Jay- the author of this post
[Editor's Note: This is a guest post from Jay, a regular reader. I am often asked for recommendations, in this case it was a recommendation for personal finance software. I responded that all I use is Excel but then listed several popular programs others have found helpful. I then suggested (as I often do, usually without a positive response) that he send me a guest post about his experience, which he gladly did. We have no financial relationship, however, the owner of YNAB bought me (and Mr. Money Mustache) a really nice dinner a couple of years ago and the company is local to me.]
Spend money on what you want. Save on everything else. This is my mantra.
Budgeting is the less glamorous sibling of saving. Savings allows for a penchant for fantasy and to pull out the oft-hidden magic 8 ball. After all these years of living in poverty, who wouldn’t want to finally project their hard earned income and turn it into millions eventually (at least in their minds)? This is a mentality I also share; I believe it is a healthy one after all. How else can we convince ourselves to save and not burn through cash? Unfortunately, savings requires the utilization of its less glamorous sibling: budgeting.
Why Budgeting is Scary
The problem with budgeting is that it has caused me years of anxiety and guilt. So all I’ve ever had was a vague idea of where my money was going- and I almost always spent more than I should have. There are two reasons budgeting scares people away, anxiety and guilt.
Anxiety
Budgeting can cause anxiety. It's not that we hate being constrained. Ultimately we all have an absolute constraint- the limit of how much money and credit we actually have. However, many of us have a preset tolerance. Maybe we won't spend more than we have, or we use only cash, or only one credit card. Budgeting doesn’t deal with this. It deals with other constraints we create- mainly the week to week spending we allot ourselves. Setting aside X amount of dollars for food or gas causes anxiety because after allocating our funds for different categories we have no money left. What happens if I spend more money for food than anticipated? These types of questions lead to problems with proper budgeting- i.e. the rigidity of budgeting limits fluidity. As a result, having a budget is all but a Sisyphean disaster to many with constant juggling of funds and mentally removing cash from one area of spending to cover another area of over-spending.
Guilt
A lot of times, in addition to the anxieties of fitting a budget, even when we have to ‘break’ our preset budgets with good reason we feel a sense of guilt. I think this is because of how we’ve been conditioned to think about budgeting. Taking money out of an allotted budget is tantamount to greed, such as blowing the budget due to eating out too much. Thoughts like “I can’t hold a budget whats the point” or “Look how lazy I am, I can't take the time to cook” may cross our minds. Worse, we may just think budgeting doesn’t work. After all, whats the point of budgeting if we can’t stick to it?
You Are Not Alone
I know I’m not alone. Many people I know, including attending physicians, describe budgeting as a difficult thing- especially because of all their expenses as doctors. Spending money is easy, but keeping track is not. Who has the time to detail every latte they spend money on at the hospital cafe, the various monthly bills from cable to internet, the cost of their children, etc etc. The more money they have to spend the more there is to keep track of. I can sympathize with this philosophy. Sort of. But the reality is that budgeting need not be a challenge. That's what I want to talk about today.
To help me budget I’ve looked into a variety of software, including Mint, Personal Capital, and You Need A Budget.
Issues with Mint and Personal Capital
These companies are not nefarious bankers stealing your cash, but they do feed into poor behavioral psychology. If you are not familiar, these software products allow you to link all your accounts with the software. Thus your investment, credit card, and bank accounts all go into one aggregate and the net amount is displayed for you. This is, at first glance, an amazing way to save money. After all you can see where it's going and not have to worry about juggling all the different bills you have. But there is a catch. This is not, contrary to what many will say, a budgeting tool.
