Of all the people to know money inside and out, Daniel is a contender for a gold medal.
Daniel and his wife Loretta have five professional accounting designations between them, three finance MBAs, and decades of corporate finance experience. More recently, Daniel was a FinTech startup CEO, an executive at Quicken, and he now leads Business Development at Brightside (a financial care platform for employees).
But when it came to wrangling his own household finances, he was stressed and anxious for years.
“I met my wife in high school at an after-school program called Junior Achievement. We’ve always had joint finances, and our first basic budget was a red pencil case that you put in a 3-ring binder. It took us 6 months to sock away $500, and we kept a log of contributions and withdrawals. The idea of pooling our financial resources was important to us, and today we keep everything jointly or in the name of our trust.”
“In our mid-20s, we racked up $35,000 in credit card debt. We both had fancy Swiss watches, a plasma screen TV, and two BMWs—a lot of which was financed through debt, even though we both had six-figure salaries.”
Daniel tried all the apps (read: all the apps. He’s a tech guy, remember?), but he struggled to find a method that really worked for him.
“It was personally embarrassing and very frustrating.”
Worried that his finances would spiral out of control, Daniel and Loretta built a spreadsheet full of pivot tables, VLOOKUPs, SUMPRODUCTs, filters, and conditional formatting. The spreadsheet worked, but it was not scalable, completely manual, and not real-time.
“There had to be a better way to manage my daily financial decisions. I wanted to see my income and spending, compared to an ever-changing budget, updated in real-time. I also wanted to set funds aside for lumpy expenses and surprises. This is the view we needed to make trade-offs, set goals, and prioritize.”
As a FinTech insider, Daniel was in awe of YNAB’s cult-like status (Cult? What cult?).
“YNAB’s fervent community, fan clubs, and abundance of Youtube videos had me asking questions. Why are YNABers so intense and passionate? How is YNAB different from everything else I’ve tried?” he asked. Finally, he signed up for YNAB.
“At first, I failed hard. I didn’t understand why I couldn’t forecast my expenses, and I was stumped by why I could only budget the cash I had on hand. Wasn’t budgeting about projecting my income statement several months out? Why does it matter how much cash I actually have?”
It didn’t click right away. After watching videos on how to get started, Daniel quickly burned through his free 34-day trial without knowing how to get YNAB to work for him. Thankfully, he wasn’t ready to give up so he asked YNAB’s support team for an extension.
“I really wanted to make it work. I needed to understand why YNAB users were such big fans, but at the beginning, I almost gave up. If YNAB charged me up front without a free trial, I would’ve stopped trying. And that would have been terrible, as YNAB has been a game changer. Especially during a year of COVID with a young family, managing my finances is getting complicated.”
He didn’t give up, but the path wasn’t easy. He had two false starts.
“The YNAB system wasn’t intuitive to me. With a deep background in finance and accounting, I thought it’d be a piece of cake to get going. After all, I already knew how to use enterprise finance tools like SAP, Netsuite, and Quickbooks. But like learning to ride a bike, I knew I had to fall a few times.”
Daniel enjoyed seeing people post their YNAB wins on Reddit. After the second failed cold start, he decided to clean slate his approach and read Jesse’s book to understand the fundamentals first.
Watch Daniel and Ivan talk with Jesse about managing their money in YNAB, or listen on Spotify.
“That’s when the light turned on for me. Assigning only the money you have (instead of what you don’t have)—just works. The accountant in me sees it as a balance sheet approach instead of an income statement approach (which is how most other budgeting tools work). After all, any change in your income and spending is really a change in your assets or liabilities. On the third try, it clicked. I had a budget that made sense to me and I successfully rolled over to the next month. This was huge!”
From that moment on, Daniel was sold. He even wears a YNAB dad-hat on bad hair days. With the fundamentals down, he set up a category structure that works for him.
Here’s how Daniel organizes his budget:
- Discretionary. This includes shopping, dining out, and groceries. He keeps tabs on these frequently used categories via an iPhone widget.
- Living. This is for gas, giving, ad hoc babysitting and other expenses that aren’t static month to month.
- Monthly. Here’s where Daniel keeps his recurring bills, listed in order of when they get taken out from his bank account (together with a cute emoji icon). Expenses like rent, internet, cell phone, utilities, daycare, and subscriptions. Although Daniel keeps one catch-all for monthly subscriptions, when he first adds a new one (HBOmax, Disney+, anyone?) he adds it as a separate line item first for extra visibility.
- Lumpy. This is for True Expenses and sinking funds like car repairs, caregiver bonuses, medical costs, insurance, and big infrequent household purchases (new furniture and appliances). Daniel sets a goal for each category and keeps them topped up monthly.
- Parked. This is the biggest part of his budget and it includes an income tax buffer and a backup income replacement fund. Daniel avoids the category ‘emergency fund’ because he uses the Lumpy category to cover bumps in the road that we all know will happen.
- Savings. Similar to the Lumpy category above, but for aspirational expenditures. This is where Daniel and Loretta are saving to buy a Tesla SUV with cash and a family vacation to Europe once traveling becomes a thing again.
- Splurge. Sometimes you just need to spend, without logic, reason, or excuses. Just because you want to. Daniel and Loretta each have separate splurge funds that grow monthly, so that they can accommodate bigger purchases. Small treats like a video game or bigger indulgences like a wall-sized art-piece used in production for a Star Trek movie won at an art auction (yes this is a real example) are also funded here.
Daniel has his investments set up as tracking accounts to get the big picture of his net worth, and he’s created categories in his budget for those high tax bills that often catch high-income earners off guard.
“I love knowing that the things I need in life are saved for and funded before I buy them. Seeing changes in our net worth, and actively managing our expenses is very rewarding. I literally crack a smile whenever I have new transactions to assign to budget items. It’s so fun! Having a realistic plan in place for our family has also helped us weather the past 1.5 years of uncertainty.”
On top of controlling his finances, Daniel uses YNAB to make better financial decisions.
“Our monthly spending has decreased since we’ve started budgeting—because of the visibility, but also because we’ve committed to growing our investment contributions instead of spending on unnecessary luxuries. In the past two years, our household savings rate as a percent of gross income has grown from 6% to 27%. We max out our 401(k)s and save even more on top. We’ve also made lifestyle changes—we now both drive Hondas and wear Apple watches. When my BMW M3 needed a $9,000 repair, I had enough and sold it the next day.”
After getting a good handle on his cash flow, Daniel now uses YNAB to reach financial freedom.
“The primary wealth-building tool for Americans is their paycheck—and making the most of what you earn. To me, focusing too much on investment growth and individual stocks is like trying to make a fire burn brighter by fanning the flames. This will help, but in the long-term you’re better off adding fuel to the fire by saving more. I use YNAB to make sure I’m adding logs to the fire so that it will burn brighter and bigger.”
Daniel A. Chen is a CPA, Chartered Accountant, and Series 65 Investment Advisor. He has his MBA from Wharton, and decades of corporate finance experience at companies like KPMG, Constellation Software, eBay, and Quicken. More recently, Daniel was a FinTech startup CEO and he now leads Business Development at Brightside (a financial care platform for employees).
We weren’t kidding about that financial gold medal.