Exactly one year ago, I purchased a piece of budgeting software called "You Need A Budget" (aka YNAB) to help me manage my finances so I could better pay down my student loan debt. After a year of use, I can confidently say that this tool has played one of the most important roles to the rapid murder of my loans and I highly recommend it. I've touched briefly on it in some of my posts and boast about it often, but I have yet to formally write a review on it. If you think it might be something worth adding to your debt-free action plan, continue reading as I go into detail about my success with a year of You Need A Budget. You Need A Budget (YNAB) is a piece of software for your computer (and mobile phone) that teaches you how to budget with ONLY the money that you CURRENTLY have, not what you WILL have when the next paycheck rolls around. Traditional budgeting (on paper or the computer) requests that you figure out how much you make in a month, list your expenses, and divide the money accordingly at the start of the month. YNAB, however, encourages you to budget by paycheck instead of in advance, giving every single dollar you currently have a "job" within the categories of your budget until you have $0 left over to assign.
You Need A Budget wants you to be in control of your finances and is therefore a completely manual program. Unlike Mint or other budgeting software, it doesn't sync with you bank account, eliminating that automated process and forcing you to input your transactions so you actually realize where each dollar is going.
Categories in YNAB are pre-set, but completely customizable. You have your monthly bills, general expenses, debt, savings goals, personal spending, and anything else you want to add or take away. Inside each of those categories is where you list your monthly bills/expenses. Shown in the image below is what I have set up for categories in YNAB as an example.
Once you receive your first paycheck for the month, you start dividing up that money into your categories. For the purpose of this post, let's assume I take home $2,000/mo - so my first paycheck is $500. I input the income and now see that $500 "available to budget" in green, like in the image below.
Now it's time to give my $500 a job. As a good rule of thumb, I divide that paycheck into the categories (or bills) I know are due first or upcoming. I've got a $210 student loan payment that I give to my dad on the 6th of every month, so I know I'll need the money for that right away.
As you can see, YNAB automatically updates the green "available to budget" based on what I input into the categories. Now that "New Loan" is covered, I know I have my half ($45) of the internet bill coming up as well. I'll also need my weekly tank of gas, so I'll set aside $40 for that.
Lastly, my $400 rent is due on the 15th. But wait! After my student loan, internet bill, and tank of gas is covered, I only have $205.00 left - not enough to cover the full $400! WAT DO!? Luckily, YNAB teaches me how to budget based on only what I have; instead of inputting $400 and going into the negative, I know my next paycheck happens to fall on the day my rent is due. For now, I can assign the $205 to my rent category and take comfort in the fact I will only need to budget the remaining $195 from my next paycheck, then pay my rent. To make sure I don't spend that $205 anywhere else, into the rent category it goes for safe keeping!
As you can see, the "available to budget" is now at $0, meaning I have assigned all my dollars their job and my bills are taken care of for the week. My work here is done.
As the month progresses and you assign every dollar into a category, you'll be surprised at how much you find you have left over every month - money that you most likely spent on take out or drinks with friends. Since you now (hopefully) have a category and budget for those things, there's no more wondering where your money went. This leftover amount can then be used into the next month before it even starts, finally ending the "living paycheck to paycheck" way of life people become so accustomed to.
The first three months I have YNAB, I was using it incorrectly. At the start of every month, I was inputting what I knew I would owe for each bill/loan/expense before actually having the money available, and wondering why I was completely in the red.
As my paychecks came in and I was able to allocate the money to each category, I was slowly bringing myself back up into the green, but had no real purpose or plan for each dollar. I was budgeting money I didn't even have, which caused some road blocks when unexpected expenses, like an oil change, came up (since I had nothing set aside for my car maintenance category).
YNAB encourages you to adjust your budget when needed. Lets say I budgeted $75 for groceries for the week, but accidentally spent $200 at the store - that's $100 each between my boyfriend and I and an extra $25 I wasn't accounting for. OHGAWDMYLIFEISOVER!?
It's all good! I had budgeted $50 for new clothes this month as an extra treat. Since food is a little more important than clothes, I can steal that $25 from my "Clothes" category and give it to my grocery category instead. Yay budgeting!
This type of adjusting is normal, expected, and encouraged. It means you’re setting a plan, then adjusting that plan as new information arrives to meet your needs and priorities. Actually having a budget in place allows for these adjustments rather than curling up into the fetal position and sobbing over the extra $50 you didn't plan on for maintenance to your car or something of the sort.
So how did a year of YNAB work for me? Well, lets take a look at some numbers. - Purchased YNAB on June 26th 2014 - Learned how to use it CORRECTLY in August 2014 - Paid off my $3,500 student loan in October 2014 - Paid off my $9,000 car loan in January 2015 - Currently have $2,999 left of my $13,000 student loan as of today
Since using YNAB, I have learned to cut back on previous expenses (clothes, a video game, etc), live mainly off of 3 of the 4 paychecks from my full-time job, and put that last check directly to my student loans every month. YNAB has been a great ally in my battle of the student loan debt and I have nothing but positives to say about it.
YNAB is free for college students and a $60 one-time purchase for everyone else. There is a free 30 day trial for those who would like to try it before they buy it. YNAB is also available during the Steam sales for $45 and $15 at its lowest - this happens about 4 times a year.
Please feel free to comment below with any questions!