my favorite budgeting programs, part 2: YNAB

“You Need A Budget”. No, I don’t mean you personally — that’s what YNAB stands for, and that’s what we’ll be talking about today. Got your attention? Good — let’s go.

The basics. In a sense, YNAB is more traditional than mint.com: rather than being free and online-only, it’s a standard, non-free piece of software that runs on your PC. Rather than feeding it your bank information, you have to regularly download your transactions yourself (though you can still teach it to auto-categorize and -rename your transactions). YNAB is very non-traditional, however, in its approach to budgeting itself.

“You haven’t budgeted like this.” That’s founder Jesse Mecham’s tagline for YNAB, and he’s not wrong. Rather than setting up a standard “monthly budget”, his program is built around the “Four Rules”, Rule One of which is “give every dollar a job”. That’s not “every dollar of average monthly income”; rather, it’s “every dollar you have, right now”. You don’t budget for an average month; you budget for this month, or until you get your next paycheck, whatever your situation calls for. People used to Quicken or mint.com often scratch their heads when first faced with this mindset, but once the lightbulb goes off, it can feel like Budgeting Done Right for the first time. (Among other things, this forces you to review your budget each month, which is vital to creating one that doesn’t break on contact with Real Life.)

Rule Two: Save For a Rainy Day. When you budget, your money goes into “buckets”, in a manner extremely reminiscent of the Envelope Method. And when next month rolls around, any money in a bucket that hasn’t been spent is still there. In this way, you can easily save for non-monthly expenses, like insurance, car repairs, or Christmas, and at a glance can tell exactly how much you have saved up — without having to open a separate account!

Rule Three: Roll With The Punches. On the flip side, if you spend more than what you have budgeted in every given category, YNAB handles it gracefully: the sum of all overspending is taken out of the money available for next month’s budget. So, effectively, instead of it all being taken away from that one category (“great, now I’m supposed to try and underspend on groceries by $100 next month?”), it’s spread out over all of your categories, making things much more manageable.

Rule Four: Live On Last Month’s Paycheck. This Rule is more of a goal than a law, but YNAB is built to guide you towards living on last month’s paycheck, which gives you a buffer for the inevitable hiccups that will occur in life.

Bottom line? If you’re committed to budgeting, I highly recommend YNAB. It’s clean, it’s functional, it does what a budgeting program is supposed to do. However, it’s going to take some work on your part — you can’t get away with not being mindful of your finances, the way you can with mint.com.

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