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So you decided to take the plunge and try YNAB free for 34 days?
Now it’s time to roll up your sleeves and create your very first budget!
I’ve been using it for over a year, and wanted to put together a step-by-step guide for beginners on how to start a budget in YNAB.
Ready? Let’s go!
Step 1: Create A New Budget
Once you sign in, you can open a new budget, and YNAB gives you a budget template to work with right off the bat.
Your main menu is on the left side of the screen. Month and budget summary are at the top. This is also where YNAB gives you a standing balance on money available “To Be Budgeted.”
On the right side you’ll see the details of any budget category you click on, including totals, last month’s numbers, and goal progress.
Now it’s time to get started!
Step 2: Add Bank Accounts
The next step is to select “Add Account” (on the left), and I recommend starting with your main checking account, as that is the account you will budget from for the month. Select whether you want a LINKED or UNLINKED account. I recommend selecting LINKED to have YNAB automatically import your transactions to make sure you don’t miss anything.
Then simply connect to your bank account using your online login info (yes, it’s safe, we’ll get to that later).
YNAB will then import your starting balance of that account (but NOT your previous transactions), which will be the amount you can start budgeting today.
Step 3: Add Credit Cards
Next, if you have one, add your credit card. This will make sure YNAB helps track you credit card usage and keeps everything in the budget. If you are able to pay off your balance every month, you can select that when adding yours. If not, it’s best to set a goal for paying off the credit card, so select that option instead. Or you can simply skip this and add the goal later!
Continue adding accounts, like credit cards and savings accounts, until you have everything connected that you will be using for your budget.
Note: You can also add non-budget accounts called “Tracking” accounts. This is simply to help you see your total financial picture and calculate your “Net Worth”. This would be things like investments, your mortgage, or other accounts that don’t affect your monthly budget. I use the FREE tool Personal Capital to track my investments and net worth, as they give a MUCH better picture on how I am tracking toward retirement.
Step 4: Create Your Budget Sections
Once you have all your accounts connected, you can start setting up your budget. This is the sole purpose of YNAB, so let’s jump right in!
The YNAB starting template will give you some sample categories, and different sections you can fill in. I recommend simplifying it a bit, so here’s how I would set it up.
I personally like to break down my budget into 5 different sections:
- Daily Spending
- Savings Buckets
The “Income” section of YNAB is at the top of the app automatically and only shows what you ACTUALLY have available (not future income, but current money in the bank). For expenses, delete the other sections, and replace them with Bills, Daily Spending, Savings Buckets, and Goals.
Note: If you added a Credit Card, you can’t edit the “Credit Card” section that automatically gets added at the top (this is by design)
It should look something like this now:
Now it’s time to add in your budget categories.
**REMEMBER – YOU CAN ONLY BUDGET FOR MONEY YOU ACTUALLY HAVE IN THE BANK. IF YOU DON’T HAVE ALL THE MONEY FOR THE MONTH, YOU WILL NEED TO ONLY FUND WHAT NEEDS TO BE PAID NOW**
Step 5: Add Your Bills
This is where you insert your monthly bills. Put in every recurring expense, things like Mortgage/Rent, Utilities, Insurance, Phone/Internet and Subscriptions.
Budget Hack: Put in your billing DUE DATE next to the name of the bill, then sort them in order of due date (you can drag & drop categories to re-order them). This will allow you to easily see when your money is coming out for the month, and help you plan your spending
Here’s what it might look like:
If you have gone through the Past Spending Exercise, then you should have a good idea what your monthly bills are. If not, just go through your banks and credit card statements to find ALL recurring charges and add them to your budget.
Related -> Lower your monthly bills automatically with Ask Trim.
Step 6: Add Daily Spending Categories
Next, you’ll want in to add in your daily spending categories. These are the things you spend on day-to-day, such as Groceries, Restaurants, Gas, Clothing, Online Shopping, and Spending Cash.
Also, pull out your calendar and make sure to put in any one-time expenses, like events, parties, or occasions here. This will help you have LESS stuff in the “Forgot To Budget” section!
p.s. I like that YNAB adds the category “Stuff I Forgot To Budget For”. Keep this category here, as NO BUDGET IS PERFECT, and sometimes stuff comes up (like….every month). So put some money in this category to help smooth the bumps in the road and help you not worry when life happens.
