It's so helpful to have a step-by-step process to figure out how to budget with YNAB. This has both a video and written tutorial!

YNAB Tutorial Part III: My Step-by-Step Budgeting Process

Now that we’ve set up YNAB (Part I) and learned a little bit about the budgeting basics (Part II), we’re finally ready to jump into the logistics of actually using YNAB for budgeting tasks.

It's so helpful to have a step-by-step process to figure out how to budget with YNAB. This has both a video and written tutorial!

The key to using YNAB successfully is to remember that the benefit of using YNAB is to assign all of your current and incoming dollars to specific tasks. It’s not about limiting or restricting spending, it’s simply about being intentional.

The best way to show exactly how to budget in YNAB is to go through the budgeting process step-by-step. I’m sharing my exact process here, but using an example budget I set up for this purpose. You can watch the video below or scroll down for the written tutorial (note: click on the gear icon to adjust picture quality!).

STEPS TO COMPLETE ON A WEEKLY BASIS

I sit down each and every Wednesday to update my budget. There are two main functions I achieve during my weekly budgeting session:

  1. determining where my money went during the past week, and
  2. planning where I want my money to go in future weeks

These are the steps I take each week to keep my budget up-to-date and running smoothly.

Step 1: Recording Actual Expenses

While it’s possible to manually enter all your transactions, I prefer to link YNAB to all of my bank and credit card accounts and import all of my expenses. I complete this process one account at a time. For example, I’ll go through all the transactions in my checking, then savings, then each credit card account separately.

If I have a single transaction that includes several budget categories, I can easily split it between several categories as well. This is especially useful if you shop at superstores such as Walmart, Target or others.

The vast majority of my expenses are from stores that I frequently shop at, so those expenses are automatically categorized based on those past transactions. Each transaction that is imported needs to be “approved”, so I review each of them and adjust the categories as needed. This is what it will look like:

After categorizing and approving imported transactions, I like to have my budget completely up to date on this day, so I go through all of my pending transactions from my bank and credit card accounts and manually enter them as well.

Note: YNAB will link transactions that you’ve manually input to imported transactions so that they aren’t duplicated.

Then, I verify that my bank balances match my YNAB account totals. YNAB has a great tool for this by separating cleared and non-cleared transaction totals (see them at the top of the account). Notice that the far right column shows whether the transaction has cleared. Any transactions directly imported will automatically be marked as cleared, but if you are manually entering transactions you will also need to manually clear them.

If your balances don’t match, most likely, an expense was missed or duplicated. It can be really frustrating when this happens, so that’s why it’s so important to regularly complete your budgeting tasks. It’s easier to find a mistake from the past week than the entire month!

If any of my transactions relate to my taxes, I like to “flag” them so that I can easily find all of them when it comes time to complete my tax projections or tax returns. You can see that in the preview above with the payment to the childcare provider (there are tax credits applicable to childcare expenses).

Step 2: Recording Income Received

Realistically, your income received will be accounted for in conjunction with step 1 when you input your transactions and reconcile your bank accounts, but it’s worth mentioning this separately.

The “correct” way to use YNAB is to mark the funds received as “Inflow: To Be Budgeted” in the category selection. I’ve written about how I actually do budget my income instead of using the inflow option, but I don’t recommend it for those just beginning to use YNAB and especially not for those that are living paycheck-to-paycheck.

The income available is shown in the summary at the top of the Budget screen as “To Be Budgeted”.

Step 3: Budgeting Down to Zero

If you’ve received any cash inflows for the week in step 2, you’ll need to allocate that money toward expenses or savings categories.

Focus on the “To Be Budgeted” box at the top of the month’s budget. Allocate all of the money to the budget categories as needed to get you through to your next paycheck. Be sure to include sufficient amounts in nonregular expense categories such as auto repairs and maintenance or medical expenses!

Step 4: Move Money Around

Now that the details have been taken care of, it’s time to look at the bigger picture: the entire budget.

Each week, I check how much I have available in my day-to-day expense categories, such as groceries, eating out and entertainment. If the month is only halfway over and I’ve already spent ¾ of my grocery budget, I’ll reallocate my budget to make sure I have enough for the remainder of the month.

You can easily move money from another category by left-clicking on an “available” balance and selecting the account you would like to move it to. For example, I could click on my travel category and move a specified amount to my grocery category (that’ll teach me to get my grocery spending under control!).

Step 5: Look at Goals

The last thing I do is to think about my financial goals and determine what needs to change to be able to meet those goals. Goals can also be set in YNAB by clicking on any category and selecting “Create a goal” on the right-hand column.

I look at my goals every single week so that I have the long-term perspective to keep my spending in line with my true priorities.

STEPS TO COMPLETE ON A MONTHLY BASIS

At the end of each month, generally on the first Wednesday of the following month, I’ll finalize my monthly budget.

Step 1: Ensure All Transactions Are Entered

First, I make sure that all transactions have been accounted for until the very last day of the month, including pending transactions. For example, here are all the transactions entered from the checking account for the month.

Step 2: Check Available Balances

Then, I’ll go through each budget line and determine whether there’s a positive or negative ending balance. I pay my credit cards off in full each and every month, so it doesn’t make sense to leave a negative ending balance in any category with the way YNAB tracks credit card spending.

So, if the ending budget balance is less than zero, I increase the budget amount for the category to the amount that was actually spent that month.

If the ending budget balance is more than zero, I determine whether I need to carry forward the money to the next month. Some of the accounts that I always carry forward include my insurance premiums paid semi-annually, vehicle registration, and all types of savings balances. The budget balances that I don’t always carry forward include groceries, eating out, and entertainment. This is unless I know that I’m going to be spending more than usual the following month, in which case I will leave the balances to carry over.

Essentially you will be asking the same question with each balance: “Is this how much money I need until the next paycheck or is it more or less?”

Note: YNAB doesn’t carry forward negative budget balances, only positive balances.

Step 3: Budget Back Down to Zero

Only after going through each of these line items do I then look at the “To Be Budgeted” box and budget the month down to zero again. If I have a negative balance, I likely overspent that month and may have to take the funds out of some of my savings goals. If I have a positive balance to budget, I am able to add to those savings goals (usually travel for me!).

With other budgeting software, you simply say “oops, I went over my budget a bit, I’ll just try again next month.” With YNAB, you actually SEE how it’s impacting you financially. Because you have to budget to zero, you are actually seeing your money move out of your savings goals or other priorities when you overspend.

It’s the visualization of having to take money from savings or another goal budget category if you overspend that makes this software so effective.

FINAL THOUGHTS

Here is a quick summary of my weekly and monthly budgeting tasks.

While this may seem like a lot of work, within just a couple months of using YNAB, you’ll have your own system down. Also within those same couple months, I would be willing to bet that you’ve been able to save more than ever before!

The next part of this YNAB series will cover how to calculate your net worth in YNAB, including setting up and using tracking accounts.

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.

Do you have any questions about budgeting with YNAB?

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