I don’t mean for this to sound like a commercial ad, but until I started using the online, budget-to-zero system and service, YouNeedABudget, I never handled my personal expenses as effectively as I do now.
Because I work as a blogger, freelancer, and a part-time contractor, I have to manage my income and expenses carefully in order to not sink into an overdrawn financial hole.
I shamefully admit that for most of my working life, I lived paycheck to paycheck. When I earned more money, I parked some of it in savings, but mostly I splurged on stuff I wanted to buy without much consideration for upcoming and unexpected expenses. That’s why I mostly lived from paycheck to paycheck, and never had enough in my savings.
When I had to pay for unexpected car repairs, for example, I typically pulled money from my savings or spent less on other things to make up the cost. No matter how much money I made, I typically was waiting for my next paycheck at the end of the month to pay bills coming due the first week of the following month. Some months my checking would get nearly to zero and I had to pull money from the savings until my next check arrived.
This has all changed with YouNeedABudget.
YouNeedABudget only cost a very affordable $50 a year. But you can test it out for a 34-day free trial. I promise you, the YNAB system will save you enough money to pay the annual price and then some.
(Note: if you decide to sign up for YNAB using my link, I get a free month of the service. So thanks for helping me out.)
My Road to Budgeting
My poor spending habits started changing when I started using Mint.com, which tracked where I was spending my money based on a budget I set up for my regular monthly required expenses and variable expenses, such as food and gas.
To help with savings, I started using Digit.com, which took out a percentage of the money in my bank account based on my balance and spending habits. Digit automatically saved money for me, and because Digit was not directly tied to my online bank, Capital One, I didn’t remove that money until I really needed it.
But after I started using YouNeedABudget, I quickly realized I no longer needed Mint and Digit. YouNeedABudget for the first time in my life taught me about the concept of the budget-to-zero method and how to effectively budget my money.
What Is Budget-to-Zero?
If you’ve never heard of the concept of budget-to-zero, then don’t feel bad. I lived most of my adult life not knowing it, and I think the education system actually failed me because I never learned it. I was taught skills for making money but not how to budget and spend my money effectively.
Budget-to-zero works like the old envelope budgeting system, which entails taking your paycheck and assigning dollars (a budget) for all your monthly required expenses (like rent or mortgage, car payment), variable expenses (e.g., food, eating out, entertainment, clothing), and future expenses (e.g., car insurance, holiday gifts, subscriptions.)
You assign the money you have in your checking account to the buckets of expenses you have. You assign every dollar a job so that you know exactly where your money is going from month to month, and you’ll know what amount of money you will need for your expenses.
To get started with YNAB, you simply connect your YNAB account to your checking, savings, and credit accounts. YNAB will pull in your balance and all your current transactions. Note: YNAB is only tracking your transactions. You cannot, nor can anyone else, deposit or withdraw money using YNAB. It simply manages your transactions.
Here’s an example of how budgeting works in YNAB. Let’s say your monthly income is $3,000 per month. You will need to set up categories for all your recurring and variable expenses.
Categories and category groups might include: Monthly Expenses, Groceries, Fast Food, Entertainment, Auto/Travel, Home Maintenance, Savings, etc.
Without going into details about my finances, my YNAB categories are broken down like this.
Savings (about 15% of my income each month)
Variable Expenses (home, groceries, co-pays, donations)
Blog Related Monthly Expenses
Annual Expenses for Current Year ( web hosting, holiday and birthday gifts, DMV registration)
Annual Expenses Next Year
Irregular Expenses (clothing, gadgets, home maintenance)
The required expenses are the easiest to budget. If your rent or mortgage is $1,200 per month, you simply assign that amount in that particular category. After budgeting for rent/mortgage, you have $800 left.
You go through all your categories and assign (budget) money to all your other categories. And the key to using this system effectively is to assign ALL the money in your checking account.
Tracking Your Budget
As you pay bills and spend money, you go back in to your YNAB app and approve those transactions, and make sure you have covered your expenses in your categories.
