Sunday, January 29, 2017

Do you need a budget?

My wife and I are stuck at O'Hare International Airport.  Our flight is delayed and has been pushed back a few times.  When life hands you lemons, you blog.

I was a long-time Microsoft Money user.  But it didn't have the concepts of expense categories (or envelopes) that I needed.  So I ended up using Excel alongside.  I created my categories there and every expense I logged, I would log under the appropriate account defined in Money and then again under the appropriate category in Excel.  Then, at the end of the month, I had this end-of-month ceremony where I would move funds from categories with leftover money into the categories where we overspent.  And then I would copy the categories into a blank slate ready to start the new month.  You could probably feel my pain while reading that.

In 2009, Microsoft discontinued Money.  I was sad because it meant looking for and learning a new product.  I found one that used envelopes but it seemed too simplistic.  Then, lo and behold, I found YNAB!  It stands for "You Need A Budget".  Microsoft's axing of Money turned out to be a blessing in disguise.

I remember starting with YNAB 3.  Shortly after, they came out with version 4, which was miles ahead.  It is now called classic.  Recently, they introduced the new YNAB, which is now web-based and has an annual subscription, as opposed to a one-time purchase.  It is the main reason why I haven't switched to it.  The now-classic version 4 still works fine for me.  However, I just heard that they had added search and reporting capabilities to the new version.  They were blatantly missing when it first came out.  I'm thinking of trying it out soon.  The subscription fee is not that big after all (around $5 a month).  Just got used to not paying one, that's all.

So what is great about YNAB anyway?  First off, the categories.  No more double-entry.  Adios, Excel!  When I log something, I get to specify both the account and the category.  YNAB takes care of updating both.  And my end-of-month ceremony is now just a matter of telling YNAB to copy my previous month's budget into the next month.  Well, I do monitor my categories, too.  Sometimes, I over-spend in one.  When that happens, I either fund it by moving money from another category or just let it be a negative number, knowing that it will be funded again next month.  Of course, I'd have to spend less next month to make up for it.  NOTE:  The new web-based version does not permit negative numbers to be forwarded to the next month.  That's another reason I'm hesitant to switch.  That feature is very handy in certain cases, particularly for receivables and of course, the occasional overspending (that is to be made up for later, of course).  Some people have found one or a couple of workarounds, however, so it's not a deal-breaker anymore.

Second, the discipline.  When you receive income, you're supposed to assign each and every cent to a category.  Keep in mind that categories are not just for expenses.  You can also and should define savings categories, such as for retirement, college, rainy days, etc., and then assign some of your income to them. Just to further give you an idea, you can also include a big-ticket items category that you contribute to every month.  It helps curb your impulse-buying tendencies.

Wait, don't go!  You probably got scared of the word "discipline".  Well, it does take discipline to log all your income and expenses (and reconcile them with your bank and credit card statements, which you probably already do anyway).  But if you really want to take control of your budget, you do need to do it.  Otherwise, how do you make sure you're on track with your savings goals and that you're not going over budget with your expenses?  They do provide a phone app that will let you log wherever you are (and sync your devices using Dropbox).  It's actually fun (most of the time).  This was another downside to MS Money.  I could only do it at night when I was in front of my computer.

Third (yep, we're still counting), the principle of not using your income until next month (or even later, I suppose).  Before I switched to YNAB, we needed to spend our income in the month we received them.  We had no choice.  With the discipline that YNAB taught us, we were able to gradually pad our buffers and eventually follow the "income is for next month" principle.

Fourth and last but not least, it has a great support system.  Not only is there a forum where fellow users can ask questions or voice their complaints and wishes, they also provide free classes to make sure that their users are properly trained to use the software and the principles.  They do care about us and our financial well-being.

I'd encourage you to try it out.  It's free for 34 days.  I *think* you can only get the new version now.  I could be wrong though.  But you can't go wrong with either one.  So much better than just carelessly spending your hard-earned money.

Lastly, note that I'm not an affiliate of theirs.  They won't compensate me for bringing referrals to them.  I'm a happy user so I thought I'd share it with everyone who happens to read this.  I've spoken with a lot of friends and coworkers and they hadn't heard of it.  They usually know about the other one, whose name I'm not going to mention (No, it's not Voldemort).  While I admittedly know very little about how that other one works, I don't think it has real budgeting capabilities, at least those that YNAB does.

How do you like this lemonade? ;)

Keep informing your gut,

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