YNAB Review Part 2 – Savings Goals

YNAB_logo

Disclaimer: This is not an advertisement or sponsored post, nor are there any affiliate links in the post. It is simply an honest review/recommendation of this product.

In my first post about YNAB, we discussed one of the major pro’s in using this software as your monthly budgeting tool: Savings.

Here’s an example of how to save for your emergency fund and Hajj with YNAB (remember, they offer a free 34 day trial):

Emergency Fund

As a reminder, it’s our recommendation that you need to have $1,000 savings in your checking account for an emergency fund for singles, and $2,000 if you have a family.

We say checking account because the money needs to be readily available when you need it (you don’t need the extra headache of transferring money from one account to the next when you’re paying for tires at the tire store).

The problem is that when you keep this buffer in your checking account, you may accidentally spend it without knowing it. Here’s how to avoid this problem by using YNAB.

Let’s say, for example, that you have $2,000 in your checking account. In the YNAB budget section, you’ll see that you have $2,000 available to spend:

2000_available

Because you have bills to pay, you can’t allocate the entire $2,000 towards your emergency fund. Therefore, you’re going to assign $200 towards it:

emergency_fund_200

You’re now telling yourself that you’ve allocated $200 towards this envelope. The software then adjusts your monthly budget to reflect that assigned amount:

1800_available

 

Once this is done, you can start assigning money towards other categories. I personally look at the “available to budget” amount when I’m doing my monthly budget because that’s where I have the power to assign money to my various envelopes.

Now you can continue to add money to that envelope as your paycheck comes in, eventually growing your emergency fund to your set amount. Once you have that amount funded, you then have the buffer in your checking account, but now avoid spending it because the software doesn’t count it towards your budget.

Saving for Hajj

Following our baby steps, once you have an emergency and have paid off your debts, the next item is to start saving for Hajj. To do this, we recommend opening a separate checking account that you won’t access until Hajj is saved for.

In YNAB, you would create a new account that’s “off-budget”. That basically means that while you’re transferring money to that account, it won’t count towards your monthly budget.

We’re going to go back to our main budget screen and create a saving category called “Hajj” and assign $200 towards it:

hajj_pre

 

Notice that when I assign $200 towards Hajj that my “available to budget” amount goes down to $1,600. I’ve only budgeted $200 towards Hajj, however I haven’t physically transferred that money to the Hajj account. To do that, you’ll go into the register and transfer $200 from your checking account to the Hajj account:

hajj_overview

Two things will happen when you do this: first, your remaining balance that you have left to spend will go down (because you’ve now transferring $200 outside of your account) and second, your “Hajj” budget will go from a $200 buffer in your monthly budget to $0 (meaning you’ve spent that money):

hajj_savings_budget

 

 

Wrap-up

I know this sounds like a lot but it gets easy when you do it every month. Remember, money management is 10% math and 90% behavior. YNAB takes the math out of the equation by doing all of the calculations for you, leaving you to follow your plan.

I have been using YNAB for over 2 years and have paid off multiple debts using the tool all while still having enough money in my account for my daily expenses. I have also successfully paid for 2 vacations with cash using the savings feature. There is an initial learning curve, but the payoff is worth it in the end.

Adam Taufique

Adam Taufique is a founding member of Qur'an Weekly and Debt Free Muslims. He is a regular khateeb in his community and has served in Masjids from being a weekend school teacher to youth coordinator. You can follow him on Google+ or on Twitter @adamtaufique.

One Comment

  1. Orowelle
    December 3, 2013

    There is a learning curve here. I just bought it today. I took me almost two days setting it up and the rest of the afternoon reconciling accounts. Wowzers….Now to keep it up and learn how to use it efficiently and correctly.

    Reply

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