You Really DO Need A Budget (and TWO special offers)

by Ron Haynes

For the past two years, I’ve promoted various company’s budgeting software but after reviewing You Need A Budget (called YNAB), I’m changing horses mid-stream. Before I get into why, why do you need a budget in the first place?

Why Do You Need A Budget?

Creating a realistic budget—and abiding by it—is the foundation of successful personal finance. More specifically, budget planning helps you analyze your spending and avoid spending more than you earn.

Analyze Your Spending

Financial budgeting enables you to analyze where your money goes every month: you’ll see how much you spend on food, utilities, entertainment, healthcare, insurance, and so on. You can then use that information to adjust your budget plan if necessary, such as by cutting back entertainment expenses to increase your monthly surplus for saving or investing. YNAB’s system, once you’re set up, does this automatically and allows you to categorize every dime you spend so you can make adjustments next go-around.

Avoid Spending More than You Earn

People who don’t follow a prioritized spending plan tend to spend everything they earn—and even more. In fact, in 2006 the average savings rate in the United States fell to –1%, its lowest level since 1933. Most people start by overspending and end up in debt because they fail to compare the amount of their income to the amount of their spending (the basis of a budget plan).

Sticking to a budget helps you avoid the temptation to spend beyond your means, even if you do use credit cards. Budgeting properly also leaves you with a surplus of money each month that you can use to save, invest, or cover unexpected expenses, such as medical bills.

How YNAB is different

YNAB bills itself as different than other budget or money management programs and the reasons are many:

  1. They don’t demand your banking passwords or logins.
  2. They use the highly reliable envelope system with some interesting twists.
  3. The system helps you save for those” rainy days” and large purchases – including insurance or taxes!
  4. YNAB forces you to focus on budgeting leaks.
  5. The software makes adjustments if you overspend, helping you fix those mistakes before you go to the next month.
  6. It even works for those “spontaneous people!”
  7. The system frees you from the paperwork monster!

Special Offer

1. From now through January 31, 2010, readers of The Wisdom Journal who purchase YNAB’s winning budgeting software are eligible to receive 10 percent off their purchase when they enter the coupon code: WISDOM at checkout.

2. Check out YNAB today and tell me what you think in the comments. One reader will receive from me – at no charge – a gift certificate to get YNAB for themselves. All you have to do is comment by midnight January 31st (no multiple entries). Include a budget or finance related topic you’d like to see discussed on this blog in the future and you’ll receive TWO entries!

I’ll announce the winner on February 1st.

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


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{ 6 comments }

J. Bettinger

Interesting that this should come up today. I’ve been using Quicken 2001 (yes, 2001!) since, well, 2001, and have been looking for something to replace it. It seems like every time Quicken upgrades their software, they just add a bunch of extraneous junk that only gets in the way of the basic functionality that I want.

Anyhow, I’ve checked out a number of personal finance packages; most of them have a free trial period that allows you to download the software and use it for a while before you have to commit. Of all the ones I tried, I have to say that I really WANTED to love YNAB the most. The principles behind it are sterling, particularly the idea of living on last month’s income. In fact, after taking Jesse’s e-course last year, I’ve been using his methods, just implementing them with Quicken.

The problem is that the current version of YNAB 3 is a beta version. And as much as I love the *idea* of it, the actual software is still pretty rough around the edges. Here are a few of the problems I encountered:

1. It’s buggy. Like, window-freezes-up-and-you-have-to-kill-it buggy. I’m running Windows XP SP3, and YNAB just wasn’t a happy camper much of the time. Now in all fairness, they’re going to be releasing new versions of it that should fix some of its issues, but at this point, it’s really a little too rough around the edges for me to be willing to lay out 60 bucks for it.

2. It feels a little primitive and unfinished. The basic checking/savings/budgeting core is well-designed and once the bugs are worked out, it should be great. But there’s basically *nothing* designed for handling investments. You set up an account as an “investment” account, which takes it outside of your normal budgeting process, but that’s the only difference between an investment account and a savings account. There’s no way to enter even the number of shares of a mutual fund that you own. There’s also no way to enter buy/sell/reinvest dividend kinds of transactions.

Another example of how it seems unfinished: it’s not smart enough to let you set your display fields for each account: if you tell it to display “check number” in your checking account, then you end up with a “check number” field in your savings and investments accounts as well.

