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A common question that I receive during my card consultations is “how do you track and manage your spending?” It’s a good question, and I’m sure everyone has their own system and process. There are many options out there. I personally have used one system for the past nine years, and I think it’s one of the most valuable ways to maintain a budget and monitor your spending. It’s called You Need a Budget (YNAB), and is one the best budgeting apps that I’ve used.

Why discuss a topic like budgeting?

We often promote the concept of traveling for less money by using credit card rewards and points. Getting into rewards travel is fun, but it can also be dangerous. You need to have your financial house in order before you get deep in this hobby. This means you’re paying your bills on time and avoiding purchases you can’t afford. If you’re paying interest or fees on your cards, then you’re negating the value of the points you’ve earned. That’s why I recommend monitoring your spending and setting up an auto-pay for your statement balance on all your cards.

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Paying interest negates the value of any points earned

The challenge of managing multiple credit cards

As many of you know, once you start adding more cards to your wallet, the task of tracking your spending becomes more complicated. If you don’t have a system or process in place, you can easily find yourself paying interest. Or worst, creating debt!

What is You Need a Budget (YNAB)?

In this post and review, I want to review a tool that I use to keep track of my spending. It’s called You Need a Budget, or YNAB for short. I’ve been using it since 2010. It’s helped me to track my spending and budget. I’ve also used it to save money toward my financial goals. This includes saving for travel!

How YNAB was started

YNAB started in 2003 as a spreadsheet made by an accountant named Jesse Mecham. He and his wife Julie were looking for a better way to maintain a budget. Fast forward to a few years, and they developed a standalone application and methodology. Then in 2016, they refined the software and turned it into a web-based application and service.

I had a hard time moving over from their YNAB 4 software to their new cloud-based solution. A big part of it was that I didn’t want to pay a subscription fee since I was used to paying a one-time fee for their software. Also, they made a few changes that made it difficult for me to track reimbursements from work. I know why they did it and I don’t disagree with the changes. It keeps people from “cheating” in their budgets. But for me, it was another reason to resist the change. It wasn’t until this past new year that I decided to give the new web-based system and features a try.

How does YNAB work?

Envelope system

YNAB is a digital version of the classic envelope system of budgeting. This is where you would create envelopes that represented different budgets, like dining out, groceries, entertainment. Each envelope would be filled with cash at the beginning of the month. You would then pull money from each envelope until you reached the point that it’s empty. Then you would either have to wait on your purchase or pull money from another envelope. This meant that your spending was in check. And if you happen to have something left over, it would just carry over to the next month.

The envelope system is a simple but effective method of budgeting

Dealing with electronic payments

The envelope system is already tedious. When you add in electronic payments, it complicates everything too. However, YNAB is essentially that same system but made for the digital age. I can create categories of spend then allocate money to them at the beginning of the month. I then enter transactions which subtract from my budgeted amount. If I go over, I can use any unbudgeted income to cover it, or even pull money from another budget category.

How to enter transactions

Entering a transaction can be done over the website or using their app. The app will even remember places that you frequent often so you don’t have to re-enter the name. You can also import transactions through their bank connection service.

While the automatic import is the most convenient option, I still recommend inputting your spending as you go. It might seem like a lot of work since it’s more active. Though it helps to give you a real-time check of your budget and spending. I then use the import function to verify the charge amount and confirm that it’s cleared my account.

The import function is also useful for capturing any fraudulent spending or authorized charges. For example, if I were to record a $20 dining out transaction, and the charge imports in as $22, I’ll know that there’s a discrepancy. Since using YNAB, I’ve had two instances where an additional tip was added to my bill in a restaurant and taxi. I caught both since the import amount did not match the recorded amount in YNAB.

Change in mindset

Using the envelope system means that you track spending by your budget, not by the method of payment

With YNAB, I don’t have to think about “how” I am spending money. For example, if I have $200 left for dining out, it doesn’t matter which card I use or if I spend cash. I know that since I budgeted the money, it’s safe to spend it, regardless of the method used. It gives me peace of mind that there is money to cover the autopay on the account.

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The Chase Sapphire Preferred and Sapphire Reserve are great cards to use for dining expenses since they earn bonus points

To me, that’s financial control and freedom. When I was in college and didn’t understand how to budget, I was constantly worried about whether I would have enough in my bank account to cover my statement balance. It was stressful! It’s sad to think about how much money I paid in interest. I often paid less than the statement balance since I lacked full visibility on my spending and budget.

YNAB methodology

Like any good process or system, there are guiding principles behind the YNAB methodology.

Rule 1: Give every dollar a job

This means that you are basically allocating every cent in your accounts to a budget category. This allows you to have control over every part of your budget. It allows means that you’ll catch discrepancies due to fraud.

Rule 2: Embrace your true expenses

This means that you should try to be as honest as possible about your budget. It doesn’t make sense to create a budget that isn’t sustainable or realistic. You’ll want to be strategic about the way you save and build your budget categories. For example, I pay about $1,600 for car insurance every six months for two drivers and two cars. That’s about $267 dollars every month that I need to budget for car insurance. Though to make it even easier, I have YNAB monitor it and let me know if I’m on track to meet my savings for that budget category.

Rule 3: Roll with the punches

Life is unpredictable, so it helps to have a budget than can flex and adapt as needed. YNAB preaches that you should expect that you’ll exceed certain budgets every month. And it’s ok! You can transfer money from other budgets and adjust your budgeting for future months. It doesn’t mean that you’ve failed or that your budget doesn’t work. It just means that you need to adapt and pivot as your life changes.

