For almost 10 years I used what I’ve come to call the “buffer budget”.
I call it that because the entire system revolved around having three types of buffers designed to both keep me and my family out of debt and keep us on track towards our savings goals:
- Cash flow buffer – Good habits that kept our routine expenses far enough below our regular income that most irregular expenses could simply be handled by the difference.
- Irregular expense savings accounts – Dedicated savings for irregular expenses like home maintenance, car repairs, travel, and gifts so that the money for those things was generally there when we needed it.
- Emergency fund – A healthy emergency fund for the really big things that couldn’t be handled by our other buffers, like a job loss or disability.
With those buffers in place, the idea was that we wouldn’t have to stress too much the details of our spending. We could simply automate our savings and allow those buffers to absorb life’s inevitable ups and downs.
And that worked for a while. It was particularly effective both when I was single and when my wife and I both had steady paychecks and no kids.
But as we had kids and our fixed expenses increased, and as my wife and I both started businesses with income that can vary pretty significantly from month to month, the buffer budget started to break down.
We were no longer able to count on a significant cash flow buffer every single month, which was really the backbone of the entire system. Without that foundational buffer in place, even run-of-the-mill irregular expenses would occasionally cause problems, throwing the entire system out of whack.
The overall idea behind creating a system with built-in buffers and automated savings was, and still is, a good one. But we didn’t have control over that system like we used to.
It was time for a change.
I’d heard about You Need a Budget (YNAB) for years. People raved about it, crediting it with everything from saving them from some pretty dire financial situations to simply helping them get more organized.
But I’d never tried it myself. I had thought about it, but inertia is a powerful force and I was too stubborn/proud/lazy to fully admit that the system I’d been using for years was no longer working.
Finally though, my wife and I hit a breaking point.
Our businesses had grown to the point where we were consistently making more than we needed each month, but we still couldn’t seem to get a handle on everything. We weren’t on the same page, unexpected expenses were regularly throwing us off track, and our savings were shrinking rather than growing.
So in April we finally decided to give YNAB a shot. We sent the kids over to my in-laws and spent a Saturday morning signing up, linking our accounts, and creating our budget together.
It was a life-changing decision.
I know that sounds ridiculous, but I really mean it. YNAB has quite honestly been a revelation, putting my wife and I in better control of our money than we’ve ever been and putting the two of us more on the same page than we’ve ever been.
I love it, and in this post I’m going to share why I love it so much, as well as some of the downsides to consider.
Let’s get into it!
Quick note: I am not affiliated with YNAB and am not compensated by them in any way. I am writing this post simply because I honestly love the app and think it will help you.
A quick overview of how YNAB works
Before getting into all the reasons why I love YNAB, including some of the downsides, it’s helpful to understand a little bit about how the app works.
There are a ton of tutorials on YNAB’s site, and I would definitely recommend relying on those if you really want to give the app a shot.
But here’s a quick overview of the main steps involved that should be enough for our purposes.
1. Link your checking accounts, savings accounts, and credit cards
YNAB is a budgeting tool, which means that it’s really only concerned with tracking two things:
- How much money is coming in (your income)
- What that money is going towards (both expenses and savings)
Linking your checking accounts and credit cards is enough to accomplish both of those goals, since those are the accounts that receive your income and then either spend the money or send it to savings. YNAB connects to your accounts and imports your transactions, allowing you to track all of that activity.
However, I also think there’s a lot of value in linking your savings accounts, since that allows you to additionally keep track of how much money you’ve accumulated towards your various savings goals.
You do not need to link investment accounts or debts other than credit cards. You can simply track your contributions and payments towards those accounts.
2. Budget all of that money into categories
Once all of your accounts are linked, you’ll have a big To Be Budgeted number at the top of the app.
This number is simply the sum of all the money in your checking and savings accounts, minus the current total balance across all of your credit cards. It represents the total amount of money available to you for both your upcoming expenses and your short-term savings goals.
The next step is to allocate all of that money towards Categories. A category in YNAB is essentially a virtual envelope that you are putting money into and spending from, and I like to group them into four different types:
- Monthly budget – Everything that you spend money on every single month. This includes things like your mortgage payment, utilities, groceries, and debt payments.
- Irregular bills – Annual or quarterly bills like insurance premiums, car registration fees, and Amazon Prime. You can set money aside for these things monthly so that the money is available when the bills come due.
- Irregular expenses – Expected but irregular expenses like home maintenance, car repairs, travel, and gifts. Like your annual bills, you can set money aside for them monthly and allow it to accumulate, making it more likely that you’ll be able to afford them when they come up.
- Savings goals – Your emergency fund. A down payment. A new car. Whatever you’re saving for, you can both set a chunk of money aside for it initially and add money to it either monthly or as it’s available.