3. The statement reconciliation is awkward. Admittedly, I’m so used to using Quicken’s reconcile function that this may just be prejudice on my part, but the way that YNAB has you do it is to manually check stuff off until your “cleared items” total matches what’s on your bank’s statement. No “reconcile” page that groups ATM transactions, auto bill-pay, or the like. It’s functional the way it is, but clunky.

4. Split transactions are also awkward. If, for example, I make a transfer into savings every month, and want to earmark $100 for my yearly homeowner’s insurance, $50 for Christmas, and so forth, it ends up showing up in my savings account register as however-many separate transactions. Again, not unusable, but clunky.

Overall, it just has a “not quite there yet” feel. I’m going to keep an eye on YNAB, and once this new version has been out for a while, I’ll download it again and give it another try. But at this point, it’s just not quite worth the money, IMO.

Paul @ FiscalGeek

1. It is indeed a beta you might want to try the previous version of YNAB until they are in full production release. I’ve used both versions for about a year and a half and I’m quite happy.
2. There’s no plan that I’m aware of to handle investments so if that’s a core requirement Quicken 2010 it is. And to the 2nd point that’s something I think on the bug lists at the YNAB site.
3. Can’t comment on that one.
4. I’m not sure how you are splitting them are you choosing to split it as the category? Mine shows as one item when I do a split withdrawal and the like.

Patrick

I agree with Fiscal Geek – YNAB 3 is a great product, but as it is still a beta product, there are still some issues being worked on. The full release should address many, but not all of your issues (specifically investing, which it is not designed for).

YNAB is a great product, but if you aren’t happy with it because you need to track your investments, or for other reasons, then check out Mint.com, which is a free online money management program and is now owned by Intuit, makers of Quicken. The functionality is basically right in between the desktop version of Quicken and YNAB (It doesn’t feature the YNAB tenants you are fond of; but you will be fine as long as you internalize and practice them). Mint tracks investments, has a budgeting feature, and the reconciliation is closer to Quicken than YNAB. It also automatically links with many (not all financial institutions) and features automatic downloads, etc.

Chance

Regarding some of the bugs with the YNAB 3 beta, from reading on the forums it’s apparent that the YNAB team is very focused on resolving all the remaining quirks. So I’m sure we’ll see a polished, bug-free version very soon.

I’ve been using YNAB for almost 2 years now and highly recommend it. As Bettinger pointed out, it’s the principles (or methodology) behind the software that really sets YNAB apart from the competition. If you follow their 4 rules of cash flow, you’re sure to see a dramatic impact on your finances.

Credit Girl

I think budgeting may be the hardest thing for people. It sure is for me! Budgeting, as much as I despise it, forces me to live within my means and when I live within my means, I have enough money to save for my emergency funds which is a plus. It’s also practicing responsibility with your money and that’s always a great thing!

Nate

Thanks to J.Bettinger for the lengthy review. I’ve used YNAB for almost 4 years now and just switched to the new version, YNAB 3. Since using YNAB my wife and I have experienced the following results:

* Almost no tension about money in our marriage;
* Significant progress towards our financial goals;
* Peace of mind about finances, knowing exactly where we are financially and where our money is going.

Specifically, I’d like to address the 4 points as follows:

1. I’ve never incurred this problem. I’m running it on a Mac and it’s fast and seamless. Sounds more like a hardware problem than anything. I will say that the Beta version, released in December, was admittedly buggy – hence the beta version. For this reason it was offered at a steep discount.
2. True on the investment account; YNAB is intended to represent more of a “Statement of Cash Flows” than an investment tracker. As far as gaining financial traction, the real battle is what you do with your cash flow, not staring at the balance of your investment account on a daily basis. In fact, most financial planners, me included, discourage this practice for good reason. As for the comment about the “check number” column appearing in your savings account field – great point. I’d drop a line to Jesse at YNAB on their forum about this.
3. This is a matter of preference and habit. I switched from Quicken to YNAB – I’ve never looked back.
4. You should create a separate category on your budget page for each of these savings accounts. That’s where they are kept separate.

My conclusion: you’ll save the cost of the software many times over. It’s functional and easy to use. Most systems are merely “expense trackers” masquerading as budgeting software – YNAB puts you in the driver’s seat. I fully endorse it.

Nate, CPA

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