Using the Budget
How does the Budget work?
Instead of looking back and recording what you’ve already done with your money (too late), you decide proactively how you want and need to spend or save your money. Then, you use your Budget as your guide to eliminate guesswork and reduce stress. You'll know exactly how much you have to spend on any given item!
At the top of the Budget is the Header:
This gives you information about how much money you have going into a given month. The header can be expanded or collapsed by clicking on the words Available to Budget.
When it’s expanded, you will see a formula that shows you how the Available to Budget number was arrived at:
Not Budgeted in (name of last month)
This is the amount that you received in prior months but did not budget.
(-) Overspent in (name of last month)
This is a total of all overspending from the prior month across your budget categories. It is subtracted from the Not Budgeted number. (Learn about Rule Three)
(+) Income for (this month)
This is all income that you categorized in the register for this specific month. For example, if you categorize income as “Income for September” it will show up in September’s header regardless of when the income arrived.
(-) Budgeted in (this month)
This is the total amount of money you have budgeted in different Categories in the month below.
BUDGETED COLUMN
The budgeted column is where you will enter the amount you want to assign to each Category. This is the only column on the Budget where you enter information.
OUTFLOW COLUMN
When you enter spending in your register with a given Category, YNAB automatically records that amount in the outflow column on the Budget in the same Category. If you enter a transaction for grocery spending, YNAB enters that same amount in the outflow column for groceries on the Budget. This allows you to easily see how your spending is lining up with what you’ve planned - or budgeted - in each Category.
BALANCE COLUMN
This tells you how much you have remaining to spend in this Category, based on how much you budgeted and how much you have already spent. The number in this column is:
Any Category Balance from the previous month
plus Budget amount in the current month
minus Outflows
YNAB always keeps track of how much money you have left in any given Category to help guide your spending decisions.
Is there a good process for budgeting?
Once you know how much money you have Available to Budget, you can start assigning those dollars to jobs. When you are first starting out, you probably won’t be able to budget the entire month at once. That’s okay, just assign dollars to Categories until the Available to Budget number is zero. It’s best to do this prioritizing - which might be new if you haven’t budgeted before:
- Take care of immediate needs first - gas and groceries.
- Then budget some money toward bills that are coming up right away. Is it due this week? Budget for it!
- After those things are taken care of, look at the Available to Budget number. If you still have some money left - budget for bills that are due later in the month.
- Once all your monthly bills are taken care of, you can start assigning dollars to rainy day Categories like car insurance, vacation and car repairs.
- If you still have money Available to Budget after taking care of rainy day funds, you can leave that as Available to Budget. Any money not assigned to the current month becomes your Buffer for the next month!
I don’t have a Buffer. Will YNAB still work for me?
Absolutely!
You can always start by budgeting what you have on hand right now. Budget toward the bills and other needs that you have that will occur before you get paid again. Then when you get paid again simply repeat.
As you go through the month, don’t assign all of your dollars to jobs in the current month. You can do this by simply not budgeting all of your money to the Categories that you have. Any money not budgeted in the current month is assigned the job of rolling forward into the next month. Regardless of whether you assign dollars to the current month or not - they all get a job eventually. Soon, you will enough money to budget an entire month without touching your paychecks for that month. When you get to this point, you have what we call a Buffer.
Can I budget the whole month at once?
You can, if you have enough money on hand to cover your expenses for the month. Otherwise, you’ll need to wait until you have a buffer in place.
(Learn more about the Buffer and Rule Four: Live on Last Month's Income). Whether the money you have on hand allows you to budget for a week or for a month, we recommend following a simple three step process.
- Enter your income.
- Budget your income.
- Follow your Budget.
This means you can only budget each paycheck as it arrives, but you will gain tremendously because you are budgeting with real money that has already arrived, as opposed to budget with money that you think/hope/want to have.
Eventually, you’ll build a Buffer of one month’s income and then you can budget the entire month at once.
Can I change my budget throughout the month?
Absolutely! It’s your Budget after all. Unfortunately, the old school definition of budget was very rigid. “You set a budget and you stick to it or else!”
With YNAB, you can make adjustments any time you deem necessary. This puts you in a proactive position so you can deal with things as they occur, as opposed to the reactive position of analyzing what happened when it’s already too late to do anything.
How do I move money from one Category to another?
For example, let’s say you budgeted $400 for groceries, but you decide that isn’t enough. You see that you have a surplus in restaurants of $40.
Lower restaurants by $40. This will make that $40 Available to Budget.
Add the $40 to the grocery Category.
If you want to move money out of a Category that you haven’t budgeted anything to in the current month, simply budget a negative number, and a corresponding amount will come out of the Category balance and be added to your Available to Budget number.
What’s the difference between over-budgeting and overspending?
Over-budgeting is when you have budgeted more money than you have Available to Budget. In other words, you have planned to spend $3000, even though you only have $2500. This is not recommended. You should only budget money that you have.
YNAB will warn you when this occurs:
Overspending is when you spend more in a specific Category than you planned to spend. For example, if you budgeted $300 for Groceries, but spent $400, you have over spent by $100.
When you overspend, the text in the Category balance column turns to red, alerting you of the overspending. You can click on the red number to change the overspending settings.
What do I do if I overspend?
You don’t have to do a thing! YNAB has a built in way of taking care of this for you. If you overspend in a certain Category, YNAB subtracts the overspending amount from the top of the next month. You are given some flexibility when overspending does occur, but YNAB is responsible and makes you “pay back” that overspend before the next month starts.
However, you can also make adjustments yourself to correct overspending. If you’ve overspent in groceries, but have a surplus in clothing, you can lower the budgeted amount in clothing, and then add that to groceries.
Finally, you can change the overspending settings. If you click on the red number you can adjust the settings so the negative balance is subtracted from the same Category next month.
It’s your Budget! It’s entirely up to you how to handle overspending.