One of the products I have come to know and love during my blogging time is the money management software You Need A Budget. Yes, I do receive a small commission for each sale of this product from my site, but that's not why I recommend it. I recommend it because I think it's a great product, and if used for the right people in the right situation, it can be very effective. (Besides, all my revenue goes to charity anyway, for those of you who didn't know, so it eliminates the bias some people have to deal with.)
That said, many people don't know about You Need A Budget, what it can do (and can't do), how it compares to the other financial management software out there, and so on. So I asked You Need A Budget spokesman Jesse if he'd be willing to answer one question a month about the software. He said "sure" and I started with this one:
Tell us a bit (in simple terms) what You Need A Budget does for a user and why it's so helpful.
Here's his answer:
One thing I emphasize again and again is that the You Need a Budget (YNAB) system is hardly about nice-looking spreadsheets, or neat little tricks. The YNAB system is all about the Four Rules of Cash Flow Management. My goal is to outline what these Four Rules do for a user, and why they're so vitally important.
Rule One: The other day I had a visitor ask me if I could, "do anything for people working on a 100%-commission-based income." The answer to his question is in Rule One. Actually, the answer to a lot of people's budgeting woes (whether on a fixed salary, commission income, or whatever) lies in following Rule One. Basically, while it's certainly not a prerequisite to using YNAB, I encourage users to work toward living on last month's income during the current month. It's an extremely simple concept, but the simplicity is just what people need! Following Rule One, you:
1) have a definite "number" you can use to budget your money for the month
2) gain peace of mind from no longer living paycheck to paycheck
3) have a built in measure of flexibility when you unexpectedly overspend in certain areas.
Rule Two: I'll try and be more brief with Rule Two. Again, it's simple: Assign every one of your available dollars a job for the month (a classic zero-based budget). The job can vary from "go to retirement to grow" to "pay my rent" to "be there if I feel spontaneous". The only limit is your personal situation and needs. When you are actively telling your money what to do, you will feel empowered. Money that is told what to do goes much, much further.
Rule Three: One of the frustrating aspects of money management is the timing and magnitude of large expenses. When you're operating under Rule Two, Rule Three is a logical next step. You save for large expenses (car insurance, property taxes, Christmas, vacation, etc.). As you follow Rule Three you'll find that the peaks and valleys of your money situation are substantially mitigated. It makes a lot of past "emergency" situations just a part of life that you easily handle as it comes.
Rule Four: One very unique aspect of YNAB is that it enforces the concept of "paying yourself back" for mistakes made. While I won't go into a huge amount of detail in this answer, the gist of it is that YNAB keeps you conservative and aware of where your spending may have fallen out of line and it takes corrective action to help you get back on track.
Personally, YNAB has helped me deal with not only major financial upsets but also just the daily challenges that come along with money management. The Rules give me a framework in which I can make smarter decisions. Ultimately, this has resulted in a fair amount of financial peace for me and my family.
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For financial newbies, I think You Need A Budget is a great alternative to Quicken and Microsoft Money. But for us more-advanced users, I see it as a complement to Quicken or Microsoft Money.
We'll talk more to Jesse next month. I've already submitted my October question for him, but if you have one that you'd like me to cover in the next few months, please leave it below in the comments.
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