Here’s an example of what this category might look like:
I prefer putting the most common expenses at the top, things like Groceries and Gas happen multiple times a week.
Related -> lower your grocery bill and stop meal planning by trying out eMeals FREE for 14 days!
Step 7: Add Savings Buckets
This is where I recommend putting expenses that don’t happen every month, but you WILL spend money on. Things like Christmas, Car Maintenance, Medical, and Vacations be saved up for each month, so the money is there when you need it.
I highly recommend saving this money in a separate savings account labeled for each category. We use CapitalOne 360 for our Savings Buckets:
To set up your YNAB budget for these, simply take the total amount needed and divide by the number of months to get there.
Example: If you need $1,200 for Christmas and it is 12 months away, budget $100 per month!
Fill in what you need to save monthly and budget that amount. You can input the total needed in the name of the category for saving up money. Here’s an example of what it could look like:
A better way to do this is to use the YNAB Goals feature and let the software do it for you! For Savings Buckets with a total balance you need to reach by a certain date (Christmas, Vacation, etc.), use the GOALS feature to calculate what you need to budget each month.
To do this, click on each category, and on the right side select “Create (category) Goal“. Then input the total amount you want to save, and select “Date” and input the date you want to save by.
This will automatically tell you how much you need to save each month to hit the goal!
As you can see in the example, $100 per month will NOT get us to a $2,000 vacation in March 2021. You can now lower the total goal amount, or save an extra $33.34 per month to hit the current goal.
Here’s an example of what this might look like completed in YNAB:
This is POWERFUL stuff, and helps you keep it REAL with your money, and make sure you don’t go into DEBT for vacations or Christmas or any other infrequent expense ever again!
Set up all your Savings Buckets using this method to keep yourself on track.
Related -> You can read more about Savings Buckets and how they should fit into a budget HERE
Step 8: Add Goals
Goals are those larger expenses, like debt payoff, new cars and maxing out investments that typically will take a longer time to reach.
Related -> You can read all about setting S.M.A.R.T. Goals for your budget HERE
To set up your Goals in YNAB, it will function similar to Savings Buckets, as you will be saving money each month and letting it rollover as you contribute toward that goal.
Instead of simply budgeting for these monthly, let’s start with the “Goals” function within YNAB to see what you need to save to hit those goals on time.
Example: I want to MAX out my Roth IRA by the end of the year. The total I can put in a Roth IRA is $6,000 (for 2020), so I simply set that as my “Target Balance” by December, and YNAB tells me how much I need to save.
Do this for each big GOAL you have, and then figure out which ones you want to fund first.
I highly recommend this order of operations for your money if you’re not saving just yet:
- Emergency Fund
- 401k Match & Pay Off Debt
- Roth IRA
You can read ALL the details on how much you need, where to put it and WHY in my Personal Finance 101 post.
How To Use The Budget Day To Day
PHEW! The Budget is now set up and ready to be put into use on the daily.
YNAB works differently than other budget apps. It requires you to be involved with your daily spending, and keep an eye on what is coming in and out of your accounts.
There are two ways to manage your budget with YNAB:
- Manually enter all your spending
- Have YNAB auto-track your spending (Linked Accounts)
No matter what method you use, make sure you are looking at your budget BEFORE spending the money to make sure you have some available.
Example: You are going to go to the grocery store. You open up YNAB, see there is $200 left in the Groceries budget. You make sure you do NOT spend more than $200 until you get paid next and can add more money to the Groceries budget.
YNAB lets you quickly add transactions, assign a category and tell it what account you used.
It will then update your categories and show what you still have available in the budget for the month.
If you elect to have transactions import automatically, I still recommend inputting them manually, and then when the transaction clears, YNAB links the transactions together! This will help you budget stay up to date (instead of waiting a few days for transactions to clear your account).
Either way, YNAB asks you to approve each and every transaction, helping you become fully aware of your money and helping you Make Better Money Decisions!
