Why I No Longer Recommend YNAB

Up until recently, I had the following recommendation on my Resources page:

Budgeting Software

This software has revolutionized the way I manage my money on a day to day basis. As of this writing, I'm still using it faithfully after two and a half years. Technologically it's fairly simple--you could recreate it on a complicated Excel spreadsheet if you had the time and inclination, which I don't--but the life-changing part is the methodology, which the software is built to support. The Four Rules--give every dollar a job, save for a rainy day, roll with the punches, and live on last month's income--encourage you to be realistic about your money, save enough so that you're never derailed by minor emergencies, and spend with intentionality according to your own personal financial priorities.

Unfortunately, with the release of a new version of the software--and the announcement that my the version I was writing about, YNAB 4, will be sunsetted at the end of 2016--I can no longer recommend it.

The new version of YNAB is just called YNAB with no number because it's a cool trendy reboot, but to distinguish it, I'll call it nYNAB ("new YNAB"). I was pretty excited to try it, because it had been a while since a new version of YNAB came out, and I like new shiny things. Unfortunately, it did not live up to my expectations. It's not… horrible. It's okay web-based budgeting software. It has a few nifty features. But it's lost the magic.

As I mentioned in the above review, what distinguished YNAB was its methodology, which the software was designed to support. I still stand by that methodology and the Four Rules as of YNAB 4:
  1. Give every dollar a job. This is the basis of envelope budgeting. You take the money you have and divide it into (virtual) envelopes, or categories. This earmarks the money for what you plan to do with it. You can't put the same dollar in more than one envelope. You can't stuff envelopes with money you don't have yet. You are also encouraged not to have any floating, unassigned money--it all goes into some sort of category ("budgeting to zero"), even if that category is very long-term such as "saving for retirement."
  2. Save for a rainy day. Although the name of this rule makes me think of emergency funds, in YNAB terms, this meant planning for expenses you that aren't happening immediately, but that you know are going to happen, like Christmas and taxes. The New YNAB calls this "Embrace your true expenses," which I actually think is a better name. The idea here is that you take your annual or irregular expenses--whether you know the exact amount, or you're estimating--and you divide them into twelve even segments so you're funding them each month. So, even though Christmas only happens in December, if you plan to spend $600 on it, you put $50 into your Christmas category each month, and then by the time December rolls around you're all set.
  3. Roll with the punches. This rule encourages flexibility. Most people think of a budget as a list of targets that you either hit or you miss. If you budgeted $50 for clothes and you spent $60, you're supposed to beat yourself up about it. In YNAB, you're expected to immediately deal with overspending by moving money from one envelope/category to another. This feels like "cheating" at first, but really it's more pragmatic; if you overspend in one area of your plan by $10, then that $10 needs to come from another area of your plan. As you go forward, checking your category balances before you spend, you know your balances are accurate because you have already taken care of any overspending in other categories.
  4. Live on last month's income. This was the brainexplode part for me. Instead of relying on each new paycheck to fund immediate needs, you were encouraged to save up a month's worth of expenses--a buffer--and live on that for a month. From then on, you simply designated all your income as "Income for Next Month" (the software allowed this easily), and ignored it. When the next month rolled around, all your money was waiting for you in one big pile, and you could budget out the month. Some have described this as "budgeting nirvana." Administratively, it's also much simpler than funding your needs from paycheck to paycheck, because you don't have to time your bills to paychecks or anything like that. It's all there at the beginning of the month, so it doesn't matter if you have a rent check and several bills due in the first week of the month. This method completely disassociates you from the paycheck cycle, and allows your cool, rational brain to make good decisions about a month's pay at a time, which, for me, always lead to far more saving than funding each category a bit at a time did.

nYNAB's methodology is similar; rules 1 and 3 are the same, and rule 2 is basically the same with a new (better) name, as I mentioned. However, Rule 4, which in my opinion is the most life-changing rule and the one that set it apart most from other budgeting software, has been completely removed.

It's been replaced with a rule called "Age your money," which sounds similar, but is much mushier and harder to quantify. Yes, the effect of live on last month's income was to make your money "older"--to wait between receiving and spending it--but I never felt that that was the point, exactly. And the way the software encourages you to "age your money" is to provide a metric called "Age of Money", which is supposed to be a measure of days between when you received and spent your income, but in practice I find the metric to be totally useless, neither timely nor actionable. The addition of a useless metric would be mostly harmless, though, if the software still supported living on last month's income as an option. But it no longer does. You can do it, but only by jumping through hoops, which, to me, makes nYNAB no better than any other budgeting software. If my goal is the follow the Four Rules and "live on last month's income," YNAB 4 is totally set up to do that, but nYNAB isn't really. As long as I'm fighting the software to do it, I can use any software.

Between that disappointing change and the various bugs I've encountered, similar to using any newly released software, I chose not to purchase nYNAB. And I've stopped recommending YNAB to friends and family, though I used to be a zealot.

If you can get your hands on a copy of YNAB 4 (I think it is still available as of this writing on the Steam store), I can still wholeheartedly recommend that; I still use YNAB 4. If it stops working, I'm not sure what I'll do. I probably won't go to the new YNAB. Like I said, I don't think the new YNAB is disastrous. If it works for you, great! But I no longer feel that there is anything about it that raises it above other budgeting software, so I'm no longer willing to give it my specific endorsement.


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