Why I Love YNAB (You Need a Budget) | Eat Sleep Breathe FI (2024)

Why I love YNAB

Those who’ve followed me for a while know how much I loveYNAB (You Need a Budget). That’s because it changed my financial life. And, thanks to my unabashed enthusiasm for it, many have asked why I love YNAB as much as I do. So… seven years after I started using this life-changing app, I finally decided to write a post about it.

More than just a list

Whenever I’m asked why I love YNAB, I always have a hard time answering. There are so many reasons, and it’s not easy to compress them into a sentence or two.

As I started drafting a post to share why I love YNAB, I realized a list of reasons wouldn’t be compelling enough. To truly convey why YNAB’s so worthy of my praise, I also need to share the context behind my reasons.

So, instead of writing a boring, possibly unhelpful list, I’ll go through how I use YNAB and how it works—from startup to end result. Then, throughout the post, I’ll sprinkle in what I love about YNAB and why.

A caveat—I still use Classic YNAB

Before we dive into the post, I should clarify that I still use the desktop version of YNAB (aka Classic YNAB). It continues to work well for me, but it’s no longer updated nor available for purchase.

This is why I’ve always shied away from writing a YNAB post—I worried that the info I’d share would be obsolete and unhelpful. However, I’ve learned more about the new YNAB and see that the foundational concepts and basic mechanics haven’t changed that much.

Yes, the new version has slick new features like direct import from banks and an ‘Age of Money’ calculator. It’s also web-based and mobile-friendly, making it far more convenient.

Even so, all those bells and whistles haven’t changed YNAB’s core concepts and functions. Therefore, what I’ll share in this post should be general enough to apply to both the classic and new YNAB. (But let me know if I should edit anything that’s inaccurate and/or not applicable.)

The many reasons why I love YNAB

Oh YNAB, how I love thee! Below, I shall count the ways…

Reason #1: Categories

YNAB starts with default categories, but I suggest that you only use them as a starting point. You can add as many or as few categories and sub-categories as you’d like and name them whatever you want. It’s totally up to you!

Sample categories

• Housing
• Auto
• Bills
• Discretionary

Sample sub-categories

• Property tax
• Home insurance
• Car insurance
• Gas
• Electricity
• Natural gas
• Entertainment
• Travel

Use categories to make YNAB your own

To tailor YNAB to your needs, think about what you want to track and why. Then, customize your categories to reflect that. If you’re feeling uncertain or overwhelmed with how to sort or name your categories, just jump in and get started!

Remember that nothing’s set in stone, andthere’s no right or wrong, so give yourself permission to experiment. Over time, you’ll get a feel for how you want to categorize things and how to evolve your categories to suit your life situation.

Keep your categories dynamic

I regularly revisit my categories and change or move them around as needed. Remember that categories are meant to be flexible and dynamic. They can and should change to reflect your current priorities and life situation.

That’s how you’ll make your YNAB data as useful, informative, and actionable as possible. 👍 (If you’re wondering how to pull data out of YNAB, hang tight! I’ll cover that in the Reports section.)

My list of categories

Reader Bhai left a comment to ask, “Hello, would you be kind to share the expense categories (and subcategories) you use… Just looking for a well-thought start… thank you.”

I’m happy to share! Below are the categories and sub-categories I currently use:

Core spending

• Groceries
• Gas
• BC Hydro (electricty)
• Fortis (natural gas)
• Lightspeed (internet)
• Fongo (VoIP home phone)
• Public Mobile and 7-Eleven Speakout (cell phones)
• Lawncare
• Car maintenance
• Car insurance
• Property tax
• Square One (home Insurance)
• Home maintenance/improvement
• Medical
• Mika (pet)
• School fees

Discretionary spending

• Shopping/clothes
• Christmas
• Eating out
• Entertainment/socializing
• Gifts
• Donations
• Miscellaneous
• Travel
• M’s fun money
• Chrissy’s fun money
• Kid 1’s fun money
• Kid 2’s fun money

Reimbursem*nts

• Mom
• Sister
• Other

Reason #2: Importing transactions

One of the things I love most about YNAB is the ability to import then track every transaction from every bank account and credit card we use. (I think you can also do this in Excel or Sheets, but I have no idea how. 😬) That’s why I appreciate the ease with which I can do this in YNAB!

Note: If you’re using the new YNAB, the importation process is easier and faster because you can connect directly to your accounts. In my classic desktop version, I first have to download a .qif file from my accounts, then import the .qif file into YNAB.

Count every penny

Being able to track all our transactions means that every penny is accounted for. (This is even true for our cash spending… but I have to manually enter those transactions.)

You don’t have to get as detailed as I do, but I find tracking every penny fun, enjoyable and helpful. (I’m also a completionist, so loose ends/gaps really bother me!)

