YNAB: What is it and why do we recommend it in 2022?

You Need a Budget (YNAB) is a website and app launched in September 2004. YNAB users say the app has helped them take control of their spending habits in a transformative way.

The great thing about YNAB is that it collects all your accounts and invites you to give work for every available dollar. This way, find out where your money is going instead of waiting to see a summary of where it went.

How does YNAB work?

Unlike many other budgeting tools, YNAB works by requiring you to allocate each free dollar to a category. This way you can plan where your money is going before you spend it.

YNAB's philosophy is that you must have the intention to make a plan and stick to it in order to actively change your spending habits. That's why the app keeps you focused on how much money you have before you spend it, so you have full control over where it goes.

Click "Start Free Trial" to create your account. You will need to enter an email address and password before continuing. You will have to accept the terms of service and the privacy policy, but the company guarantees that your information is protected.

Once logged in, you can immediately begin setting goals and completing your profile. If you set a budget with a partner, you can also indicate it during your first connection.
When I verified YNAB, I created my account on the site. Once connected, this is what I have seen:

YNAB (You Need a Quote) landing page with a pre-loaded quote
Although the website and app are similarly designed with a spreadsheet feel, it can still be a bit daunting to get started. On this page, I've clicked "Add an account" to get started.

You can add checking accounts, credit card accounts, and/or savings accounts. You can choose to automatically import information such as account balances and cleared transactions from a linked account.

Or you can start with an unlinked account by entering your current balance and manually tracking transactions. Both methods work, but I've linked my accounts to make it easier.

You can add website or app accounts. You'll need your account information to add a linked account, so keep it handy if you plan to go down this route. Whichever method you choose, you will be guided through the setup process. You can also add as many accounts as you like.

For more details on setting up your account and linking your bank accounts, see the YNAB Getting Started Guide.

How to set your budget

Once your accounts are linked, you will see a dollar amount at the top of the screen labeled "To Quote." You will only be able to budget the money you currently have. The point is that you decide where that money should go before you get your next paycheck.

YNAB app home page with "by quote" value.

Now you're ready to customize your budget and allocate your money to specific categories. You'll see the default preloaded categories when you first log in, but you can edit, delete, rename, rearrange, or add new categories at any time.

I didn't need categories like "music" or "software subscriptions" in my budget, so I took those out and added things like "cat food" and "books."

It's also a good idea to set aside some money for a category like "things I forgot to budget for." It's a good way to create a safety net so you don't go over budget.

If you link a savings account, you may have more money in the "Budget" category than you plan to spend soon. I added an “emergency funds” category and budgeted some money saved there. You can also be more specific and allocate your savings to a few different categories, such as home improvement or travel.

Perhaps you are starting from scratch. In this case, YNAB is a good way to prioritize your immediate needs and keep track of your current funds. Start by allocating the money you have to your most immediate obligations, such as bills or groceries.

Once you've determined how much of your money should go to a particular category, you can click on the dollar amount in the “budget” column to update it. You will then be able to see the available amount of this budgeted amount before you make a purchase and add a transaction.

How to stay on budget

Once you've set your budget, it's important to keep it up to date so you can see the savings.

YNAB believes that your budget, not your bank account, should guide your spending. The idea is that the money in your bank account is no longer available: you have spent it within your budget. Now look at the amount available in your budget for each category before you decide how much to spend.

Of course, you can adjust your budget at any time. During the first month, you may have to do this several times as you figure out how much you really need for each category.

When it came to budgeting, I completely forgot to allocate money for medical expenses, so it was a change I had to make when I realized I had a doctor's appointment.

For your budget to work, it's important to record your expenses whenever you spend money. If you have linked your bank accounts, YNAB will automatically import all your transactions.

Manually add a transaction to YNAB

I used the auto-import feature when I tried YNAB, but manually tracking your transactions also works. In fact, YNAB claims that this is by far the best method for gaining optimal insight and real-time status of your category balances.

 You can also do both! If YNAB imports a transaction from your bank that you entered manually, it will match these transactions and ask you to discard one.

When it comes to cash, YNAB recommends creating a category for cash spending. So you can budget and track your money throughout the month. Every time you withdraw money from your bank, add it to your cash budget in the app.

How to get the most out of YNAB

YNAB is based on four basic rules to help you get the most out of your budget.
The app encourages you to improve your spending habits using these rules and building your budget with these rules in mind is a great way to make YNAB work for you.

Employ every dollar . When you have money available, decide where to spend it. This is the best way to avoid buying things based on your mood or your bank account. Instead, you will spend according to your priorities.

If you take your time each time you get paid to make a money plan, it will be much easier to decide what you can afford and what you can't afford for the entire month.
Accept your actual expenses. "True expenses" are those unexpected big things that can cause you financial stress. Think about a car breakdown or a last minute trip you have to make.

YNAB encourages you to think ahead about these "actual expenses" and break them down into monthly "bills." In this way, you will be prepared for these expenses when they occur.

Roll with the punches . Although YNAB offers a strict budgeting platform, it's okay to be flexible. If you overspend in a category, YNAB will encourage you to quickly resolve it and adjust accordingly.

You can choose a category you've spent the most on, transfer funds from another category to cover it, and then

Age your money. This rule comes with time. After budgeting consistently for several months, you'll spend less than you earn. Finally, you can cover this month's expenses with last month's salary.

The goal is to spend money with at least 30 days because you never have to worry about having a low balance.

Advantages and disadvantages

Active Approach: YNAB requires you to designate every available dollar into a budget category before you spend a dime. This advanced approach helps you take control of your finances from the start. Price: Although the first 34 days are free, YNAB costs $14.99 per month or $98.99 per year after that. Competing personal finance apps from Mint and Personal Capital are free.

Personalization : YNAB offers a budget with suggested categories, but you can edit, delete, rearrange and add new categories that make sense for your life. You can also create categories for out-of-pocket spending, savings goals, and accidental overspending.

Usability: The YNAB interface is a bit overwhelming at first, and it takes a while for the system to learn. However, there are helpful videos and articles on the site to help you get started. If this budgeting method works for you, it may be worth the time it takes to learn the system.

Easy Tracking – You can link your accounts to automatically import your transactions. You can also enter your transactions manually. Either way, the app makes it easy to keep track of how much you have in each category.

Limited features: YNAB does not have as many features as some free competitor apps. There are no bill payment alerts and you can't keep track of your investments. On the contrary, the application only focuses on the budget.