I’m really excited to share with you how we have overcome some of the stumbling blocks of budgeting and why switching from Mint to YNAB has totally transformed our budgeting!
Since 2007 we have used Mint.com to track our spending and budget. We have all of our financial accounts connected to Mint (checking accounts, savings accounts, retirement accounts, credit cards, student loans). Each time we log into Mint, Mint logs into all of our accounts to bring us the current balances and transactions.
You can set a budget with Mint by clicking on the budget tab. For each category, you set a spending amount. Each time you log in to Mint you’ll want to take a look at your transactions to check the categories Mint has assigned each transaction to. Sometimes Mint does a good job of guessing, but it often gets the category wrong . In order for your budget to be useful, you must categorize each transaction. You can split transactions between multiple categories if you need to.
Problems with our Mint budget
While I like the convenience of having all of the info from various accounts all in one place, Mint isn’t really a budgeting tool. Mint is fine for seeing where your money went, but not a really good way of telling it where to go, which is what a budget should do. Here are a few of the specific problems we had with our Mint budget.
1- Income and Spending in Mint aren’t connected.
Obviously income and spending are two vital parts of a budget. In Mint they are separate and distinct rather than integrated. The only time they come together is on the right side of the budget screen where Mint subtracts what you’ve earned so far with what you’ve spent so far. It is a record of the past, rather than a plan for the future like a budget should be.
2- Mint doesn’t work well for zero-based budgeting.
We wanted to have all of our money going somewhere so that we could make sure we were paying the maximum on our debt. Since Mint doesn’t give us a good way to account for being over-budget in one category and under-budget in another category, it’s pretty hard to make sure each of your dollars have a place to go.
3- There is no good way to account for going over-budget.
The budget bar graph gave us an idea of how much we had spent already in each category that month and how much more we had left to spend, but it did not offer much if we went over budget. There is no consequence for going over, except that the entire bar for that category turns red. That might be useful if it added some information, but there is no visual indication of whether you’re one dollar or a hundred dollars over.
4- We like using credit cards, but they were complicating our budget.
We use credit cards for convenience, rewards, and protection. We always pay our credit card off each month, so getting into more debt isn’t an issue. The problem was that it was hard to know how much we could pay on our debt. We wanted to pay the maximum possible.
Using credit cards with a traditional budget means you are actually spending next month’s income since bills lag a month behind. This was driving me crazy! Since our bills came the month after the purchases, our monthly income and spending never matched up.
I especially noticed the way credit cards complicate budgets when I started making monthly progress reports on our debt payoff (here’s one where I try to explain this frustrating phenomenon). This made knowing how much to pay toward our debt hard. We would take what looked like excess in our checking account and put it toward debt, but the next month we would have a credit card that required the bulk of a paycheck. Argh!
I first heard about YNAB (You Need a Budget) randomly on twitter, then again in the foreword to an awesome tax book I was reading. I was curious so I looked into it. I am frugal and on a tight budget since we have a serious debt payoff goal, so I did a lot of research before making the decision to buy it. I have not regretted it one bit!
YNAB (pronounced “why-nab”) is more than just a budgeting tool, it’s a a philosophy and method for managing your money. When I read the statistic on their website that says by following YNAB’s 4 Rules, on average you’ll have a $200 turnaround in one month, I was very skeptical. I thought, “sure, for people who don’t know how to manage their money maybe, but it won’t really affect our budget like that.” I was wrong
I was really hoping that YNAB would solve our budgeting frustrations and allow us to pay the maximum possible on our student loan debt. I am happy to report that it is doing this and more!
What I’m loving about YNAB
There are lots of things I love about YNAB, but to keep this post from getting out of control, I’ll focus on just the things that solved the three problems I mentioned above.
1. Income and Spending in YNAB are inseparable!
In YNAB you only budget money you have, not how much money you plan to have. This is a major shift from traditional budgeting where you budget the income you plan to get that month. The goal is to be able to live on last month’s income.
If you have a month’s worth of income at your disposal, then you can start living on last month’s income right away. If you don’t, then you can start a savings goal to help you get to that point. You can still benefit greatly from using YNAB even before you are able to live on last month’s income.
2. YNAB is all about zero-based budgeting
The first of the four YNAB rules is “Give every dollar a job.” Our budget tells us where we plan to spend our money. We budget the entire month at once since we are living on last month’s income. We make spending decisions based on our budget categories, rather than the balance of our checking account. If there is money remaining in a category at the end of the month, we put that amount toward debt!
If you are just starting, you will budget only the money you have to work with now. Each time you get paid, you can tell each of those dollars where you want them to go. You’ll start budgeting for the most important or urgent things first.
If you have a specific goal, you can put your end-of-month excess toward that savings or debt payoff goal. Otherwise, the excess will just carry over into next month’s “available to budget” balance and you’ll have a chance to assign it a new job.
UPDATE: I have since written a whole post about zero-based budgeting with YNAB!
3. Accounting for going “over-budget” is easy with YNAB
At any point in the month, we can easily see how much money we have remaining in each category. When a purchase or expense comes up that isn’t accounted for in the budget, the money needs to come from somewhere else in the budget (or we can decide against the purchase). Going over in one category means that money has to come from another category. We just subtract it out of the money we had allocated to another category, then spend according to the budget.
By “spending according to the budget” I don’t mean that you have to spend the exact amount that you allocated on the 1st of the month. Spending according to the budget just means that you adjust the budget (money allocated in categories) when you need to, so that you are never spending more than the money earmarked for the current month. Remember your checking account will have a month of cushion, since it will be gathering the money you are earning this month that will be used for next month. Don’t let your high checking account balance throw you off. Just spend according to the budget.
If you have given up on budgeting because you never stick to the arbitrary numbers you set at the beginning of the month, the YNAB method will help you see that you are not a budgeting failure. You just need a budget that is flexible. YNAB software makes budget flexibility a cinch.
4. YNAB handles credit cards with ease
With YNAB you account for the spending when you spend the money (not when the bill comes). You log the transaction when it happens (the phone app makes this simple). When you use a credit card, your budget considers the money as gone even though it’s just hanging out in the bank waiting for your credit card bill to come. It doesn’t matter that you won’t take money from your account and send it to the credit card company until next month. For our purposes it’s gone when we make the transaction.
I wrote a whole post on how we use credit cards with YNAB. Once you learn how to handle credit cards in YNAB, it is simple and probably the safest way to responsibly use credit cards!
See for yourself!
There’s so much I could say about YNAB, but instead of going on and on about how wonderful it is, I’ll just encourage you to go check it out! You can download a free trial. Since YNAB is different than the traditional budgeting methods, it’s really important to take advantage of the online classes and training materials. Their free resources are available to everyone. There is a little bit of a learning curve, but it’s well worth the investment.