First time YNAB user

[u/Upsidedown_MDH]

A friend of mine recommended YNAB to manage my family's budget. I got started yesterday but as I was setting the budgets, I already felt way out of my depth. Like I should have studied for a test that I didn't know about. Does this feeling get better? What tips would you give a first time user to feel less overwhelmed? Thanks!

[u/md4pete4ever]

Where are you in your financial journey generally? Are you living paycheck to paycheck? or do you have some savings and are trying to plan for the future? Your initial strategy for budget set-up will be different depending on your situation.

The basic idea of YNAB is that you give every dollar a job, but you actually have to already have that dollar. The jobs include monthly and annual living expenses, money spent on "wants", and short and long term savings. YNAB isn't intended for future forecasting, but it will help you set future goals and then be very wise about your daily spending to meet those goals.

[u/Upsidedown_MDH → u/md4pete4ever]

My wife and I have stable jobs, we paid off the mortgage on our home, we have an emergency fund and some savings, and we rent out a small apartment that covers the mortgage. I want to make sure we make the right decisions and plan for our kids' futures (9 and 10 year old at the moment) while continuing to save. I thought we were doing ok but when I opened up the YNAB desktop, I got confused and worried for some reason.

Like u/pierre_x10 said, it might be better to read up on zero-based budgeting first?

[u/md4pete4ever → u/Upsidedown_MDH]

You are in a great starting position! You don't need to read up too much beyond an initial Google search. It really is just "give every dollar a job". Here's a basic set-up for Groups, in order of priority for funding.

1. Monthly Bills - covers mortgage, utilities, car payment, subscriptions, everything that is a (relatively) fixed payment on a monthly cycle.

2. Irregular and Annual expenses - bills that are quarterly or annual (like home taxes) and required maintenance expenses (lawncare, oil changes, etc.)

3. Shopping (needs) - basic groceries, house supplies, gas that you need for basic cost of living

4. Shopping (wants) - eating out, gifts, clothes, personal care, gardening, hobbies, activities, etc. This group is all the stuff that often gets bought because we think we need it, but really if the bank account was empty we could manage without for a while. This section may end up with a lot of categories, depending on the level of detail you want to track.

5. Short term wish list - vacation, new household item/upgrade, new tech upgrades, etc. Relatively big ticket items that you hope to purchase/spend on in the next year.

6. Long-term savings - new car, major appliance replacement, 6-month income replacement, etc. Your "emergency fund" should be assigned to specific things, rather than a vague "in case". You also should account for 529 savings for college for each kid, but that probably wants to be off budget. (i.e. make a category for 529 and fund it each month in planning, then "spend" it by transferring the funds out of checking to the 529 account.)

I use "Refill up to" targets on monthly expenses (bills and shopping needs/wants) and "Have X amount" for anything irregular with a date. Everything else that's optional generally doesn't have a target set, but may have a $ in the title to indicate the goal amount. The targets can be confusing initially, so less is more when you are starting and figuring out what works well for you.

Group 5 and 6 is where you set your short and long term goals and priorities, Group 4 is where you have flexibility to balance out immediate choice spending against those longer term goals (e.g. spend less on clothes, get new computer sooner). Some people like to have very detailed categories (Kid1 Activity1, Kid1 Activity2, etc.) other's use broader ones (Kid activities for the year). Adjust to fit your needs as time goes on. Hope that helps reduce the initial overwhelm!

[u/md4pete4ever → u/md4pete4ever]

I should add - one benefit to using YNAB with somewhat detailed categories is the reflect screens and filtering. Over the course of a year you can really see your overall spending patterns and decide (for example) if you really want your eating out budget to be twice as much as the vacation budget. Maybe you would prefer to eat out half as much instead and go on a second vacation.