Here’s what to do in YNAB if your income drops

This post is about change, the only constant in our lives, it seems, especially these days. As I write this post, the world is in global economic turmoil. You may be feeling anxious, worried, and stressed about how this uncertainty may affect your day to day personal finances. Setting aside the impact of recent events on your investment accounts for a moment, you may be thinking about what’s ahead for your your employment income. Do you work in a sector that could be susceptible to job losses? Do you work for the public sector and know that change is coming but aren’t certain about what that means for you personally? As hard as it is to think about, it is important to think about a possible future scenario where you experience a drop in income. If you’re a YNABer, it is also helpful to think about how you can use this amazing tool to manage your new (and hopefully temporary) normal.

The first step to consider is to take some time to think through your temporary financial goals. Do you want to avoid creating new debt? Do you want to make your emergency fund last four months? If you don’t have a job loss fund or an emergency fund to dip into and are going to be creating debt, do you have an upper limit for the new debt? Try to be very specific about your short term goals.

The next step is to do a Fresh Start in YNAB. It’s a new day and it’s time for a new budget. A Fresh Start will archive your current budget (nothing is lost) and a create a new copy of the budget. The beauty of a Fresh Start vs. a new budget is that the Fresh Start will keep all of your categories and targets so you don’t have to create them all again. It also keeps all of your accounts. The only thing that is deleted is your transactions. I really like the idea of doing a Fresh Start after a change in income because it will make you feel like you are taking action and tackling your new situation head on. You can even give your new budget a creative name like “Steady through the storm”, “Bridge Budget”, or “Mission: Possible”. You’ll be seeing the name of this budget every day and you might as well give it a name that inspires and motivates you during a tough time.

Now that you have created your new budget by doing a Fresh Start it’s time to customize it to align with your income and those temporary financial goals. This is the tough part, and it may take you a few sessions to do it. Take your time. First, and assuming you are using targets on all of your categories, check to see how much all of your targets add up to by selecting all of your categories. You’ll see on the right panel a number next to “Underfunded”. If your previous targets were in line with your previous income, they should add up to the same as or less than your previous income. Next, you’re going to start reducing the targeted amounts and possibly deleting some categories so that the targets add up to equal to or less than your new (temporary) income. This might mean cutting down on discretionary spending like eating out, cancelling subscriptions, or suspending saving toward a big trip. When things start looking up you can get back to these but for now it’s time to buckle down and get through the storm.

Finally, it’s time to use the new budget. I recommend using YNAB’s five questions to help you decide how to give every dollar a job both with the dollars in your accounts today and when new income hits your budget. The questions are designed to apply to any scenario and financial situation, including a reduction of income.

The five questions are:

Reality: What does this money need to do before I’m paid again?

Stability: What larger, less frequent spending do I need to prepare for?

Resilience: What can I set aside for next month’s spending?

Creation: What goals, large small, do I want to prioritize?

Flexibility: What changes do I need to make, if any?

These questions are in no particular order. Think through them all as you’re assigning your money in YNAB. Realistically, if you’re facing a reduction of income, the reality and flexibility questions might be more important in the short term.

Change is never easy, but by taking intentional steps, you can navigate uncertain times with more confidence and less stress. A Fresh Start in YNAB, clear short-term goals, and thoughtful money decisions will help you stay grounded and focused, even when the world feels unsettled. You've got this — one dollar, one decision at a time.