As far as tooling goes, I love You Need a Budget. The web and mobile apps (though not without a few usability quirks) are the easiest and best thing I’ve used so far to categorize and track expenses. However, as someone coming from a business/accounting background I’ve found their methodology frequently confusing, so I’ve spent the last few months figuring out how to work around it in order to do truer ‘monthly-style’ budgeting in YNAB.

A quick list of things I want to do that I’ve found difficult within their system:

Project cash flow 1–3 months in advance

Get a clean percentage of money saved vs. money earned each month

Treat pre-allocated expenses as expenses in the month they occur

I won’t cover #3 in this post, but I’ve found a good way to solve #1 and #2 through some budget line-item configuration and the use of a “buffer”.

Establishing A Buffer

In order to do monthly style budgeting in YNAB, a “buffer” needs to be created. In YNAB methodology, “buffering your expenses” means to have at least one month’s worth of cash on hand, so that each new month’s expenses get paid from last month’s income.

As I use it here, a “buffer” is a budget category that allows moving one month’s worth of income into ‘To Be Budgeted’ so that monthly budgets can be establish in advance of income. The funds available in the buffer are any unallocated dollars that are sitting in a tracked budget account (such as a checking account).

Also, since unallocated money lives in the buffer account, any cash on hand at the creation of a YNAB account is ‘buffer’ money.

Create a Buffer Budget Category

In the ‘Budget’ view, create a “Buffer” category group and add a single budget line called “Cash Buffer”.

Link Opening Cash Balances to the Buffer

I’m manually creating a single checking account with a balance of $2,500. Since it’s impossible to do the whole budgeting flow for a month when opening a YNAB account mid-month, I’m making this transaction happen on 2/28/18 so that March will be my first budget month.

Budget Setup: Month 1

Now that we’ve got our buffer configured, let’s fake how budgeting for the month of March will work.

Create Budget Categories and Line Items

For March, I’ll create a single category group called “Expenses” and put some basic line items inside:

So now I have three budget line items ready for allocation, and a buffer account holding $2,500.

Budget Based on Expected Income

Say I expect to make $5,000 in income for the month of March. In order to use this amount for expense allocation, I’ll move $5k from my “Buffer” account to “To Be Budgeted”. Say this $5,000 will be paid in two $2,500 installments. Each time I receive a payment, I’ll deposit it to “To Be Budgeted” and reduce the amount of money I’ve moved from my buffer by the same amount.

Note: Buffer accounts CAN go negative, because they’ll be paid back naturally over the course of the month. The YNAB tooling also will avoid throwing warnings for negatively budgeted line items.

Allocate Expected Expenses

Now I can allocate my expected income to each budget category without throwing a bunch of errors. I’ll add a couple of new line items as well.

IRA represents an expense line where I make a transfer to an external account (currently untracked).

represents an expense line where I make a transfer to an external account (currently untracked). Free Cash is just whatever money I'm left over with after doing my initial allocations. I recommend trying to leave a healthy portion in Free Cash during initial planning. Over the course of the month it can be used to plug holes in categories that are misallocated without having to steal from other expense line items, and over the course of a few months the number will go down as you uncover semi-annual expenses (like Christmas or Vacation) that might deserve their own line item and an expected monthly contribution.

Income: Month 1

Say I get my first $2,500 payment on the first day of March. I’ll create a transaction depositing that $2,500 to my checking account and categorized as “To Be Budgeted”.

Then I’ll reduce the amount of money I’ve preallocated from ‘Cash Buffer’ to ‘To Be Budgeted’ by a corresponding amount.

If I get paid again mid-month, I’ll do the same thing again, and now my entire budget will match my income and my Cash Buffer account will be back to its original $2,500.

Expenses: Month 1

Now I’ll dump a bunch of fake expenses in for the month of March. Let’s assume that I overspend my grocery budget by $250 and have to cover it from Free Cash .

Closing: Month 1

Say it’s now March 31 and I have no other transactions. I still have $750 sitting in Free Cash that I don’t plan to spend. So I’ll move it to Cash Buffer with a little double-entry bookkeeping. (The dates will say 3/12/18 in my example, because I can't manipulate future dates in YNAB).

Reporting: Month 1

Now when I look at my monthly report with the Buffer category hidden, I'll see that everything zeroes out. If I want to know how much I “saved”, I'll just divide my Investment total by my income.

This is desirable because the “Net Income” line in YNAB reporting is misleading (IMHO). Say I have an expense line called Christmas that I deposit $50 to each month. Assuming everything else zeroes out, YNAB will show a $50 net income Jan - Nov, and then a $550 loss in December. That makes sense from a cash flow perspective, but works against the mental model of preallocating money in order to smooth out budgeting.

YNAB Rule 4: Aging Your Money