Keep it regular

To ensure the importation process isn’t too arduous or time-consuming, I try to import and reconcile my transactions every one to two weeks. If I do it less frequently, it can be overwhelming to sift through and check all the transactions for errors and incorrect categorizations.

My memory also fades with time, so procrastinating means I’ll have a harder time remembering what any vaguely-named transactions were! 😬

Reason #3: Reconciling

Reconciling is a key part of using YNAB—it’s how you ensure the transactions and balances you see in YNAB match the ones in your accounts. The reconciliation function is built right into YNAB and allows you to easily check and lock down the reconciled transactions.

In my desktop version of YNAB, this is how it works:

• After importing your transactions, check that the ending balance for that account matches what’s shown in your bank account.
• If so, you can then hit the “Reconcile Account” button.
• Check again that the date and amount match up.
• If so, hit “Finish Reconciling”, then you’re done.

Reason #4: Categorizing

After I reconcile all my accounts, I then go through each transaction to:

• Check that it’s been auto-categorized correctly by YNAB. (I find YNAB does a much better job of this than Mint.)
• Categorize any uncategorized transactions.
• Add memos/notes if needed.

Categorizing is another crucial part of using YNAB. However, it’s important to note that it’s more of an art than a science! There will always be transactions that are hard to categorize or need to be split into two or more categories.

Categorizing ambiguous transactions

Here are some examples of ambiguous transactions and how I decided to categorize them:

• Pay parking at a restaurant downtown: I categorize this as “Eating out” since we wouldn’t have needed the parking if we hadn’t gone out to eat.
• Pay parking at a park: I categorize this as “Entertainment/Socializing” since we went to the park to hang out with friends.
• Treated friends to a restaurant meal: I split the categorization of the meal so that our portion is categorized as “Eating out” and the portion for our friends is under “Gifts”.
• Groceries on vacation: I categorize this as “Travel” because I prefer to track all our trip expenses to get a total cost for the trip. Therefore, I categorize all our vacation food as travel.

Categorization—keep it consistent

While you can and should make up your own rules when it comes to categorization, it’s best to keep it consistent. In doing so, your data will be as clear and useful as possible.

For example, suppose you categorize groceries on vacation as “Travel” for one trip but then categorize them as “Groceries” on the next trip. In that case, you won’t be able to compare the cost of the two vacations accurately.

In addition, being inconsistent could throw out your grocery spending numbers. If you’re like me and want to see how your spending changes from year to year, you’ll need and want accurate and consistent numbers.

But you can still change things

Though consistency is important, it doesn’t trump flexibility and meeting your needs. Remember again that nothing is set in stone in YNAB, and there are no hard and fast rules when categorizing.

You can change your mind about what’s categorized as what and edit and move your categories as needed. If you really want clean, accurate data, you can then go back and recategorize all previous transactions. (Or, if that would be too onerous or messy, another option is to start over with a “Fresh Start”.)

I don’t “budget”, but I still love YNAB!

I’ve mentioned in the past that I don’t budget. But what I actually mean is that I don’t use traditional budgeting methods. I do love budgeting (and tracking), but only when it’s done the YNAB way. Here’s how YNAB differs from traditional budgeting:

Reason #5: Budgeting

Once I’ve imported, reconciled and categorized my transactions, I head to the “Budget” tab/screen in YNAB. This is where everything comes together and where you can view:

• All your categories.
• How much you’ve assigned to each category.
• How much you’ve spent in each category.
• How much you’ve spent each month.
• How much you have left over each month.
• The “age” of your money.

Fun and flexible budgeting

I think “flexible” may be the most-used word in this post, but it’s for a good reason! YNAB puts a lot of emphasis on flexibility—that’s what makes it fun and easy to use. To explain, I’ll share how I use YNAB to make budgeting fun and flexible:

• I don’t set limits, but I do enter monthly amounts for each category.
• We spend what we spend and don’t worry or think about whether we’re over or under budget. (Granted, we can do this because we’ve been managing our money for a while. We’re also very mindful with our spending.)
• If we underspend, I’ll roll the unspent amount into next month or reallocate it to another category.
• If we overspend, the excess will be covered by last month’s leftovers, or I’ll reallocate funds from another category to cover it.

There’s no guilt, shame, or frustration when budgeting in YNAB. Instead, there’s fun, enjoyment, and self-reinforcing motivation.

Related: Check outFI School Lesson 3: Budgeting and Trackingfor my favourite budgeting and tracking resources

Reason #6: YNAB’s rules

As I mentioned earlier,YNAB’s rulesare the heart and soul of their system. They’re what attracted me to YNAB and my absolute favourite things about YNAB. Below, I’ll briefly describe each rule and how each has helped me.

Rule 1: Give every dollar a job

This is the number one YNAB rule (and my favourite):give every dollar a job. In other words, every dollar gets assigned to a category. I love this rule because it ensures my money is always optimized and working for me!

