How The Viral YNAB Budgeting Method Works

You Need A Budget (YNAB) is one of the most downloaded budgeting apps. It began in 2010, and now has huge communities on Reddit, YouTube, Facebook and more. It is based around the "cash envelope" budgeting system where all income is instantly divided between digital "envelopes."

YNAB centers around 4 main rules:

1) Give every dollar a job. Rather than being reactive to expenses, be proactive about the ways in which you want and need to spend money. This means assigning every dollar in your bank account as well as every new dollar that comes in.

2) Embrace your true expenses. This means rather than solely counting bills that are charged regularly, plan ahead for those irregular but inevitable expenses. For example, holidays, car maintenance, home repair - any expense you know you will incur but will not receive a bill.

3) Roll with the punches. Overspending and unexpected expenses will occur no matter what. Over time your budget will become more accurate, but especially at first, make as many adjustments as needed. Any time you overspend in one category, cover it with funds from another.

4) Age your money. Credit card debt and living paycheck to paycheck are caused by spending too quickly and running out of money. The goal of YNAB is to get to a point where you are living this month on last month's income - making debt and paycheck to paycheck life unnecessary.

Once you understand the big picture and the rules, the setup is fairly simple. You link your bank and all credit/debit cards to the YNAB app. This will mean that every time you spend on any card the app will notify you and ask which budget category the expense should be charged.

Most important is creating your budget. Everyone's will be unique, but in general you first add all regular bills as "Needed for Spending". For this budget category type, you choose an amount, date and frequency (for example, the $1,000 mortgage is paid monthly on the 1st).

Next you add irregular expenses in a budget category type called "Savings Balance". For example, if you want to have $500 saved before vacation, enter the amount and goal date and YNAB will calculate a monthly amount you will need to budget in order to reach your goal.

The final budget category type is "Monthly Savings Builder". This is for saving a certain amount of money each month with no specific goal or target date. Perfect for building an emergency fund over time, saving for college or any large unknown future expense.

This is the basics of the YNAB method. The app costs $99 annually or $14.99 per month. However, theoretically, one could use a spreadsheet of categories and diligently enter each transaction. This could work for some, but hundreds of thousands have found the app worth the cost.