Wednesday, April 9, 2014

Why You Need a Budget!

So, I wanted to share something I've found really useful.  It's aptly called You Need a Budget (YNAB).

We all know that trying to pay off a huge debt requires planning and budgeting.  If you don't have a good way of tracking your spending habits, how can you improve them?  I discovered YNAB recently and I wanted to share it with you.

With YNAB, you can live off last month's income instead of relying on future income, and you can start saving money in the bank to pay off your credit cards in full each month.  You can even balance going over budget in one category with spending less that month in another category, and you will have given every dollar of income that comes in a job.  That's right, you will be making your money work and you will know exactly where each dollar is supposed to go!

Budgeting for me has always meant typing up a new budget every month and writing out general recurring expenses, but I would leave out a big gap for irregular or unplanned expenses.  I would generally just take a look at how much I had left in my account and limit my spending only when absolutely necessary.

Now that I've discovered YNAB, I realize that what I was doing previously was not budgeting.  It was my own little overdraft prevention program. ;)  If you're serious about getting a handle on your finance, you know that overdraft prevention is not enough.  Let's leave that to the amateurs.  You need a solid plan that will help you cut unnecessary expenses, give you a cushion from last month's income to cover your monthly expenses, and use extra money to pay off your debt.

Another great thing about YNAB: you can tailor it to your income and expenses and it's very simple to use.
  • The YNAB System
Note: I highly recommend that if you are new to YNAB that you watch the tutorials.  It will take a little bit of time, but it will be worth it because then you will actually know what you're doing ;)

The thing I love about the YNAB system is the intentionality of it.  You don't have to feel guilty spending $600 on a vacation one month, if you've been putting aside $50/ month for 12 months for it.  And since you did it before taking the vacation, you won't be putting it on a credit card without the ability to pay it off in full as it comes due.  So instead of paying $50/ month on the backend with interest, you'll have saved the money ahead of time and be ready to pay for it all at once without causing any major hiccups in your finances.

The other thing that's nice about YNAB is that you can use last month's balance for the next month's expenses.  It helps you rely less on future income if you use your money this way.
  • Cost: $60 regularly, but if you use my referral link, you will get it for 10% off ($54.00).  I will also get $6 if you purchase it through this link, so it's a win-win :).  If you're a student, it's FREE!
I personally think it's worth the cost.  As the site reports, YNAB users have been able to save $200/ month on average just by using the software.  And it's a one time cost.  You pay for it once and then you have it for life.  Everyone's situation is different, especially when you're trying to pay down debt, but to me, paying $54 to learn to track my money better and potentially save at least $200/ month was certainly worth it.   The thing I love is that I see where every dollar is going and it's easier to track and make adjustments when you know where your money is going. 

Once you learn how to use the system, it will let you designate a category for any money leftover after your monthly expenses and savings goals for that month are met, such as Student Loan Payoff (one of mine).
I first heard about this on Rockstar Finance.   Basically, what gets watched/ measured ends up improving over time.

While I use Mint to track my expenses and see my accounts all in one place, it hasn't been my favorite budgeting tool.  I think that's because I can't plan with it.  It's backward looking - you only see expenses once they've happened, whether you planned for them or not.  If you go over budget, there really is no consequence as far as Mint is concerned.  What I like most about YNAB is it allows you to plan for the future.  For example, if you go over budget, you will need to reduce your other spending categories to make up for that.  If you have a one time big expense coming up, you can plan for it by putting aside an amount every month to pay for it when it comes due.  I consider it a pre-purchase savings plan, which is better than a post-purchase credit card payment plan with tons of interest.

Other features I like:
  • Helps you plan for paying off your credit card debt
  • Helps you see where the 'leaks' are in your budget
  • Allows flexibility for irregular income/ expenses
Here is the link to get YNAB for 10% off the regular price.

If you're not ready to put down the money for it or you want to try it first, they also offer a free 32 day trial.  

What budgeting tools do you use?


  1. Ms. Debt Emergency: Thanks for the shout out re: the "Observer's Paradox!"

  2. Of course, my friend! I read it on Rockstar Finance and thought it was great.