Using YNAB to effectively save money and conquer debt


YNAB's 3rd rule, "Roll with the punches", can inadvertently create a habit of pulling money from savings to compensate for overspending. By looking at master categories differently, we can isolate our spending money more effectively and reduce our chances of overspending. This setup makes debt and savings what they should be: sacred.

Master Categories

Our natural tendency when creating master categories in YNAB is to approach them taxonomically, like:

  • Food
    • Groceries
    • Restaurants
    • Snacks

This leads to informative reports and, well, just makes sense. However, this leads to my number one problem with YNAB: when following Rule #3, "Roll with the punches", we can too easily move money from important categories, like savings or paying off debt, to superfluous categories to compensate for overspending.

So, what's the alternative? We create four master categories: Fixed, Flexible, Debt and Savings.


All bills and fixed expenses go here, like rent, car payments, insurance, etc. This includes things which may fluctuate too, like an electricity bill or groceries. The biggest thing to remember with Fixed categories is: they should never be negative and they cannot be used to adjust for overspending in any non-fixed category.


Any target saving goals go here. Money should not be moved from these categories to compensate for overspending in other categories.


All Pre-YNAB debt and other budgeted debts go here. Money should not be moved from these categories to compensate for overspending in other categories.


This is where all non-essential expenses go. For me, it has eating out, snacks, entertainment, etc. It also has a special category, called "Fun", right at the top. This will be explained in a bit.

How much do you really have per paycheck?

Now that we have our categories setup correctly, we can allocate our paycheck in a more effective manner. First, make a list of all your bills and fixed expenses. If you have yearly memberships, divide their cost by 12 and allocate that to your "monthly" expenses.

Let's breakdown a $1500 paycheck:

Net income: $1500

% for savings: 20% ($300)

Debt: $200

Bills: $700

Total expenses per paycheck (Savings + Debt + Bills) = $1200

Remainder for Flexible spending: $300

Fun category is your friend

Okay, so we know we _really_ only have $300 to spend on non-essential categories. How do we allocate it? We don't! Take that $300 and put it into your Fun category. Now, when you go out and want to spend from a non-essential category, you look at how much you have left in Fun. Example: you spend $30 on eating out. At the restaurant, you enter a transaction for your Restaurants category, which (if you have nothing left in that category) makes it go red, indicating it's overspent. Later, when you open YNAB on your desktop, you move $30 from your Fun to your Restaurants category to balance to zero.

Now, whenever you are out and about, you can easily look if you have any money left to spend by seeing the balance in Fun.

Handling overspending

What happens if you overspend in a Fixed category? You take what you need from Fun or any non-essential category. What happens if you overspend in a Flexible category? You don't. Seriously. By having a total balance in Fun, you essentially know if you can afford anything in a non-essential category. It's also far easier to gauge how much you have left over till your next paycheck. What happens if you have some Fun leftover when your next paycheck comes? Just keep it there. You have more to spend!

Can you allocate your Fun money to your non-essential categories, instead of moving the money on the fly? Sure, but it makes it far more difficult to quickly see how much you have left to spend in your Flexible categories.


The only drawback to this setup is that your YNAB Reports will be less informative, since your master categories are not broken into parent-sibling relationships. For instance, it's hard to see how much you spend, in total, on food. This, personally, has not bothered me too much.


I've been effectively using this system for a while and I don't see myself going back. Percentage based savings always made sense to me, and knowing how much I have to spend on non-essentials each paycheck, explicitly, really helps me focus on saving.