YNAB You Need A Budget

[blackdiamond]

I thought it would be interesting, and helpful for new users, to hear how everyone goes about their actual budgeting process throughout the month. It would be best if everyone can simplify things so that they are clear and concise and probably describe their average process since it likely changes a bit each month. I'll go first:

Background: Former Microsoft Money user
YNAB Experience: Entering Month #7
Buffer: YES (I started with one)

My Master Categories are the following:
(1) General Expenses - Fun Money, Misc., Groceries, Dining Out, Baby Stuff, Clothing, Gifts, Gasoline, Haircuts & Healthcare
(2) Bank -Misc., Groceries, Dining Out, Baby Stuff
(3) Monthly Bills - Every Monthly Bill has its own subcategory
(4) Rainy Day Expenses - Christmas, Time Off, Home Repairs, Auto Repairs, Vacation, Emergency Fund
(5) Known Lumpy Expenses - Car Registration, Membership Fees, etc.

As soon as I have entered my final paychecks from the previous month and know exactly how much I have to budget I start thinking about it and will even start filling in the numbers for the majority of categories where the amount isn't dependent on our wants or needs. I like to finalize all accounts on the last day of the month and then discuss the more variable categories (i.e. mainly General Expenses) with my wife to make sure that we have everything that we can think of covered. Currently, I then put any extra into the Time Off category. The Bank category is a holding spot to allow me to fund Misc., Groceries, Dining Out & Baby Stuff one week at a time. I have found that this works much better for my wife because she tends to spend money that is available in the category. I tend to keep YNAB updated every couple of days and when I'm refilling the Bank categories I will often play a little whack-a-mole to make sure that we're on track to stay within our overall budget. At the end of the month I balance the budgeted with the spending to free up every available dollar to be reallocated to one or more of the Rainy Day categories. Because of the way that my wife views the available to spend amounts it works better for us to not let the extra roll to the next month in a General Expense category. This is something that I learned in the first few months and figured out the best way to correct. Last month was the first official month in the black. We were never too far off and have some savings to rely on, but there's been a learning curve with having about 30% less net income after my wife cut back to part time when our son was born. More expenses plus less money plus YNAB still equals long term success.

My goal is to keep the budget as simple as possible while still making it work for our needs. Some people prefer to have many many categories, but I simply don't care to know how much money was spent on soap vs. shaving cream. I try to use categories that are quickly and easily identified on receipts to make entry as user friendly as possible. I HATE trying to figure out which category to use and consider having to do this either an opportunity to identify another easy category distinction or sometimes and opportunity to combine two that have a grey line between them.

[sarahs219]

Background: Self Created Excel Spreadsheet
YNAB Experience: 1 July 2012 will mark 1 year!
Buffer: Not technically, no
We have the cash for a buffer, but we choose not to use it. We could last 2-3 months without a paycheck if needed.

My Master Categories are the following:
(1) Savings - Medical/Dental Bills, Vehicle Maintenance, Emergency Fund, Home Down Payment, Vacation, Christmas, Special Occasions, Sinking Funds
The funds in these categories are kept in a savings account, makes tracking easier on me
(2) Discretionary - Eating Out, Fun, Groceries, Gas, Clothing, Grooming, Prescriptions, Home Decor
(3) Fixed Monthly - Every Monthly Bill has its own subcategory
(4) Work Reimbursements
(5) Gifts - Birthday, Wedding, etc. (helps me remember I need to buy gifts)
(6) Vacation - Flights, documents (visas), hotel, taxi/rental car, food, fun, miscellaneous
Once we define specific vacation costs, we transfer our vacation fund out of savings into checking and categorize the specifics

Since we are working without a buffer I use a spreadsheet on the side to allow me to plan out a month at a time. I have all of our categories listed and I budget out each paycheck into the categories in my spreadsheet. Then, come payday, I enter the amounts for that paycheck into YNAB. This allows me to ensure I am budgeting enough throughout the month. We budget every paycheck to zero. We DO NOT spend every paycheck to zero. We budget our monthly bills and discretionary stuff and then whatever is leftover, down to the penny, goes into the category of our current goal we are working on.

I reconcile YNAB with my checking account everyday or every other day. We look at our budget together once a month (in the spreadsheet). I look at our budget a couple times a week to see how we are doing.

Is this high maintenance? Technically, yes, but I love it!!! We could operate off a buffer, but we choose not to. It works for us.

