YNAB 4 is the latest version of the very popular and extremely effective budgeting software known as You Need a Budget. The YNAB suite of software programs includes a desktop version (for both Windows and Mac) as well as mobile apps for Android and iPhone/iPod devices. It uses the very effective “envelope” budgeting model and even goes quite a few steps further (which I’ll explain below). The software is great, the methodology is proven, and its user reviews are off-the-charts positive. The review below will walk you through both the budgeting model behind YNAB as well as the software itself.
With this latest version comes a myriad of improvements. Most notable may be Cloud Sync, which automagically syncs your budget data across all your computers and mobile devices. You Need a Budget does a fantastic job of helping you manage your cash flow by focusing on what I consider the base of any financially sound household: the budget. With many finance applications on the market trying to be all things to all people, YNAB 4 does one thing: budgeting – and it does it amazingly well. Of all the applications I’ve reviewed, YNAB 4 is by far the most effective program to help you get out of debt, save more money, and take complete control of your finances.
Sure, there are shinier applications (Mint) and more complex applications (Quicken)–even a lot of free options–but you’ll be hard pressed to find an application that dials into the “necessities” of personal finance and gets the job done as quickly as YNAB does.
The software itself is brilliant, but the real power of YNAB 4 comes from the budgeting methodology that it’s built around. In fact, YNAB is really more about following a method of budgeting rather than using great software (and great it is). I’d be doing a disservice if I didn’t go through YNAB’s methodology, as the software’s sole purpose is to support its implementation:
Effective Budgeting: The YNAB Methodology
The YNAB methodology is built around what they call the 4 Rules of Cash Flow. I’ll briefly go over each of these rules:
Rule 1: Give Every Dollar a Job
Rule 1 isn’t anything revolutionary (in fact, it’s a time tested and very effective way to budget.), but it’s something most of us simply don’t do. Said differently, “give every dollar a job” is simply using a “zero-based budget.” What this means is that you allocate every single dollar you have for the month to a specific “job.” It could be to buy groceries, pay rent, be saved for an emergency, or for having a night out on the town.
Giving every dollar a job requires you to prioritize your spending because it helps you realize that you only have a finite number of dollars each month. If, for example, you spend more on that fancy dinner date (Entertainment), then you may need to spend less in Vacation. Their website says it well: “Instead of deciding to buy something based on the big (or small) pile of money in your checking account balance, you’ll decide based on a category balance.”
This zero-based budgeting is the principle behind the traditional “Envelope” budgeting method. In fact, YNAB 4 is envelope budgeting at it’s finest. You could say it uses electronic envelopes. There are other envelope-based software applications out there, but none make it as easy to implement as YNAB.
Rule 2: Save for a Rainy Day
YNAB 4 helps you prepare for both expected and unexpected larger expenses by helping you save little amounts each month that accumulate over time. These expenses might be vacations, Christmas, annual insurance premiums, car repairs, etc. The YNAB software makes this unbelievably simple – it automatically “rolls over” your unspent amount in each category to the next month. For example, if I allocate $50 each month to Car Repair, the amount in that category builds up over time so that when I suddenly need a new $600 radiator, I already have the money set aside to pay cash for it (this happened to me, by the way).
This rule is truly a cash flow lifesaver. It helps you see that even though you have money in your bank account, it’s not always “available” to spend (how many times have we spent that “extra” $100 in our account only to find out we had forgotten about some upcoming (irregular) expense? By following rule 2, your irregular expenses don’t crop up on you (both the foreseeable and the unforeseeable ones). When you’re saving each month you’ll have the cash needed for these expenses.
Rule 3: Roll with the Punches
One of the most common reasons people aren’t consistent in their budgeting is because they overspend in one of their categories. It can be discouraging and can make you feel as though you’re “not doing well with your budget.” Well, overspending here and there is inevitable — it’s going to happen. For that reason YNAB 4 is designed to help you stick with your budget by “rolling with the punches.”
