You Need A Budget YNAB Review – A CFP’s Opinion

I finally broke down and decided to review YNAB, better known to some as You Need A Budget, the premier personal budget software package.  And even though I’m a professional financial advisor and Certified Financial Planner, what you do financially dwarfs the importance of my work.  That’s right.

Even if you had Warren Buffet working for you, it would be useless if you didn’t know where and how you spent your money.  I say that because of my experience.

And my experience tells me that folks who don’t use a budget either:

• Spend it all
• Don’t save enough
• Don’t spend enough and therefore fail to enjoy the life they could. (Maybe this is hard to believe, but I see this every day.)

I don’t care how much you make.  The balance you strike between income and spending is the most important predictor of your financial future there is.  Let me say that again a little differently.

The best predictor of your financial security is how much you know about and control your budget.  If you’re a regular reader, you know that I’ve suggested a few different approaches to mastering your budget. One of my favorites is using your bank statement to tell you how much you spend on average each month.

While I still think this “big picture” approach is really important, I’ve recently become a convert to the You Need A Budget crowd.  In case you aren’t familiar with You Need A Budget (YNAB), it’s a nifty little software package that allows you to track your spending and budget for your future and generally helps you fix your financial problems.  I’ve joined the ranks of the “true believers” for two reasons:

1. I constantly receive unsolicited endorsements of the program from clients, readers and friends. As a result, I figured it was worthwhile to look into.
2. Once I took a look “under the hood,” I realized how powerful an agent it could be to help people really get their financial houses in order. I kicked myself for missing out on the benefits, but I wasn’t about to let any more time go by.

You Need A Budget (YNAB) Review

To start off, it’s important that you understand that the program has a mission: to help you stop living paycheck to paycheck, get out of debt and save more money faster.  It’s built on zero based budgeting. You enter your income for the month and then budget how it’s going to be spent or saved.  Get it? Using this method, you don’t spend more than you have. (A novel idea whose time has come.)

• Sign up for a 34-day free trial of YNAB

Rule #1 – Stop Living Paycheck to Paycheck

The idea is that you use the money you earned last month to support yourself this month. You don’t spend money you earned this month – or the money you think you’ll earn in the future.  This is a stroke of genius, and frankly I’m disappointed I didn’t come up with it myself.  This system helps get you out of the habit of living on money you don’t have.  In order to achieve this, the software actually helps you stash a month’s earnings away.

If you are in debt, accomplishing this may seem daunting. However, saving a month’s earnings isn’t as difficult as you might imagine. The folks at YNAB give you some great ideas on how to get this done and even build up to it. And thousands of others have used YNAB to stop living paycheck to paycheck. Why shouldn’t you be able to do it?

Rule #2 – Give Every Dollar a Job

This is something I’ve never done but I can see how important it is. You basically assign every single dollar you earn a role. (It takes about 20 minutes the first time. After the first month, you can handle this task in about 20 seconds.)  A particular dollar’s job can be to pay for current needs or it can be to provide for future needs or saving…but every dollar has a specific task.

This is beautiful because it makes it almost impossible for you to spend without thinking. (I know you never do this, but somebody you know might benefit from having this constraint.

Rule #3 – Save for a Rainy Day

You might be pretty good at handling your day-to-day expenses, but how do you handle those unusual bills? Do you panic when the insurance bill comes due? Property taxes? When it’s time to fix the roof?  The software is designed to get rid of this roller coaster ride by smoothing out your true expenses. Me likey.

Rule #4 – Roll with the Punches

This rule throws you a lifeline when you break one (or more) of the three rules above. I guess they figured out that nobody’s perfect. Imagine that…

They actually build that into the system.  It’s OK to blow it but it’s not OK to give up. If you’ve ever started a budget “diet” only to fall off the wagon, you know how important a lifeline is. This software is designed to help you when you hit those life bumps.

Installation and Using YNAB

It took me about a minute to install YNAB and it was a good omen. I like that the designers have made it easy from the start. You won’t have any troubles here.