I also recommend adding transactions right when they happen. For this, I use the YNAB App (since your phone is always with you). The app looks like this:
As you can see, it’s fairly simple, just input the amount, place (payee), category, and account. If one transactions covers multiple categories, you can also “split” the transaction for more accurate budgeting:
Dealing With Overspending
Another powerful feature of YNAB is that it will turn RED when you overspend a category. And when you click on the category, it asks you to move money from somewhere else in the budget to cover the overage.
Simply select where you want to transfer money from, and BOOM, the overspending is taken care of.
On the phone app, it looks like this:
YNAB is the only app I have seen with this functionality, and it is a POWERFUL tool to keep you from spending money you don’t have (a.k.a. debt).
Yes, it automatically imports your transactions using the “Linked Account” feature, but it will then put a HUGE notification at the top of the budget, asking you to “Import, Approve or Categorize“.
This is fantastic, because it still makes you look at EVERYTHING you spend money on, and clear it with YNAB before it’s added to your budget.
If you find that you miss too many days of tracking your spending, or if your accounts are not linked, there is also an “Import” feature to get you up to date.
I do NOT personally use this, as I have my accounts linked, but if you want to get your spending in there to help you set a baseline budget, you can import your past transactions straight from your financial accounts.
Simply download your transactions as an OFX, QFX, QIF or CSV file, and them import them into YNAB.
You will then need to organize, categorize, and approve each transaction before they are added to the budget.
What If I Don’t Have Enough Money?
YNAB is designed for you to budget ONLY what you have in your bank account. If you are currently living Paycheck to Paycheck and don’t have ALL your money at the start of the month, you will need to only budget what you have UNTIL the next paycheck.
Related: Learn how to budget paycheck to paycheck with the Paycheck Budgeting Method.
Here’s an example:
Let’s say it’s the 1st of the month, and you only have $3,500 in your account. You don’t get paid ahead until the 15th, so you need to ONLY budget for your bills that are due BEFORE your next paycheck.
As you can see, you will budget the money for things like your mortgage, car payment, utilities, but everything due on the 15th or later will get funded with your next paycheck.
Now let’s look at your Daily Spending categories.
In this example, you get paid on the 1st and the 15th of the month, so you simply budget for HALF of your normal budget in each of the Daily Spending categories.
Budget Hack: To keep track of what you need in each category, just add the budget total amount to the NAME of the category. This way you can see what you need TOTAL for the month and divide it in half.
Here’s how it would look:
You take the total amount you need for the month, divide by 2, and that’s what you add to the budget until the next paycheck arrives. Once that paycheck DOES arrive, simply add in the second half of the money to spend for the rest of the month.
YNAB Tip: If you can’t do the math dividing each budget in half (or just don’t want to), you can click the little calculator icon and do the math (hit the DIVIDE symbol and input “2“, and press “Enter”). BOOM, math done for you!
For the Savings Buckets and Goals sections, just fund what you can at the END of the month. Because you are living paycheck to paycheck, it’s best to keep any extra for the 2nd half of the month as a buffer between you and LIFE.
Then when you are nearing the end of the month, you can fund your savings accounts and goals for the month (as much as you are able).
Honestly, I would first try saving enough to get yourself 1 month ahead of your expenses. This follows YNAB’s Rule # 4: Age Your Money. The goal is to live on last month’s income, and this will also help you stop living paycheck to paycheck, and start hitting bigger and BIGGER goals!
You will know when you are 1 month ahead with YNAB’s “Age of Money” tracker says 30 Days (or more).
Final Thoughts On Budgeting In YNAB
YNAB is currently my FAVORITE budgeting app, and for good reason. It is designed to help you start making better money decisions, it won’t let you spend money you don’t have, and it is built on money principles I believe in. Especially “living on last month’s income”, which is my 1st step to Financial Freedom.
Day to day, YNAB keeps me on track. I can quickly check where I’m at within seconds, and it will set off ALL KINDS OF NOTIFICATIONS when I go over budget. It’s packed with features to make sure you stop overspending, get out of debt, and really take back control of YOUR money.
If you’re ready to get your first budget started today, grab your first 34 days FREE and follow the steps above!
p.s. if you to learn about EVEN MORE features of YNAB, check out my full review of the app here