Your initial task is to take all of your To Be Budgeted money – that is, all of the money available to you across all of your checking and savings accounts, minus what you owe on your credit cards – and allocate it towards all of these categories.
This can take some time and involve a number of guesses, especially if you’ve never budgeted or tracked your spending before.
But the end goal is to walk away with at least a beginning understanding of both how much you’re spending each month and how much money you truly have leftover for savings goals after accounting for all of your basic needs.
3. Track and adjust
Now that your accounts are all linked, YNAB will start importing transactions as they occur and it’s your job to log in regularly and assign each of those transactions to the correct category.
As transactions are imported and categorized, YNAB compares your spending against your budget and lets you know if you’ve overspent in any particular category, as well as showing you categories where you have money leftover.
It’s then your job to make adjustments for any overspending. For example, if you spend $50 more than you budgeted for groceries, you need to cover that deficit by taking $50 from another category. You could take it from discretionary spending like your eating out category, or it could come from one of your savings categories like your emergency fund.
Either way, you do have to account for it. And while this might sound like a hassle, I’ll explain below why I actually really like this feature.
4. Budget new money as it comes in
When you receive your paycheck or otherwise have new money deposited into your account, you’ll have a brand new To Be Budgeted amount that you can allocate towards next month’s expenses, savings goals, debt, or anything else.
From there, the process repeats itself. New money comes in, you budget it according to your needs and goals, and you track your spending and make adjustments along the way.
Simple, right? Well here’s why I love it so much.
Why I love YNAB
1. Taking control
I don’t need to tell you how frustrating those irregular expenses can be.
Whether it’s new tires for your car, an unexpected trip to the hospital, your best friend getting married across the country, or an annual bill you forgot to account for, those irregular expenses always pop up at the worst time and throw the rest of your financial plans off tack.
I’ve written about my system for dealing with irregular expenses before. It basically involved setting up a separate savings account for each type of irregular expense, automating monthly savings to each one, and transferring money out when I needed to spend it.
And while the idea there is good, the execution can be a hassle and the truth is that my wife and I weren’t accounting for all of the irregular expenses we should have been.
And this is where YNAB really shines.
You can set up that exact same system in the app, without having to set up a ton of different savings accounts that you have to constantly transfer money between. I personally have categories for:
- Home maintenance
- Car repairs
- Medical expenses
- Annual insurance premiums
- Date night
- Amazon Prime
- Car registration fees
- Google Drive storage
All of those things are either annual bills or irregular expenses that could potentially throw my entire budget off track.
But in YNAB I simply make each one its own category, budget a monthly amount to ensure that I have the money when I need it, and walk away knowing that I’ve already accounted for just about every curveball life could throw my way.
I can’t tell you how anxiety-relieving this is. With all of these irregular bills and expenses accounted for, I know that the rest of the money in our accounts is truly available for the rest of our spending needs and savings goals. I don’t have to worry anywhere near as much about a forgotten bill or unforeseen expense throwing us off track.
I have control.
2. Getting real
There are two key things about YNAB that force you to be a lot more real about your budget than any other tool I’ve seen.
First, you can only budget with money you already have. This isn’t some theoretical exercise about what you plan to do with your next paycheck. With YNAB, you’re forced to be real about how much you can afford spend given the money you actually have in your accounts. In other words, it forces you to live within your means.
Second, you have to account for overspending. I mentioned this above, and I can understand why this would sound way too nit-picky for some. I honestly thought it was a little bit-picky at first myself.
But I’ve come around and now I think it’s hugely important.
To start, it’s really easy to do within the app. It’s just a couple of clicks to move money from one category to another and you’re done.
And more importantly, whether you think about it or not, your overspending is already being accounted for. Either it’s taking away from something else or it’s adding to your debt. Ignoring it doesn’t remove the impact. It just means you don’t fully understand the impact.
By accounting for it, you are both able to choose the impact that it has and better understand how that overspending affects your overall situation.
Do you want to reduce your eating out budget this month? Or maybe you haven’t spent as much on groceries this month and you can take money from there. Or maybe you have to take it out of savings.
The point is that it forces you to be real about the consequences of your behavior and it gives you the opportunity to choose what those consequences are. All of which leads to better understanding and more control.
3. Collaborating with my wife
Before YNAB, I was using a combination of mint.com and a few different custom spreadsheets to track our spending. I’ve written about most of that process here.
And while I, for the most part, had a good handle on how all of those pieces fit together, it was not a very good way for my wife and I to stay on the same page. There were too many moving parts and too many different spreadsheets for us to really have a shared understanding of what was going on.