It is passive. You are not going to determine how you want to spend your money or even if you should be cutting expenses. After all, whether you have a lot of money to spend, or because you have no time, that does take a lot of effort. Or so it seems. Thus Mint lulls you into a false sense of security. As long as you are saving x dollars and your total expenditure is less than your net income, why worry? I’ve had discussions with doctors I rotated with like my urologist who said after paying taxes, schools, interest and principal on his loans, mortgage etc all he had left was about 10k a year. Well I can bet he spends money on things he could totally save and cut costs on. I also don’t think Mint would help him trim costs. Instead of being acutely aware of where all his money goes, he probably only has a vague sense of his expenses. As a result he is left with far less than he would like each year. If he was more intimately aware of his weekly expenses I bet he would have a lot more cash available at the end of the year.
You Need a Budget (YNAB)
I am not the Excel kind of guy. If you know the ins and outs of it and can effectively utilize a spreadsheet to keep track of your budgeting and can apply a variety of effective budgeting techniques like a “zero budget philosophy,” then there is no need to read further. For the rest of us, YNAB is a real gem.
YNAB’s principles are easily found on their website- but understanding them takes a bit of research.
The Zero Dollar Philosophy.
First, put your dollars to work. Every dollar. The goal is to bring your monthly income to zero. Every dollar should have something to do. If you have left over just add it to your emergency fund. This is zero dollar philosophy.
Zero dollar philosophy really helps in the long run. When you know you plan to spend say 500 dollars on something for your birthday or someone else's, you can plan ahead by adding a few dollars, each month, to that ledger. When the birthday comes, you're not raiding your savings or food that month to splurge. Better yet, because it's planned for, you won't feel guilty.
Money is Fungible
Second, your budget is fluid. Even if you get a steady paycheck, and certain bills are a steady expense, like rent, most of your spending will change month to month or day to day. Fluid spending requires fluid budgeting. It takes away the rigidity of your life, reduces your spending anxiety, and allows you greater awareness of where your money is going. Fluidity in budgeting might seem odd. After all, isn’t budgeting and its very definition about keeping your spending habits restrained? Yes- but that's not how healthy budgeting works. For years I thought budgeting worked by forcing you to be constrained. Instead, I now realize, budgeting works when it brings you closer to your money. By seeing where it goes day to day you can learn pretty quickly which behaviors are essential and which aren’t. Those intimate recognitions are what allow you to budget effectively. What doesn’t work is telling yourself, “OK only X dollars go into entertainment,” that leads to guilt. Also, budgeting this way allows you to create long term goals.
Say you’ve been thinking about that Macbook Pro for a while. And you want to save money for it. It's better to set aside a few hundred now than to wait till the last minute. More importantly, this type of savings for the future also allows you to see your month to month raids on your long term goals. Say you spend more on food and for some reason have to take money set aside for your laptop- you may realize ultimately that you need to find a better way to eat. This is the essence of saving.
Savings is Critical
Finally, it's essential to save for a rainy day. This affords you the option of putting what remains at the end of the year into your savings. Which brings me back to my first quote- “Spend money on what you want. Save on everything else.” Fluid budgeting allows you to avoid the feeling of anxiety and guilt. By figuring out what you like, you can spend money on it. Go for what you want. But make sure that you are absolutely spending on the things you want. I like a Macbook Pro. So I went ahead and bought one. However, I saw no reason to keep my unlimited data plan so I switched to the cheapest one. It's not about who can spend the least or who can lead the cheapest life possible. Spending and saving shouldn’t be a morality play. Its about being intelligent and using your budgeting as an investment vehicle.
I recently read ‘The Intelligent Investor,’ and I want to paraphrase something he says in it that was inspirational for me to write this post. At the end of the day, only the things you control can truly lead to guaranteed returns in the future. Saving on taxes and limiting spending and earning an income all fall into this category. No matter what investment vehicles we intelligently use and however well we manage risk these investments do not offer us a guarantee, they merely offer us a reasonable return at a manageable risk. That risk will always be there. However, by saving your income through guilt free, anxiety-less mechanisms, you can have a larger income in the future that still results in minimal frustration and stress and maximizes your pleasure (spend on what you want) and your future earnings.
