YNAB Basics: How to get started budgeting

Do you live from paycheck to paycheck?

Is your debt getting bigger and bigger?

You constantly worry about money?

That sounds like me a years ago. Until I started to budget.

Today I save more than half of what I earn. I am quite confident that I can retire in less than 15 years.

Whatever your financial goal is: A budget can help you reach it! No self-deprivation involved. Just you telling your money what to do.

The secret of getting ahead is getting started.

Mark Twain

I use a software called YNAB for my budget. It’s the most important piece of software in my life and has a great community, that helps you to get started.

In this post, I will show you:

  1. The 4 rules to your budget
  2. How to install YNAB
  3. How to register all your accounts/wallet/credit cards
  4. How to give every dollar a job
  5. How to enter transactions
  6. What to do in your first days of budgeting

The 4 rules

YNAB comes with 4 basic rules. They are really important to understand before you even start to budget.

Rule 1: Give every dollar a job

You will tell all your money what it should do. Whenever you get new cash you will assign a job. Jobs can be whatever you like. Saving for early retirement. Groceries, a payment on the car.

When every dollar has a job and you want to buy, say an expensive iPhone, you are forced to enter it into your budget. Did you save for the thing - great! Go get it. If you didn’t – where do you take the money from? Rice for the next 3 months? No vacation this year? You are the boss – your budget just reminds you what this iPhone will be about. Even before buying it.

You are the boss – your budget just reminds you what this iPhone will be about. Even before buying it.

Rule 2: Save for a rainy day

Are you regularly surprised by the accidents of life? Like your car unexpectedly breaks down. Or Christmas? Or a broken washing machine?

This is where Rule 2 is comes in. You can not predict when a rainy day will come – but rain is a part of life. So better to plan for it, then just to ignore it.
Rule 2 insures yourself against many eventualities of life. Next time your car breaks down it’s not a financial disaster. You will be prepared.

Rule 3: Roll with the punches

Whoops – you spent much more money on groceries than you wanted? No shame – no blame. Just roll with it. Adjust your budget.

A budget is not about punishing yourself. It is you telling your money what to do and keeping yourself accountable.

Rule 4: Live on last month’s income

You will create a buffer for yourself. Are you paid to late? No problem – you will have a full paycheck of buffer. You will literally live of last month’s income. I will teach you how to achieve this in one of the later articles in this series.

Rule 1 to 3 are enough for the first few days.

Installing YNAB

Before we begin – I need you to install Dropbox and YNAB. You can also choose to keep your budget local and not use Dropbox – but I really encourage you to use the mobile app as well.

YNAB is available for Mac and Windows. Mobile versions are available for iPad, iPhone and Android devices.

I will not explain how to do this – you probably installed a lot of apps in your life.

Setting up your budget

Now let’s start with setting up your budget. You will:

  1. Set up a new budget file
  2. Take a short look at YNAB’s user interface
  3. Add your budget accounts
  4. Set up your own budget categories
  5. Give every dollar a job

Step 1: Set up a new budget file

After opening YNAB you see the following dialogue:

YNAB's opening dialogue. Here you can set up the name of your budget.

Give your budget a name and check if the other settings make sense to you. Here you can choose to keep your budget local.

Step 2: Taking a short look at YNAB’s user interface

Let me walk you through the most important elements of YNAB’s user interface.

  1. The “Budget” button takes you to the screen, where dollars gets their jobs.
  2. The account area will show all the accounts. On the right-hand side, you see how much money they hold.
  3. With the “Add Account” button, you will add new accounts
  4. With these small arrows, you can collapse/expand the sidebar
  5. Over the categories is a month picker
  6. Over every month there is an area, that shows you how much money is available for budgeting

Step 3: Add your budget accounts

In YNAB, you can add 2 types of accounts. Budget accounts and Off-Budget accounts.

Budget accounts are the accounts you spent money from.

Saving accounts that you don’t touch or investment accounts do not need to be part of your budget.

