YNAB (You Need A Budget) Pro is a desktop application for Windows that is completely focused on helping you manage your cash flow by focusing on the budget. While most every personal finance application tries to add a few new features and twists, YNAB is focused on what it calls the YNAB Methodology. I’d be doing a disservice if I didn’t go through the methodology, as the software’s sole purpose is to suport its implementation.
You’ll certainly be able to find more complex applications (MS Money, Quicken) and shinier applications (Mint) –even more socially-oriented applications (Wesabe, and Geezeo)–but you’ll have a hard time finding an application that dials into the “necessities” of personal finance and gets the job done as quickly as YNAB can.
In my personal opinion , YNAB Pro stands head and shoulders above the rest for one compelling reason: It focuses you on the money management tasks that actually make a difference in your finances.
The YNAB Methodology
The core philosophy of YNAB is centered on what are called the Four Rules of Cash Flow. In order to provide context for the rest of this walkthrough, I’ll briefly touch on these Four Rules. (See YNAB.com for a much better explanation.)
Rule One: Stop Living Paycheck to Paycheck
The gist of this rule is that what you earn in one month, you have available to spend in the next month. Easier said than done, right? Jesse, the founder of YNAB, stresses again and again that you don’t need to be following this rule to benefit from the software, but there are some very compelling reasons as to why you should stop living paycheck to paycheck as fast as you can:
- If you’re on a variable income, where you’ve previously been forced to “predict” and budget based on that predicition — this problem goes away. You budget what you already made so you know exactly how much you have to work with.
- All of the tedium and wasted time that goes along with timing your bills to certain paychecks is gone. If you’re living on last month’s income then you can pay all of your bills in one fell swoop (or, better yet, have them all set up on autopay where you don’t have to lift a finger!).
- Your stress levels drop as you realize that you aren’t living right on the edge of financial ruin (this one’s probably a lot bigger than the other two, but doesn’t need much explanation).
I researched for a while and couldn’t find another piece of software that stresses living on last month’s income. I couldn’t even find a personal finance “guru” that suggested such a thing. I’m a big fan (obviously) of this idea and am suprised nobody thought of it earlier!
Rule Two: Give Every Dollar a Job
Now this “Rule” has been around for a while. It’s a basically a new way of saying that you should do zero-based budgeting. The idea is that you allocate all of your dollars to some kind of job, whether it be paying the rent, being saved for an eventual emergency, or going out and having some fun.
The big advantage to this rule lies in the fact that you’re made aware of your finite finances, so priorities must be made. If you spend more in Entertainment, then you may need to spend less in Vacation, (or Groceries!).
While zero-based budgeting is more often a term used in relation to the budgeting of some businesses and governments, the application to personal budgeting, along with all of the advantages, is certainly a good one. There are other “envelope” (this is zero-based as well) budgeting applications out there, namely Mvelopes, NeoBudget, and Snowmint’s Budget, but all pale in comparison to YNAB Pro when looking at it from sheer ease of implementation. We’ll get to that later.
Rule Three: Save for a Rainy Day
Rule Three isn’t really anything new, but it basically means that you save for both expected and unexpected larger expenses (Christmas, vacations, property taxes, annual life insurance premiums, car repairs etc.). Again, the software makes this unbelievably simple. When you allocate $50 in one month, don’t spend anything, and then $50 in the next month, you have a balance in that category of $100.
I touts this Rule as a cash flow lifesaver, in that you realize quickly that all of your money isn’t always available for you to spend. You have both foreseeable and unforeseeable expenses that don’t crop all of the time, but will need to be dealt with. When you’re saving each month you’ll have the cash flow for these expenses. (Note: both Quicken and MS Money have very poor implementations of this idea).
Rule Four: Roll with the Punches
Overpsending in categories can be demoralizing and possibly demotivate individuals so they won’t continue to practice budgeting. YNAB is designed to help you along your budgeting way so you can stick with it.
Rule Four basically stipulates that you pay yourself back for overpsending before budgeting for the next month. The software handles the calculation for you, but basically if you overspend by $25 in Groceries one month, then your next month’s Available — normally $4000 — will be $3,975 ($4,000-$25). Your Groceries category is zeroed out and “starts fresh” so to speak.