YNAB’s system makes it really easy to do this. You can see how many of your dollars need a job and the categories (jobs) those dollars can be assigned to—all on the same screen (the “Budgeting” screen).

Plus, unlike traditional budgeting, there’s no need to be rigid here. You can (and should) change your categories and the amounts you assign as your needs and income change.

Rule 2: Embrace your true expenses

Pre-YNAB, I managed our expenses by ‘feel’ and past experience. That is—I had a good sense of how much income came in and whether we’d have enough to cover our expenses. However, I never truly knew how much we needed month-to-month.

I also had to keep a large cash float as a buffer for expensive months. (For example, when our car insurance, home insurance, or property tax was due). This was not an optimal way to manage our money.

Everything changed when I learned how toembrace our true expensesin YNAB. In a nutshell, the concept behind this rule is to look at all your expenses for the entire year. This includes large, irregular expenses and one-off ‘emergencies’. Add them ALL up, then average them out to a monthly amount.

This gives you a far more accurate picture of your expenses. (Versus the up and down picture if you only look at your spending month-to-month.) This freed me from the uncertainty of not knowing for sure if we’d have enough to pay our large, irregular expenses.

It also allowed me to do away with our large cash stash and put into action rule one—“give every dollar a job”!

Related: Find out how I manage emergencies without excess cash inYou Don’t Need an Emergency Fund (You Need an Emergency Plan)

Rule 3: Roll with the punches

This rule is about the flexibility I keep returning to in this post. Instead of feeling bad about overspending, YNAB encourages us to be flexible androll with the punches. In other words, shift money from another category, then move on!

In my opinion, this rule epitomizes the ethos of YNAB. It removes the guilt and shame of not sticking to your ‘budgeted’ numbers. I think it’s so important to feel good about our money, and how we manage it. I love that YNAB gives us permission to be flexible.

Rule 4: Age your money

In traditional budgeting, you plan your spending based on future or expected income. YNAB does better—it encourages you to work with income you already have. That means you assign last month’s income to this month’s expenses and this month’s income to next month’s expenses.

This is groundbreaking, especially for people who live paycheque to paycheque or have inconsistent income. (If you’re financially established, you can still benefit fromaging your money—it’ll give you greater predictability and more opportunities for future planning.

Personally, I’m most comfortable aging my money by only one to two months. Others prefer more of a cushion. It’s completely up to you!

YNAB’s rules: simple but powerful

YNAB’s rules are simple but powerful. Following them could change your financial life (as they did mine). I hope this section helped to explain why I love these rules so much and how they could also change your financial life.

Reason #7: Reports

I just said that YNAB’s rules are my absolute favourite thing about YNAB. But ack, I could genuinely say the same thing aboutthe reports! (Seriously, they’re awesome!)

I love tinkering around with and geeking out on the numbers and charts generated by the Reports function. For me, YNAB’s reports are the end result of everything I do in YNAB. I use the reports to:

• Analyze our spending.
• Spot spending patterns.
• Tally up how much we spend per year, month, category, etc.
• Compare our spending from year to year.
• Find areas to optimize.
• Plan ahead based on current or past spending patterns.
• Easily and quickly record our annual spending in a spreadsheet at the end of each year. (And in myHow Much Does it Cost to Live the FIRE Life interview with myself!)

I’m probably missing some of the many things I use my YNAB reports for, but you get the picture! I spendwaytoo many hours playing with the reports function. I love toggling with the dates, categories and views to see different data combos. If you’re a numbers nerd like me, I guarantee you’ll also love this function! 🤓

YNAB reports—the reward for a year of effort

I look forward to January 1st every year because that’s when I do the final reconciliation of all my accounts in YNAB and create my reports for the past year. These reports are the end result and reward for my year of effort in inputting all the data—it’s my belated Christmas present to myself!

Final thoughts

Wow, this post clocks in at 3,000+ words! I didn’t expect to say as much as I did about YNAB. But that just shows how big and genuine my love is for this amazing app.

After all, YNAB played a pivotal role in helping us toreach FIRE (financial independence, retire early). Without YNAB, I wouldn’t have been able to optimize our income and expenses as much as I did. Doing that saved us years on our journey to FIRE.

In my opinion, that time savings is priceless. This is why I’ve said (and continue to say) that if my version of classic YNAB stops working, I won’t hesitate for a second to pay for the new YNAB. It’ll be worth every penny!

Share your thoughts

Now it’s your turn—tell me what you love about YNAB. Also, let me know if you agree or disagree with my assessment of YNAB’s many features.

Also, I don’t have a referral link of my own to share, but I’d love for you, my readers, to benefit from each other! If you’re a YNAB user, feel free to include your referral link with your comment.

Note: the referrer and referee each get a free month of YNAB—seethis page on YNAB’s sitefor details.