Finances: How YNAB Helped Us Pay $84,000 Towards Student Loans in One Year!

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Looking back on it, it seems absolutely nuts that we have been able to pay $84,000 towards our student loans in the last year. Prior to getting our finances in order, you could say that I was not one who was highly motivated in monitoring my spending. Or rather, I may have been highly motivated, but not entirely good at it. Honestly, I did not know where to start.

I was never afraid of budgets. Some people are. They are afraid that it would be too limiting, or depriving, to set financial constraints on their having fun in life. I get it. YOLO, right? But honestly, that’s just the rub. YOLO. You only get one life, and I don’t want mine consistently anchored down by debt. I want to be free. So it was not the budgeting that scared me, but the lack thereof. In fact, I was always in search of ways to budget. However, I had no idea how to do it efficiently.

We used to implement that all-too-familiar way of assessing our spending by guessing, eye-balling, rounding up and down (depending on our mood), or sometimes, ignoring all-together. Additionally, much of our analysis was performed retroactively. As in, “Oops, I spent too much on groceries last month! Roughly $100 too much.” The estimates, off course, were always too low, and the recognition harbored a bit too late, after the spending was already a done deal. Yikes!

Enter YNAB. YNAB is kind of like that high-school teacher that slaps your wrist and sets a vagabond teen straight. The acronym stands for “You Need a Budget“, and is better than an angel on your shoulder keeping your finances in check. It is a very easy system that is based on the age-old envelope system of budgeting. It used to be that, without computers and programs such as YNAB, people would use envelopes to budget their money. Each envelope would stand for a category. For example: “Groceries”, “Rent”, House Maintenance”, “Savings”, etc. With each incoming paycheck, a person would split the cash in between envelopes, allocating a certain amount towards those categories for the upcoming month(s). One can never accidentally overdraw from an envelope, because once the money runs out, that’s it! In order to overspend in a category such as “Dining Out” for example, one would need to proactively choose to take out money from another envelope, thus consciously deciding to decrease spending elsewhere.

With the invention of things such as credit cards, this becomes an obsolete practice, but I think it is one that is very useful. Instead of retroactively analyzing our spending, we should be proactively planning for our financial futures. In YNAB, you can create categories of your choosing that would be equivalent to those envelopes. You can be as precise or as general as you would like. We prefer to be more general, because it makes categorizing easier. Our categories are separated into “Needs”, “Financial Goals”, and “Wants”. A few examples include:

Needs – Rent, Auto Insurance, Utilities, Cell Phone, Groceries

Financial Goals – Student Loans, House Savings

Wants – Activities/Hobbies, Travel, Mike’s Fun Money, Sam’s Fun Money, Dining Out

So as paychecks roll in, we are proactively placing budgeted money into each category. Every dollar we earn is accounted for, down to the last penny. The goal is to budget appropriately, so that none of the categories need adjusting during the month. Metaphorically, you don’t want to borrow from any of the other envelopes. It did take us a while to get a feel for how much we spend in each category, but that’s the fantastic thing about YNAB. It summarizes previous spending in the months prior really well. Over time, we were able to know exactly what number we would need to budget in each category to be absolutely prepared.

A word on those summaries. This is a wonderful way to get a picture of how much of your spending is going towards your “Needs”, your “Wants”, and your “Financial Goals”. For us, because of our student loans, 50% of our income goes straight towards hitting our “financial goals”. We try to keep “wants” to a low 10% of our income, travel included, which is why travel hacking is so important for us. Also, there are graphs to show you how much your net worth is rising, as well as comparisons of “Income VS Expenses”, if those are motivating at all for you.

All of this can technically be done on an Excel sheet, but it would take a lot of time and effort. What I love about YNAB is that it can link to your bank accounts and automatically record every transaction, whether that’s money going in or money coming out. The only thing left to do is to categorize each transaction. Also, YNAB will remember which transactions fall under which category. For example, we frequently shop at Mother’s Market and Whole Foods for our groceries. I no longer have to categorize those things, since YNAB will automatically do that for me, thus making my job easier.

Off course, YNAB comes with a fee, which luckily for us, is waived by our financial planner. The cost to use YNAB is $89.99 annually, which seems like a lot, but when I look at the number we paid towards student debt ($84,000), I don’t feel bad at all! I think that fee is totally justified, plus it makes the whole budgeting process easier and much more motivating than if I had to go through all of our bank accounts and credit cards and physically input each and every transaction, create analytical comparisons and graphs and pie charts, and let our financial situation take up all of my free time.

If you are someone who wants to know where their money is going, wants to plan for the future, or is already doing both but wants a simpler process, try out YNAB. I hear too frequently the saying, “I don’t know where my money goes!” It’d be nice if we never have to say that ever again. Plus, once you know where it goes, you have the power to redirect it, kind of like we have!

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