It's a common story: a person finds YNAB and starts using the software, only realize months (sometimes years) down the road that they weren't actually following the YNAB method. They were just tracking expenses using YNAB's software. Tracking expenses is not a bad thing tracking brings awareness of your spending habits and where your money and energy is going but the magic of YNAB is in the method, encapsulated in the Four Rules:

Give every dollar a job
Embrace your true expenses
Roll with the punches
Age your money

Here's a primer on the Four Rules if you are new to this way of thinking about money.

Most personal finance tools are all about tracking your expenses. What the Four Rules do, however, is make you feel tradeoffs. Tradeoffs occur all the time whether we know it or not. By choosing to spend on one thing, we choose not to spend on other things, or we go into debt because we did not make a tradeoff! When we only track expenses, though, we only discover the tradeoffs after they have already happened. You get the spending report at the end of the month, only to realize that you had overspent your restaurant category, for instance, by the end of week two. Tracking expenses after the fact does not give you enough information to make decisions going forward.

As Ben and Ernie explain, YNAB asks you to assign your current money to spending in the future. In this way, you save up money in categories for expenses you anticipate ahead of time. Instead of going to a fancy restaurant and hoping that you have enough money to pay for your other bills afterwards, or worse putting it on the credit card and taking on new debt, YNAB would ask you to assign dollars to the meal ahead of time (Rule One). If you don't have enough cash lying around to assign to this, then you will have to pull money from another category to cover it. In doing so, you have made a tradeoff. Importantly, you made the tradeoff ahead of time, so you can determine if it's worth it to you, rather than potentially regretting the decision later.

YNAB is all about tradeoffs, and bringing awareness to the tradeoffs you make every day in your spending. By following the Four Rules, you can move beyond tracking expenses and finally get ahead with your money. Most importantly, the Four Rules can help you spend with less stress and anxiety, and more joy.

Budget Nerds episodes referenced in this show:
Find the Money First:    • Find the Money First  
YNAB Is All About Tradeoffs:    • YNAB is All About Tradeoffs  

Share your YNAB wins with Ben and Ernie!
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Timestamps:
00:00 Intro
03:31 Tracking is OK, YNABing is Better
10:56 Tracking vs YNABing
19:21 Moving From Spreadsheets
23:59 Tradeoffs and Making Decisions
34:01 YNAB Wins

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