I’ve been a paying user of You Need A Budget (YNAB) for over a year now. However, for the first year, I did not integrate my credit cards into the budget. For one, I had trouble understanding how they integrated. And, I simply wasn’t charging anything to them, only paying them off. So, I removed them and set up a separate expense for dumping extra money into their balances.
I am happy to report that we paid both of them off last month. Now, with fresh zero balances, we decided to start making the rewards card work for us. We charge expenses that we’d otherwise take out of our checking account, and then pay them off out of our checking account before the end of the billing cycle. Collect rewards, avoid interest, maintain and build credit!
However, since we’re now making day-to-day purchases with a credit card, we decided to give YNAB’s credit card linking system another try. Turns out, it’s quite simple. Here’s the gist of it.
When you link a credit card as an account, it shows up in your budget accounts.
READ MORE: You Need a Budget, an Honest Review
When you make a transaction on your credit card, you approve, categorize and clear it just like in your checking account.
Notice that the cleared balance is negative. This is because for this account, you owe the money back!
YNAB automatically moves the money out of the budget category into the available cash in a budget item named after the credit card.
This happens in the budget view:
- The amount of the charge comes out of its budget category and into the credit card payment.
- The amount in the credit card payment balance is how much you have in cash to pay towards your credit card.
- As long as your ‘To be Budgeted’ amount is in the green, you have this money to pay your credit card bill in full.
This helps keep you honest and from carrying over a balance! If you’re in the red, you have a problem.
When you pay your credit card bill out of your checking account, it shows up in your checking account as a transfer, rather than a transaction.
This is because it is moving the positive balance in the credit card budget item to cover the negative in the credit card account.
Now that you understand how to harness your credit cards with YNAB – stay out of debt and make them work for you!
Disclaimer: I am a genuine paid customer of You Need A Budget; I have no affiliate links, nor have I never received anything from the company for this article.
You Need A Budget: An Honest Review
I’ve officially been using You Need a Budget as a paid subscriber for one year. Yes, I said paid. But why would I want to pay for a website when I am trying to get my finances together?
I asked that a year ago. At the time, my partner and I were trying to recover from some long-running financial issues. We had no savings, and a good bit of student loan and credit card debt. Adding yet another monthly payment ($11.99) didn’t seem like the greatest idea. At this point, I can’t even remember why I decided to just go with it. Call it an investment?
What is You Need a Budget?
You Need a Budget is a comprehensive budget app that helps you give a job to every single cent that comes into your accounts. This is called zero-based budgeting. You Need a Budget pushes you to give a job to every single penny, and have nothing unaccounted. This helps hold you accountable, and most importantly, look forward at what you can spend, rather than backwards at what you already spent.
You Need a Budget gives each spending category its own account. For example, you allocate $150 to groceries, $75 to dining out and $50 to fun. As you spend out of a given category, You Need a Budget deducts the amount from the account. In the negative? Then you shift that amount from a category with funds to make up the difference.
Finally, when your overall funds are replenished by a paycheck, and it’s time to allocate funds again, you can see the amounts you spent out of each category, and adjust accordingly.
You Need a Budget also allows you to link debt accounts, such as auto-loans and credit cards to help track your progress in paying them down and off and budgeting accordingly.
READ MORE: You Need a Budget, How to Budget a Credit Card
Overall, The Investment into YNAB Paid Off
The fact that I’m still paying and actively using it every day should tell you that I’m a satisfied customer. And I plan to continue through 2021.
Most importantly, the platform helped me save money. As in, I went from zero savings to having both a healthy savings account and an investment account. That said, it does require a lot of work and a bit of a learning curve. Here’s what I’ve learned over the last year using You Need A Budget:
No budget platform will be worth your while if you don’t set your own personal goals
I staggered mine: establish a $1000 emergency savings account, then combine paying off debt with saving and investing in the stock market. Long term, I’d like to buy a house.
How you set your goals will have to do with your unique situation. If you have debt, most recommended methods start with establishing an emergency fund first, then going after debt. You could go with the debt snowball or debt avalanche methods or customize your own method.
I customized mine because right after I started saving, the stock market crashed. This presented an incredible opportunity for me, since I was still employed. My investments have paid off, and helped pay down my debt, along with my regular payments. Now that 2021 seems to be stabilizing, I’ll probably go with the snowball method moving forward.
YNAB has a steep initial learning curve
The You Need A Budget platform requires a strict accounting of every single cent under its jurisdiction. This can get confusing if you have multiple accounts that you use, such as secondary checking, savings and credit cards. My balances and “to be budgeted” figure always seemed to be off. I could not wrap my head around the accounting. So I unlinked everything but my checking account and auto loan.
I could probably figure this problem out if I went through the many help guides provided by You Need A Budget. But I was not a fan of the fact that they wanted me to give every cent in my savings account a “job” when I was just saving in general, with no clear goal.
