One of my goals for 2020 was to create and stick to a budget. As a recent college graduate managing a salary and all my own bills for the first time, I wanted to feel more in control of my money, as well as establish a strong financial foundation. In January, I started using the budgeting tool You Need a Budget, or YNAB for short, and my view of money has changed drastically in the four months since. Today, I’m sharing a deep dive into how I budget using YNAB!

What is YNAB?

You Need a Budget (YNAB) is a zero-based budget tool. Think Excel spreadsheet, only better. YNAB is also a budgeting philosophy based on four principles:

1. Give every dollar a job. Each time you get paid, you assign every dollar in your bank account(s) to a category within your budget based on what you need and want your money to do for you.
2. Embrace your true expenses. Are there bills that always sneak up on you, like property taxes or an annual credit card fee? Do you end up over-spending on Ubers every month? Rule two is all about taking an honest look at your expenses, both big and small, and adjusting your budget accordingly to mitigate the element of surprise.
3. Roll with the punches. As many of us have learned during the current pandemic, even the best-laid plans can go awry. In these situations, both we and our budgets have to be flexible.
4. Age your money. Age of money refers to the amount of time your dollars sit in your bank account before you spend them. As you age your money, you break the paycheck to paycheck cycle and give yourself a financial buffer.

I’ve briefly described the four principles, but you can get all of the details from the You Need A Budget book if you’re so inclined. You don’t need to read the book to understand or use the budgeting tool, but if you’re Type A like me, I think you’ll enjoy knowing the why behind what you’re doing. Also, there’s a YNAB fans Facebook group with over 50,000 members who answer each other’s questions and provide encouragement during the budgeting process.

Pricing

You can try YNAB for free for 34 days. At the end of your trial, you have the option to subscribe for $11.99 per month or $84 billed annually. I think YNAB is well worth the cost, but more on that below. If you subscribe using my referral link, you’ll get an extra month tacked onto your subscription for free.

How I Set Up My Budget

YNAB gives you complete control over how you organize your budget. There are endless configuration options, but here’s my set-up:

1. Immediate Obligations: These are the things that absolutely have to be funded every month: rent, groceries, transportation, medicine, etc.
2. True Expenses (Recurring): This category is for regular, repeating bills and expenses that are not immediate obligations. Laundry, hygiene products, and cleaning supplies all fall into this category. Other recurring true expenses include my (pre-quarantine) yoga classes, Spotify subscription, annual Junior League dues, etc.
3. True Expenses (One-off): One-off true expenses are the necessary purchases that occur on a semi-regular basis, like birthday gifts for family members, haircuts, and restocking skincare products. This category is also where I keep my Christmas presents fund because I find the expense to be way less painful when I save up all year instead of waiting until December.
4. Wish Farm: Wish Farm is where I include the items that I’m saving up for. I try to limit the Wish Farm to three items at a time. Right now, I have a travel fund for when it’s safe to do so again and some money set aside for a new nightstand.
5. Just For Fun: This is my monthly fun money. I have a fixed amount for each month dedicated to any fun thing that I want to do with it. Often, this money goes towards drinks with friends or a new article of clothing. I also keep a date night fund in the Just for Fun category.
6. Don’t Touch: The last category in my budget is called “Don’t Touch.” It contains my emergency fund and a small investment fund.

The YNAB blog has a wealth of ideas for other ways you can set up your budget.

After Setting Up Your Budget

Once you set up your budget in YNAB, there are a few ongoing tasks you do to keep your budget current and suitable for your needs:

1. Log transactions: You can either sync your bank accounts and credit cards with YNAB so that your transactions are automatically added, or enter your transactions manually. I manually enter mine because I find that it keeps me accountable and actively involved in the budgeting process, but it’s a personal preference!
2. Give every dollar a job when you get paid.
3. Adjust accordingly. No month is going to be the exact same. Different periods in our lives require us to prioritize different things, and your budget should flex to accommodate these varying needs.

How YNAB Changed My View of Money

1. I got off of the credit card float.

If you pay your credit card bill in full every month, it seems like you’re in good shape. However, YNAB opened my eyes to the credit card float. If you charge things to your credit card on the basis that you’ll have enough money in your account to pay your bill by the end of the month—perhaps after your second paycheck—but don’t currently have enough in your account to fully cover the bill at the time of purchase and pay for your current month’s spending, you are on the credit card float. Even though it doesn’t seem like it, you are funding your life with future money rather than money you currently have. This can be a slippery slope, particularly if the unexpected happens (global pandemic, anyone?) Thanks to YNAB, I am completely off of the credit card float.

2. I embraced my true expenses.

YNAB prompted me to think about the expenses that aren’t always top-of-mind but nonetheless occur. These expenses used to catch me off guard, but now I have a realistic picture of my expenditures. For example, I know I’m going to buy an admittedly overpriced planner each year, so I account for that in my budget. The same is true for annual fees, property taxes, gifts, etc.

3. I cut down on impulse purchases.

One of the biggest differences I’ve noticed since I started using YNAB is that I make fewer impulse purchases. When I used to see just a sum total in my bank account, it was easier to think, I have enough money to buy this purse/dress/whatever. Now, when I have to take that money from a category with a name in YNAB, it makes me think twice about what I truly want my money to do. I’m less inclined to make spur-of-the-moment purchases when I know I’ll have to subtract the cost from my travel fund, for example. The trick to limiting impulse buys is to look at your budget before clicking ‘check out’ or swiping your card.

4. I know I can make the important things happen.

Want to go on that dream vacation? Or remodel your bathroom? You can make it happen. My budgeting experience has taught me that it’s all about prioritizing how you spend your money, allocating more to the things that affect your quality of life, and cutting back in areas that aren’t important to you.

5. I don’t feel guilty when I spend money.

Prior to using YNAB I’d feel a twinge of guilt when I treated myself, as if to say, You really shouldn’t have bought that. In contrast, I now know that I don’t have to feel guilty or worry. I don’t have to wonder if the dollar amount in my bank account will cover everything I need it to, both in the short- and long-term. I know that my expenses are budgeted for and that I can enjoy my allocated fun money.

How do you budget? I’d love to hear any tips or tricks you have!