This breaks from the traditional norm of categories’ balances (both negative and positive) rolling forward from month to month. In YNAB Pro, positive balances roll forward (that’s Rule Three) but negative balances are zeroed out, with their overages being deducted from the next month’s Available funds (more on that later).
I saw two advantages with Rule Four:
- You don’t have to continually “punish” one category that had a big overage, where that overage is then haunting you for the next several months as you try and dig it out of its own hole. You can start with a clean slate.
- You can spread overspending across many categories. So if you have a $400 overage in Home : Repairs, you can spend $20 less in 20 categories, or $50 less in 8 categories (or any other mix in between). This makes the whole ordeal much more manageable (and realistic).
We’ll now move into the software features with the more traditional walkthrough that I normally do.
Getting Started with YNAB Pro
Since the Methodology sets YNAB apart from other traditional personal finance applications, I also find it necessary to work through two resources offered in the Support pages:
- The Quick Start Guide – basically ten steps to make sure you’re off on the right foot.
- The Tutorials – these tutorials include on-screen instructions with a voiceover explaining how even the littlest of things can be done. The only other company I’ve reviewed so far that comes close to this kind of support detail is Mvelopes.
I should mention one support option I’m particularly impressed with: They offer a free weekly live webinar where you can call a conference line and watch a presentation on your screen (It’s called Online Coaching). Perhaps Intuit and Microsoft will listen to how the Small Guys are actually caring about their customers and wanting them to succeed?
You’re presented with a (very short) startup wizard where you can:
- Start a blank budget
- Open an existing budget or
- Import your budget from YNAB for Excel
I obviously started a blank one for this walkthrough.
Setting Up Accounts
Following the steps from the Quick Start Guide, I began making my accounts. I clicked the ‘+’ to add my checking account, and then my credit card account. When each account was added, a new tab for that account was added across the top of the Register. The tab tells you your working balance. If you hover over the tab, you get the balance broken down between cleared and uncleared transactions.
Doing My “First” YNAB Budget
I clicked over to the Budget and noticed that my September Available funds were there (my checking account balance as of 9/22). I edited my categories (you start with a pretty good default list), renamed some, moved some to other parent categories, etc. In the end I had what I feel like is a pretty good representation of our spending categories.
The budgeting interface is magic. I think it stems from the fact that the application was originally a spreadsheet, but the whole thing is built to be intuitive. I have my Available number at the top of the screen and my task is to budget until that number gets to zero. It’s as easy as entering numbers and hitting [Enter] to move to the next line.
Every other implementation of the envelope system that I’ve seen has you set up “funding plans” or do some other in-between step before you can just get the money allocated! (Why all of the extra steps?)
I finished my first budget in about five minutes (granted, it’ll take you a bit longer if you’ve never budgeted before) and decided to show how the bank transaction importation worked.
Importing Bank Transactions
YNAB Pro does not synchronize with your bank account by having you enter your bank login information. I’m sure there are some people that absolutely need this feature. Honestly, I’ve been reviewing applications for quite some time and one of the areas where I hit the biggest snags is with the bank synching. I find it to be a breath of fresh air whenever I don’t have to worry about it.
I logged into Wells Fargo and selected to “Download Account Activity” for my credit card from my starting balance forward. YNAB Pro imports OFX (Open Financial Exchange), QFX (Quicken Financial Exchange), QIF (Quicken Interchange Format) and CSV (Comma Separated Values) — basically every format any bank has. YNAB Pro had installed with a file association for QFX (my Wells Fargo format) so once I downloaded, all I had to do was click Open and I was off to the races.
Each imported transaction comes in bolded. You can select multiple transactions and categorize them in bulk. The one thing you can’t currently do is have YNAB Pro automatically clean payees from COSTCO WHSE #1203 – 133538 to Costco. (I’m told there’s a version in its earliest stages that has this feature working — not even in alpha testing yet though).
Your task is to categorize and accept the imported transactions (you can obviously manually enter transactions as well, and YNAB Pro will match imported transactions with transactions you manually entered).
