YNAB 4It’s truly amazing to review how personal financial software has taken off since the days of Microsoft Money and Quicken being the first to battle for market share.  Today, over 100 applications have been developed, all built upon the same time tested principles that will be employed 100 years from now.  Despite so many variations, some have become more popular than others.  Among the leaders is a budgeting tool called “You Need A Budget”, better known as YNAB.

YNAB provides people with a pro-active strategy based upon the practical approach of planning their money before it is spent.  YNAB’s unique methodology begins by employing savings to cover one months worth of expenses instead of using the estimated income that will be earned during the month to cover those costs.  This, in YNAB jargon, is referred to as a “buffer.”  And comparatively, the YNAB system offers an improved ability for delivering on short and long term objectives while breaking people free from the living paycheck to paycheck mentality.  As income is earned throughout the month, the buffer is replenished for the next month.

The YNAB Methodology uses four rules of cash flow management:

ynab 4RULE 1 – Give Every Dollar a Job   Each dollar must be either saved or spent resulting in a “zero budget” result for the monthly income.

RULE 2 – Save for a Rainy Day   YNAB addresses the need for paying for unplanned events such as auto repairs or other similar emergencies which allow for reduced emotional stress when these events occur.

RULE 3 – Roll with the Punches   Since even with a forward looking and planning system you can sometimes overspend in a Budget Category, YNAB has a method that spreads that overage across the next month’s budget where it can be absorbed more readily. Since (by design) a person has money reserves at hand (The Buffer) the overage can be covered easily.

RULE 4: Stop Living Paycheck to Paycheck   This is the end state YNAB will enable people achieve. It is measured complete when the person has gone through an entire month without using any of the income earned during that period.  The budget categories for the next month is has that money applied towards those expenses.

Consider the path YNAB had to take to reach it’s current spot atop the personal financial software competition.  It’s amazing that something this successful and well designed began as a cool spreadsheet.  YNAB is popular because it focuses people on activities that will actually make a difference in the way they manage their money.  It’s simple and effective.

It is no wonder why YNAB is a leader in the market.