A common question that I receive during my card consultations is “how do you track
and manage your spending?”
It’s a good question, and I’m sure everyone has their own system and process.
There are a ton of options out there, but to be honest, I’ve really only used one
system for the past nine years, and I still think it’s one of the most valuable ways
to maintain a budget and monitor your spending.
How’s it going, everyone?
It’s Ernest from Trip Astute.
In this video, I want to review You Need a Budget, or YNAB, and why I’ve used it for
almost a decade to manage my budget and spending.
On this channel, we talk a lot about traveling for less money by using credit card rewards
and points.
Getting into rewards travel is really fun, but it can also be a bit dangerous.
I know I’ve talked about this in several videos, but you need to have your financial
house in order before you can get serious about this hobby.
That means that you’re paying your bills on time and making sure that you’re not
spending more than you can afford.
If you’re paying interest or fees on your cards, then you’re negating the value of
any points that you’ve earned.
That’s why I recommend monitoring your spending and setting up an auto-pay for your statement
balance on all your cards so you’re always on track.
As many of you know, once you start adding more cards to your wallet, the task of tracking
your spending becomes more complicated.
So today, I want to review a tool that I use to keep everything on track.
It’s called You Need a Budget, or YNAB for short.
I’ve been using it since 2010, and I think it’s great way to not only track your spending
and budget, but also discover ways to save money and work toward your financial goals
-- whether that’s more travel or even a new car or house.
Before we jump into YNAB, welcome to our channel.
Trip Astute is a travel channel that is focused on sharing ways to make travel easier, affordable,
and more enjoyable.
Traveling can be stressful and expensive, so we’re looking for ways to help you maximize
your experience through travel tips, points and miles, and innovative gear.
If that sounds interesting to you, please consider subscribing.
YNAB started in 2003 as a spreadsheet made by an accountant Jesse Mecham.
He and his wife Julie were looking for a better way to maintain a budget.
Fast forward to a few years, and they developed an actual application and methodology.
Then in 2016, they refined their application and turned it into a web-based application.
I’ll be honest, I had a hard time moving over from their YNAB 4 software to their new
cloud-based solution.
A big part of it was that I didn’t want to pay a subscription fee when I used to just
paying a one-time fee for their software.
Also, they made a few changes that made it difficult for me to track reimbursements from
work.
I know why they did it, and I don’t disagree with the changes since it keeps people from
cheating their budgets.
But for me, it was another reason to resist the change.
Ironically, my professional work experience is in change management, so you think I would
be less resistant to change.
However, I just couldn’t do it until this past new year, when I decided to give the
new web-based system and features another try.
First off, let’s talk about how YNAB works and some of the methodology.
YNAB is like a digital version of the old envelope system of budgeting.
This is where you would create envelopes that represented different budgets, like dining
out, groceries, entertainment, then fill each envelope with cash at the beginning of the
month.
You would then pull money from each envelope until you reached the point that it’s empty.
Then you would either have to wait on your purchase or pull money from another envelope.
Obviously, this meant that your spending was in check.
And if you happen to have something left over, it would just carry over to the next month.
This is pretty tedious, and when you add it electronic payments, it complicates everything.
But YNAB, in a nutshell, is that same system but made for the digital generation.
I basically create categories of spend then allocate money to them at the beginning of
the month, then as you go, you enter your transactions which then subtracts from your
budgeted amount.
If you go over, you can use any unbudgeted income to cover it, or even pull money from
another account.
Entering a transaction can be done over the website, using their app (which tries to remember
places that you frequent often), or even by importing transactions through their bank
connection service.
While automatic import is the most convenient, I still recommend inputting your spending
as you go.
It might seem like a lot of work since it’s more active rather any automated, but it keeps
you in check.
In fact, I like to input the transaction so I know where I stand on my budget, then use
the import function to verify the charge amount and show when it’s cleared on my account
rather than just being a pending charge.
The import function is also useful to capture any fraudulent spending or authorized charges
on your accounts.
For example, if I were to record a $20 dining out transaction, and the charge imports in
as $22, I’ll know that there’s a discrepancy.
This might seem silly, but I’ve had a two instances in the past where an additional
tip was added to my bill in a restaurant and taxi, and I caught both since the amount did
not match what I had recorded in YNAB.