If you are daunted by budgeting because of anxieties, guilt, or general feeling that you can't keep and maintain a budget, then YNAB is a great place to start; its concepts are wonderful. If you want more information on the nuts and bolts of YNAB, take a look at this review or this video from YNAB. You can also learn more about zero based budgeting here. (If the link doesn't work, Google “meet the father of zero based budgeting.)
Have you used financial software? Which do you prefer? Have your tried You Need A Budget? Did your like or dislike it and why? Do you budget? Why or why not? Comment below!
I’ve used YNAB since 2012. I LOVE this software. I wondered how we weren’t saving any money. After tracking, I found I spent over $1000 on food a month on 2 people! Using YNAB 4 principles, we got that down to half, and saved thousands towards our first house. It was extremely hard to break the habit, but saving for a house is more important than buying whole foods each week. So I made the change. We also practiced having a mortgage for a year before buying, and it helped because I feel house poor. (and we saved tons of money that way) I read the forum almost every day and learned so much reading journals, off topic chats and such. It’s a very friendly board and I enjoy it. I enjoy budgeting- gasp. Never thought I’d say that. Well, it’s not budgeting, it’s the 4 rules and I enjoy that very much.
I’m surprised the author didn’t share his link for the software, so here’s my link. For every friend that buys YNAB using the link below, they save $6 and you get $6! Win-win! http://ynab.refr.cc/PQPMBBF But try the 34 day trial first. Doesn’t make sense to get it if you don’t like it. Also, there used to be steam sales but I don’t know if they have them anymore (discussion on boards). You can also win a free copy by attending a live teaching presentation. They give a free license to one randomly selected person if you attend.
I use Quicken. I began using it in 1994 during residency and I am able to track my spending, automatically sync with my banks and credit cards, budget and compare my spending in different custom categories from custom time frame to custom time frame. It is great. I agree completely with the idea that if you do not track your spending, you do not know how much you are spending. If you want to achieve a goal then you must measure your progress.
My wife and I use the app “home budget” on our iPhones. Easy and syncs automatically.
I tried YNAB a while ago, but found it to be challenging to use. For example, if I spent $23.38, and part of that was on something for the house and part on snacks, I had to awkwardly subdivide the receipt in the software, deal with tax, etc. Logging in every single purchase this way, and expecting my husband to do the same was incredibly tedious. I can see how it would work, and the idea was appealing, but it was just too impractical for my family. I do use mint, but to keep track of expenses, not for budgeting. It is very useful for this, and I have caught quite a bit of fraud this way. I also like that mint.com lets me download all of my transactions into excel so I can analyze returns. I agree that it is a not a budgeting software, but it is useful in its own right. I did not purchase YNAB after my free trial, despite the time I had spent setting it up.
There’s actually an option to split the tax proportionally between multiple purchases. You’re right, though- it’s a bit of a learning curve. They have a lot of support on the website though.
That’s good to know; thanks. Perhaps I gave up too quickly. I was surprised that when my free trial ended there was no follow-up as to why I decided not to buy it. It just seemed quite onerous.
I have been using YNAB for quite some time now and absolutely love it. I find that having a budge it actually freeing. I am never worried about my credit card bill or any other bill because I know it all accounted for an planned. I highly recommend YNAB as it gave me control of my money. I agree with the original poster that Mint just kind of shows you where you are spending your money but it doesn’t give you the best control.
I think budgeting can be an excellent way for people to get a sense of where they are at and how to improve their spending and savings habits. I like this write up but I have to admit i am surprised by the comments about Mint. I have used both Budget Simple and Mint and think both can be effective. In fact, with Mint, we used their budgeting tool to track all of our specific expenses and categories of spending and learn how and where we could reduce our spending. It was fantastic for us and did exactly what we hoped it would.
