Layout:
Home > More thougths on YNAB

More thougths on YNAB

March 23rd, 2007 at 03:43 am

I've been playing around some more with YNAB, partly to help me write my review, and partly still considering if I would want to switch to it if I can get over the transaction import hurdle.

The budget paradigm takes the classic envelope system and turns it a bit sideways. In a classic system (I'm mainly comparing with Mvelopes here), the flow is as follows:
1. Create your budget based on your monthly income.
2. Put money in the envelopes at the start of the month
3. As money is spent, the envelope balance goes down.
4. If an envelope gets to 0, either don't spend any more for that catagory that month or move some money from one envelope to another.
5. At the end of the month, decide whether to let your envelope keep its balance for the next month, or to "sweep" the extra funds into another envelope.

In YNAB, the flow is very similar, but there are a few twists:
1 & 2. For the budget, you start with an "Available" amount of money shown at the top of the screen. As you assign budget amounts to catagories, the Available number goes down. Instead of predicting how much you will receive in income, the "Available" amount comes from the previous month's paychecks. For many people it is a big challenge to save up enough of a buffer to do this month-ahead funding of their budget.
3. As money is spent, the balance for the catagory goes down.
4. If the balance for a catagory gets to 0, either don't spend any more in that catagory that month, or change the budget for that month to match your spending. This may make your Available balance go red (negative). You can choose to fix this by changing the budget in other catagories (in effect moving money between catagories) or else the tool will subtract the negative amount from the next month's Available balance, leaving you with less money to allocate in the next month.
5. At the end of the month, positive catagory balances roll over to the next month, while negative catagory balances get subtracted from the next month's Available. There is no provision to sweep extra funds, instead you just reduce the budget for that catagory and assign the money somewhere else.
6. When you go to budget the next month, a right-click pop-up gives you the choice of budgeting the same as last month, the amount spent last month, or the average spent in recent months.

So the big difference I see is that in Mvelopes, you set your budget once and then manipulate the envelope balances, while in YNAB you are mainly manipulating the budget. I can't decide if I like this shift in thinking or not. It seems to me that with YNAB your budget will eventually converge with what you are actually spending rather than with what your best intentions to spend are. In either case the discipline comes in deciding what to do when a balance reaches 0 -- do you stop spending or move the money from elsewhere?

One of the big downsides to YNAB is that they don't have an account view, so you (intentionally) can't use it to track your current account balance. This can make it difficult to determine if you've missed a transaction. The author of the software is working on how an account view would fit with his budget philosophy so I'd expect to see something added within the next year.

YNAB is definitely the way to go if you work on commission and your income varies a great deal from month to month. I'd definitely recommend it over Quicken for budgeting purposes. It's good software for the price ($40), but at the momemnt I'm not completely convinced to switch away from Mvelopes ($120/yr).

0 Responses to “More thougths on YNAB”

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
*
Will not be published.
   

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]