The default categories that YNAB defaults too are an okay starting point but it seems to leave out SAVINGS?!? which is a pretty big miss.
One category system that I've used in the past (and I am probably going to start using again in 2021) is inspired by Elizabeth Warren’s All Your Worth. This is a wonderful book that she wrote LONG before she got into politics where she recommends sorting everything into Category Groups of three categories: Must Haves, Wants, and Savings.
In her book, she recommend breaking down your expenses to 50% Must Haves, 30% Wants, and 20% Savings. Basically if you can keep your Must Haves to 50% you'll be able to stay ahead and not drown. It's a great book. Seriously you should read it.
I’ve found these three master categories to be a really great and easy way to organize YNAB into categories. Must Haves to me are things that you must absolutely pay every month if you don't want to be thrown out onto the street and have your power cut. These are your absolute Must Have expenses. This way I can look at my Must Haves category group and I can see for sure how much money I need to have each month just to meet basic expenses which is a GREAT way to try and calculate how much you should have in your emergency fund if you are following the advice of Dave Ramsey's "Total Money Makeover" (3 to 6 months of expenses)
You can then also bring up the reporting view and quickly see if you are close to the 50% Must Haves, 30% Wants, and 20% Savings that she recommends.
She also recommends spending all of your wants with COLD HARD CASH. This worked fine for me 10 years or so when I followed this method... but in this day and age with COVID-19 I don't want to be handling cash. In fact my preferred method of payment now is all on my phone whether through an ordering app or waving my phone over a terminal. Touchless for the win. I used to just withdrawl a set amount of cash each month and work from that. But we're not doing that anymore.... so here's the updated idea on how to do this for 2020.
So here goes:
1. MUST HAVES
- Housing - Mortgage/Rent
- Housing - Property Taxes
- Housing - Home Maintenance
- Childcare (I recommend one line item per child for tax tracking purposes)
- Auto – Gas
- Auto – Registration
- Auto – Maintenance
- Insurance – Auto
- Insurance – Homeowner’s
- Insurance – Floaters (If applicable)
- Insurance – Life
- Medical – Health Insurance Premium (If applicable)
- Medical – Health Insurance Co-Pay
- Utilities - Cell Phone
- Utilities - Internet
- Utilities - Gas (If applicable)
- Utilities - Electricity & Garbage
- Utilities - Water
- Education - School Supplies & Activities
- Taxes – Tax Preparation
- Taxes – Estimated Quarterly Federal Taxes (If you are self employed)
- Taxes – Estimated Quarterly State Taxes (If you are self employed)
- Basic Grocery Necessities* (Optional) - These are only groceries that you would buy in a true loss of income emergency. Good for estimating minimum needed for emergency fund but for simplicity I just put all my groceries in wants.
- Groceries (Groceries beyond the basic necessities are a WANT using Warren's method. If you have a true income loss emergency you'll be stretching that pantry as long as you can)
- Dining Out
- TV & Streaming Services (Netflix, HBO, Spotify, etc)
- Clothing - Kids
- Gifts - Birthdays
- Gifts - Christmas
- Gifts - Other
- Kid’s Activities
- Household - Supplies
- Charity Giving (this could be a Must Have for you... but to me Must Haves are the necessary expenses if all income dries up for reasons)
- Mortgage Extra Prinicipal Pre-Payment – The whole point of this site right here!
- Emergency Fund (3 to 6 months of expenses)
- Retirement - IRA
- Retirement - Non Tax Advantaged Investing
- College Savings 529
- New Car
- Home Addition
Didn't Mike Tyson say "Everyone has a plan until they get punched in the face!"? I like that one.
I hope this helps everyone! How do you like to organize your YNAB budget categories?