Starting off with YNAB when paying credit cards in full

I have a couple friends who are YNAB-obsessed. I tried it like five years ago, and couldn’t get over the initial adoption hump — the UI was too clunky, I wasn’t willing to invest the amount of time it would have required to educate myself on the software to the point where it was useful, etc.

So I tried it again; I’m obsessed. The user experience is vastly improved, the documentation and learning resources are super robust — in short, most of what prevented me from getting into it years ago has definitely been addressed.

One thing I found lacking was a guide/resources for people who pay off credit cards in full every month. I feel like I’m over the hurdle, and want to A) write that for anyone else who finds it useful and B) be able to refer to it myself later.

I treat my credit cards like debit cards; I only spend what I have, and pay my balance in full. I put a lot of my expenses on my credit card for the miles, and because I’m afraid of how risky using a debit card is. I maintained a spreadsheet with my main monthly recurring expenses, but didn’t really “budget” super hard beyond that, mainly because I didn’t think I had to — I lived well within my means, I saved, I called it a day.

I called it a day because I felt my money was doing pretty much what I wanted it to do, and I thought looking closer at it would be stressful. It’s been exactly the opposite. Rule #1 of the YNAB method is “Give Every Dollar a Job.” I thought I had been avoiding stress, but embracing the control to give every dollar a job has given me a significantly fuller sense of financial peace I didn’t even know I needed.

So here’s my guide to getting started with YNAB as a heavy credit card user who fully pays off balances.

Day 1 with YNAB

1. Tell YNAB about your funds and debt.

When you start, there are only two things you need to tell YNAB: funds available (+) and standing debt (-). At first, it was very hard for me to think of my credit card balance as debt because in my mind the dollars I was spending were in my checking. But, of course, it is actually debt.

When adding accounts, you have the option to go “linked” or “unlinked”. “Linked” connects with your banking institution and automatically imports cleared transactions. “Unlinked” is fully manual. In my internet travels, I’ve heard the pros and cons of both.

Linked. Pros: Ease of automation. Cons: Bank connections can be unreliable. (Mine syncs once a day so far, which is fine for me). Can make you complacent. Security concerns.

Unlinked. Pros: You have full control. Some feel they have a greater awareness when having to manually enter all transactions. You can still download and manually import things if you want. No bank connection minimizes security concerns. Cons: You have full control. It’s totally up to you to make sure everything is up to date and accurate.

I have opted for “linked”, but I understand the pros of “unlinked”. I’m trying to go for a hybrid, where I take a few minutes in the morning to check in and do “YNAB gardening”, making sure everything is reconciled and categorized appropriately. Also if you manually enter a transaction, you can match it with the later-directly-imported transaction. (YNAB does what it can to match them up, but it’s not perfect, so this does take a mindful eye). So, in my opinion this method still requires awareness to maintain, but if you wanted to set it and forget it you could (although if you wanted to do that, I’d just use Mint).

Let’s say we added a checking account with $2000, a savings account with $5000, and a credit card with a balance of $600.

2. Budget your dollars.

It might sound weird, but this took some crazy getting used to for me. I’m accustomed to thinking about the money in my checking account as “available money”, and the money in my savings account as “unavailable money”. But after telling YNAB about my available funds, I had to face a question: Do I budget my savings money?

It made me think a lot more about savings in an active sense, rather than a passive sense. (“Aside from adding to it, just leave it alone and try not to look at it.”) What am I saving for? It’s not truly just a lump sum of savings, in intent. It’s a rainy day fund, it’s a checking buffer, it’s Christmas gifts, it’s saving for a car downpayment. It’s all of those things and more.

YNAB comes with pre-templated categories to get you started. What works for everyone is different; The first thing I did was create categories that made sense to me:

  • General spending (groceries, coffee shops, etc)
  • Fixed bills (rent, internet, auto insurance, etc)
  • Variable bills (electric, cell phone, etc)
  • Subscriptions (spotify, local NPR station, etc)
  • Fun fund (dining out, bars, entertainment, etc)
  • Savings (rainy day fund, car down payment, checking buffer, etc)

So now I have a categorized list of the things I spend money on, and a lump sum of available money (based on the funds available (+) I’ve told YNAB about).