When I clicked on the icon, the program opened immediately and it showed me the pretty picture above. As you can see, you are invited to open up your most recent file, create a new budget or open or upgrade an existing YNAB file.  I created a new budget.

If you are a new user, the program asks if you are going to use the software for personal or small business use.  This is a new feature and super handy.  The program will pre-populate categories that are commonly used depending on how you answer that question.  Of course you can customize these categories, but this feature sets YNAB far apart from Quicken.

Then you select the currency you use and the date format you prefer.   This makes the program really useful worldwide.  The list of currencies is pretty extensive too.  So if you plan on moving anywhere in the world from Estonia to Rufiyaa, these guys have you covered. Thank you, YNAB!

At this point, my choices are “Budget,” “Add Account” or “Reports.” Obviously, I couldn’t run a budget or report until I have my accounts set up and input some data. Even if this wasn’t clear to me, the “Getting Started” tutorials (documentation and video) would walk me through the setup stage really well. Also, you can see the very large brown “Click the Add Account Button” above.  Kind of makes it easy to do it right.

When you select “Add Account,” you create an electronic checkbook register. This is where you’re going to record your expenses and deposits in each of your accounts. You can open a new “account” instantly and easily.  The program walks through the steps and asks you all the right questions, and it takes less than a minute to get set up.  Make sure that you select “Budgeted.”  If not, you won’t be able to compare your actual numbers to your budget plan.  That would defeat the entire purpose.

Once you’ve created an account, the register opens. This electronic register is just like your check register. (But one difference is that this register allows you to electronically search for certain transactions and schedule recurring transactions. I’ll come back to this in a bit.)

The electronic register shows you what your balance is at all times.  And you can always access the tutorials regardless of where you are.  Nice.

Adding entries to the register is a breeze.  Just click where it says “add a new transaction.”  Type in the date, payee and category.  Once you enter a payee, YNAB remembers.  That saves you time since you won’t have to type those payees’ names in month after month. Then you can make any memo if you want. Last, indicate the amount as an inflow (deposit) or outflow (expense).  Doesn’t hurt a bit.

Some people use the “recurring transactions” feature, but I don’t.  What this does is allow you to tell YNAB that a fixed amount is going to be taken out or added to your account each month for a certain payee.  I don’t use this feature because I just add every transaction as it clears the bank and I download the data from my bank.  Let’s move on.

The power of this program is really in how you use the categories.  You see this “assigning categories” issue is often overlooked, but that’s a mistake.  When you assign a category to an expense, that’s how you track your spending. And if you don’t assign the right category…you’re not tracking your money.

If the program you use makes assigning categories difficult, you’ll backslide. You’ll take the easy way out. If that’s the case, you shouldn’t bother using any software at all.  I like the way YNAB handles categories.

You Need A Budget has quite a few categories set up already but if you need to create a new one, it’s much easier to do than with Quicken or Quickbooks as I said above.

You can also split an expense across many categories, which is handy. That’s important because when you go to Costco, you might spend $200… but $100 on groceries and $100 on clothing. The split function allows you to keep track of that.

When downloading transactions, you can either manually input your transactions as I just described or download them from your bank and credit card company.  Most banks allow you to download data and I’m a huge fan of doing so. It saves me a ton of time.  YNAB allows you to import data from just about any format, so if your bank provides any downloads, YNAB will work for you. YNAB tells you that they recommend .OFX and .QFX formats and they support .QIF.  These are the formats most banks and credit card companies use so you should be fine.  The program also works with .CSV files, but that is only recommended for advanced users.

One complaint that others have is that you have to download and save the file from the bank before importing into YNAB. I can tell you that it’s no big deal.  I’ve been using Quicken and Quickbooks for years, and even though the download is seamless it still takes a long time to get all my transactions into those old dinosaurs. That’s because of the arduous way Quickbooks and Quicken handle categories.  All told, it was actually easier to get the data into YNAB even though the download isn’t seamless.

