You Need A Budget

You Need A Budget

The link

You Need A Budget (main site)
You Need A Budget on the Steam digital store

 

What it is

“You Need a Budget”, often shortened to “YNAB” is a personal budgeting software package. Unlike similar software, YNAB helps you budget your expenses actively: you assign money to spending categories beforehand, instead of recording transactions after the fact.

YNAB 4 is available as standalone software, or on the Steam platform. It costs $60 for an “install all you want for personal use” license.

 

What it means to me

YNAB is the only budgeting software I know which thinks the same way I do. To me, there is only one fundamental question in personal finance:

 “Can I afford this?”

Many financial software packages, as well as online banking analytics, focus on what has happened: You have spent this amount on food over the past week; this is what your vacation has cost you; etc. This is a historical view that helps explain where your money went, and can identify where you’re overspending. It does not help you solve the “can I afford this?” question.

When I started budgeting, I built a spreadsheet to help answer this question (I still have this spreadsheet, in a much expanded form). The process I ended up working out is known as the “envelope method”: you take your money for the coming month and assign every euro for the month to various budget categories (before debit cards became popular, you would withdraw all your cash for the month and literally put it in labelled envelopes). You can spend what’s in the budget, not more. 

A very basic breakdown of budgets might be:

• Food
• Housing (rent or mortgage)
• Other regular bills (insurance, phone, TV, subscriptions)
• Emergency Fund
• Long Term Savings
• Transportation (Gas and/or public transport)
• Fun

Many categories already have a fixed amount (e.g. your mortgage payment), and for many others you can estimate one, maybe with the historical data from your online banking analytics. From then on, every time you want to make a purchase, you check whether you still have the money available. If it isn’t, you don’t buy. There are some technicalities such as working out emergencies and what to do with “left over money”, but this is the gist of it. 

At the end of the exercise, you should know exactly how much money you have now, and what you want to use it for. Some of it could be "spare cash", some of it could be "general long term savings", but all money is accounted for in some way. 

I strongly prefer this approach to backward looking analysis, because it forces you to be active and take responsibility. The central question becomes “should I do this?”, a decision, rather than “what happened?”, an investigation. In setting up your monthly budgets it also forces you to look at your spending habits and recurring bills.

The envelope method has worked really well for me. For everyone who wants to manage their finances and doesn’t want to spend days on setting up a spreadsheet, there’s “You Need A Budget”. It’ll probably pay for itself within the year.