Say I like to keep a buffer of $500 in my checking, and YNAB is showing I have $7000 “to be budgeted” (which represents all the funds I’ve told YNAB about). Possibly the first thing I do (just as an example) is budget $500 to my buffer category. Now I have $6,500 “to be budgeted” dollars remaining to distribute to my categories.

Now let’s talk about credit cards. The balance on the credit card I told YNAB about was $600. Once, and only once, I need to budget $650 of my available dollars to pay off the credit card. (Note again, I’m talking about paying off the full balance. If you’re trying to get out of credit card debt, YNAB has tons of support material about that).

Now I have $600 set aside for my existing credit card debt, and $500 set aside as my checking buffer, leaving me with $5,900 left to be budgeted.

Now I’d continue down my budget categories, giving each of my dollars a job, according to my priorities for the month, stopping when “to be budgeted” sits at $0.

3. Budgeting for credit cards without budgeting for credit cards.

I said above, once and only once do I need to budget directly to paying off my credit card when getting started with YNAB. Why is that?

When you give each of your dollars a job, the money goes toward that job — not the credit card. YNAB deals with this in a really nifty way.

Say my monthly internet bill is $50, and I’ve budgeted $50 toward it — I have $50 available for the job of paying my internet bill:

I pay my internet service provider with my credit card, and associate the transaction with my “Internet” category:

Heading back over to my budget, something interesting has happened:

Because the transaction was 1) a credit card transaction and 2) associated with the “Internet” category, YNAB has moved the $50 available dollars from having the job of paying my internet bill to having the job of paying my credit card company the $50 more dollars I now owe it for paying my internet bill for me.

Note: When you are fully paying off the balance, the balance of your card should always equal the amount “available” for payment. If it isn’t, it’s a good indicator something has gone awry.

Now let’s pay off the credit card:

In this transaction shown above, I’ve paid the balance of my credit card ($650) from my Checking account.

Looking back at my budget, the $600 that I gave the job of paying off my initial balance have done that, and the $50 that I gave the job of paying my internet bill have now repaid my credit card company for paying my bill.

Gotchas and takeaways

Only budget the dollars you have.

One mistake I made when starting YNAB was pre-budgeting. It was toward the end of the month. I gave each of my dollars a job for the month, getting my “to be budgeted” amount down to $0. (I’ll admit this somehow feels wrong at first, but now it feels very zen).

Then, perhaps being a touch overeager, I started “budgeting” the next month for the amounts I expected to pay for fixed bills. (Bear in mind, I had assigned all my dollars jobs for the current month, and had my amount down to $0).

Instead, set a funding goal. For the internet example, I’d set a funding goal of $50 a month. As more dollars come in to be budgeted, you can fund your budget in order of priority.

Reconcile often.

Basically the YNAB version of personal hygiene. To trust your budget as a foundation to make spending decisions on, it needs to be in total agreement with your bank records. The longer you go unreconciled, the greater the opportunity for inconsistency and mistakes to creep in, and the uglier it will be (probably) to try to untangle it later.

When you reconcile, transactions are “locked” — you know they are trustworthy. If something goes wrong, the number of transactions is more limited; If the pool is smaller, the mistake is easier to track down.

Use the web version for heavy lifting.

I can’t speak for the iOS app, but on the Android app, the ability to undo/redo and manage categories is so limited compared to the web app. I only use the Android app for a few things:

  • Reviewing my budget.
  • Getting notifications that new transactions have been imported and require approval/categorization.
  • Adding transactions on the go.

Do the workshops.

I consider myself pretty financially literate. I thought it was a bit silly to take some of the basic workshops. 100% do it. I had several ‘aha!’ moments that contributed to me finally getting over the hump I couldn’t get over five years ago. They are also live, and free. You have instant support for answering a question that has been plaguing you.

The YNAB workshops are basically no-cost financial literacy courses. They’re about the software, of course, but anyone can benefit from the principles covered, even if they never use YNAB.

Reddit. Read it?

The r/ynab subreddit is awesome. You see every issue under the sun, and there are some very knowledgeable folks there willing to lend a hand.