In short, the data importing feature was really a pleasure to work with. All the transactions downloaded fast and assigning categories to each transaction was fantastic.

Let’s get back to “search.”  I love this function. How would you use it?  Let’s say the doctor says you didn’t pay her and you know you did.  This search feature will help you prove it faster. You can also see how many times you visited Starbucks and how much you spent there. The search box will show you every time you spent money with any vendor. You can also export this info to Excel.

The YNAB Budget

This, as we say around the dinner table, is where the matzo balls meet the soup.  The budget section is what keeps you on track. Here, you’ll enter the amount you plan on spending in various categories. Then the program compares your actual numbers from the check register to those budgeted numbers and lets you know two things:

• Are you on track?
• If not, what do you need to do differently?

This is a huge benefit to you that no other program offers.

As you can see, it’s pretty straightforward. Just download your data and input your budget.  But here’s the feature that really made me fall in love with YNAB:  The program won’t let you budget money you don’t have. This is what makes YNAB different and better than anything else I’ve seen on the market.  This feature forces you to live within your means. I love it and so should you.

The screen shows your budgeted amount, the actual money spent and any balance.  Just what the doctor ordered.  We’ll take a closer look at this in a minute.

Budget Categories

I mentioned categories above when we looked at data input. Now, let’s see how to use them with your budget.  The program comes with default “Master Categories,” but you can change the names and add new categories. These are your major buckets of expenses.  I have such master categories as Charity, Investing, Utilities, Groceries, Auto, Clothing, Recreation, etc. Under each master category you can create sub categories.

Once you set up your categories you are ready to set up a budget number for each category. When you input or download your actual numbers, you assign each transaction to one of these categories so you can see how you’re doing.  The budgeting window is built around your “Available to Budget” amount, which is taken from your account balance automatically. If you don’t have the money…they won’t let you budget it. Built-in accountability without the whining. YES!

Let’s look at an example.  You can see that I have budgeted $11 a month for tithing.  In December of 2011 that’s what I spent, so my balance is 0.  If you look at January 2012, you’ll see another budgeted amount of $11 for tithing.  That’s how much I can spend in that category in January.

I don’t eat much, so I budgeted only $60 for groceries in December and I forgot to budget anything for groceries in January.  I actually spent only $10 on groceries in December (I was on a diet) so the balance is $50.  That balance gets carried forward to January.  If I go back and fix my error (as I should), I’ll have a budget of $60 for groceries in January plus the balance carried forward of $50.  That means I can have a party and spend up to $110 for groceries in January and still be within my budget.

I also budgeted $50 for electricity in December but spent $60.  That means I ran a $10 deficit.  Since I also budgeted $50 for electricity in January 2012 and since I have a deficit of $10 that gets carried over, I can actually only spend $40 for electricity in January.  You see?  The program shows me how to make up for my overspending.

In reality, the program will allow you to either spend less on electricity in January or just cut back the “Available to Budget” by $10 and let you decide where to make the cuts.  No such thing as “deficit spending” in YNAB land. Should we buy a copy for the boys and girls in Washington?

YNAB also allows you to save for future purchases or events. This way, when the insurance bill comes due three months from now, you’ll have the money to pay for it. Nice.

YNAB Reports

All the personal budget software programs have nice reports, and YNAB is no exception. YNAB’s reports are clean and easy to understand. You can also export the data into a .CSV file, which will allow you to play with the numbers in Excel.

While you might be a person who values having a wide variety of reports, I’m not. I just want to see my actual expense versus my budgeted expense. The “Budget” screen tells me everything I need to know.  Did I spend what I said I’d spend? If not, what’s the problem?  End of story. That’s the only report I need, and YNAB delivers it like no other program.  If you want other reports or want to export the data to Excel and go wild…YNAB will oblige.  You can run spending, net income and net worth reports.  What else could you want?

YNAB Support

The support is another feature that shines.  YNAB includes dozens of video tutorials and on screen help (see the FAQs below).  Also (and this blew me away), they actually provide online classes with real human instructors available to answer your questions.  So if you need someone to hold your hand as you set up the software and/or implement it, this is your dream come true.  Just try to call Quicken or Quickbooks for this kind of support and you’ll know how valuable this feature is.  Quicken and Quickbooks don’t offer anything like this.