How successful have we been in almost a year?
- Paid off ~$15,000 in credit card debt in around 7 months
- Increased our savings from $604 to almost $14,000 in 11 months
- Took a week vacation to Hawaii with the cash sitting in the bank for all the fun our hearts desired
- Rid ourselves of our spendy habits and developed into frugal spenders
- Started out our marriage on the right foot
- Still managed to have fun and dine out (one of our fav. activities) while accomplishing above tasks

[Joel]

First, I made sure all my accounts are setup and the cleared balances equal the bank balances. I entered any pending or scheduled transactions that have not cleared the bank. This includes my checking, savings, and credit cards. In my case, I have more than enough money in my checking and savings to pay off my credit cards today, if needed.

My checking has the Starting Balance setup as Income: Available This Month. If I have received any paychecks so far in the first month, I make sure to adjust the Starting Balance with a Split category in order to mark the amount of paychecks already received as Income: Available Next Month. This provides me a with a buffer, this is not necessary, but I think it is a very crucial step if you want to be in a position to begin budgeting and projecting long-term with YNAB.

My credit card is paid-in-full and therefore is categorized as an outflow to Income: Available This Month. YNAB by defaults sets it up as a Pre-YNAB Debt category and assumes you are paying down on the balance. If you can afford to pay it in full, then change the category to Income: Available This Month. Otherwise, you will have to budget any extra money towards the Pre-YNAB Debt category. The payments will simply be transfers from Checking to Credit Card without categories. I could afford to pay off the entire balance today if something happened and I was forced to.

My savings accounts were setup as well, so that my Available to Budget money includes all the money I have available currently. This is important because I do not want to double-count my savings account money for multiple jobs in my budget. Each dollar can only do one job. Many users are afraid of doing this, but if you want it to be untouchable… Simply budget it to an “Emergency Do Not Touch” category. It will stay there until it is spent, or budgeted out of this category. Personally, I put an amount towards vacation, hot rod, new car, and all my various categories under my Savings master category. Keep in mind that your Savings Account does not have to balance with a specific category, but it is just used as an overflow for your checking account.

I recommend completely changing the category structure that YNAB starts you off with. I recommend three master categories: Discretionary expenses, Recurring bills, and Savings for Future. In Discretionary expenses, you put all your normal day-to-day expenses such as gas, eating out, clothes, groceries, etc. At the end of every month, I make sure these categories do not have any remaining balances. In the Recurring bills, this is any bill or expense that you have to pay recurring, including mortgage/rent, utilities, debt, etc. I recommend each bill having its own category; however, you can decide what you deem appropriate for this. This includes monthly bills, as well as annual bills. Some categories will accumulate a balance in this master category, as you may have to save up for irregular bills. In the Savings for Future master category, this is where I save for everything I want! This includes retirement, vacation, house, investments, new car, hot rod, medical, new phone, etc. All of these categories are accumulating balances, and ultimately any extra money is funneled into whichever category is now my priority.

The next step is to figure out what a “normal” month of income consists of. In my case, I get paid every other week, so a normal month consists of TWO paychecks, even though sometimes there will be three paycheck months. My budget should be based on TWO paychecks, and I should not budget more than the total amount of TWO “normal” paychecks. This way, if you happen to get a bonus or any extra money, it is truly extra. If you have a month where you receive THREE paychecks, you virtually receive an extra paycheck that you can choose what to do with it. You can project when you will receive these bonuses by looking at a calendar and anticipating them. Ultimately, you need to figure out what a “normal” month really consists of for your income. That is the absolute most you can budget in any one given month. I would budget any money in excess of your “normal” month’s income into an Emergency fund category or some type of holder until you get familiar with your budget and how YNAB works.