Once I simplified my view though, I got rolling with my budget. Yes, every cent needs to be accounted for. This initially takes a good bit of thought when it comes to categorizing your purchases, because you have the freedom to categorize as broadly or as narrowly as you want. For example, you can budget each individual bill, or you can combine them into a category (such as streaming, transportation, utilities, etc.).
Then, as you go, the platform helps you calculate the average amount spent for each category. This helps you set a more accurate budget moving forward. One year later, I can confidently say that my budgets are pretty accurate.
Set a category for stuff you forgot to budget for
In my view this is called “stuff I forgot to budget for.” This is for unexpected expenses, or a good place to draw funds when you accidentally go over budget in another category. Due to fluctuations in some areas (like groceries, household expenses, utilities), you aren’t always going to set a correct budget amount at the start of the month. Better to draw from this fund than steal from another.
Then at the end of the month, feel free to throw what’s left into your debt or savings! Speaking of which…
Use the app to help with your debt snowball or avalanche
A great way to help with your debt snowball or avalanche is to take anything left out of any category at the end of the month and apply it to your debt! Even if you don’t have your debt accounts linked, create budget categories for them. At the start of the month, budget their minimum payments, then add on anything extra you plan to pay. Then at the end of the month, move leftovers from other categories into the one you want to pay off first.
You Need A Budget, Summary
- Sign up and pay the $11.99 per month
- Set your own personal goals
- Learn how to use the platform, and understand that it has a learning curve
- Set your budget and goals accordingly
- Use the power to pay off your debts and then save for other goals
You Need A Budget can help you do all of these things!
Disclaimer: I am a genuine paid customer of You Need A Budget; I have no affiliate links, nor have I never received anything from the company for this review.
How to Read Economic Indicators
Note: this is part one in a series where I share basic business knowledge for non-business majors. Recommended book: Business Essentials for Strategic Communicators by Ragas and Cup.
No matter your role in a business organization, you will be affected by the economy at some point.
The economy is booming, perhaps your organization is too. Or maybe it isn’t, because your particular economic sector is not. The economy is crashing, maybe your organization is losing business. Or maybe it isn’t, because your economic sector or business plan is set up to benefit from a down economy.
I used to work for a mid-sized public company. I wasn’t involved in the business; I was the manager of technical support. When I started in 2013, things seemed to be booming, which I felt was quite a find as the economy was just starting to recover from the late 2000’s recession. I heard stories about the bonuses, the travel perks. I got a taste of these benefits in my first year, taking home more money than I’ve ever made in my entire career.
However, as the economy started to recover, the business began to struggle. As it turns out, the business model benefited from a recession, as the company was in the liquidation business. With a struggling economy, other businesses had more assets to liquidate. While the core business remained as the economy strengthened, the extras that sustained the boom times dried up. People got laid off. Bonuses decreased or were eliminated.
I helped manage two rounds of layoffs, collecting laptops and phones and deactivating accounts. I saw emotions ranging from disappointment, sadness and anger. I got a call from my VP near the end of the second round telling me that my own boss had been laid off, presumably because of his higher salary. I was thrust into his position. I lasted three months before I became burned out and quit without another job lined up.
Looking back, I wish I had known more about key economic indicators that might have helped me make a better decision as to whether or not to take that job to begin with. Or perhaps I could have set myself up for a transfer or promotion to a more stable side of the company, had I known what was coming.
In any case, here’s a quick explanation of what I wish I had known before taking a job at a public corporation.
Gross Domestic Product (GDP)
This is the most frequently used macroeconomic measure of a country’s economic health and standard of living. It represents the market value of all goods and services produced within the country. When GDP is growing, we call it expanding. When it is declining, we call it contracting. When it declines two quarters in a row, we call it a recession.
As of 2019, the United States was still the largest economy in the world, by far: $21,427,700,000,000 (that’s $21.4 trillion, if you were wondering). China comes in at number two with $14.3 trillion. At number three, Japan doesn’t even come close at $5.1 trillion.
Indicators to watch: the rise and fall in GDP. Developing countries tend to rise a lot faster than the United States, Japan and most European countries, because they have a lower base from which to rise. China, despite its seemingly dominating #2 position still has a long way to grow, given that their population is four times higher than the United States, 11 times higher than Japan and 16 times higher than Germany.
For perspective, the United States’ GDP grew at rates between 1.6% and 3.1% from 2010 to 2019. Since 1980, the highest one year rate was 1984, at 7.2%, as the economy came roaring out of a recession. China, on the other hand, regularly sees yearly growth rates at 6.8% or higher.
In any case, a fall in GDP and a recession will most likely have a negative impact on an organization, unless the business model is set up to benefit from a recession.
Resource: The World Bank Data Catalog
Unemployment
The United States Bureau of Labor Statistics updates its Jobs Report every month, for the preceding month. The report indicates the number of jobs gained or lost, and the rate of workers who are looking for work and currently unemployed. The data can be broken down by labor sectors, such as professional services, leisure and hospitality, and others.
