Apple Pie Budget Strategy in YNAB

This idea of catching the full pie budget strategy might be named as something else, but I fell in love with it after I personally adopted it for a while. Simply put, it’s a strategy to budget every single of your hard earned dollar, including pre-tax, pre-withhold gross income dollars. It makes perfect sense to me to budget gross income instead of after tax income, it tells clearly where my dollar goes. An example would be like below, it uses a full pie chart so I like to call it Apple Pie Budget.

Gross Income (Full pie): $1000
Withhold: $220
Paycheck: $780
- Savings:$100
- Monthly Essentials: $300
- True Expenses: $200
- Lifestyle: $180

When you budget, it’s easy to forget your income is $1000, not the paycheck amount $780. Hence, budget for the full $1000 makes sense. You might think everyone pays taxes anyway, why bother? Well, I can share few reasons why I advocate the Apple Pie Budget strategy. It sounds complicated to navigate all taxes, but when you automate the setup, it takes few minutes each month but brings you full clarity on where your money goes than you ever seen. Plus, you might be surprised you had more dollars to budget than you thought.

1) Your tax bill is not decided by employer. You can influence the employer tax withhold percentage, make sure to check with your payroll team your elected withhold rate is reasonable for your personal situation;
2) Your might have a big tax deductible expenses, or a Roth IRA conversion that will impact your tax bracket. As a result, your might be under paying or over paying the taxes already, everyone’s situation is different, either way, track your tax dollars will help you get ahead of your tax planning.
3) This point often gets ignored, and its the biggest advantage of using Apple Pie Budget method. Remember, not only taxes got deducted from your paycheck, there are other line items your employer payroll team can withhold, including 401k, HSA, health insurance, sometimes even parking or other expenses you might not even aware of. You will miss out those true expenses/savings if you only budget paycheck hit your checking account.

I am a experienced budgeter, I have been consistently budgeting for over 6 years, managed to pay off over $100K of my family debt and accumulated $500K net wealth. I cannot emphasize enough of the importance of budgeting, if you just started about budgeting, here is a good article to educate yourself.

First 4.5 years I was relying on self made Excel models, because I didn’t a well designed budgeting software in the market, period. Until I learnt NAB in 2021 May, it was uneasy to start with, but I knew since beginning that YNAB had the right budgeting methodology built in. After failed few times, few times of “fresh start”, I get it. Then, I am addicted to YNAB. Like many YNABer, it’s hard to imagine my life without YNAB now.

I live in Seattle, mainly rely on W-2 income at the moment. On pay day, I follow the YNAB rule #1: give every dollar a job. But, I always have a hard time in recording some transactions:

401K/HSA Contributions and Company Matches. These dollars got deducted from my paycheck, directly go to my 401K investment tracking account (not my budgeting account).Technically, those dollars are assigned by me, to work for my retirement account. But they do not show up in my income streams report.
Tax expense. Yes, tax is an expense! After 2 years of owing taxes to IRS, I learned how to estimate my tax liability and plan for it as an expense category. Each time, I need to model it in offline excel because I do not have paid taxes visibility in YNAB. When I pay the tax due, I record tax expenses in current year but the liability was from last year. It matches the account balance, but it just doesn’t feel right.
True Expenses got missed out in YNAB. Things like health insurance are true expenses, I never see the bills but they were deducted from my income dollars before I receive my paycheck. Depends on how you handle your payroll withhold, in my case I had few other supplement insurances that I pay via paycheck withhold.

Here is a real example of my 2022 Q1 Budget, you can do the same by exporting Income v Expenses report in YNAB. Before I adopt my Catch The Full Pie method, I hardly able to measure lines in red. But now, I know exactly where did my every dollar go. In Q1, I paid 15.46% of gross income on taxes, 35.24% pre-tax savings, about 5% on monthly expenses. etc. I know every dollar where do they come from, where did they go. You have your full apple pie and you decide who you give each slice to. I love it.

YNAB: Best budget software, register via my referral here.
Apple Pie Budget Instagram: Tips and strategies on how to budget and build long term wealth
applepiebusget.com: Blog, focusing on personal and small business finances education

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Jing