Now that you know what your income is for a “normal” month, you need to figure out what your recurring bills are. This is where you can “project” with YNAB. First of all, start with finding all your normal bills that occur every month. I recommend entering these bills as a Scheduled Transaction with the due date as the date. This allows you to look forward in your Scheduled Transactions window and see what upcoming bills you will be facing. Make sure each bill has its own category in the Recurring Bills master category, and the amount is accurate. If it is the same amount every month, enter that amount as the outflow in the Scheduled Transaction and in the Budget. Now let’s look further for any recurring bills that are not monthly. If there is a bill every other month, enter that and make sure you are saving for that bill monthly. (If it’s a $100 bill, make sure you budget $50 per month). For any other bills, you need to figure out the estimated bill and spread that out over how many months are remaining. If it’s an annual bill, but it is due in 8 months… you need to split the total bill into 8 months instead of 12. If you have previously budgeted extra money into your “Emergency fund” category, you can frontload the first four months into this category as well. I strongly recommend this so that you can lower your monthly required budget. Alternatively, after the first year, you could then lower your monthly budget amount. If you have a bill that varies in amount, I would recommend budgeting for the highest amount to be conservative. That way if the amount ends up being less, you end up with “extra” money. For example, with my PG&E bill, I started with YNAB during the high months… so what I did was budget for the full bill for the first several months, and then begin budgeting an average amount once it dropped into the low bill season. This way you are averaging your bill that varies in amount throughout the year and coming up with one standard amount to budget every month. The goal is to make the monthly budget the same for every month. Again, I recommend being conservative. If the average for your PG&E bill is $191 per month, I would budget $200 per month to be safe. Perhaps even frontloading this category with $100 up front to provide a safety amount.

At this point, you should have looked through all your statements for the last year or so to make sure you have found every recurring transaction that will pop up within the next year. Every one of these bills will be entered in your Scheduled Transactions, so you can always look forward and see what bills you have coming up. Ultimately, you are projecting all your major expenses for the next year… and smoothing them out in your budget backwards.

Your “normal” month’s income has now been reduced by your recurring bills. Next, you need to look at your discretionary expenses. I recommend making very conservative numbers for your discretionary expenses and budgeting for the worst case is possible.. This may take several months of monitoring your spending to figure out what a “normal” month of discretionary spending really is. Do not be afraid to make changes to your budget as the month progresses and you need to.

After budgeting for discretionary expenses, whatever is leftover and still Available to Budget will then go to the Savings master category. Then you can prioritize your savings categories from there. From this point, you know what your “extra” money is every month and you can figure out which category you want it to be in. Let’s say I want to go on a vacation in three months, and I know that I have $1000 “extra” every month at this point. It’s easy to project that $1000 per month multiplied by three months, means I can save up $3000 for my vacation. That’s projection. There’s nothing more I can expect the budget to do for me. I don’t need to budget every single month for the entire year, because my monthly budget is virtually the same every month. If there is any extra money in a category balance for discretionary spending or recurring bills, I usually adjust the budget amount and funnel that towards one of my savings categories.

Also, I typically store my “normal” budget numbers in the next two-three months as well. This allows me to make a simple calculation and figure out how much I can save in any given timeframe. You can simply quick-budget the values used last month forward before you make changes to the current budget month on the 1st of the month every month. That is projection. You are projecting all your expenses for the next year, and then smoothing them out throughout the year to make a “normal” budget month. If you find out that your “normal” budget month needs more money than your “normal” income month allows, you need to figure out what you can do. You can either raise income or cut expenses. If you know you will have some three-paycheck months… you can figure out if that is enough extra money to cover the deficiency that you will have. You could also raise income by a second job or selling goods. Alternatively, if you cannot raise your income, then you will have to figure out how you can cut your expenses. This is when you prioritize your spending, and evaluate what really is most important to you. That is what you will have to do. Now that is projection, and YNAB does projection. It takes some work on your part… but that is the only way you can really get in touch with your budget and be successful.

I went from living two-months behind (spending on credit card in anticipation of paychecks to be received before the payment is due) to having $40k+ in savings!

[KitM]

Background: Excel Spreadsheet / Winging it.
YNAB Experience: Since Feb this year.
Buffer: Yes, started with one.

- Necessary but estimated - Fuel and Groceries. I budget my aim here but it'll never be exact to the penny.
- Non-essentials - Kids Misc, Retaurants/Entertainment (for family activities), His, Hers (for indiviudal activities/treats).
- Fixed bills - Monthly bills. If I'm trying to trim the budget in someway I automatically know that I can't so anything about these so I can ignore that whole category.
- One off payments - Misc (for very odd expenses that don't fit anywhere else but doesn't warrant using any of the savings pots - I whack-a-mole to cover this and it's never more than £5).
- Annual payments - Annual or bi-annual payments spread over months. These figures are set so can't be played with.
- Savings pots - DIY, Car maint, Gifts, Events, Homewares. I choose how much to put aside for these so can change each month if needed.

Additional accounts - Savings, Cash, CC (paid off each month).