YNAB has largely solved that problem for us. Everything is in one place. Everything is organized and presented much better than it was in my spreadsheets. We set it all up together and keep it up to date together.
Now we’re speaking the same language. I wouldn’t say that it’s perfect, but our communication and shared understanding of our entire financial situation is so much better than it used to be.
Before YNAB, my wife and I had one checking account and seven different savings accounts. One for our emergency fund and six for the most significant irregular expenses that we wanted to plan ahead for.
With YNAB we’re down to one checking account and one savings account. And that’s because we’re able to use categories as virtual savings accounts, setting money aside for irregular expenses and letting those balances build up within the app, instead of having to actually transfer it to a savings account and then transfer it back when an expense came up.
This has dramatically reduced the number of moving parts in my life without in any way changing my overall strategy. I’m still able to implement the same self-driving financial system. It’s just that it’s all done through categories within the app instead of transfers between actual savings accounts.
It’s all much easier to manage with a lot less to keep track of.
Downsides to YNAB
As much as I love YNAB, it’s not perfect and it’s not for everyone. Here are some of the biggest downsides.
1. Adjustment period
In addition to the learning curve of using any new app, YNAB forces you to think differently about your money in a number of ways.
The idea of your savings goals being tracked as categories instead of savings accounts can be a little weird. Budgeting only with money you have can be a little weird. Accouting for overspending can be a little weird.
There’s definitely an adjustment period, and the truth is that this approach isn’t right for everyone. I personally love it, but you may find that it doesn’t quite line up with how you want to think about your money.
2. More work
YNAB requires more work than other budgeting apps.
It’s a lot of work to set everything up and get used to using the app. It’s also a little more work than some other apps to import and categorize transactions.
You also have to set your budget each month. It doesn’t automatically carry over, though you can use goals to make this pretty easy.
And you have to account for overspending, as we talked about above.
So yes, in some ways YNAB is more work than other budgeting tools.
But in other ways all of this structure has actually reduced the amount of time I spend on my budget:
- Instead of using a combination of mint.com and a custom spreadsheet, everything is handled in one place.
- While it’s a lot of work up front, once you’re used to it it’s actually relatively easy to maintain.
- The work you do have to do results in a more stable budget, which means you spend less time and energy scrambling when the unexpected happens.
At the end of the day, any extra work you do have to put in ultimately leads to a better, more realistic budget, which means that your overall financial situation will be in better shape.
To me, that’s a win.
3. Not great at tracking net worth
YNAB is a budgeting app through and through. That’s what it’s meant to do and it does it well.
It also means that it’s not great at tracking things like investments accounts, mortgages, auto loans, student loans, and other accounts like that. You can certainly link them, but it doesn’t automatically track the growth in your investment accounts or separate interest from principal payments towards your debt. There’s manual work that has to be done in order to keep those balances up-to-date.
My experience is that it’s better not to link those accounts at all. There’s not much benefit and it adds a number of unnecessary complications. And for the purposes of your budget, all you really need to track is the money you’re sending to those accounts from your checking, savings, and credit cards.
All of which means that YNAB isn’t great at tracking your net worth and giving you that view of your overall financial situation. I’m personally happy tracking that separately, but you may feel differently.
4. It costs money
There’s a 34-day free trial, but after that YNAB costs $83.99 per year.
My personal opinion is that most people will get more than enough value out of it to make up for the cost, but I could understand if this was a deal-breaker for some, especially given that there are plenty of free budgeting tools available.
Who should and shouldn’t use it
To completely honest, I think that most people would benefit from using YNAB. And I think that’s especially true if you find yourself in any of the following situations:
- You’re on a tight budget
- You want to be able to save more money than you currently are
- You’re not sure where all of your money is going
- You’re in debt and you need a better system for paying it off
- You don’t feel like you’re in control of your money
With that said, I do think there are people who don’t really need this level of structure. Specifically, people who meet all three of the following criteria:
- You consistently spend significantly less than you make each month.
- You’re already on track with your savings goals and feel confident about staying on track.
- You’re comfortable with the amount of money you have leftover to spend on things that make you happy.
If that’s you, then YNAB may not be able to improve much about your situation and the extra work may not be worth it.
Why not give YNAB a shot?
I procrastinated for a long time before giving YNAB a shot.
I wasn’t thrilled that I had to pay for it. I thought it might be too much work. I was too stubborn/proud/lazy to admit that the system I’d been using for years wasn’t really working anymore.
Now it’s hard for me to imagine living without it. It’s had such a positive impact on my entire finance situation, and my only regret is not starting to use it sooner.
If you’re struggling to save or pay off debt, or if you’d simply like to feel more in control of your money, I’d encourage you to give YNAB a shot.
I think it will help.