I have used YNAB for about 5 1/2 years now. I just recently started viewing the MMM boards, and I would say it is mostly for any additional money saving ideas that I can come up with. For example, the High Deductible Health Care plan I likely would have never pulled the trigger on if it was not for these forums.
Anyways, I will explain how I have YNAB setup, and this method may or may not work for you. I put 10% of my paychecks into my 401k through my work. That is not shown anywhere in YNAB. I save up $5500 per year for my IRA anually. I have a budget category that I build up over each month, and make the contribution each year in January. I plan to buy an engagement ring, pay for a wedding, buy a house, and have kids before I even realistically consider retirement. I'm young! 24. So I'm not stashing every dollar into tax-advantaged retirement accounts, because I will need cash within the next 5 years.
Anyways, I have a credit card that I use for all my purchases and pay it in full every month. The transactions are recorded immediately and come from a category that has a balance. I never overbudget money, or let an overspending stay. Nor do I enter income before it is received. Beyond my credit card, I have two accounts. A checking account, and a brokerage account where I invest in the Vanguard Total Stock Market Index Fund. My checking account earns 0.5% interest on the first 25k balance. I make roughly 50k per year, so 25k in cash would last me a very long time in case of an emergency. Anything beyond that is put into my brokerage account. Notice that I am not tying any categories to accounts. My budget earmarks what my money is for, and my accounts simply store the money, putting it to work for me.
If I ever run too low on cash, I can cash out funds that I may need and potentially take a loss if absolutely required. But 25k should last me awhile. I'm an accountant so I don't foresee any long periods of unemployment in my future.
As far as my budget goes, I have a buffer. It just makes things so much easier. You know what you can budget for the month compared to predicting and estimating. I have several categories that I zero out the category balance at the end of the month (eating out, gasoline, groceries, and "stuff, which is my catch all misc category). Whatever is leftover, goes to my priority for the month.
I have a few categories that have a maximum limit. I budget $50 per month to each category until they exceed the limit. At the end of the month, I remove any excess funds and put it towards my priority. These categories include at max $500 in golf & exercise, $500 in fun & entertainment, $1000 in gifts, $1000 in medical (which will change as I open an HSA, as well as the cost to replace my iPhone, and the cost for a deposit if I were to move to a new house/apartment.) If I ever want to do anything, I can. If I get an extra day off and want to get a round of golf in, I will go. If I decide to go watch a Giants or 49ers game, I can go.
The next group of categories is long-term/annual savings goals. I budget a set amount each month knowing that the categories will zero out at some point this year, or in the future. For example, my IRA contribution and insurance/registration categories build up evenly each month but always get disbursed at the end of the year. I have another category for new car replacement, that I have estimated how much I need to save to pay cash for a car when my current car is driven into the ground. I have two other categories that won’t zero out anytime soon, but are for more long term splurges that I would eventually like to make. I have a vacation category that I put approximately $150 per month into, and let the balance build, hopefully taking vacations and not letting it build too much. I have a hot rod category, because quite frankly, I have an old dodge pickup that I have completely restored and rebuilt, and I would love to have a mopar muscle car to go with it in my garage some day. The muscle car would be built for the drag strip, and the pickup is to play in the mud. Of course, I only put $25 per month into this category, but I would like to use it eventually. If I ever need funds, this category will be one of the first on the chopping block.
The very last category is for my future. This includes savings for an engagement ring, wedding, house downpayment, and ultimately early retirement. Currently, I have about 60k total in my budget, with 20k budgeted to the above categories leaving around 40k for my “Future”. I used to have all these funds in one category, but I have recently split this out. I now have one category that holds 20k for an engagement ring and wedding, and I really hope that this cost is lower, but that is worst case scenario. (Don’t give me crap, because I don’t care) Any excess goes into the House/Future category. Ideally, I would save up enough to buy a house, and then start funding early retirement, but that won’t happen any time in the near future. So any excess goes into the House/Future category. I currently have a 20k balance in this category. Any dividends are entered as inflows to this category.
At the end of each month, I update my brokerage account balance and record the gain/loss to my House/Future category. It fluctuates every month, but the category balance can absorb any fluctuation that may happen. I run the risk of potentially losing all my house/future savings, but I run the upside of having my money work for me! It’s really not all that much work, but man it is nice to a 10% return in a year compared to a 0.5% return that my checking is getting.
Obviously, if you owned a house or had kids, you may want to have additional categories. But I think the high-level concepts I have structured my budget off of allow me to really flourish. Feel free to ask any questions if anything is not clear.