I havent used Personal Capital much as theyre always trying to get my investment money, but I also dont get the comments about Mint. Its as if he is not familiar with how to use it. I only use it casually since Im big into Excel, but I still have a budget, see the transactions, lists upcoming bills and dates, check my weekly spending reports, follow trends (by category), etc..all of which do exactly what the author complained it doesnt.
I like this Zero Dollar idea, which is how I do it as well, but my excel column that is net after all expenses/taxes is called “Taxable Investing/RE”.
My wife and I have been using YNAB for over a year and I am a huge fan. Having a real-time budget that updates on both of our smartphones gives us a tremendous sense of control and peace of mind knowing that there is money budgeted for recurring lumpy expenses (annual or semi annual tax and insurance payments, for example) and that we’re making progress on all of our savings goals. We’re saving up for a new (used) car, and it’s nice to see that money piling up. It’s also useful to look at a budget category prior to making a purchase (how much is left in this category for this month) rather than looking at a checking account balance and guesstimating that everything should be fine. It’s really made it a lot less stressful to make purchases and discuss spending decisions since it’s so transparent. We’re pretty flexible about moving money from one category to another during the month as well carrying a negative balance in one category for a couple of months if we make a big purchase (e.g. a MacBook Pro, to use Jay’s example).
When using YNAB, do I have to manually enter each purchase or does it automatically do that for me and automatically categorize purchases I make on my credit card?
It is essentially manual, but you can download QFX or CSV (or similar) files and easily import them. It doesn’t assign anything automatically (and frankly, it’s not that hard to do).
So, unlike mint that will categorize (and if you edit will remember your category going forward), you have to do it by hand. So where is the benefit, because mint does budgets, shows you your credit score quarterly, etc..wheres the added value over the free version
The theory is that by entering everything yourself, you become more responsible for your purchases and more active in your budgeting. It is a deliberate decision on the part of the software creator. I found it onerous, but I see what they mean.
Seems overly onerous to me. I can see how that might be incredibly useful to non physicians that may have long term behavioral and neglect of finance issues. I just think that most doctors havent spent the time, and with a tiny bit of effort, you shouldnt need the onerous to stay in line, but if you do then by all means stay with the tightest program that works for you. Most of us just needed to learn to pay attention regularly and plan in general.
Mint has a full budget for myself, I get alerts if I go over (say groceries or eating out, etc..), and get a weekly spending email (or I can check the app) to see whats happened lately. You do need to regularly assess your budget and goals, but lots of approvals and splitting seems like overkill. I still mainly just use my excel spreadsheet budget and periodically make sure its up to date and really use mint to cross check that we havent deviated or something big hasnt changed. Physicians spend a lot of money relatively, even the frugal ones.
It does recognize transactions and assign them to the last category you applied it to. But you do still have to accept it.
I have my zero dollar budget in excel and use mint for reporting/tracking, if I’m missing out on anything this software can provide I’d appreciate the input.
I use to use Excel as well, but I had so many linked formulas and a separate tab for each spending category that I use to crash Excel. I loved how easy it was to import everything in Excel and keep track of different ‘accounts’ (checking, savings, or credit cards) as one large pool of money. You should try the free trial and see what you think! 🙂
Sorry for typos-typing on the train 🙂 And it’s easy to import to YNAB, not excel like I typed.
I am unclear on how this is an improvement over Mint’s Budget feature. With a little help in manually characterizing the odd purchase or two Mint already tracks budgets.
For month to month cashflow I use Excel. I know how much my income is/will be, what my credit card statement balance was for the last month (and therefore needs paying off this month), and what direct withdrawals will be made (e.g. student loans). Therefore I know how exactly how much extra I can contribute to Betterment each month.
This Excel strategy is the antithesis of what Betterment’s smart deposit feature does: No way would I relinquish control to an algorithm over siphoning off “extra” money from my checking account.
