Strap yourselves in, this is going to be a long one.
You should now have your first month’s budget entered and ready to go, how thoroughly exciting! Now we get to watch all that money flow out of our accounts, oh joy.
As you progress through the month, you will need to add every transaction to the corresponding account you have (if you have linked your accounts to your online banking, this is the part that is somewhat automatic). In order to add a transaction, go to the account that the transaction went through by clicking it on the left sidebar. I’ll be using the credit card account for every transaction, then paying off the credit card from the checking account.
To add a transaction, click the “+ Add a Transaction” button towards the top bar. You should see a new line created. Enter the date, a “payee” description, for example Starbucks, then select an account category to budget this expense. For this transaction I’ve selected “Coffee Shops”. If you want you can write a memo, then enter the outflow, which is how much that left your account. Click save, and you’re done. It should look like this:
If you linked your account, you need to click the “Import” button towards the top of the screen (note: the number of transactions ready to import will be in a little bracket, if there is nothing, there will be no number in a bracket). Sometimes I find it can take a day or two for a transaction to be ready to import, even if it is in my online banking, but don’t worry, it’ll show up. Once you have imported a transaction (or more than one), you will need to verify each one by clicking on the line item and selecting a category for the transaction to be budgeted under. The outflow will be automatically entered, and the payee will be the same as the description from your online bank. You can change the payee if you want and it should memorize the payee so next time it imports as what you renamed it to, and YNAB will also remember what category a transaction is imported into. For example, next time you visit Starbucks, YNAB will automatically allocate it to Coffee Shops and all you need to do is approve it by clicking save. (can you see why I prefer linking my account? It’s a huge time saver!)
Now you can return to the budget screen and see what has happened:
Coffee shops now has -$5.00 showing in the activity column, and $95 left available for the month of the $100 budget. Notice the credit card has +$5.00. This is because you now owe the credit card $5.00, but it hasn’t left your bank yet. We’ll go through paying the credit card later.
Okay! We’ve now entered a single transaction, don’t you feel accomplished? However, we haven’t gotten around to entering incoming money yet (I’m hoping you do actually make some money in some way, but if not you can ignore this part and forever enjoy the red button of death!).
To enter an inflow, it’s very similar. Go back to the account that has an inflow, this time it won’t be your credit card, it’ll be your checking account. Add another transaction but this time under “Category” you will select “Inflow: To be Budgeted”. Enter the date and amount (payee too if you want) and save it. I went ahead and entered two inflows to represent paydays, as follows:
Again if you are importing transactions, go to your Checking Account and click import and they should show up, you just need to save them.
Now return to the budget.
…It can’t be…It is…It bloody is!!! It GREEEEEEEEEEEN!
That’s right, now you have entered your pay for the month, you now have more money to budget. Makes sense?
All that is left to do for this month is ensure you enter every transaction that went through every account, whether importing or manually. I’m going to go ahead and manually create transactions throughout the month to represent my spending. For simplicity, I’m going to assume everything went through my credit card, then the credit card will be paid off by the checking account at the end of the month.
Now you can start to really see where your money is going compared to what you had budgeted. In the “Available” column, everything in green is either on budget or under budget, and if you have a goal set, the goal is also being met.
Zero Sum Budgeting
Zero sum budgeting is the notion that every dollar in your bank account needs a job in order to prevent waste and increase wealth. The point of a zero sum budget is to ensure income less outgoings equal zero.
Aren’t I supposed to be saving money, not spending it?
Correct, and zero based budgeting helps you do this. Let’s assume you have $1,000 leftover after covering all your expenses for the month, you might throw a wild party in celebration, at which point that $1,000 suddenly becomes just $500. Then, oh dear! Looks like someone accidentally fell onto your coffee table during an emotion fuelled game of beer pong, costing another $300. Soon you’re quickly left with just $200 of that $1,000.
In a zero based budget, that $1,000 would also be given a job. Its job would either be to pay off debt, increase your buffer, pay off the mortgage or invest. Every dollar should have a job when budgeting, in order to prevent yourself from using it on something frivolous.
Notice how at the top it states we have $2,355 to be budgeted? This is because we had funds totalling $6,100 for October ($2,500 opening balance + $3,600 in salary) and we only budgeted $3,745 during the month. This $2,355 needs to be put to use, before we go blowing it on the latest iPhone 46Q.
Depending on your financial security, simply leaving this in the bank might be a good idea in order to increase your buffer, but if you have a significant buffer already this money might be better used for reducing debt or increasing investments. Since this example doesn’t have a large account balance, we’re going to leave it in the bank. In order to do so I’m going to create sub category called “Savings” and simply budget the money there. This should bring the “To Be Budgeted” balance to $0.00.
Well well well, it looks like we have overspent in a few categories (as shown by the yellow, negative balances in the available column). This is where the flexibility of YNAB comes into play. Rather than slap you on the wrist and reduce your future budget for the over spent category by the negative amount, you can cover the negative balances with the positive balances of other budgets. To do so, click on the negative balance and under “Cover this overspending with…” select an account which has a positive available balance (underspending). This is essentially just moving your budget from one account to another. Beware though, if you move money from an account that has a future goal e.g. “car insurance”, you may no longer be budgeting enough money for this future goal, and that available balance may too turn yellow. I prefer to use the “Discretionary Spending” accounts when adjusting budgets, as I know for the most part I won’t be needing this money in the future. As such I’m going to go ahead and cover all the overspending with the various underspending accounts in the discretionary spending section:
As you can see, every discretionary spending account has been adjusted whereby the budgeted amount equals the activity amount, leaving $0 available. I also actually had to adjust one mandatory spending account, Interest & Fees, by $7.50 in order to cover every overspending in the budget.
The final steps to complete the month’s budget is to pay off the credit card balance and to record the student loan repayment. Let’s assume the credit card was repaid on October 31. You simply go to your checking account (Money-Miser for me), add a transaction and under payee, select “Transfer: Credit Card”. Under outflow, enter the amount ($3,152.50) and save. Your credit card account balance to the left will automatically enter the inflow transaction and the account will zero itself out:
In order to adjust the “Student Loan” account to acknowledge the payment of $150 that was made, you need to adjust the transaction you entered when paying the student loan. Similar to paying off the credit card, you would go into the credit card account (where the payment was made from) and adjust the transaction that was entered previously. Rather than than the payee simply being “student loan payment” this needs to be a transfer to the student loan account. Again, just select the payee to be “Transfer: Student Loan”, and enter an outflow of $150. Make sure the category is still “Mandatory Spending: Student Loan Repayments” and viola! The student loan account should now have created an inflow of $150, thus reducing the loan from $10,000 to $9,850.
You have now completed your first monthly budget! It wasn’t so hard was it? Now just continue for the rest of your life….
Next up we will look at the reporting features of YNAB (one of the many reasons this is a great tool).