A huge chunk of my budget is for fixed expenses or annual payments which can't be changed month on month so that takes a lot of the decision making out of my hands. The savings pots are usually aiming towards a target so although they could be changed they invariably aren't (unless I've realised I've over/under budgeted for something and need to fix it). The Fuel and Grocery amounts are estimated but I have a set idea how much I want to spend on them so that just leaves the non-essentials. We always have a surplus that gets diverted to the emergency fund/savings so it's just a matter of trying to be as frugal (but realistic) as possible when budgeting for the non-essentials. In short, 90% of the decision making is made before the month even begins!

At the beginning of the month I put in the figures and make sure that they're realistic based on the past few months spending. Although it's recommended that you only budget for the coming month I tend to 'project' a few months ahead, although it doesn't faze me if the budget needs to be changed entirely. Since all surplus money goes towards savings I could see how much I estimated I would have been able to save in a few months time (about £1750) which has inspired me to really push it so I can bump that figure up to £2000. In that sense, planning ahead his helped me to set a realistic savings target instead of just seeing what was left over at the end. Now whenever I'm tempted to spend something I don't really need, even if I have budgeted for it, I think of it as money that can be used towards that savings goal.

It's still early days but just having the savings pots/annual expenses categories there means that everytime I spend money it's already accounted for which feels amazing! We seem to always have birthdays/occasions within the span of a few months and before it could feel like we were hemorrhaging money around that time but now I know we'll have a nice little pot waiting for us when that time comes.

[DonGately]

Prior Experience: Pencil & Paper; Quicken
YNAB Experience: Beginning our 11th full month
Started with Full buffer

We'd previously budgeted in fits and starts mostly paying attention and drastically curtailing spending when dollars got tight then ignoring the budget when bank and checkng account balances went back up. This was all preYNAB of course.

When we began using YNAB, we sat down and went through the past year's credit card summary as well as our check register to identify as many expenses as possible to decide on the appropriate monthly amounts to budget for vaious categories and started using the basic YNAB settings for master and sub-categories and still largely follow that format. Because we started in late July, most of our annual and semi-annual expenses like insurance, taxes, gifts, vacation etc. etc. couldn't be divided into the full time period so we had to play catch up and, for example, budget a six month insurance premium into a four month period. By February of this year we'd caught up and dividing these expenses by 6 or 12 months made it seem like we'd gotten a raise. Now these expenses along with our mortgage are simply allocated the same amount each month. Similarly, fairly stable amounts are budgeted for car repair, home repair, subscriptions and so forth.

I'm paid every two weeks so when the first paycheck of the month arrives it's designated as income available next month and almost immediately budgeted completely to "must pay" expenses like mortgage, utilities, gas, groceries and so forth. The next check gets the same designation and fills out the rest of the month's budget. Currently our income is pretty stable with the only real variation coming in the two months with an extra payday and two other months where a modest bonus payment is received. Those extras are used to fund things like vacation and to beef up rainy day categories like home repair; our emergency fund and car replacement category.

Each of us take a weekly allowance that we're free to use as we please and we each have separate clothing budgets.

Adjustments are normally made toward the end of each month depending how well we do against budget in categorees like groceries and gas and if dollars are needed they get shifted from discretionary categories like dining out; entertainment and clothing.

Now that ten months have past we seem to have identified some of the smaller once a year items that were missed in the initial budgeting. Our practice is to enter all transactions on a daily basis if possible and to cross check against our online credit card and bank accounts so we get feedback on a daily basis that helps keep the budget on target and reconciles our checkng account and virtually a daily basis.

During the time we've used YNAB we've seen a dramatic increase in our bank and checking accounts due largely to the fact dollars have now been set aside for major bills like taxes, insurance, vacations etc. despite the fact we experienced what appears to be a permanent loss of DW's income ( approximately 15% of our total income) early in the year.

[MRKlink]

Background: Quicken / Excel Spreadsheet / Dave Ramsey FPU
YNAB Experience: Started trial in Feb
Buffer: Not yet!

My Master Categories are the following:
(1) Cash Envelope Spending -- Groceries, Eating Out, Entertainment, Clothing, Personal Care, Miscellaneous
(2) Non-Cash Spending -- Gas, Home Maintenance, Furnishings, Lawn & Garden Supplies, Car Maintenance/Repair
(3) Gifts -- Birthdays, Christmas, Other
(4) Charity -- Tithing, Other
(5) Monthly Bills -- Mortgage, Utilities, Etc.
(6) Irregular Bills -- Taxes, Yard Waste, License & Registration, Medical, Vet, Mistakes
(7) Savings -- Emergency Fund, Buffer, Vacation, Retirement
(8) Reimbursements -- His work, My work, Family Gift Reimbursements
(9) Things We Want

I'm sure our categories will change a bit as we get more comfortable with using YNAB -- I've reorganized at least 2-3 times.

