me, and I finally did that after procrastinating for a long while. Another goal we had was to start an after-tax investment account, which we finally did as well. We also decided to put some of it into our Roth IRAs for this year (instead of waiting until next year at tax time). So there’s now more like 6 months of expense money in there instead of a year.

    RE paying down the mortgage: my feeling is that unless you have enough cash to pay it off in one fell swoop and still have sufficient cash reserves, you run too big a risk of being house poor. Until we’re at that point, we will continue to pay the minimum required amount each month. We have a low interest rate and a fairly low payment.

    Anyway, thanks for weighing in.

    • TAJill

      So Harriet, what did you do after the trial period. And if you did buy YNAB, did you find that it helped or not?
      We are in a similar boat (large savings, high income, low spending) and would like to know if YNAB would add value.

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