I felt like Mint did too many things automatically and it was easy to just stop paying attention to it. With YNAB I feel like I’m taking a more active role in my budgeting. Also, I don’t think Mint has a way to split purchases into multiple categories (which YNAB does). YNAB has a completely different feel – more like a well-developed excell program, while Mint is more web-based.
I started using YNAB around the time I got married. Its a great way to stay accountable to your partner in regards to money. Both of us have loved using YNAB and highly recommend it to our friends, particularly the ones who are trying to pay off debt. It’s allowed my wife and I to put over $10K/month towards our students loans!
To address a few of the Mint comments – I, like many people here, use Mint to track balances. But I think the budget feature in Mint is terrible. I quit using it entirely because so many purchases were miscategorized. It was simply too much work.
This is compared with YNAB where you create the categories, and you enter them in. Once you are up and running the app knows where you are and autopopulates. Ultimately, I think the fact that you have to be more pro-active with YNAB is one of its strongest features. It forces you to look a lot harder at where your money is being spent. Where you spend your money is a huge indicator of your priorities and values. One of the biggest problems is ignoring where your money goes…
YNAb has given me a much better sense of control over my financial life. Like others said, its not the budgeting they love, its the 4 rules!
Budgeting does not need to be overly granular, big picture is more important. i never worry that I bought some groceries and also some clothes at target, money and budgets are fungible. Paying attention is of course just something you have to make yourself do, its either important or its not.
Another vote for mint. It can be as passive or active as you want it to be. I like that once I tell it what a certain bill is, it will keep putting things in that category in the future.
I’m a huge fan of YNAB. I found a way to export CSV or quicken format files from my banking website and YNAB is able to take them in an import my expenses all at once. After that, all I have to do it assign a category. It’s pretty slick. FOR STUDENTS: if you look around, they offer YNAB free on a yearly basis if you’re in school. Search “YNAB free student” on google. All you have to do is send proof of enrollment and they’ll email you a serial number.
I’ve heard of Everydollar.com from Dave Ramsay. It seems alright, and if I wasn’t already invested in YNAB, I might try it out.
While this does work, I think it’s not conducive to the YNAB theory of budgeting (and which is why syncing is not advocated in YNAB 4). Ultimately, budgeting (in YNAB and elsewhere) is about making active decisions about your spending choices and being aware of the associated trade-offs (rolling with the punches). To sync transactions later reduces the effectiveness of this if you wait a long time to sync as you don’t actually know how much you have in your budget for subsequent transactions until you’ve reconciled.
In my view, using YNAB with its syncing features make it no different than Mint.
I also like mint a lot. You can use it for budgeting, it’s free and syncs across your devices.
We had used Mint for a long time, but within the last year we started using ynab. Ynab is much better in my opinion. Mint is a lot of looking back, ynab is looking forward. I find myself using mint less and less.
I am a huge YNAB fan. I feel so much more empowered in reaching of our financial goals now that I have a clear, current picture of where every dollar is going. There is a learning curve because although the software is very intuitive and easy to use, truly following the four rules makes the magic happen and those were new to me.
Can you expand on the forward looking part of YNAB as opposed to Mint? Right now it just seems that some people prefer one over the other, and theres not much difference. Thanks.
With YNAB, you could essentially plan out your budget for the year, and it also helps you plan for payments for things that aren’t monthly (like taxes, insurance, etc). It’s all there on the spreadsheet, so you can plan it out in a way that I don’t think would be as natural on mint.
Ah. Well being an exelophile, that I already do on my own. Its actually pretty simple from there to see (assumes limited changes of course in purchases) how much money, taxes, bills, and left over for investing and all your spending you might accumulate over various lengths of careers. Incredibly illuminating to basically see the gross amount you’ll earn, pay in taxes, and have left over for your working life.
I like mint to keep track of expenditures. I use it religiously. The downside is that places like Costco or target where you buy groceries or maybe an appliance make it difficult to track by category without tedious manual work.
I don’t need a budget, never have, hopefully never will.
