This post contains affiliate links. See my full disclosure here.
It’s been a while since I mentioned how much I love YNAB and presented the introduction tutorial & video to show you just how to set everything up. If you’re new to YNAB, you’ll definitely want to check that out first.
The last step you should have completed in the setup was to assign all of your available beginning funds to budget categories. This essentially specified a job to each and every dollar that you currently have. The next step is to start the ongoing budget process to account for all income and expenses.
Watch the video below or read the written tutorial before if you prefer! (note: you may need to adjust the quality settings using the gear icon on the right-hand corner)
HOW YNAB IS DIFFERENT
First things first. If you think of a budget as a restriction and a limitation, you may need to redefine what the word budget means to you. There’s a reason that many people prefer to call it a spending plan instead!
YNAB budgeting is likely completely different than any other method you’ve used before. After all, their slogan is “you’ve never budgeted like this.” How it so different?
- Money isn’t budgeted until it is actually received.
- All of this money is budgeted “down to zero” by giving every single incoming dollar a job.
- You are free to be flexible and change your budget all month long. It’s even encouraged.
- Monthly budgets integrate together, with this month’s income often going toward next month’s expenses.
- The key focus is on planning where you want your money to go than where it already went.
Instead of focusing on forecasts or restrictions, YNAB encourages you to be INTENTIONAL about where you want your money to go.
Let’s get started!
OVERVIEW OF BUDGET FUNCTIONS
On the left-hand side of the screen, you’ll see the options for Budget, Reports and All Accounts. The only one I’ll refer to for this tutorial is the Budget option.
Monthly Budgeting Summary
When you click on the budget option, you’ll see a basic budgeting summary for the current month at the very top of the screen. It includes the following:
- Funds for [This Month] – This is the amount of incoming money that you’ve marked as “Income – To Be Budgeted”
- Overspent in [Prior Month] – If you overspent in cash (not credit cards) during the prior month, you’ll have to make up for it in this month’s budget. However, this is not something I ever have, because I adjust each month’s budget to ensure that I do not show any overspending (discussed later in the series).
- Budgeted in [This Month] – The sum of the “Budgeted” column for the current month is shown here. This may not match the incoming funds for the month due to being able to budget part of your funds received for the following month.
- Budget in Future – If you’ve already allocated sufficient funds in your current month’s budget, you can start budgeting some of your funds in the following months.
The total of all four of these categories should be zero. Otherwise the large “To Be Budgeted” box will not be zero. Because this is a zero-based budget, it HAS to be zero. That’s one YNAB rule you just can’t break!
The summary on the right-hand side will show you totals for the month of everything budgeted, spent and still available. These are the totals of the respective columns. It also includes the actual total inflows for the month (part of which may be included in the following month’s budget).
If you click on an individual sub-category, you’ll get some different information about the balance currently available. For example, if you select the grocery sub-category, you’ll see:
- Cash Left Over From [Prior Month] – This is the unspent grocery balance you chose to carry forward from the previous month instead of moving to a different category.
- Budgeted This Month – This amount matches the amount in the budget column for groceries for the current month.
- Cash Spending – This is the spending you made from any account other than a credit card account (i.e. cash, checking, savings).
- Credit Spending – This is the amount of spending in that category from credit card accounts. YNAB treats credit card spending differently than cash spending when you overspend in a category (more information further below), so it’s important to differentiate cash and credit spending.
This list is simply a reconciliation to show you how the available balance was calculated, since it is not simply the budgeted minus actual balances for the month.
Quick Budget Options
When you click on a subcategory, such as our example with Groceries, you’ll see on the right-hand side that there are multiple “Quick Budget” options to provide additional information to be able to budget accurately.
- Budgeted Last Month shows you the amount that you allocated for the prior month to that category, although you may have actually spent more or less than that amount.
- Spent Last Month is the sum of the actual expenses during the prior month, regardless of how much was actually budgeted.
- Average Budgeted calculates the average of all the budgeted amounts for that category since you started using YNAB.
- Average Spent calculates the average of all the actual expenses for that category since you started using YNAB.
Clicking on any of these options will autofill the category for the current month selected. Word of caution: if you click on any of these buttons when you do not have a specific category selected, it will autofill all of the categories for the month. I may or may not have made this mistake and later had to manually redo my entire budget for the month.
Budgeting for Credit Cards
YNAB has an innovative way to track credit card spending. When you spend using credit cards, you subsequently make one of two choices:
- You pay off the balance in full on or before the statement date, or
- You pay only a partial balance of what you’ve spent that month on the credit card.
If you pay off the balance in full (which is what YNAB assumes you will do if you have the funds to do so), the balance of the “Credit Card Payments” section should match the balance on your card.
YNAB essentially treats credit card payments as cash payments by earmarking a portion of your cash accounts to pay for these credit card expenses, even though you won’t technically have to pay them during the current month. This is essential for ensuring that you don’t overspend on credit cards.
If you can only pay part of the credit card balance because your spending on credit cards is greater than the money you had available to budget, the amounts in the “available” column will be the portion of the credit card balance that you are actually able to pay. For more information about how credit card payments are handled in YNAB click here.
If you want a set it and forget it solution, YNAB may not be for you. You may want to try (or stick with) Mint since it automatically categorizes all of your transactions and requires very little user input. However, the focus of Mint (and other budgeting software) is more on retroactively tracking your spending than on setting goals and proactively spending according to your values.
If you want to take your finances to the next level and are motivated to achieve your financial goals, YNAB is the best budgeting tool out there to help you succeed. The next tutorial will show you my exact budgeting process using YNAB!
You can get a free 30-day trial of YNAB here.
If you’re interested in more YNAB tutorials and/or exactly how I set up my categories and accounts in YNAB, go to my YNAB tutorial list here.