Rule 3 essentially has you pay yourself back for your overspending before you budget for the next month. The calculations are all done for you, but basically if you overspend by $50 in Entertainment one month, then the total amount you have available to spend in the following month — regularly $5,000 — will be $4,950. Your Entertainment category “starts fresh” for the new month. This is effective for the following reasons:
- You are able to spread overspending across all your categories. This sort of “massages” your overspending gently into your budget next month, making it much less painful. For example, if you overspent $500 in Car Repair, in the following month you can spend $25 less in 20 of your other categories, or $50 less in 10 categories (or any mix you choose). Suddenly the large overspending is much more manageable and realistic.
- Rather than having to “punish” one overspent category (and having to dig it out of it’s own hole in the ensuing months), you can start with a clean slate. (Side note: YNAB 4 does also allow you to choose to carry over the overspent amount for a specific category if you want to. This often makes sense and is totally up to — YNAB gives you complete control.)
Rule 4: Stop Living Paycheck to Paycheck
Rule 4 is to stop living paycheck to paycheck by living off of last month’s income. Essentially this means that the money that you earn in this month, is available for you to spend in the next month. For example, all of the money that I spend in July is the money that I made in June. Now, obviously to live by this rule, you need to save up one month’s income. Doesn’t sound easy? Don’t worry, YNAB emphasizes over and over that you do not have to be following this rule to benefit from the software. It is, however, a very effective way to manage your money that I suggest everyone implement! Here are some advantages:
- Being that you always have one month’s income as a buffer in your bank account, you are suddenly much less stressed as you realize that you aren’t living right on the edge of financial ruin. Don’t underestimate how much this can help.
- No more timing your bills with your paychecks – saving you loads of time and tedium. You can now pay all of your bills in one fell swoop!
- Planning for your spending for the month becomes much easier as you now know exactly how much money you have to spend, to the penny.
- Those with a variable income no longer have to “predict” and budget based on your guesstimates of what your income might be. You budget what you already made so you know exactly how much you have to work with.
Again, while it’s not necessary to follow this rule in order to use YNAB 4, I highly recommend it (regardless of what software you use). My wife and I have done it for 4 years and will never, ever, ever go back.
The 4 rules that make up the YNAB methodology are what truly make YNAB different (and better) from other budgeting software applications. YNAB 4 combines this extremely effective budgeting method with top notch software to make (in my opinion) the most effective budgeting system available.
Your First Experience with YNAB 4
Installing and setting up the software is quite simple and straight forward. Just download the software from the website, install it on your computer, and you’re ready to go. As mentioned before, YNAB 4 works on both Windows and Mac.
Take Me By The Hand
One of the great things about YNAB, if you trying it for the first time, is that it literally guides you through each step in getting started with the software. As you can see in the screenshots below, it walks you through creating your first account and explains things a long the way. As you set up your accounts and budget, information bubbles pop up, teaching you how things work as you go. Very nice.
Of course you can skip this little tutorial if you’d like, but if you’re new to YNAB it’s quite helpful.
A Note on YNAB’s Support and Help for New Users
Before I go through the nuts and bolts of the software, I thought I’d mention that YNAB does a phenomenal job of helping their users understand anything and everything about how to use the software and budget effectively. A quick look at the support page and the training page, and you’ll see that they do pretty much everything but budget for you:
- Live Online Classes (free) – Introduction to YNAB and classes on various other topics.
- Recorded Classes (free) – Covers the basics to get you on your feet in no time.
- YNAB Online Tutorials – A whole slew of video tutorials explaining how to do just about anything you want.
- Email Support - And they are actually quick at responding.
- YNAB Forums – A very active and very loyal community willing to help anyone who has a question.
- Much more…I think you get my drift. I’m impressed by the amount of help available to those starting out with the software.
Overview of the Software
Let’s jump into the actual software and look around a bit. By default, you’ll land on the Accounts screen. It will look something like this (click to enlarge):
YNAB 4 essentially 3 different screens that you’ll use. An Accounts view, Budget view, and a Reports view. You can access each one by click on the respecting item in the top left of the screen. We’ll go through each one in detail, but here’s a quick synopsis:
Budget – This is where the magic happens. This is where you’ll plan for your spending (allocating you available funds to their categories), keep tabs on how your spending is going throughout the month, and make adjustments as needed. If software had a heart, this would be it.