What should be part of your budget:

Use the “Add Account” button and this simple dialogue will open:

Add the name of the account and it’s current balance. Also pick a type. In case Off-Budget account is checked, do not add this account for now.

Now have a look at the budget view again.

In my example, I added a checking account and a credit card.

The debt from your credit cards is in a category Pre-YNAB Debt. In this case here only -123,00 €.

The amount of money to budget is the money on the checking account.

Step 4: Adjust the categories

In YNAB, there are 2 level of categories. Master Categories like “Saving Goals” and categories like “Vacation”.

I recommend you to keep the basic structure of the categories in YNAB for your first few weeks. You can adjust as you go.

Start by deleting all the categories that are irrelevant to you.

Click on the category name and then on the delete link.

Now add all the categories that you know about.

They might include:

Best guess is enough. No need for perfection here You will use your budget quite regularly so there is enough time to add categories you forgot about.

Step 5: Give every dollar a job

Now give every dollar a job.

Start with the essentials – what do you absolutely have to pay until the next paycheck arrives? Your rent? Groceries?

Now fill the “Rainy Days Category”. Every year you need 300 Euro for Christmas? Well, that makes 25 Euro every month. You know that your car may need some repair done? So guess how much you will need and fill the proper category. A guess is enough.

For all other “emergencies” that you can not guess yet tuck some money into your emergency fund.

You might also have some fun categories. I, for example, have a category for books and for computer games. In fact - I highly recommend you to have fun categories. Leave yourself some slack. Otherwise, it will be hard to maintain the new habit.

Now – if you are in debt and have some money left – you can add it to your Pre-YNAB debt categories. More on how to fight off debt and handle credit cards using your budget in a later article.

Keep going until “Available to Budget” drops to zero.

Congratulations! This is your first budget.

Using the budget

Now after you created this great plan of what your money is supposed to do, let me show you how you use the budget in daily life.

You will learn:

  1. How to add a transaction
  2. How to enter a paycheck
  3. How to use the mobile app

How to add a transaction

Click on the “All Accounts” button. You will see of all your transactions.

Now klick on “Add a new transaction”.

Add the name of the payee, select the category and put the amount you paid in to the outflow field. Click “Save”.

Let’s head back to the budget view.

As you can see the transaction is now entered into YNAB. In my case, I spend $10 on groceries.

How to enter a paycheck

Luckily there are not only outflows in your budget.

When you get a paycheck this is an inflow.

After you have entered it you will now see additional money to budget. Remember Rule 1? Give every dollar a job.

How to track cash

Did you already entered your wallet as an account? If not please do so now.

Whenever you spend cash, you just enter it as an outflow on the account “Wallet”. It works like every other outflow.

How to use the mobile app

The mobile app has 2 basic features.

  1. It shows you an overview of your categories and how much money is left.
  2. It allows you to add transactions

Let me show you how to add a transaction.

  1. Click “Add Transaction”
  2. Enter the amount of money
  3. Click “Next”
  4. Choose Payee, Category and Account
  5. Click “Save transaction”

Your first days on the budget

I want you to keep the budget up to date every single day. No excuses. Use a tool like Coach.me or another reminder. Small steps matter.

I know this will be a little bit of a learning curve but it is well worth it. You will not need more than maybe an hour a week, once you are started.

Before you make a purchase use the mobile app and see if there is enough money left in the category. Being aware of what you are doing gives you an opportunity. Use it!

If you really need to overspend in a category – don’t be discouraged. The budget is not supposed to control you. It is a tool for you to control your money.

Please watch the AMAZING YNAB webinars! They will get you started and you can ask all your budgeting questions to the YNAB staff. For free.

I really hope you give this a try!

I thought about YNAB as quite expensive. But after the 30 days it had already helped me to save much more money than it cost.

I started to cut my credit card debts and I even had money in my emergency fund.

Budgeting felt like getting a raise every single month

And the most important thing is this. Money is no longer something that I feel uncomfortable about. No sleepless nights anymore about credit card debt. The money does not run out at the end of the month.

I couldn’t believe it. And so won’t you.