.png)
As a financial planner, I can tell you that managing your cash flow is the most important part of financial security and independence. So if you've been using Mint, or if you're just starting your search for a budgeting app today, this video is for you. Because we're going to talk about the best budgeting app to help you manage your incoming expenses.
I'm going to get to my favorite budgeting app, but first I need to set the stage and explain how I think a budget should work.
I actually don't love the word budget. A budget is restricting. Budget-friendly options are always the cheapest options. Being on a budget is like being on a diet, and I don't think most people are excited about being on a diet. So I prefer to use the term spending plan because that’s what a budget should be. We're planning for how we'll spend our money, and that is exciting.
I think this topic more than any other brings a sense of shame for a lot of people. I can't tell you how many times I've heard someone say in our first or second meeting, something along the lines of, I know I'm spending too much money.
A lot of the personal finance gurus out there make us feel bad if we buy a $6 latte at a coffee shop, because if you just saved that $6, then in 50 years it would be worth some absurd amount of money. But me personally, I'd rather have the latte.
But if I don't have a spending plan, then I don't really know whether I can afford it or not. So I'm going to feel a little bit of guilt every time I spend money on something that's not 100% necessary.
But having a plan in place can reduce those feelings of guilt, because you've planned for the spending that's important to you.
A spending plan or budget is so vital for every aspect of your financial life. You need to know how much money you're spending and have a rough idea of what you're spending it on. Those numbers are gonna be the foundation for how much you can save, how much you need to retire, and then when you can get there.
A spending plan doesn't always mean reducing your spending. Sometimes it does, but sometimes it's about reconfiguring your spending so that you're spending more money on the things that you value most and less on the other stuff.
The goal of a spending plan is to give you freedom to spend without guilt within the confines of your plan.
With all that in mind, the app that's best suited to help you do this, in my opinion, is YNAB. YNAB is short for You Need A Budget. And it's different than most other budgeting apps.
It's what's known as a zero-based budgeting system, which basically means that you're giving every dollar of your income a job. Now that job could be spending, it could be saving, or it could be paying down debt.
The idea is that you're being intentional with every dollar of income, rather than retroactively figuring out where it went.
There's a budgeting strategy you may have heard of called the envelope system. Recently, I've also heard it referred to as cash stuffing, but the gist of it is that you have these envelopes for each category of spending. So you have a grocery envelope, a restaurant envelope, a fun money envelope, and on and on.
Then you turn your paychecks into physical cash, and you allocate it to the different envelopes.
When it's time to go to the grocery store, you take your grocery envelope with you, and whatever's in there is what you have to spend.
I mentioned this strategy because YNAB is basically a digital version of that. Rather than physical cash and physical envelopes, you're allocating dollars in your bank account to the various categories.
Most budgeting apps are what I would call expense trackers. They allow you to see what you've spent money on, which is helpful, but they aren't great at planning for that spending ahead of time.
YNAB though is different. It's about planning for where your money should go before you even spend it.
Being proactive like this lets you take control of your spending rather than just tracking your overspending after the fact. Let's take a look so you can see how this works.
[YNAB DEMO AVAILABLE ON VIDEO ABOVE]
The thing that makes YNAB a game changer, in my opinion, is what they call embracing your true expenses. This means planning and budgeting for the infrequent non-monthly expenses.
The month-to-month expenses are pretty straightforward, and they aren't usually what gets most people into trouble. I go to the grocery store every week, and each month I spend a similar amount there. The same could be said for things like your mortgage, eating out, utilities, and other random household items.
All budgeting apps can handle these things pretty well, but the thing that trips people up and that most budgeting apps are not equipped to deal with are things like vacations, car repairs, and home renovations. These are the things we know are going to happen so they aren't a surprise, but we don't think to budget for them because they don't show up every month.
And this is where YNAB shines, because with YNAB, I can create a category for these infrequent expenses, and I can assign dollars to that category every month. Then when an expense happens, I'll already have money set aside to pay for it, so it doesn't break the bank.
[DEMO SHOWING YNAB WITH NON-MONTHLY EXPENSES IN VIDEO ABOVE]
The way I would recommend using YNAB is to create your spending plan outside of YNAB, but then use YNAB to track it. So I use a simple spreadsheet to create the spending plan, but with this, I can make sure that my income can support the dollars that I'm gonna allocate to the various categories in YNAB each month.
Then I'll put the numbers into YNAB and track everything from there. I will say there is a bit of a learning curve with YNAB. It's a different way of thinking about your money and your spending, but they have some really good resources to help you as you get comfortable with it, including a great YouTube channel.
YNAB also offers a 34-day free trial, and you don't even have to enter your payment information. To me, that tells you that they're not counting on people just forgetting to unsubscribe, but they actually believe that once you've tried YNAB for a month, you'll want to continue, and I would agree.
.svg)
.svg)
.svg)