Accounts – This is where your “physical” bank accounts reside and where you can see, add, edit, import, schedule, and search your transactions. You can view a specific account individually or view all of your accounts combined.
Reports – There are a number of nice reports to help you analyze your spending and your overall financial pictures. Reports include: spending by category, spending by payee, income vs. expense, and net worth.
YNAB 4’s Budget Screen
We’ll start with the heart and soul of YNAB: the Budget. Click to enlarge this screenshot of the budget view:
On the left side of the main screen, you have all of your spending categories. Your budget is unique to you, so you can completely customize these categories and sub-categories to match your particular needs. You can add , delete, or hide any that you want. You can even rearrange your categories (drag and drop) in any grouping or order that makes the most sense (for example, I put savings near the top because that’s a higher priority to me than discretionary spending). You can think of these categories as your “envelopes” of money that you’ll spend out of.
At the top you’ll see a box that shows how much you have available to budget for that particular month. It displays the calculations on how this number is figures as well (how much income is available, how much you’ve overspent in the previous month, etc.). You have the choice to collapse this section or leave it expanded for the details.
Below this “Available to Budget” box, and to the right of your categories are 3 columns: what you’ve budgeted for the category (Budgeted), what you’ve spent from that category (Outflows), and what’s left over for each each (Balance):
Budgeting in YNAB 4
I’ll spare you the details on how exactly to do everything in the Budget, but suffice it to say that YNAB 4 does an excellent job of making it extremely easy to set your monthly budget, know exactly how well you’re doing throughout the month, and see how your spending and saving will effect your finances in the future.
1: Setting Your Budget (or Making a Plan)
According to YNAB’s Rule #1, we need to give every dollar a job. This may be the most important part of your budgeting — making a plan for your money before you ever spend a dime. In the “Budgeted” column, you can quickly allocate funds (from your “Available to Budget” figure above) to each of your spending or savings categories.
Neat Little Feature: If you’d like, YNAB has a “quick budget” feature that allows you to automatically fill in all of your budget categories for you. You can have it use average outflows for the past few months, use figures from last month, or a few other handy options. While I would generally recommend giving each category some thought each month, this can be a good way to quickly fill in the cells that stay the same.
2: Monitor Spending
The middle column (Outflows) is automatically updated with all your transactions that you enter on the Accounts screen. This way, you see exactly what you’ve spent in each category.
And for those times when you scream, “There’s no way I spent that much money on Restaurants this month!“…you can click on the spent amount and see exactly where every dollar went:
And by the way, if you click on a transaction, you’re taken right to that transaction in the Accounts tab to view it in more detail or edit it. A nice touch.
3: Manage What’s Left Over (And What’s Not)
At any given time you can see “what you have left” to spend in each category. The third column (Balance) shows a positive number if you still have funds available to spend or a red negative number if you’ve spent more than you budgeted.
Any unspent amount in your categories gets automatically rolled over into the next month’s balance. This is where YNAB really shines in terms of helping you save a ton of money. Your categories build up over time helping you to have money for 1. those planned irregular expenses (annual insurance premium) or 2. those surprise expenses that you never plan on (replacing a transmission).
A Note on Flexibility: For your overspending, YNAB 4 gives you flexibility in the way you manage it. By default, YNAB subtracts any overspending from the next month’s Available to Budget figure (according to rule #3). This works well for most people. But if, for example, you want to “punish” a specific category for that overspending in the next month, you can click on the red negative amount. A pop up appears allowing you to choose to carry the negative amount over to the next month for that category. This is handy, when, for example, I spend too much of my “fun money” category and it wouldn’t exactly be fair to take that amount out of next month’s total budget (giving me a fresh Fun Money budget the next month) — see the following for an example.
In the example below I set my Fun Money: His category to carry over the negative balance so that it doesn’t start fresh in the next month (it wouldn’t be fair to my wife’s Fun Money category if it did). Notice how the change effects either the Available to Budget for next month or category balance depending on which option I choose.