Rule 4: Age your money

A big part of YNAB is that you want to get in the habit of using your past or current money toward your future budget. You don’t want to live paycheck-to-paycheck using money that you receive in the same month. Ideally, you should use the money that you’ve already earned and received in the previous month. This means that you have a buffer in case things go astray.

In concept, you could get to the point where you’re budgeting for the next month using money that you earned months back. YNAB says that the goal is to have an Age of Money of at least 30 days. Though once you start using the program, you’ll want to see that number grow. In fact, it motivates me to save more and budget ahead.

Tips for using YNAB

If you use YNAB, here are some tips for using the system and app. 

1. Record transactions as you go:

YNAB is much more involved and active process. Other apps allow you to see how you performed against your budget after you’ve spent money. YNAB, on the other hand, relies on you actively entering your transactions and tracking your budget in real-time. This may be one of the reasons that a lot of people get scared off by YNAB. However, it’s one of the things I appreciate about it. I like to know where I stand before or at the moment of purchase. Knowing how I’m tracking against each budget category helps me to make better decisions on my daily spending.

2. Geotag locations:

If you enter a transaction near a place of business, it will use your device’s GPS to remember the location. When you try to enter another transaction near that location, it will suggest payees based on your past spending and even the payment method that you last used. This makes it easier and faster to enter charges as you go.

3. Turn on bank and issuer notifications:

One thing that helps me to enter my transactions as I go is to turn on notifications from your issuer on any spending. It reminds me to enter the transaction into YNAB. If I still miss entering a transaction, the auto-import feature will catch it a few days later. However, my goal is to enter transactions as soon as it occurs so I know how much is left in my budget.

4. Create an emergency savings category:

I recommend setting up an emergency savings category where you can set aside money for unexpected situations. I also try to build up categories like Car Repair and Maintenance to help plan for large expenses, like new tires or major car services.

5. Split categories for expenses:

One handy feature of YNAB is the ability to split transactions between different budget categories. For example, I recently went to Costco and bought groceries. However, mixed in were some shirts too. YNAB allows me to split the charge between my groceries and clothing and laundry budget. You can split charges with as many budget categories as you want, which is very convenient.

6. Study the reports:

YNAB provides basic reports on your spending, net worth, and income vs expenses. This a great way to visually understand where your money is going and shift behaviors to improve your finances.

7. Participate in their webinars:

YNAB hosts webinars regularly to help people getting started or working through a specific topic. They’ve been doing this for years. I remember attending a session years ago when I started to use some of the advanced features. It’s a great way to learn more about the system.

Things I wish were better with YNAB

What about the things that I don’t like about YNAB? There are things that I wish were different.

1. Investment accounts:

YNAB is strongly focused on budgeting and spending. However, it doesn’t have the ability to track your investments. They do have a section in the app for non-budget accounts. Though I found that the bank-connection function doesn’t work well for these accounts. For example, I have a Roth IRA and Rollover IRA account in my non-tracked account section with linked accounts. In theory, I want the accounts to update their balance regularly. However, YNAB doesn’t seem to understand how to process the reinvested dividends. I decided to unlink the accounts and manually update the balances every month.

2. Cost of service:

This was one of the reasons that I hesitated with moving to the new version of their application. I preferred the one-time-fee model. Though I understand why they’ve gone to a subscription model. It not only generates more revenue but also allows them to add more product development.

I know $7 per month might seem steep for a budgeting app, especially when options like Mint are completely free. However, I justify it since it helps to streamline my budgeting and spend tracking process. I would also argue that it’s helped me to save a lot of money over the years!

3. Credit card payments:

The credit card payment section is new to YNAB, and it confused me at first. YNAB will move money from your budget and toward paying your credit card account every month. Since I advocate paying your statement balance every month, there shouldn’t be much concern with this section. However, it does help to use this feature when you’re first starting out or transitioning from another budget. Though the primary function of this section is to help people manage any accumulated debt on their credit cards.

4. Shared budgets:

If you want to share a budget with someone, you need to use a shared Google account. While this might not be a problem for some people. However, I would much prefer to see YNAB allow you to create a budget that can be accessed by two individual and separate users. Having a completely shared budget doesn’t work when you’re trying to plan something for your partner or even when buying a gift. This is one area where I think they could improve the service.

Final thoughts

Bottom line is that you should use some kind of system or methodology to budget, especially if you’re into credit card rewards. Even if you’re not in points and miles hobby, it helps to budget in order to save toward travel. While I am a follower of the YNAB methodology and system, there are a ton of tools out there. You just need to find the tool that works best for you.

There is no shortage of budgeting apps these days

I know it seems like a lot of work, but I promise that if you stick with it, you’ll not only gain more awareness, but you’ll make more informed decisions about your spending. Ultimately, you’ll save money and have better peace of mind knowing that you have control of your finances.

Do any of you use YNAB? What tools do you use to manage your budget and finances?

I’ve included a referral link to YNAB in the article in case you’re interested in trying it out. They offer a 34-day free trial to test out the service. I’m not sponsored by them in any way. I’m just a big fan of their service and methodology. Since I’ve used them for almost a decade, I feel confident recommending their system and process.

If you’re interested in applying for any of the cards in this post, we encourage you to compare credit offers. We do get a commission if you use our link. It doesn’t cost you anything extra, but it helps us to continue building content for our site and channel.

Trip Astute has partnered with CardRatings for our coverage of credit card products. Trip Astute and CardRatings may receive a commission from card issuers.

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