This type of system means that I don’t have to think about how I am spending my money.
For example, if I know I have $200 left for dining out, it doesn’t matter whether which
card I use or even if I spend cash.
I just know that since I have budgeted the money, it’s safe to spend to it, regardless
of what method I use.
Of course, for you points and mile nerd, I’m going to use my Chase Sapphire Reserve or
American Express Gold Card since those two cards in my wallet offer the highest bonus
for dining out spend.
But then at the end of the month, I can be confident that I have the money to cover the
autopay that I’ve set-up to pay off the statement balance.
To me, that’s financial freedom.
When I was in college and didn’t really know how to budget, I was always worried about
whether I would have enough in my bank account to cover a my statement balance.
It was stressful and I never know how much money I had to spend.
I hate to think about how much money I paid in interest because I paid less than the statement
balance since I was worried about whether I would have enough money to pay the bill.
This leads me to their methodology.
Their first rule is Give Every Dollar a Job.
This means that you are basically allocating every cent in your accounts to a budget category.
This allows you to have control over every part of your budget.
It allows means that you’ll catch discrepancies due to fraud.
The second rule is the Embrace Your True Expenses.
This means that you should try to be as honest as possible about your budget.
It doesn’t make sense to create a budget that isn’t sustainable or realistic.
And if you have expenses that are infrequent, then try to identify them in the process and
start budgeting against them.
For example, I pay about $1600 for car insurance every six months for two drivers and two cars.
That’s about $267 dollars every month that I need to budget for car insurance.
Though to make it even easier, I can have YNAB monitor it and let me know if I’m on
track to meet my savings for that budget category.
Rule number three is to Roll With the Punches.
Life is unpredictable, so it helps to have a budget than can flex and adapt as needed.
YNAB preaches that you should expect that you’ll exceed certain budgets every month.
And that’s ok!
Like I mentioned earlier, you can pull money from other budgets and adjust your budget
for future months.
It doesn’t mean that you’ve failed or that your budget doesn’t work.
It just means that you need to adapt and pivot as your life changes.
Lastly, rule number four is to Age Your Money.
I alluded to this concept earlier.
A big part of YNAB is that you want to get in the habit of using your past or current
money toward your future budget.
Rather than using money that you think you should be receiving to budget for the same
month, you should use money that you’ve already earned and received.
This means that you not only have a buffer in case things go astray.
But in concept, you could get to the point where you’re budgeting for the next month
using money that you earned months back.
YNAB says that the goal is to have an Age of Money of at least 30 days.
Though once you start using the program, you’ll want to see that number grow.
And in fact, it’s does motivate me to start think about how I can save more money and
budget more efficiently.
In terms of the application itself, there are a lot of things that I love about it.
In fact, I think I might do another video where I go through a more detailed deep dive
on how I set-up my budget.
However, if you do you use YNAB, here are some tips for using the system:
1.
Record transactions as you go: I talked about this earlier.
YNAB is much more of an involved and active process.
Other apps often allow you to see how you performed against your budget every month,
but YNAB relies on you actively entering your transactions and tracking against your budget.
This may be one of the reasons that a lot of people get turned off by YNAB, but it’s
one of the things I appreciate about it.
I like to know where I stand in real-time.
And knowing where I stand on each budget category helps me to make better decisions on my daily
spending.
On that note, 2.
Geotag locations: YNAB’s app is phenomenal.
If you enter a transaction near a place of business, it will use your device’s GPS
to remember the location.
When you try to enter another transaction near that area, it will suggest locations
based on your past spending and even the payment method that you used.
This makes it much easier and faster to enter charges as you go and know how much is left
in your budget.
And if you don’t want it to remember a location, you can hit the icon next to the Payee.
This is helpful if you enter a transaction later at a different location and don’t
want the app to remember it.
3.
Turn on bank and issuer notifications: One thing that helps me to enter my transactions
as I go is to turn on notifications from your issuer on any spending.
That way, I know to clear the notification after I enter it into YNAB.
Again, it’s a small thing, but it helps amke the process easier.
Of course, if I miss entering a transaction, the auto-import feature will catch it a few
days later.
But again, my goal is to enter transactions as soon as it occurs so I know how much I
left in my budget.
