Budgeting with YNAB: A New Approach to Your Personal Finances

Humans have had to manage their personal resources throughout our illustrious history. For tens of thousands of years, we managed our “expenses” old school style, via hunting and gathering. Today modern man manages resources measured in dollars via everyone’s favorite activity… Budgeting.

Since the invention of budgeting, every homosapien has been searching for the secret pill which will make this painful duty palatable. Unfortunately no one has invented, nor ever will invent a way to escape the need to keep your expenses at or below your income. But while that concept cannot be ignored, new approaches have been fashioned which make becoming fiscally sound feasible. Let’s take a look at two such concepts that have been employed by a leading personal financial software company called YNAB (You Need A Budget). These two methods are “zero-based budgeting” and using a “buffer”.

Zero-Based Budgeting

Zero-based budgeting is means 100% of your income is allocated to something. Large public and private organizations have used this approach in managing resources for decades, but the concept is relatively new in the world of people’s personal finances.

The advantages of using zero based budgeting for your personal finances are:

  • Resources are allocated based upon needs and benefits rather than history
  • Personal income/expenses are viewed similarly to the way a business views revenues/expenses
  • Using this method is a catalyst for moving away from living paycheck-to-paycheck

The concept is built upon the idea that every dollar has to be assigned to do a job. This increases your financial awareness and helps you proactively decide what you want your money to do before you do it. Think back to how many things might have been different for you financially if you’d simply given every dollar a job rather than leaving it to its own devices.

Benefiting from a Buffer

YNAB employs a concept of using a buffer. A buffer is a specific known amount of money already in hand having been previously saved for that purpose. Having this in place represents the official removal of one’s self from the paycheck-to-paycheck routine. The YNAB tool facilitates the building of this buffer as you have to flag your income as being “Income for this month” or “Income for next month”. The more one follows the cues from YNAB, the quicker they are able to reach their goals. This buffer can grow over time until, like the government… uh wait let’s say a corporation instead, people can budget a year in advance, which makes forecasting fun. Who wouldn’t enjoy planning out expenses with a year of expense reserves? Is that beautiful picture of financial freedom starting to become clear in your mind yet?

Approaches to budgeting have come a long ways in recent years with new concepts have helping thousands change how they view their money and improve their stability. Adopting these ideas has never been easier thanks to advancements in technology by personal financial software companies like YNAB and others.

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