Even though we don't have a buffer, both of us are salaried, so we know what to expect for income. I budget based on this number, and just watch the "Budgeted Below" number, even if the "Available to Budget" is in the red. Our expenses for Groceries, Eating Out, and the like are budgeted almost the same every month. Unless I know we're doing something extra - like hosting a party or something - where we might spend more, those categories stay pretty much the same every month. We get paid twice a month (15th & last day...or last Sunday in my case), so on the 15th and the 1st, I withdraw half the month's budgeted cash for our envelopes. I do leave about $20-25/month of the Eating Out category in the bank account, because DH sometimes randomly decides to get coffee/muffin/lunch in the cafeteria when he hasn't brought cash with him.
At the end of the month, I zero out the Gas category and most of the Cash Envelope Spending categories, except for clothing. When I withdraw next month's cash, I subtract the cash amount I have leftover. The rest of the categories just carry over, and the remaining "Available to Budget" goes into a savings category. If for some reason, we do overspend, I typically adjust the same day, because I know I'm overspending when I do it. I usually take about 5-10 minutes every morning to enter the transactions and check to see what cleared the bank & credit card accounts.

I have the birthdays and the inconsistent utility bills filled in through the end of the year. The birthdays based on how many family members have birthdays in each month (we only buy for the parents and the siblings+their families that live close, thank goodness!) based on $20/kid, $40/adult (I put $.01 for the months with no birthdays so that I can use quick fill), and the utilities (electric & natural gas), have an amount in there based on last year's bills. I typically over-estimate the utilities by $10-15 from last year's. I should probably look into the budget billing thing at some point, just to make it easier. And maybe next year, we can more gradually save up the birthdays. Actually, now that I'm typing this, I might go adjust and recalculate. We have 16 birthdays through the year, and 10 of them happen from Feb to June, so now for the rest of this year, I can work on saving a set amount each month. And in case you're wondering about the family gift reimbursements -- I am one of 7 kids, so we all chip in to buy Mom and Dad larger birthday and Christmas gifts. Because I live near Mom & Dad, I end up being the purchaser, and need to keep track of who owes me what for the gifts. The "Things We Want" category gets specific larger purchase savings goals, then after we purchase them, I typically re-categorize to a broader category, delete the category. It just makes it easier to have the money set aside specifically for those things. Right now there's about 5 specific home improvement projects in there, waiting to get some money.

The thing I love most about YNAB is the rollover category saving. It's so helpful to know that you've been putting that money "aside" for months, and it's just ready for you to use it! It was so hard to keep track of how much you should've saved up for X category by X time with any other way I tried.

[Trevor]

Background: Bounced between Quicken and Microsoft Money - when Money announced it's end I went looking elsewhere
YNAB Experience: Started December 2009
Buffer: Started with full buffer

Categories: Feeling to lazy to type. Let's just say that I probably have way more categories and accounts than average. I like having the extra details and it has been sustainable for me so I keep them. Tracking cash was a pain before having YNAB mobile apps, but now it's manageable. I don't use any importing, I enter all my transactions manually.

I get paid bi-weekly, so my budgeting process for the first paycheck in the month is to budget the household items like the mortgage and utilities. After that I used to pay the credit card bills that weren't paid in full, but thanks to YNAB, those are all gone. When I get the second paycheck in the month I finish off any bills and then start funding all the other categories. I don't copy my budget from month to month. Each month the money gets budgeted based on whatever needs and wants that I have. In the two months that I get a third paycheck, it now all goes to fattening up any savings or lumpy categories. It used to go towards accelerating debt repayment.

I do a lot of 'whack-a-mole' during the month. If a category gets overspent, I just chip away money from other categories.

I think that the results that I have obtained while using YNAB is the key to long term sustained use for me. In the past I was only able to maintain usage of financial software for about a year before slacking off in entering transactions and then giving up. I've gone though some miserly stages and some free spending periods, but as long as I stay within the overall budget I find myself steadily progressing in my financial world.

[Ian]

@blackdiamond. Thanks for starting this thread. It's really helpful.