How to Create A Zero-Based Budget With YNAB

zero based budget

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One of the coolest financial tools we implemented this year was a zero based budget. 

I've tried a variety of zero-based budgeting apps in the past, with little luck. None of them really stuck. They were too confusing, too time consuming, or they just never really clicked for me.

After time and time of hearing praise for YNAB in various financial Facebook groups, I knew I had to try it. And boy am I glad I did!

YNAB has become an absolute financial lifesaver for us. In the past, I've always found budgeting to be a major chore.

Many months we skipped it completely, and there have been a number of years we've gone without one at all.

To be completely honest, this is the first time I've ever felt like we have a budget we can (and want to!) stick to for the long term.

Full disclosure: YNAB comes with a learning curve, which really means that you need to do some learning about the program to use it successfully. For me, watching a few YouTube tutorials was what really made it click in my head.

It took me three different tries before I finally got the hang of it. I have heard a number of other people in my financial Facebook groups say that the third time was the charm for them as well.

My hope is that the tutorial I give you below will get you off to a running start on the first try!

How to Start Zero Based Budget

So What is a Zero-Based Budget?

If you are new to budgeting, you're probably wondering what the heck a zero based budget even is.

Don't worry, this part is pretty straightforward.

A zero-based budget is one where you assign every dollar you have a job until all of your income is accounted for.

For example, maybe your income is $2,000 per month.

A very simplified zero-based budget might look like:

  • $1,000 to rent
  • $400 for groceries
  • $50 for cell phone plans
  • $150 for your car payment
  • $100 for car insurance
  • $125 for utilities
  • $175 for savings

See how simple that is? All you need to do is list out your expenses and set your savings goals, and assign the money you have to pay for each of them.

Why YNAB Is The Best Zero-Based Budgeting Program Around

There are a few zero-based budget programs and apps out there, and by this point I've tried all of the major ones. So what is so great about YNAB?

Oh boy, let me tell you!

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1. YNAB Works The Best in Real Life

One of the reasons I love YNAB so much is because it only asks you to budget the dollars you actually have in your bank account right now.

While most budgeting apps ask you to budget for your next paycheck, which is a little ambiguous, especially if you have an irregular income, YNAB works with what you actually have today. They are the only budgeting program so far that I've seen work this way, and it has completely revolutionized our finances.

1. YNAB Works The Best in Real Life

One of the reasons I love YNAB so much is because it only asks you to budget the dollars you actually have in your bank account right now.

While most budgeting apps ask you to budget for your next paycheck, which is a little ambiguous, especially if you have an irregular income, YNAB works with what you actually have today.

They are the only budgeting program so far that I've seen work this way, and it has completely revolutionized our finances.

My husband and I used to try to budget our future projected income, and for one reason or another our budget never matched the number of dollars in our bank account. Have you had this problem too?

how to create a zero based budget

2. The YNAB App Keeps Your Budget Up to Date Every Single Day

Another reason our old budgeting systems never worked for us? They were never up to date every single day.

Typically my husband and I would try to create the budget once per month, and then we would essentially forget about it until the next month when we reconciled what we had spent. For the most part, this usually left us feeling down that we hadn't met the goals we wanted to.

To have a successful budget, it needs to be up to date any time you check on it. And with most budgeting programs, this simply isn't possible unless you were to reconcile it every single day. Who has time for that?!

YNAB makes it super easy to see exactly where you're spending is in any given category through their app. This is where the real savings come in, because it means that you can start planning your spending instead of looking back on what you already spent.

Want to go out for dinner tonight and not sure if it's part of your plan? All you have to do is open up the app and check your “dining out” category. It will tell you right quick how much is left in there for you to spend.

3. YNAB Becomes Second Nature Soon Enough

At first glance, YNAB can seem a bit confusing. Especially if you haven't used a budgeting program before!

That being said, I promise that it gets so much easier once you get some training for the program. I've been using it for about 5 months now, and the program is totally second nature to me at this point.

My husband and I both use the mobile app to record our daily transactions, and we are able to view where our spending is at in the budget at any given time. I always know how much I have spent, and how much I can still spend for clothing, groceries, household items, and everything else.

How to Set Up Your YNAB Budget

Now that I've sung YNAB’s praises, I want to show you how to do it!

A word of caution: When you open YNAB for the first time, you might feel a little bit overwhelmed! Don't let that freak you out, because I'm going to walk you through this step by step.

Once you get the hang of the program, it will seriously revolutionize your finances. Every penny will be accounted for. Your savings will skyrocket. And your income will stop slipping through your fingers like water.

It's a big thing to promise, I know. But it's by far been the most beneficial financial tool we've found this year, and I can't wait to share it with you.

Here's how to set up your YNAB budget even if you're a complete beginner.

Create Your Categories for Savings and Spending

The very first thing to do once you sign up for YNAB is to create your categories. These categories include your monthly expenses and the goals you want to save for.

Here are a few expense category ideas for you to consider:

  • Rent/Mortgage
  • Utilities
  • Cell phone service
  • Groceries
  • Clothing
  • Internet
  • Car Payment
  • Car Insurance & Maintenance
  • Fuel
  • Entertainment
  • Date Nights
  • Home Expenses
  • Amazon Shopping
  • Gym Memberships
  • Netflix/Hulu
  • Pet Expenses
  • Dining Out
  • Fun Money
ynab best zero based budgeting software

Making sure to budget for your monthly expenses is important, but you also want to budget some money for savings too. These are the monthly savings categories we put money towards each month:

  • Auto Repairs
  • Medical savings
  • Birthdays & Weddings
  • Christmas savings
  • Vacation savings
  • Emergency Fund savings
  • House Fund savings

You will probably have different savings goals than us, so just make sure to think about which big expenses tend to creep up on you and create a savings goal for each one.

