You need a budget

I’ve written for a long time about my desire to re-build personal finance infrastructure in ways that benefit people with the least money.  We see new personal financial products all the time targeting high value customers, but it still feels like they are ignoring a huge, and important part of the market: people scraping by living paycheck-to-paycheck.  This is a huge slice of America and the world, and I believe that tools that serve this population well will not only make a huge positive social impact, they can build huge businesses.

One such product that I’ve started using recently is the very aptly titled You Need a Budget.  I have tried nearly every app out there that tries to help people get a handle on their moment-to-moment finances, but this is the most thoughtfully designed (and I suspect, the most effective) one I’ve seen so far.

YNAB is full of product nuances that show that they’ve thought deeply about how people use money, and how to help people craft effective budgets.  The main idea, of course, is that you need to start with a budget.  The nuanced parts are the way YNAB helps track budget categories, map expenses against them, make tradeoffs when categories are overbudget, and start to understand new concepts like aging your money.

Having used apps like Mint in the past, which work on the same ideas, I’ve found that YNAB has figured something new out, which is how to make tracking your money, and tending to your budget, a daily activity.  The YNAB mobile app makes it easy to categorize expenses as they come in, on a daily basis.  It’s this daily check in that both makes the process less overwhelming (since you’re only dealing with a handful of transactions at once) and potentially change-making, since you are reflecting on your budget and expenses in real time.

Getting a grip on finances is hard.  It’s emotional, complicated and often overwhelming.  I like the way YNAB demystifies the process and provides a real helping hand.  I hope we see more things like this come to market.

   

  • Nick, I love the idea of this tool — which I just heard about the other day for the first time. That said, I’m really wary of connecting my bank accounts to almost anything.

    Do you have a view on why this is safe? Thanks!

    • Fair question – of course this only works if you connect your accounts
      You can get a sense of their security practices here: https://www.youneedabudget.com/security/

      • Yeah read it, and still #nervous.

        • Totally understandable

          Going to be an issue with any system like this

          I only connect it to my basic spending account not any other accounts

          • Bank account access is a massive hurdle for any startup…

            I think the more likely scenario for products like this to gain critical mass is for the banks to offer it to their existing customers as part of their online banking portal. They have already solved the trust factor. But, of course, the big banks aren’t the most progressive/innovative bunch. Maybe they acquire the products instead of build.

          • True that this is the hurdle

            I was thinking about this last night as I watched some Zelle commercials during the NFL playoffs – Zelle being the Venmo competitor created by the banks

            We will see if it works but so far too little too late

            But the difference here is that YNAB is not a “network” so would be useful even if only one of a few banks offered it or something like it

  • the problem with all these things is that the spending loop isn’t closed enough. so you have connect mint to your bank to your stock brokerage account to the receipt you got for paying in cash, etc. i wonder if there is a technology that will facilitate the tracking of and timestamping of all transfers of money……IMHO this will one of hte first truly great blockchain apps, and will be a major step in the road to crypto-states (the digital states that will ultimately usurp the role of the nation-state system).

    • it’s true — to get a totally complete picture you need to connect a lot of things

      One thing that I like about YNAB is that it doesn’t presume to be the system of record, the total picture. You create a budget and you match expenses to it. You can create multiple budgets, you can delete expenses that aren’t relevant to a budget, etc.

      Other tools I have tried have failed because they try to be the total picture, but can’t do it

      • yeah but then i gotta do the work! :) i agree that is probably the best way in light of the existing limitations. personally, though, that is too much data entry for me as a consumer

        • I find that in this case – basic expense tracking – I don’t need to do any manual data entry

  • This is such a very hard space to invest in. I have invested in it-and the business failed. Counseled several entrepreneurs that wanted to start businesses here. Agree, needed. But, the hurdle looks like a monolith from the movie 2001.

    • USV failed in this space too (Wesabe)

      Doesn’t mean it can’t be done but I hear your point

      • The issue is that that no one has devised a sustainable business model or lived long enough to execute on one.

        The data you’re collecting is inherently so very valuable that companies quickly start trying to monetize it, often ruining the core product experience. Take Mint, for example, which is basically the big shining success in PFM. Today one could argue that they’re really solving the problem banks have selling credit cards rather than the original (and worsening) problem of it being super hard to manage money or keep a budget. And the value you do deliver that way is one-off and fleeting – how many Chase Freedoms can I as a customer really sign up for?

        On the other hand, subscription-based approaches take forever to execute and are not very VC-friendly. YNAB is probably the only success out there and they built theirs on the shoulders of a decade’s worth of profitability with a massive cult following to boot.

        I think the solution is that your bank gives you a non-junky mostly bank-agnostic tool, akin to what currently happens with some Private Banking / PWM offerings.

        • you’re right — the mint business model (credit card ads) is problematic, and the YNAB model (subscription) is slow

          I don’t know how big YNAB’s business is, but you could imagine growing it in more consumer friendly ways, like offering other kinds of integrated financial products & services. That could potentially build their top line with existing customers, but doesn’t solve the top of funnel issue.

          • What do you think about banks being the ones that effectively sponsor it? Today almost every bank basically operates under the outdated notion that I will do all my banking with them – why I can’t see my Chase balances in my Capital One app.

            Amex (which doesn’t do checking) or a credit union giving me an awesome budgeting tool would make me more loyal and would serve my financial interests. Also let’s you solve the core personal finance problem at scale.

          • For some reason, not their core competency. Also, a lot of people that need a tool like that don’t have access to credit. One of the most interesting pieces of Bitcoin that I have seen is that people who don’t have access to credit are using Bitcoin and some of the most loyal Bitcoin machine customers.