Allocating Income is deciding ahead of time exactly how every dollar of your income will be used when the money arrives. You may be familiar with this either from past experience with other software, or from a methodology that encourages it. When using this direct to categories approach income is allocated within the account register itself to the categories thus bypassing the income categories.
In YNAB, we refer to this concept as Give Every Dollar A Job. However, YNAB allocates the income in the budget, not in the account. You enter the total income in the account register, and then it's sent over to the budget. That way your income appears in the Available to Budget number at the top of the screen. The benefit with this approach is that when you are allocating - or budgeting - you have a complete view of your financial situation. You can see all your budget categories and weigh everything when deciding what to do with your dollars.
Once that's done, record your transactions as they occur. YNAB will automatically adjust the budget to reflect what you've had for Outflows (transactions where you spent money) and what remains in your Category Balance.
When new income arrives, follow this three step process:
We also recommend that you only work with money you have on hand (in cash and in the bank) and not money you haven't yet received.
When you budget only with money that you have on hand:
Rule 1 is only the first of the 4 YNAB Rules. Learn all about them on the method page.