If you are on the road to FI (Financial Independence) a budget is a must. If you want the best budgeting tool out there, then you need a budget that will keep you on track and help you get there faster. As an avid planner, I fell in love with budgeting software over 15 years. This was long before I ever heard of FI or knew anything about the Financial Independence movement. I started where a lot of people do, with Quicken. I used this software for years and years not making much, if any, appreciable progress towards my financial goals. Month after month I would dutifully sync my accounts and make sure that everything was properly categorized. However, I never seemed to have the money left over that my budget said I should have. It was very frustrating and demotivating for sure.
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Then one day, at the office, I was complaining about how I felt like Quicken had let me down and the other competitors I tried (Mint, Everydollar, iBank, etc) weren’t much better. That’s when a fellow Type-A planner I asked if I had tried YNAB yet. Not only had I not tried it, I had never even heard of it (!) She gave me the basics explaining that YNAB stand for “You Need A Budget” and told me that she highly, HIGHLY, recommended it. I downloaded it as soon as I got home and that was the turning point for us in finally making progress towards FI.
So, What is YNAB?
YNAB is a completely different kind of budgeting tool – it doesn’t just track your spending. Instead, it helps you make a plan and manage your spending real-time so you can actually achieve your most important financial goals with less effort. More on how they do this in a minute. If you are familiar with Dave Ramsey an/or the envelope system it may be helpful to think of YNAB as a digital version of the envelope system. He (Dave) may hate that I am going to say this (lol as if Dave would ever even read this) but I actually found YNAB was much better at executing the envelope system digitally than the EveryDollar app his company offers and at a lower price.
When you first sign up for YNAB they will welcome you to the YNAB family and share their budget “rules.” Now for a Type-A, Ennegram 1, INTJ rule-follower like me, hearing “budgeting rules” is music to my ears. Give me the framework and I will execute to a “T.” But don’t worry, if you don’t fall into this camp. The YNAB rules are not about restriction, instead they are all about helping you achieve your financial goals in a sustainable way. For this reason, I actually think people most people won’t mind these rules at all once they get the hang of them. You can let me know if you disagree and think I am crazy in the comments 😉
YNABs Four Rules
Rule 1: Give every dollar a job
If this rule reminds you of Dave Ramsey, it should but that is because it is a GREAT place to start. An important nuance here is that you only assign dollars you actually have… not the dollars you are expecting, even if you know your paycheck hits in three days… those dollars cannot be assigned or counted until they have deposited. This rule will ensure that you never get yourself into debt. You ONLY spend money you have.
If you are like me and like to do projections so you can plan out your annual cashflow then you may initially be frustrated with YNABs lack of ability to handle projections…. but you will eventually realize that YNABs real value is in helping you manage your day-to-day spending. That is where is shines. You will be better served to do your projections in Excel. This is very easy to accomplish by exporting the Income vs Expenses report and using that as a basis for your annual projections. Let me know in the comments if you want me to detail exactly how I do this in a future post.
If you want to learn more about rule one then click here for a more in depth review.
Rule 2: Embrace your true expenses
This rule helps make sure that when you have a non-monthly bill or expense you already have the money set aside to cover it. For example if you know you have a $625 life insurance bill that is due in November each year you would have a Budget Category for “Life Insurance” as shown below:
The screenshot above was taken in November 2022. You can see that I set aside $52.08 in November (1/12th of $625) and I paid out $625. You would have set up a yearly Spending Goal for this category of $625 with a November 1 date. By doing this, you will be on track to have the $625 set aside when you need it each year:
You will set up a category in your budget for all of your non-monthly expenses. I have categories for Christmas, Car Repair, Home Repair, Car Registration, Taxes, Annual Subscriptions (like Amazon Prime and of course YNAB), etc. I bet you can already see how this is really helpful to manage your cashflow so that these large non-monthly expenses don’t trip you up and set you back through the year.
Learn more about Rule 2 here.
Rule 3: Roll with the punches
This rule really helps you to be successful since it encourages active management of your spending. When you see that you only have $15 in the Dining category and you want to get $20 takeout pizza you have only two options… either find another dinner option that fits within your budget or you move money from another category to cover the extra expense. YNAB helps to reinforce good money habits since you can easily see how all of your spending is connected and you are always making tradeoffs when you spend money. If you want to see this rule in action you can do that here.
Rule 4: Age your money
Essentially this is where you build a bit of margin or breathing room into your finances. You stop living paycheck to paycheck, start getting ahead and importantly make progress towards your FI goals. YNAB tell you to age your money at least 30 days which means you are using last month’s paychecks to pay this month’s expenses. That is a great goal to start with but if you are on the path to financial independence you will eventually be able to get that number up much higher. We are usually 100+ these days.
One thing to keep in mind is that this metric is aging new money coming in, so it is not the same as how long you money would last, aka your days cash on hand. If you want to learn more about Rule 4 you can do that here.
Final Thoughts
The YNAB budgeting philosophy encourages a much more thoughtful and proactive approach to managing your spending rather than the reactive tracking approach that Quicken and most other budgeting software follow. I believe this difference was key in helping us to achieving one of our biggest the financial goals of paying off our mortgage early, which we did in August 2022 just 12 years after purchasing our house.
You’ve Conviced Me! How can I Try YNAB?
Awesome, I just know you are going to love YNAB as much as I do! You can access YNAB both via your favorite internet browser as well as their awesome app. Both receive frequent updates and have run nearly flawlessly in the three years I have been using the software. Both offer a clean minimalist design that is a pleasure to use. The interface is very intuitive and easy to navigate. The app offers just as robust of a user experience as the browser version, although you will miss out on the variety of witty jokes that the browser version feeds up as it is refreshing. It’s the little things when you are a budget nerd 😉
My husband and I use the same login so we both have on-the-go access to the budget which is critical to keep everyone on the same page and to help avoid unintentional overspending. It also makes everything super easy. The current cost is $99/year which breaks down to $8.25/mo, they also offer a monthly plan but since we are working towards FI the annual plan is definitely the way to go. If you use my link: YNAB you will get a free trial (currently they offer 34 days) and I will get a free month of YNAB if you sign up. As always your support is appreciated.
If you are already using YNAB or decide to give it a try, I’d love to hear what you think of it! Let me know in the comments 🙂 If you found this article helpful you can easily Pin or share the image below. Thanks for your support!
