Do you need a budget?
I think we all need a budget and a good software application to help us manage our finances. That’s why over a year ago, after asking for recommendations from my readers, I switched to YNAB Pro as my new personal finance system.
YNAB Pro has a lot of great features and I can honestly say that it makes managing my money quick and painless. It cut the time I spend on my personal finances in half which thoroughly delights me. I’d much rather be using my time for more enjoyable activities.
One of things that is unique about YNAB is that it was created with a specific set of financial rules in mind as the guiding principles for how the software operates. I like this purpose-driven aspect of YNAB. So, I thought I’d share a little about my experience with these rules.
My experience with the YNAB Rules for Money Management
The creator of YNAB was just an individual that wanted to “watch his money”. He researched the other budgeting systems out there and realized none of them provided what he wanted. Not one of the existing systems allowed him to create a living budget that adhered to the financial principles he felt were essential. Thus, the birth of YNAB.
The rules certainly make YNAB unique from any other software out there that I’ve tried. Therefore, you really need to understand the rules and their impact on YNAB Pro to determine if it is the right system for you.
Since I’ve got over a year’s experience now using YNAB Pro, I can tell you exactly how I like the way each of the four rules reveals itself in the software and how it affects me.
Rule One: Stop Living Paycheck to Paycheck
YNAB wants you to live on last month’s income instead of the paychecks you are earning this month. Click on the short video to the left for more of an explanation.
Personally, I don’t do this. It may seem strange that I use and recommend YNAB Pro when I don’t follow their first rule of money management. Could I do it? Yes, I believe I could get there, but I haven’t seen the need since I have an emergency fund of 3 to 6 months of expenses.
I suppose it would make things a little easier in that I wouldn’t have to schedule certain transactions for the second half of the month after my mid-month paycheck, but that’s never really caused a problem for me so I’ll probably keep doing what I’ve always done.
Fortunately, in the software, it is easy to work around this. As it demonstrates in the video, you have the choice of claiming income as either primary or supplemental. Primary income is allocated toward next month’s budget while supplemental is applied toward this month’s budget. I just tell YNAB that most of my income is supplemental and it all works like I want.
This is just one example of how flexible the software is which is one of the things that I enjoy about using it. I hate being forced to do things somebody else’s way!
Rule Two : Give Every Dollar a Job
If you’ve read this blog for any time at all, then you know that I fully embrace Rule Two. I completely believe in using a budget to assign every dollar a job in advance at the beginning of each month. This rule aligns itself perfectly with my Smart Living Rule 6 and is one of the reasons that I love YNAB so much!
YNAB Pro is based on the envelope budgeting system where you create categories that act like electronic envelopes for your spending. At the beginning of each month you allocate a certain amount of your income to each envelope or category and then as the month progresses, you assign what you actually spend to the appropriate envelope.
It only takes me about 15-20 minutes per month to set up my budget and maybe another 20-30 minutes a month to track my spending. This is time well invested to be sure my money is spent according to my priorities and not just scattered to the wind.
YNAB Pro has several nice features that really make this fast and easy. For example, I’m able to import my transactions from my Credit Union into YNAB. It then automatically assigns these transactions to an envelope that I then only have to right-click and approve!
Rule Three: Save for a Rainy Day
The idea behind Rule Three is to save money in advance for known and unknown future expenses. As mentioned in the video, this savings is for things like buying Christmas presents or paying your car insurance premium every six months.
I follow this rule religiously! I have several categories set up in YNAB so I can budget a certain amount each month for things like periodically having to buy license tags for my vehicles and paying my annual life insurance premium. YNAB Pro accumulates my monthly allocations and carries over the balance from one month to the next. This way the money is setting there in an envelope ready when the expense actually occurs! It eliminates the “surprise” bill that leaves you short at the end of the month.
Another great way to use this is to create some discretionary spending envelopes. For example, my wife and I have a date fund. We put $50 a month in this envelope. We don’t always get an evening away from home every month so the money accumulates. Then when the kids go spend the weekend with Grandma, we’ve got some money put back to enjoy a night out without feeling guilty or stressed about money! It is awesome!
Rule Four: Roll with the Punches
The last YNAB Rule recognizes that a plan made at the beginning of the month that attempts to predict the future is never perfect. I’ve pointed out before that A Rigid Budget Will Die A Quick Death. Even seasoned budgeting pros occasionally make mistakes and need to make mid-month corrections. YNAB Pro handles this beautifully!
The software forces you to address overspending. The video really illustrates how this works. I encourage you to watch it. This aspect of YNAB Pro took a little getting used to, but now I really like it. Where before I could have just ignored a problem category in a given month, this rule makes that impossible.
Once you understand how YNAB handles this then it becomes very simple and reassuring. I know that my budget is consistent, yet flexible. I don’t stress about it as much as I used to. I know I can work it out and start each month off with a clean slate!
The YNAB Rules Are What Makes This System Great!
I really like the idea that YNAB Pro is built on simple, yet solid money management principles. It is what makes the system great! I also like how all the built-in features make managing my money so easy.
I’m not the only one that feels this way. There are a ton of great customer testimonials on the YNAB site that I encourage you to take a look at. YNAB Pro is a budgeting and money management system that won’t steer you wrong!
Are you going to give YNAB Pro a try?
Photo by baslow