Some Noteworth Features:
Expandable Window: If you happen to have a computer screen with a lot of real estate, you can see more than 2 months at a time by simply dragging the corner to make the window larger. Not sure you could get a full year showing, but I guess it’s possible with the right screen. A small, but welcomed feature. (Click the image to see it’s full-budgeting glory…OK, a bit much, I admit.)
Arrangeable Categories: I already mentioned this, but thought it deserved a little more attention. With most budget software, your categories are fixed in alphabetical order. YNAB 4 allows you to drag and drop the master categories or the sub-categories into any order that you choose. Very handy. (And, of course, you can customize the categories to be whatever you’d like them to be.)
Quick Math: This is really a small thing, but something that I have truly come to appreciate after using the software. On the Budget screen, if you want to change the budget amount for a category, all you have to do is select a cell and hit the + or – button, a calculator pops up, enter the amount and hit enter and it does all the math for you. Again, simple, but is something that I use everytime I use the software when I’m moving budget amounts around.
Now that we’ve covered Budget screen, let’s move on to the Accounts screen:
YNAB 4’s Accounts Screen
The Accounts screen holds all of your bank accounts and their respective transactions. YNAB 4 now allows you to access all of your transactions across all your accounts in a “All Accounts” view (by clicking on the section) or to access only those transactions for a specific account by clicking the individual account name, ie: ). You can hide or display any account that you wish. Here’s an overview screenshot:
Adding accounts is simple, as expected. These accounts represent your actual bank accounts. After clicking the Add Account button below the listed Accounts, you’re presented with a screen to enter your account name, balance, type of account, etc. You can see below that they offer many kinds of bank account types to manage as well as an option to have the account be “On Budget” or “Off Budget.”
The main Transactions window is where all the information for each of your bank transactions is located. By default the transactions window shows the date, payee, category, memo, outflow (debit), and inflow (credit). You can also include a check number and running balance column if you’d like (you can customize which ones you want or don’t want). It also allows you to mark the transaction as cleared or give it a colored flag of your choice.
If you’d like a very thorough, entertaining, and encouraging explanation of the budgeting methodology behind YNAB, you can purchase a hard copy of the book called “You Need a Budget” for $10. If you don’t mind reading it on a computer, the whole book can be downloaded from here absolutely free.
It’s a quick read (only 50 pages) that teaches you the why behind the methodology so you’ll understand the why behind how the software works. They’ve made the book convincing, outlining in great detail the benefits of this Four Rule methodology.
YNAB 4’s Price and Free Trial
YNAB 4’s retail price is $60, a reasonable price to pay for such high quality software. And with the average YNAB user saving around $300 in the first month, it’s well worth the purchase price.
For those wanting to test drive the software before purchase, YNAB offers a 34-day full feature trial to let you see if YNAB is right for you.
YNAB 4’s Money Back Guarantee
If, for whatever reason, you’re not completely satisfied with YNAB 4, they offer a no-questions-asked 30-day money back guarantee.
30 days is plenty of time for you to fall in or out of love with YNAB, so there’s no risk in buying. This kind of money back guarantee is quite refreshing.
The YNAB 4 software is extremely effective and easy to use. It’s simple, and that’s what makes it so powerful. The software itself is very well designed – it’s apparent that a good deal of thought went into even the smallest of details to make the system quick and intuitive.
The level of support that you receive with YNAB is superb. There is a myriad of resources available to you (online guides, video tutorials, live coaching, amazing community forums, direct contact with the founder, etc.) to ensure your budgeting success. This is in stark contrast to most software companies out there.
While the software itself is fantastic, the real power of YNAB comes from the budgeting system that lies behind the software. YNAB’s “4 rules of cash flow” make up what is one of the most effective ways to manage your money that I’ve found. I love the YNAB budgeting methodology because it focuses you on the tasks that actually make a difference in the way you spend and save money.
YNAB states that it is: “Budgeting Twice as Effective, in Half the Time.” And after using YNAB in my family for over 3 years now, I must say that I completely agree. It’s simple, fast, and effective. And it’s sure to save you loads of money.