Because of digital banking, we can easily know how we spend every penny of our money. That’s why I avoid using cash, because I want YNAB to track every penny I spend.
Covering Overspending and Unexpected Expenses
Of course, no budget is perfect. You will sometimes not budget enough for say groceries or gas. You will also have unexpected expenses that need to be covered. So you go into your YNAB account and see where you can take money from one or more categories to cover under-budgeted and un-expected expenses. Many YNAB users, including myself, assign money to an Un-expected Expenses category and pull from it when needed.
Note: if you’re living within your means, that is you have income to cover all your expenses, then budgeting is not going to be a problem for you. But if you’re living beyond your means, which means you don’t make enough money to meet your required expenses, then you’re going to need to find ways to reduce your expenses and/or make more money to meet your expenses. Either way, budgeting your money using the budget-to-zero system will make a huge difference with your personal finances.
Working the System
After using YNAB for more than a month, YNAB gives you a Quick Budget breakdown for each of your buckets of spending. For example, I spend on average about $41 per month on gas (because I work from home and don’t drive much). That bit of information lets me know how much I need to budget per month for gas.
I spend an average of $113 on fast food per month. This and groceries is an expense that I need to watch carefully because I could save money by reducing the amount of fast food I buy.
One of the most useful features YNAB includes for budgeting is the Goals feature. This setting allows for budgeting for future financial expenses, such as money for a vacation, home repairs, car insurance, holiday and birthday gifts, and annual subscriptions.
For example, one of my blogging related expenses is my subscription to Canva, which is $119.40 per year. I’ve set a goal to budget enough money per month to pay for that expense in June when it’s due. It means setting aside about $23.00 per month. I have about eight other similar goals set up, including a few savings goals for travel and emergencies.
By budgeting for these expenses I’m prepared for them when they arrive, and I’m no longer taking a chunk of money out of my savings account when the bills are due.
I have similar goals for travel, holiday expenses, and car expenses. One of my goals is to save $2500 to take a trip. Though I have a savings account, I am actually budgeting for that goal and leaving my savings for emergencies.
With YNAB, your budget and goals now have a purpose. By setting goals you’ll start setting priorities for what’s important to you. You will start spending less in some areas so that you can have money available to you for what’s more important. If for example, I cut my fast food spending by say $40 per month, I can put that money toward my vacation goal.
Track Your Budget Not Your Checking Balance
As you start using YNAB more, you will begin to see that the key to good budgeting is not to think so much about your checking account balance, but to focus on your budget instead.
Because YNAB keeps track of your transactions, you should be able to see where you’re spending your money, and then figure out where you could cut spending. Could you reduce spending on fast food, entertainment, or cancel a subscription that you’re not using?
Because I monitor my expenses every week, I recently figured out that I could save another $60 a month by switching to a cheaper social networking and newsletter hosting service. Now I have more money to get toward my vacation trip.
Stop Living From Paycheck to Paycheck
After using YNAB for four months, I realized I could pull out the money I had stashed away in my Digit account, and put that money back in my checking account. From there, I assigned that money to the following month’s categories. Since doing this, I’m now stay a month ahead in my monthly expenses and goals.
I look forward to budgeting my money every month because I’m no longer guessing how much money I will need, and how much I should be spending.
My goal is to eventually get three months ahead, but that will require a greater income.
Thanks for using my affiliate link to start your trial of YouNeedABudget.
YNAB has several free online tutorials and webinars that I suggest you use during the free trial to get going. If you have a simple budget of earning and spending money, the system will be easy to learn.
If on the other hand you have credit card payments, a flexible income, and/or are in debt, you’re going need to do some extra work. But again, the YNAB tutorials and webinars address all the various problems that most people encounter with their personal expenses.
YNAB is also very good about providing feedback to your questions. You can send a message to a support person right from within your YNAB account.
After you get set up with YNAB and learn the system, you will only need to check into your account like one or two times a week to approve transactions, check your budgets, and manage your goals. If you work the system and live within your means, I guarantee you, your money will grow.
Let me know what you think of YNAB, and if you have any questions, don’t hesitate to ask.