4.
Create an emergency savings category: I recommend setting up an emergency savings category where
you can set aside money for unexpected situations.
I also try to build up categories like Car Repair and Maintenance to help plan for large
expenses, like new tires or major car services.
This is a great way to
5.
Split categories for expenses: One really cool feature of YNAB that is very convenient
and handy is the ability to split transactions between different budget categories.
For example, I recently went to Costco and bought a ton of groceries.
But mixed in were some shirts too, so I split the charge between my groceries and clothing
and laundry budget.
You can split the charge with as many budget categories as you want, so it’s very convenient.
6.
Study the reports: YNAB provides basic reports on your spending, net worth, and income vs
expenses.
This a great way to visually understand where your money is going, and potentially shift
behaviors to improve your finances.
7.
Participate in their webinars: YNAB hosts webinars regularly to help people getting
started or working through a specific topic.
They’ve been doing this for years, and I even remember attending one years ago when
I was trying to figure out some of the advanced features.
It’s a great way to learn more the system.
So, what about things that I don’t like about YNAB?
Well, like with everything, there are things that I wish were different.
Here’s a rundown of what I think could be improved.
1.
Investment accounts: YNAB is strongly focused on budgeting and spending, and to be honest,
doesn’t have the ability to track your investments.
They do have a section in the app for non-tracked accounts.
However, I found that the bank-connection function doesn’t work well for these accounts.
For example, I have a Roth IRA and Rollover IRA account in my non-tracked account section
with linked accounts.
In theory, I just want the accounts to update their balance regularly.
However, YNAB doesn’t seem to understand how to process the reinvested dividends.
So, for now, I’ve unlinked the accounts and am manually updating the balances every
month.
2.
Cost of service: This was one of the reasons that I hesitated with moving to the new version
of their application.
I preferred the one-time-fee model.
Though I understand why they’ve gone to a subscription model.
It obviously generates more revenue, but it allows them to add more development.
In fact, after testing out the new version and features, I was sold on it.
I know $7 per month might seem a bit steep for a budgeting app, especially when options
like Mint are completely free.
However, I justify it since it helps to streamline my budgeting and spend tracking process.
And I would argue that it’s helped me to save money in the process, so I don’t mind
it as much.
3.
Credit card payments: The credit card payment section is new to YNAB, and it really confused
me at first.
However, I now get it.
YNAB will move money from your budget and toward paying your credit card account every
month.
Since I advocate paying your statement balance every month, there shouldn’t be much concern
with this section.
However, it does help to have this when you’re first starting out or transitioning from another
budget.
Since there may be transactions in the past and money spent that you need to account for,
this section can help allocate money toward them.
4.
Shared budgets: Right now, if you want to share a budget with someone, you need to use
a shared Google account.
While this might not be a problem for some people, I would much prefer to see YNAB allow
you to create a budget that can be accessed by two individual and separate users.
Plus, having a completely shared budget doesn’t work when you’re trying to plan something
for your partner or even when buying a gift.
This is one area where I think they could improve the service.
Bottom line is that you should use some kind of system to budget, especially if you’re
into points and miles.
And honestly, for those of you not into credit card rewards, it helps to still budget in
order to save toward travel.
While I am a big believer of the YNAB methodology and system, there are a ton of tools out there,
many of which are free.
You just need to find the tool that works best for you.
I know it seems like a lot of work, but I promise that if you stick with it, you’ll
not only gain more awareness, but you’ll make more informed decisions about your spending.
And ultimately, you’ll save money and have better peace of mind knowing that you have
control of your finances.
Do any of you use YNAB?
What tools do you use to manage your budget and finances?
Let me know in the comment section below.
I’ve included a referral link to YNAB in the video description in case you’re interested
in trying it out.
They offer a 34 day free trial to test out the service.
I’m not sponsored by them in any way.
I’m just a big fan of their service and methodology, and since I’ve used them for
almost a decade, I feel confident recommending their system and process.
Also, there’s an awesome YouTube tutorial by Nick True - Mapped Out Money where he shows
you how to set-up a budget.
I definitely recommend checking it out if you need a step-by-step tutorial on setting
up your first budget.
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Until next time, travel safe and travel smart.