I’ll be honest: it wasn’t love at first sight when I first stumbled across YNAB. I saw its potential, but there was one thing I really didn’t like about it. I wanted to add my income and clearly see it, along with my expenses, on my YNAB budget.

After all, my background is in accounting, and while the spreadsheet aesthetic of YNAB drew me in, lumping my income into a “Ready to Assign” category that didn’t even show up in my budget wasn’t something that made sense to me at first.

I checked out several other budgeting apps before realizing how much my own view of money aligned with the YNAB method. There was no other app out there (and this is still true now, 10 years later!) that follows the same method of giving all of your dollars jobs, not just money coming in during that month.

So, I made a few adjustments to allow me to see income in my budget, while still following YNAB’s methodology. 

Why YNAB Doesn’t Have Income Categories

It’s not that YNAB necessarily discourages you from tracking your income, you’re just not planning ahead for it in advance like you do with spending categories. 

Unlike other budgeting apps that have you enter your estimated monthly income and expenses and then track your expenses to see how your actual cash flow compares to that estimate, YNAB takes a completely different approach. By only budgeting the money you currently have in your accounts, you’re facing the reality of money as a finite resource. To do this, you:

• Exclude earnings that you haven’t actually received yet
• Only budget for expenses that you can cover with your current cash in your accounts

And the minute money flows into your accounts (and therefore into your budget), you allocate those funds to various budget categories until you’ve assigned every single dollar. In their words, you answer the question “What does this money need to do before I’m paid again?“.

So, for many (and possibly most!) YNAB users, it makes sense to simply use YNAB’s default “Inflow: Ready to Assign” category and not have income-specific categories. If the focus is strictly on allocating available funds to upcoming expenses, this is the most streamlined way to do it. That’s why it’s set up that way!

Why I Include Income Categories in My YNAB Budget

Personally, it’s important for me to see the entire picture of my cash flow in my budget, not just plan ahead for future expenses (although that part is also extremely valuable and one reason I still use and love YNAB!).

Maybe it was too many accounting classes in college. After all, the report for a business that shows their overall cash inflows and outflows for the year is called a “profit and loss” or “income” statement. Ignoring the income side of it within my YNAB budget just didn’t seem right to me.

Side Note: Yes, you can see a breakout of income by payees on YNAB’s Income v Expense report, but I prefer to see income categories on my plan as I’m assigning funds, along with all of my expense categories. I also have multiple payees that fall into the same income category (such as multiple savings accounts with interest income) and use this income category information for other purposes outside my YNAB budget.

Here are a few reasons that I find it important to break income out separately in my budget.

Income is an Essential Part of the Cash Flow Equation

One of the key reasons I track my income separately in YNAB is that I have multiple sources of income and want to see them broken out individually.

Especially as a business owner with variable income, growing my income is essential to my long-term financial wellness. So, it’s essential for me to be able to track my income within my YNAB budget.

Having Multiple Income Streams is Key

In addition, my goal is to diversify my income streams and increase my passive income from saving and investing, which is much more tax-efficient.

I currently track the following income sources:

• Wage income (from my business, which is taxed as an S-corporation)
• Business distributions (from my business)
• Interest and dividend income
• Child support (post-divorce)
• Credit card rewards
• Other miscellaneous income

By tracking my different income sources, I’m able to track the trends in each separate income category. While I certainly want to increase my overall income, the breakdown of income by source provides me with valuable information.

Payroll Deductions Are Expenses Too

Now, I will admit that I’m pretty meticulous when it comes to managing my money, probably more so than your average person. But at the same time, does it really make sense to ignore expenses and savings contributions just because they’re taken out of your pay before they even hit your account?

I want to use YNAB for my entire cash flow picture, and tracking my income separately allows me to do that without having to recreate parts of my budget in a spreadsheet (I do love spreadsheets and use them as well, but I also value efficiency!).

As such, I split my pay each payday between gross pay and various payroll deductions (see the example budget below!). In this example, the net pay is $2,534.97 (the only number you’d typically see in a YNAB budget, which would be categorized as “Ready to Assign.” However, if you were to look at a paystub, you’d see this same breakdown, which includes gross income of $4,307.50 and payroll deductions of $1,772.53.

By doing it this way, you’re able to see some key outflows that are otherwise missing in your YNAB cash flow:

• Health insurance
• Retirement contributions
• HSA/FSA contributions
• Payroll & income taxes

This is somewhat controversial (I mean, the whole tracking income in YNAB is apparently controversial), but I think it’s totally worth the time to add in those additional items. Of course, you could also do this breakdown outside of YNAB, but I find it to be much more efficient and allows me to manage my cash flow completely within YNAB.

I’m a Tax Nerd 😉

On a related note, breaking out my pay between gross pay and deductions helps me to efficiently track the amount of Federal & state income taxes I’ve had withheld during the year. 