An increasing unemployment rate indicates a poor economic situation. It also turns the labor market into an employer’s market, as there are more potential applicants from which to recruit. This can also drive down wages and benefits. On the other hand, a decreasing unemployment rate indicates an economic recovery or boom, and turns the labor market into a worker’s market, as there are fewer applicants from which to recruit. This can drive up wages and benefits.
Resource: US Bureau of Labor Statistics
Inflation
This is the rate at which prices rise for products and services. Economists say that a rate of no more than 2% is ideal. After this point, the value of money and its purchasing power significantly decrease.
The Consumer Price Index measures inflation as the average prices paid by urban consumers for a “basket” of goods and services. The CPI breaks these down by categories: all items, food, energy and all other items less food and energy.
The opposite of inflation is deflation; this is when prices are falling, due to consumers delaying purchases due to feeling poorer. In this case, many asset values also decrease, such as property and equities.
The CPI displays two key figures: the 12-month percentage change, and the current rate of inflation. Note that in November 2020, food had a relatively high inflation rate compared to November 2019, while energy had a massive deflation rate. Of course, these, along with the modest inflation rate of all other items offset, and the current inflation rate as of November 2020 was +0.2%.
Of course, 2020 saw energy prices with a drastic decline due to an overall decline in transportation. Lockdowns, quarantines, work from home and other restrictions reduced car, train and air travel, which in turn led to a decline in demand for fuel. Food, meanwhile, saw production and logistics costs increase along with retail demand, leading to higher food costs.
From a business standpoint, inflation can lead to higher labor and production costs. At the same time, it makes existing debt cheaper to pay off.
Resource: US Bureau of Labor Statistics, Consumer Price Index
Interest Rates and the Federal Reserve
Speaking of debt, the interest rate is what it costs to borrow money. The rate affects the prices and availability of credit. Low interest rates mean cheap money, and typically, economic growth. However, this can lead to inflation. High interest rates mean borrowing money is more expensive, which leads to less lending demand and reduced purchasing and capital investments. This is used as a tool to fight high inflation.
The Federal Funds Rate is set by the United States Federal Reserve. This is the rate at which banks lend to each other, so it sets the baseline of the banks’ interest rates. The chair of the Federal Reserve heads the Federal Open Market Committee (FOMC), which meets eight times per year to set the rate. The media and the market closely follows the results of these meetings, especially during times of economic turbulence.
As the above chart shows, the Federal Funds Rate rose significantly in the recessionary periods of the 1970’s and early 1980’s, peaking in the latter period when inflation was at historic highs. Then, as the economy improved, the rate gradually went back down.
The recessionary periods of the early and late 2000’s, and today have been different. Inflation has not been an issue, so the rate went down to historic lows in an attempt to stimulate economic growth through spending and capital investments, fed by cheap loans. However, a shaky and uncertain economy can also prevent firms from taking on new debt and risks, despite the value of the debt, so low interest rates are not necessarily a sure-fix for economic issues.
Resource: Federal Reserve, Effective Federal Funds Rate
Consumer Confidence
This is the measure of public opinion on the economy as told through surveys of a representative sample of the American public. Increasing consumer confidence indicates a near-future increase in consumer spending, as confident consumers tend to spend more and save less. Decreasing consumer confidence indicates cautious or negative consumers, who tend to save more and spend less. These indicators feed into business demand, and help firms plan for future production, especially if their economic sector is affected by consumer confidence.
Research indicates that consumer confidence responds to both real-world economic conditions, such as unemployment and to media reporting.
The above is a screen shot of the consumer confidence index at the end of 2020. It shows consumer confidence down, but employment confidence slightly rising. Meanwhile, online job listings slightly decreased. CEOs, meanwhile, seemed to be overly confident about the near future.
Resource: The Conference Board
Currency Exchange Rates
This is the rate at which one currency is exchanged for another. Typically, a weaker dollar means it is more expensive for Americans to exchange and spend other currencies. It also makes imported products more expensive, as the dollar is unable to purchase as much from other countries. On the other hand, it makes domestic goods more valuable and promotes production and exports from American companies.
At the time of this writing, the dollar is considered stronger, meaning, all things equal, imported products may be cheaper, and exports are less valuable. However for some imports, we must factor in tariffs, which are an attempt to equalize perceived trade indifferences.
One way to view the relative value of a dollar to other currencies is through the Big Mac Index, developed by the Economist. This notion assumes that a Big Mac should cost the same in every country, as it is made from the same ingredients everywhere. The index shows the relative value of a Big Mac in each country’s currency compared to another, and factoring in the actual exchange rate, figures whether the current rate is under (strong) or overvalued (weak) (or equal or true). As the above indicates, the British Pound is undervalued compared to the US Dollar, meaning the Dollar is strong against the Pound.
Resources: CNN World Currencies Exchange; The Economist’s Big Mac Index.