In Summary

You Need A Budget is an excellent piece of software. It’s simple to use and easy to understand. The tutorials are great and the program gets the job done. Unlike other programs I’ve seen, YNAB is “solutions” oriented.

Features I LOVE

• Simple to install and use
• Intuitive
• Has auto-pay feature which saves tons of time with reoccurring payments
• Holds your hand as you install the program and work with it – the documentation and tutorials are top flight ( but you probably won’t need them)
• Free online budgeting classes with live instructors for Q&A (unheard of)
• Unique approach, proven methodology and change agent for thousands of users (according to their website, the average YNAB user pays off $500 in debt in their first 30 days)
• Can run on Mac or Windows
• 30-day money back guarantee

Who Should Use YNAB?

If you are in debt, living paycheck to paycheck or not saving money fast enough, YNAB is what you need. If you know what to do but somehow don’t do it, the built in “accountability partner” features should really pay off for you. If you’ve used Quicken or other software and felt overwhelmed by the complexity and underwhelmed by the support and results, you’ll enjoy YNAB and what it can do for you.

I also think this is a fantastic gift for college or high school graduates. Let’s get them started off on the right foot…right?

YNAB Is Not for You If:

1. You have a system to track your spending that’s working.
2. You’re not in debt, you don’t live paycheck to paycheck and you save money fast enough. If it ain’t broke, don’t fix it.
3. You’re looking for a program to track your investments (YNAB isn’t your best choice).

My Recommendation

I’m recommending this program to all my clients and I recommend it to you too. It’s easy, simply and quick. It holds you accountable and keeps you on track. It’s the strongest budgeting software available and offers support that is unparalleled.  The price is only $60, so grab your copy now.

If you would like to get out of debt, stop living paycheck to paycheck and save money faster, and you think it would be worth it to pay $59.95 one time in order to achieve that and stay on track for the rest of your life, then yes…it’s worth it.  (If you don’t think those benefits are worth the 60 bucks, you should spend the money to get your head examined first…then buy the software.)

You should get this for your kids or grandkids if you don’t need it.  The benefits to them are enormous. There are free programs out there and you also have the option of making a spreadsheet up yourself.  But you won’t get anything like the payoff that this program offers.

I have an accounting degree and I’ve been working with clients who struggle with their finances for over 25 years.  I also have the luxury of alternatives.  I can endorse any program I want.  I would not bestow the Pilgrim seal of approval unless I was 100% satisfied that YNAB was the way to go and I can tell you that it is.

• Give YNAB a look by signing up for a free 34-day trial

You Need A Budget FAQs

1. Does the program automatically back up – No, not in the current version, although that feature is on the way. It does prompt you to save though if you haven’t yet when closing the software out.
2. Does it offer print features – Yes. You can print reports, the register and the budget directly to PDF file for e-mailing, archiving or printing to paper from there.
3. How large is the PDF setup guide – The entire manual is 106 pages, but the guide to get started is only a single page long. Everything that you will find in the manual is within the software and is backed up by extensive ‘inline’ help with pop-ups that guide you every step of the way.
4. How many tutorials are there – 44 currently with more on the way.
5. How often are the classes held / How many per week – At a minimum weekly with as many as three or more at times and all of them are completely FREE and without any obligation at all.
6. How long does it take for the average user to become capable – That’s a tough one because it’s truly dependent upon the individual’s ability as well as how much they want to put into learning the ropes. That said, YNAB is different but it’s not difficult, and on average you could learn it in an hour – the length of our getting started webinars.
7. How long is the guarantee / What are the terms – The money back guarantee is for 30 days no questions asked.
8. Can it run on Mac or Windows – Yes!  YNAB 3 will run on Windows, Mac or Linux computers and you can easily share the very same budget data file amongst the three without the need for conversion.