I’ve been trying to write this post for months, but important things take time and YNAB has been one of the key parts for some years.
I discovered YNAB listening to a popular Spanish podcast a few years ago when I was working as a freelance and I was struggling to get my economy under control. Having to save VAT each quarter while living in Madrid paying all the expenses was really hard and each month there were new surprises usually related to the car.
At that podcast, I heard that there was a new book about YNAB in Spanish and that was the last thing I need to decide. I bought the book and read it on the same day (it was really short). The concepts behind YNAB are really easy but powerful and I think that’s the part that changed the way I use the money. The YNAB service is a tool to follow the methodology but you can follow it using excel or even a notepad. I’ll try to explain the main concepts behind the methodology but you have a lot of resources (even more in English) in YNAB website. They also sell a book (I haven’t read it).
Rule 1: Give Every Dollar A Job
As soon as you get the money you have to decide what’s that money for. For example, You get your $1000 check and you set $300 to your summer holidays saving, $300 to groceries, $200 for your car insurance bill next month and $200 to go out and have some fun.
There’s an important point here, because (usually) our income will be limited you have to prioritize your expenses. Rent and invoices should be paid before holidays or buying a new iPhone.
You get some dollars, prioritize those dollars and follow that plan.
Rule 2: Embrace Your True Expenses
For me, this is the key rule. It makes expenses boring, you’re always ready to pay that month bills. Rule 2 says that you have to take your large and less-frequent expenses (yearly insurance) and break them into small monthly “bills”. If you follow this rule instead of paying $1200 each year you’ll pay $100 each month. Paying $1200 one month could destroy your economy, saving $100 each month may be easier. I always have a plan for all these big expenses from the same day I know I’ll have them. I use this technique to save for holidays, app yearly subscriptions (including YNAB), birthdays, Christmas gifs, buying a new iPhone…
Rule 3: Roll With The Punches
Life is flexible and so should be our budget. If you need to spend more in one category just remove some from another category. Never check your account balance yo know if you can spend on something, check the budget and if you want to overspend on some category because that’s now a priority remove some budget from another category until you have your whole budget in balance.
Rule 4: Age Your Money
Anyone with a bit of knowledge on the personal economy will tell you to save enough money to keep your life running for some months so in case you got or you don’t have an income you can still pay your bills. YNAB just says that you have to pay current monthly expenses with the money you got one month ago. This is not related to saving for extra months, you can do that (and save for 3, 6 or even one year if you can). This is focused on normal monthly expenses, while you still have income. Right now I pay my bills with money I won 1 or 2 months ago.
Ok, that’s all the YNAB method rules. I’ll only add one suggestion related to the first one but not so clear from their website. Each month you do your budget and you can’t over budget, you only budget the money you have even if you know that in a few days you’ll get an extra check. You budget from your available money (not the money in your account) and you expend based on your budget.
Now, let’s talk about how this changed my life. As I said, when I was working as freelance keeping my accounts under control was impossible. You get paid but that’s not the money you can use because you have to keep taxes on mind but I had to pay a high rent and car “surprises” come really unexpected. Unexpected expenses are the worst thing you can get when you already have problems. Once I started to use YNAB economy slowly turned from pain to pleasure: instead of asking family for money I was saving for holidays, instead of worrying about car insurance I was happy to pay for it because I had the money already saved. There wasn’t any change on my income or my bills, the only change was knowing where do I want to expend it and where can I do it.
I started making decisions based on real information like If I stop spending money in having breakfast in the bar each morning I can go to a better place for holidays. Instead of thinking in big expenses I started to think in small budgets. Saving $5 each month to pay YNAB is far easier than paying $60 on the month the subscription get renewed.
Once my budget was under control I started to improve it: What if I save a bit more and I get a 2 years subscription, what if I pay car insurance yearly instead of quarterly saving a %…
At that point, I had a bit more money each month on my pocket and I have the data to make prioritization decisions on my expenses. For example, last year I wanted to travel to Japan but I knew it was a huge expense, if I save just for a few months I won’t save enough to pay the flight so I needed a plan. I set a goal in YNAB (I love goals) one year before that holidays and I prioritized that category each month. Saving $300 each month is not easy but I was able to do it by avoiding other expenses because I had a plan, YNAB told me each month: “If you go out for dinner today you’ll won’t be able to visit Japan”
Right now I love checking my budget because my economy has changed from stress, pain and paying the unexpected to pleasure to holydays planning and deciding if I can buy that cool thing I want. My economy now is the way to get a better life instead of a way to keep me alive.
BTW, use this link to get one month free.