Budgeting that Actually Works

In this guide, you'll learn about the YNAB Method for budgeting, why it works better than anything else, and how do it right.

The YNAB Method

There are a million methods and apps out there to set a budget. We've tried them all: the weekly envelope of cash, the monthly money level, category tracking, you name it. At the end of the day, we've found that nothing works as well as being intentional about your plan and highly aware of where your money is going.

We fully subscribe to the YNAB Method, a simple four rule system popularized by the You Need a Budget app:

  • Rule 1: Give Every Dollar a Job

  • Rule 2: Embrace Your True Expenses

  • Rule 3: Roll With The Punches

  • Rule 4: Age Your Money

Below, we'll discuss each rule at a high level and why it works so well. Definitely be sure to check out the literature at YNAB's site above and their great videos if you'd like to cement this knowledge a bit more.

Rule 1: Give Every Dollar a Job

This is what sets this method apart from other budgeting methods.

Traditional category budgeting typically involves setting a goal to stay under, say $500 on dining out. You'd do this for all your major expenses (utilities, rent, car payments, etc). The problem with this method is it assumes a few things: that you'll have steady income, that unexpected things won't happen, and that your spending in each category is stable month-to-month. When the amount you spend doesn't exactly line up with you budgeted amount, the traditional method doesn't help you account for extra money you may have left in a category that you didn't spend, or what happens when you go over your budget for that category.

In other words, budgeting like this doesn't account for, well, real life. At all. And this is why we end abandoning budgeting all together. It feels like we're always failing, because the method isn't a good match for real life.

This is where Rule 1 comes in. Instead of forecasting expenses on future incomes, we do just the opposite.


We're still going to have categories, but instead of each category representing a goal for the month, imagine the category as a mini-bank account. When we get a paycheck (or any kind of income), we assign all the unbudgeted money to these categories/mini-accounts. In other words, we give every dollar we make a job. As we spend in a category, we deduct that amount from the mini-account. Pretty simple, right?

This way we'll always know exactly how much we have left to spend in each category and can easily move dollars from one category to another. We'll never overspend, yet our budget is flexible enough to accommodate unplanned purchases.

Rule 2: Embrace Your True Expenses

This rule can be boiled down to one line: budget for the infrequent, but known expenses coming up.

It's easy to fall into a trap of spending any money leftover after paying your monthly bills, but this will make us fall into a trap when that weird 6-month bill pops up (car insurance anyone?). Now you're reaching for a credit card and the high interest that comes with it.

By employing Rule 2, we spread out those expenses by planning for them in advance. Instead of that unexpected $600 bill, we sock away $100 each month towards our car insurance mini-account. Now when that bill pops up, there's nothing to fear.

Rule 3: Roll With The Punches

Life is inconsistent and full of random things. Rigid budgets always fail (and make you feel like a failure) simply because they don't match the reality of life.

Remember those mini bank accounts from Rule 1? This rule is what makes those categories magical: by being flexible.

If we underspend in a category, we can roll that over to the next month or move it to another. If we're considering overspending, we are forced to make a deliberate choice: which category are we going to subtract dollars from? This forced choice gives us a great opportunity to apply a happiness estimation and ask ourselves: will this purchase bring us happiness, and if so, what are we willing to cut back on to get it?

With Rule 3, we're sure never to spend more than we're making while also being flexible. This alone is why this is a method you can actually stick to and succeed with.

Rule 4: Age Your Money

Living paycheck to paycheck is stressful. With this rule, we'll escape that stress with a buffer of cash that will create space between the paychecks and the spending. Even those who are saving well can benefit a lot from this rule.

This rule can be summed up as: use this next months income to pay next month's bills. How do you start? Instead of saving some this month, budget any leftover dollars towards next month's bills.

Say that right now, you only have $100 left over after the current month's budget. Instead of throwing this in a savings account, put it towards next month's budget instead. And then do the same thing the next month, and so on. As you keep putting money forward, eventually you'll find that when a new paycheck comes in, this month and next month is already taken care of. That's when you can start saving (or preferably, Investing).

By creating this buffer, you'll feel less anxious about how much you have left in each mini-account for this month and be confident in what you can comfortably afford. The amount of stress this relieves cannot be understated.

Start Right Now

There you have it. Four simple rules to control your expenses. Now it's time to build the habit. No better time to start than right now!


  1. Sign up for You Need a Budget. Typically they offer a 34-day trial, and at the time of this writing, the app cost $6.99/mo.

  2. Add all of your spending accounts: checking, savings, and credit cards.

  3. Create you first plan. Follow their video guides for a great how to. Be sure to include infrequent expenses as well (car insurance, annual memberships, etc.)

  4. Get into the habit of tracking your purchases as they happen. Instead of waiting for purchases to clear your accounts, start recording transactions as you make them. This way, you'll always know how much is available in each category instead of hoping you haven't spent too much.

  5. Be patient and adapt. You've probably never budgeted like this, so it's going to get some getting used to. Don't worry, the first couple months you'll make some mistakes as you get a feel for thinking about money like this. Just stick to it and adapt your plan and goals.

Why we (and others) recommend You Need a Budget

  • The app is 100% built around the YNAB method, and incentivizes you to follow it.

  • The mobile apps (available on iPhone and Android) are no-frills, but dead-simple to use.

  • They have an incredible amount of literature, videos, and even (free!) online workshops to help you get started and stick to the method.

As reminder, we never take any commissions for these recommendations. This is the real advice we follow ourselves and we'd give to our kids.