Listen, I realize it’s not the most scintillating headline. I’d love to be able to use something along the lines of “Pics of Britney Spears’ Chihuahua Entering Rehab – Again!” But sometimes we just need to slow down and make sure you’re clear on some of the nitty gritty points of your favorite budgeting software. So stick with me.
Yesterday Jesse and I were discussing different aspects of the YNAB interface, and I mentioned how useful I found the “Monthly Header” – which is what we call the area above each month’s budget. The main feature of the header is ‘Available to Budget’ – the number of dollars in your budget that haven’t yet been assigned to a specific category.
Jesse’s reply was “I’m afraid the header confuses the heck out of most people – they don’t know how we come up with ‘Available to Budget,’ and they don’t know which of their actions affect it.”
Jesse’s comment reminded me that I’d quit YNAB a couple of times due to confusion about ‘Available to Budget.’
If that’s you – if you find ‘Available to Budget’ confusing – I have two pieces of advice:
Dollars Enter the Budget
$1,000 enters my budget through my checking account.
‘Available to Budget’ Reflects the Inflow
The $1,000 inflow takes my checking account balance to $1,000. In the ‘Available to Budget’ area above May’s budget, you’ll see the $1,000 reflected as ‘Income for May’ – which takes my ‘Available to Budget’ to $1,000.
Dollars Are Assigned to Categories
I assign $900 of the $1,000 to various categories in my budget, leaving me with an ‘Available to Budget’ of $100. Normally, I’d assign every available dollar to one of my categories; I’m only leaving $100 available to budget for the purposes of the tutorial.
See how my checking account balance didn’t change? That’s because account balances only change when money enters or leaves the budget (usually in the form of income or expenses).
Assigning ‘Available to Budget’ dollars simply moves them around within the budget – which is why account balances are unaffected.
You’ll notice I’ve updated some of my category names to show the typical amount for that category as well as the day of the month they bill is due.
Spent Dollars Leave the Budget
$50 leaves my budget as I pay my home internet bill. I record the transaction on my checking account register.
Current Month’s ‘Available to Budget’ Unaffected By Normal Spending
The $50 outflow reduces my ‘Internet $50 (21st)’ category balance to $0 and lowers my checking account balance to $950, but does NOT impact my ‘Available to Budget.’
Two Options for Dealing with Overspending
Another $72 leaves my budget when I pay my electric bill. My checking account balance reflects the outflow, and the ‘Electricity $50 (17th)’ category shows a negative balance of -$22.00 because I’ve overspent in that category.
Here’s the important part: May’s ‘Available to Budget’ number still hasn’t changed. If you click on a negative category balance, YNAB gives you two options for handling overspent money:
- I can subtract it from next month’s ‘Available to Budget’, or…
- I can subtract it from next month’s category balance.
To keep things as simple as possible, I’d recommend choosing the default – subtract the money from next month’s Available to Budget.
This Month’s Decisions Affect Next Month’s ‘Available to Budget’
Clicking over to my June budget, I can see how June’s ‘Available to Budget’ is impacted by May’s decisions:
I have $100 ‘Not Budgeted in May’ and $22 ‘Overspent in May,’ leaving me with $78 ‘Available to Budget’ in June.
Ideally, I’d like to get June’s ‘Available to Budget’ to $0 – reducing the opportunity for confusion later on.
Cover Overspending with Available Dollars
My first step is to go back to May’s budget and budget an extra $22 in the category called ‘Electricity $50 (17th).’ This takes my budgeted amount to $72 – which matches my $72 outflow.
Up in the ‘Available to Budget’ area, ‘Budgeted in May’ jumps by $22, which reduces May’s ‘Available to Budget’ to $78 – because I’ve assigned those $22 to cover the overspend in my Electricity category.
If I didn’t have any dollars ‘Available to Budget,’ I’d have either allowed the overspend to roll into June (which is part of a realistic budgeting method), or I’d have taken available dollars from another category to cover the overspend in my Electricity category.
(Again, notice how these moving money within the budget doesn’t affect my checking account balance.)
Going back to June’s ‘Available to Budget’, the ‘Overspent in May’ has gone to zero, and the ‘Not Budgeted in May’ has dropped to $78, leaving June’s ‘Available to Budget’ at $78.
Getting ‘Available to Budget’ to $0
Because I want to give every dollar in my budget a job, I (arbitrarily) allocate the remaining $78 to my ‘Phone’ category, increasing my ‘Budgeted in May’ to $1,000 and taking May’s ‘Available to Budget’ to $0.
With no unassigned dollars and no overspending in May (and no income yet for June) my June ‘Available to Budget’ also sits at $0.
You’ll also notice how I have positive balances in several categories of June’s budget, but those positive balances don’t affect June’s ‘Available to Budget.’ Why? Because those dollars already received their jobs, and now they’re sitting in their respective categories waiting to be spent.
Hopefully this tutorial gives you some insight into how YNAB determines your ‘Available to Budget’ number.