I had same problem once we moved more food spending to Target to get greater savings using red card, and cartwheel. I combined Target, Costco and Groceries into a “Shopping” category and set a budget target based on past averages. I revisit when we have major spending changes like the “twins”, but overall the spend has stayed the same. I am passed the point where I track every dollar, I’m good with staying around our averages. With our zero dollar budget if we stay below averages more goes into savings.
For about eight years we used Excel to create a budget and track all of our spending. As the family has grown and we added a few more credit cards it became a little bit too time-consuming to do so much minimal input. We took the budget we created in Excel and made a good approximation in mint and now use that to track all of our spending. It has been very nice seeing all of our accounts and transactions in one place as I was logging on to at least 5 separate sites a couple times per week before. Not sure how well it would have worked to create a budget from scratch though.
Great review. I think tools like this are more useful if there is a greater need to budget. I am in a point in my career where my family maintains a balance without quite as much detail. My method is pay yourself first, 40k a year automatically flows into a variety of investments. I maintain 30-40k in savings, this is my back up fund (military doc, unless the government fails, not going to be out of work 6-12 months). I simply watch the savings, get closer to the 30k level, tighten up spending a bit, rethink any large purchases. Once a month I take a snapshot of net worth (looking at liabilities and assets) and track that along with all investments, easy to pull together and update quickly. Earlier in my life and around medical school, the next 10-15 years after medical school, these sites would have been more helpful.
YNAB being so hands on is the downside for me. Mint comparatively takes very little, but enough so that I stay involved and mindful of spending. Honestly I would have thought an audience like this site would have been more drawn to Mint.
Personal Capital is better than both at visually representing investments and asset allocation.
We have been using YNAB for about a year and it has been an amazing change in our financial life. As my husband is still in residency it is in black and white what taking WCI advice “live like a resident for awhile” will really look like. I am sure that we will keep it up.
If I am saving 30-35% of my income, why should I worry about budget?
Honestly, maybe you don’t. I’m a resident, and we’re trying to live as tight as we can until we get our loans paid off, so YNAB has been extremely useful in helping us control our spending habits as well as prepare for expenses that might otherwise catch us off guard. For people who have pretty good control over their spending habits and have pretty stable expenses, strict budgeting may not be as high yield. I don’t know that I could ever live without it, though. I feel a lot more empowered now that I know what I’m doing with ever dollar I have.
I agree. I have a post coming up on that subject. Budgeting is an entry level financial skill. Once you’ve figured out how to save a huge chunk of your money you don’t have to do it.
I’m not sure I agree. I’m an attending saving a significant portion of my income, and budgeting (specifically using YNAB) gives me control over my money and clarity about what each dollar’s job is. I use mint to monitor my cards for fraud and see total net worth, but YNAB shows me how much I have saved toward my next vacation, my next car, major home maintenance, etc. in a way that mint never could. I don’t think I would want to stop using this program or this budgeting approach even when my student loans and mortgage are paid off and I have several months’ living expenses in liquid savings.
+1
i find mint very useful for checking account balances and incredibly helpful for monitoring fraud.
but ynab is on another level. honestly, the software is incredibly easy to use, having the app on your phone makes inputting purchases easy. and like you said, it gives you an instant idea where you are for big purchases – new car, caribbean vacation, new mountain bike!
we set our savings and debt repayment goals and then budget to zero. its amazing how quickly a difference ynab has made in our financial lives. and of course WCI as well. its all about mindset
Does anybody use the Mvelopes app for budgeting?
There is an announcement for the NEW YNAB! It’s in prelim development, with some new testers checking it out. From what I understand, it won’t be out soon like next week, but upcoming (several months) So upcoming developments, new 4 rules (reworded) and mobile edit-ability. I’m curious to see what the new changes will entail.
http://forum.youneedabudget.com/discussion/43913/the-new-ynab-soft-soft-soft-launches-today/p1