Taxes can be the largest, or one of the largest, expenses for many people, and clearly seeing this in your budget, along with all of your other expenses, adds a lot of clarity.

I’ve optimized my various YNAB expense and savings categories for tax purposes, so adding in my income and withholding information allows me to have everything I need in one place to estimate my taxes throughout the year, based on actual year-to-date numbers.

I import my information from YNAB into my detailed money management spreadsheet every month, which populates everything I need to estimate my taxes throughout the year, as well as other financial planning-related items.

How Tracking Income Fits Into the YNAB Method

Now, you might be wondering if adding income categories is “against” the YNAB methodology (spoiler: it’s not).

The YNAB method for income is to “establish your spending plan using only the funds you have on hand right now, not anticipating future income.”

The key here is not to include future income in your budget before it’s actually received. This is where the success of following the YNAB Method lies: you’re required to figure out what your money needs to do for you before any other money comes in.

But when that money does actually hit your bank account? 

Adjusting the process to break out income into separate categories at that point in time, rather than as “Ready to Assign” simply provides more clarity, without putting it back into the single pool of money that makes up the “Ready to Assign” number.

To summarize, if you have separate income categories, but you don’t put that income into your budget until you’ve actually received it, you’re still following the YNAB method, even if the logistics when you receive the income are slightly different.

Let’s look at how this works in practice.

The Nitty Gritty Logistical Details

You may be wondering what this looks like in practice. 

Setting Up Income Categories

From a setup perspective, I have a category group for payroll income and deductions and a separate category group for other income sources.

The payroll category group (see the example below) lists out each line on the pay statement, starting with gross pay and all individual deductions (sometimes I group things together, but only if they have the same tax impact).

The other income category group lists the income sources including:

• Business distributions (from my business)
• Interest and dividend income
• Child support (post-divorce)
• Credit card rewards
• Other miscellaneous income

I also include the following reimbursements/inflows within this income category group:

• Federal tax refund
• State tax refund
• Other reimbursements

Note: You can find the tax-optimized budget categories I use in my YNAB budget for free here!

Using Income Categories on an Ongoing Basis

Once money comes in, I categorize the income (in the applicable bank account in YNAB) based on the category above, just like I would do with expenses in YNAB.

For payroll income, I use a split transaction that totals to the net pay received (which is the direct import amount from your bank account!), with gross pay as an inflow and deductions as outflows (as shown in the screenshot above).

Then, I go over to my YNAB plan (budget) and enter the gross income received as a negative number in the applicable category, which transfers those funds back up to the “Ready to Assign” box at the top.

For non-payroll income sources, it’s simple: just enter the negative amount in the assigned column to make that money available to be assigned in other parts of your budget.

Payroll requires an extra step, as I also want to immediately assign funds to cover the payroll deductions that have already been deducted from gross pay. The net pay amount is what becomes available in the “Ready to Assign” box, just like it would if you followed the traditional YNAB method of budgeting incoming net pay to the “Ready to Assign” category.

Note: You may have noticed the yellow underfunded boxes in the “available” column. This is because I have payroll set up as a scheduled transaction in the checking account, and YNAB is alerting me that there are upcoming expenses this month that haven’t yet been assigned funds to cover them. I don’t want to cover these until I’m paid, so I ignore the yellow highlighting until I receive the pay and cover them at that time.

Other Income Logistics

I have scheduled transactions in my main checking account that are set up to repeat each pay period with the income and payroll deduction categories already included (because that can get a bit tedious if you have multiple jobs and frequent pay periods). 

It’s especially helpful to set up a scheduled transaction if you have a salaried job where your pay and deductions are consistent each time, but you can also set it up, even if your pay is variable. In that case, you’ll just need to be mindful of updating the amounts and allocation each time you get paid so that you’re working with accurate information when the scheduled transaction hits your bank account.

Whether it makes sense to set up scheduled transactions for other income categories depends on whether you are using direct import for the applicable accounts.

If the accounts are linked, such as savings accounts with interest, it’s easiest just to deal with them as the funds come in.

For manual accounts (i.e., credit card rewards or investment accounts), I use scheduled transactions to remind myself to enter those income numbers. Personally, I have an investment account that I include as a budget account in YNAB, only including the totals of my cash settlement fund and a money market fund, not any other investments within the account. I manually enter my dividend income at the end of each month and track it just like the other income mentioned.

Bringing It All Together

YNAB is customizable. It’s one of the best things about it. 

There’s no “right” way to set up your YNAB budget, especially if you are sticking with YNAB’s core methods of:

• giving every dollar a job
• only budgeting money you already have, and
• being intentional with your cash inflows.

The end result of including my income categories in YNAB, including breaking out pay into more detail, is that I’m able to reap the benefits of using the YNAB method and have the additional detail that helps me to fully see my cash flow, all within the YNAB app.

What are your thoughts about budgeting income in YNAB?