To edit your categories, simply double click on any category name and you'll be able to rename it. 

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Add Your Bank Accounts and Credit Cards

Once your budget has all of the expense and savings categories that fit your lifestyle, the next step is to add your bank accounts and credit cards.

YNAB gives you two options. You can link these accounts with YNAB so that YNAB always knows the balances of these accounts. Or you can leave them unlinked and just manually enter their balances.

Either way works perfectly fine, so don’t worry too much about this. If you aren’t sure which one is right for you, start by leaving them unlinked and manually enter the balances. You can always link them later!

I’ve linked all of our accounts to YNAB, because I like that it keeps all of our savings accounts updated in YNAB as we add money to them each month.

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Step 1: Click "Add Account" in the bottom left.

Step 2: Choose either "Linked" or "Unlinked" from the pop up box.

Step 3: Name the account, select the account type, and add the balance. 

Set Goals For Each Expense and Savings Category

If you’ve made it to this step, pat yourself on the back because you are doing a FANTASTIC job right now! Figuring out new software is never easy and is only fun for some of us weirdos, so give yourself some kudos. You are doing something amazing for your future right now.

At this point, you have all of your bank accounts and credit cards entered into YNAB and you have a budget written out. The next step is to set up goals for each of your categories, so that YNAB can track how you are doing.

This is the big part I missed when I was first trying to figure out YNAB.

You must set the goals FIRST before you assign your dollars. The goal is what YNAB uses as an anchor to decide if you are overspending or not.

Here’s how to set up a goal within a category…

how to set up ynab budget

Step 1: Click on the category you would like to set a goal for.

Step 2: Scroll down in the right hand section of YNAB and click the "Create Goal" link.

Step 3: Click the "Monthly" drop down and decide how you will fund this goal (monthly or by a certain date for spending, a monthly contribution or target balance for savings goals)

Step 4: Enter the amount you'd like to fund in the Amount box. Save your goal!

Budget Your Current Dollars to Each Category

Now we’re getting to the part that most people think of as “budgeting”. You’ve set up your goals for each category, and now you get to actually assign your dollars to those categories!

This is the step where you start assigning your dollars a job until the big green income number at the top of the screen reaches zero.

Note: If this number seems inflated to you, remember that you need to “assign” your current savings to your savings accounts too. Every dollar you have to your name should be told where to go in the YNAB program.

And this step is SO easy.

Here’s how to give budgeted dollars to a particular category…

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Step 1: Click the "Budgeted" section of the category you'd like to budget for.

Step 2. Enter the amount you are budgeting and click enter. All done!

But what if I’m not starting at the beginning of a pay period?

If you are setting up your budget basically anytime that isn’t pay day, you might be wondering how to allocate your dollars when they won’t cover all of your expenses for the rest of the month.

For example, let’s say you get paid every two weeks. You are setting up this budget on the 5th of the month, so it’s going to be a while until you get paid again, and you know the money in your bank account isn’t going to cover the whole month (because you’ll be getting paid again in 10 days!)

Don’t worry about budgeting money for every single category. If you are mid month, just budget your dollars towards the expenses you know will come up between now and your next pay day. Maybe you know you’ll need to buy a few more groceries, that your electric bill will come due, and that you’ll need fuel for your car. Just budget for those! You can add budget dollars to the other categories when your next paycheck comes in.

Add (Or Approve) Your Transactions Daily

The end is near! At this point, your budget is fully set up. All you need to do to stay on track is to enter your daily transactions in the YNAB app.

Of course, YNAB will do this for you if you have linked your bank accounts. It will import your transactions, and keep them in a queue awaiting your approval.

If you’d rather do it manually, however, you can simply add a transaction in the mobile app each time you make a purchase.

My husband and I both do this, and it really takes no time at all. Plus, I love watching the category numbers change in real time as I enter my purchases.

For me, this is the really cool part about YNAB that keeps me going. On any given day of the month I can login to my account and see exactly how our finances for this month are doing.

I’ll know how much we’ve spent, on what, which bills have come through, and where I can spend a little more on something fun for myself.

It’s a great system, and because the program tracks every single penny we make, I find that we are able to save so much more than we ever were able to before.

If you are wanting to get serious about budgeting and want to find a system that is actually fun and encouraging, give YNAB a shot. I think you’ll love it too.

how to set up ynab budget

Step 1: Open the YNAB mobile app on your phone.

Step 2: Click the "Transaction" button in the bottom center of the app (it has a + sign).

Step 3: Enter the amount of the transaction. A red scroll bar means you are taking money from the account, a green bar means you are receiving money into your account.

Step 4: Select a payee only if you are transferring money between accounts.

Step 5: Then choose the category you'd like the money to go into or come out of. The "account" section should reflect the account you'd like the money to come from (usually this is your checking). Enter a memo if desired and click "Save Transaction".


YNAB is a different kind of zero based budgeting program, in all the best ways. It uses the dollars you actually have in your account right now to fulfill your budget, and it stays up to date every day with their secure bank linking technology. If you’ve never found a budgeting app that you love, give the YNAB free trial a chance.

Here’s how to set up your new YNAB budget:

  1. Create your expense and savings categories
  2. Link your bank accounts and credit cards
  3. Set goals for each of your categories
  4. Budget the dollars you have for each category
  5. Add (or approve) your transactions daily to stay up to date

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