There were some nice touches in the workflow, and I think other apps should take a page from the YNAB book in terms of being able to do things quickly:
- Bulk categorization didn’t require some new-fangled window to open. It used a right-click menu.
- Categorizing the transaction automatically accepted the transaction, so no extra clicking necessary.
- The tab order from field to field all worked as expected (I know, you’d think all applications would do the tab order correctly).
The spending amounts, once transactions are categorized, are then shown on your Budget, deducted from the appropriate category and giving you the remaining balance you have left to spend.
Some screenshots from the importation/categorization process
Setting Up Scheduled Transactions
You can have YNAB Pro be a billtracker for you, by setting up your bills in advance in the Scheduler.
You can also set a transaction as “Make Recurring” from the Register and it will be entered into the Scheduler for you.
Schedule transactions fire on their next occurrence date, and are marked in italics so you notice what’s happened.
Reporting in YNAB Pro
The (sparse) Reports section in YNAB Pro has three options:
- Spending by Category
- Total Spending Month to Month and
- Current Balances
The Reports section isn’t comprehensive enough to be compared with the likes of Quicken, MS Money, or even Mvelopes. Improved Reporting has been requested for quite some time, but has always been a lower priority than other features being added.
Exporting Your Data
One feature recently added is the ability to export your data as a CSV or QIF file. This allows the user to import the data into Excel and then dive into all sorts of reporting capabilities from there.
Miscellaneous Stuff in YNAB Pro
The Settings dialog is expectedly simple where you can set a few options, have automatic backups to another drive or location, and set the delay for tooltips appearing.
I really like how they’ve implemented tooltips in YNAB Pro. When you hover over the Outflows amount in the Budget you get a breakdown of the transactions making up that amount.
Hovering over the all-important Available number shows you how that number is calculated:
If you hover over the date of a transaction in the Register you get the balance of that account as of that date (broken down into cleared/uncleared).
You can add notes, reminders, etc. to your Parent Categories, Categories, or individual Budgeted numbers (why did I budget only X for ABC?).
The YNAB Community
Honestly, what most surprised me about this software is the loyal following it has developed. The forums are extremely active (especially for the relatively small size), with members being more than willing to go the extra mile to help people get started. (I often notice forum members sending other members private messages so they could work with them a little bit one on one).
Also, with other forums, you’ll sometimes notice that there tends to be some arrogance attached with those that have been on the the forum boards for a while (just check out FatWallet.com or CreditBoards.com) — the YNAB forums are markedly different. Everyone is more than willing to help and doesn’t deride an individual for any reason.
The YNAB Way
You’ll see that you receive The YNAB Way ebook if you purchase either the spreadsheet version of YNAB or YNAB Pro. The book is a short one, only 40-50 pages, and their intent is to teach you the why behind the methodology so you’ll understand the why behind how the software works (for instance, when you record your Primary Income, it automatically is available the next month in line with Rule One — if you can’t manage that, you record income so it’s immediately available until you too can be following Rule One).
They’ve tried to make the ebook convincing, outlining in great detail the benefits of this Four Rule methodology. You can find the same information scattered through the site and forums, but it’s nice to have it consolidated in one place and presented logically.
I already mentioned the Quick Start Guide and Tutorials, along with the free Online Coaching, but I should also mention there’s a very thorough setup guide, a wiki (run by the community) and contact information so you can contact Jesse (the founder) and his team directly.
YNAB Pro Conclusion
I love the YNAB money management methodology. I feel like it focuses the user on what’s truly important with money management. I’m struck by the success that community members are attributing to YNAB — statements like “this changed my life” and “this saved my marriage” are not uncommon.
The software, built to follow the methodology, is simple. Most financial apps just try and add more features each and every year, force upgrades, and give you a bunch of useless eye-candy. I feel like YNAB has really focused on keeping the software simple enough for even the number-crunching-haters (and they have yet to charge for an upgrade).
I’d like to repeat myself by saying that in my personal opinion , YNAB Pro stands head and shoulders above the rest for one compelling reason: It focuses you on the money management tasks that actually make a difference in your finances (in an extremely simple way).