One question we’re asked frequently in our live classes is “Why doesn’t my credit card payment show up on the budget screen?”
I completely understand this expectation. When you’re paying your credit card bill, that feels like any other bill you pay. Money is leaving your bank account, and as a good YNABer, you want to make sure your budget knows about it.
The thing is, credit cards are a unique beast. They’re loan accounts AND spending accounts. Think about that for a second…
Your car loan is a loan account, but you don’t spend from it. You just send money to it. There’s one transaction to complete two steps: changing the location of the money (sending it to the car loan people) and categorizing it (telling the budget you made a payment).
Your checking account is a spending account, but the balance is positive. When you spend from it, you’re done. There’s nothing to ‘pay back’. Again, it’s one transaction to complete two steps: changing the location of the money (giving it to the grocery store for example, when buying groceries) and categorizing it (telling the budget you bought groceries).
With credit cards, these two steps require two transactions. You categorize when you acquire the stuff, and then later, you move the money to the credit card account. We can’t categorize both of those transactions for a single purchase. That would be telling the budget the same thing twice.
Let’s walk through the acquisition of stuff – specifically a new shirt – and follow the path of the money and the information that’s sent to the budget.
I’ve decided I want a new shirt, so when I got paid, I budgeted for clothing.
LOCATION OF MONEY: Checking Account
I finally find my dream shirt. Now I need to pay for it so I use my credit card for the purchase.
LOCATION OF MONEY: Checking Account (still)
But I’ve got the shirt. So I enter the spending in YNAB in my credit card account and categorize it to clothing.
LOCATION OF MONEY: Checking Account (still)
Yup. It’s still in checking because I haven’t paid my credit card bill.
However, according to my budget, the money is gone, and that’s true. I no longer have that clothing money. It’s important that I tell the budget right now, so I don’t forget and try to buy another shirt later only to find out the money isn’t there.
We categorized it because we got the shirt. That’s what the outflow column really represents: the acquisition of stuff. When you categorize the payment to your landlord, what do you acquire? Housing for another month. When you categorize your phone bill, what do you acquire? The use of the phone for another month.
That’s what the budget cares about. What stuff did you get?
The budget doesn’t care about whether or not you pay the credit card bill because at that point you aren’t acquiring anything. You can’t buy the shirt twice. The budget just wants to know: Did you set money aside to buy that stuff and did you eventually buy it?
Back to our shirt.
When I categorize the purchase, I’m having this conversation with my budget:
Me: “Hey, you know that shirt I’ve been wanting? I finally got it.”
The budget is all business.
Budget: “Got it. You look great. Let’s move on.”
Now I need to pay my credit card bill. I record the transfer of the money from my checking account to the credit card account. If I try to categorize this payment, the budget gets all up in my face about it and throws a red flag.
Budget: “Hey, what is going on?”
Me: “Oh, I’m paying that credit card bill. Remember that shirt I bought? I need to pay the bill.”
Budget: “Dude, you already told me this. I already know about the shirt.”
Me: ”Oh. So you don’t need to know where the money is?”
Budget: “Nope. Not my job. Accounts handles all that. He loves that kind of stuff. He’s kind of obsessive about it if you ask me. But hey, I’m guess I’m obsessive too, just about different things. You just need to tell me when you get stuff. I’m pretty quick, no need to tell me twice. It’s not like I’m a teenager or anything.”
So I move the money from checking to the credit card account with no category.
LOCATION OF MONEY: Credit Card Company
So what about credit card debt? What about all that spending that happened before you started YNAB? In YNAB, that “stuff” is acquired when you set up the account. You’ll see it in the outflow column of the month you created the account. So the conversation with the budget would be something like this when setting up a credit card account:
Me: “Hey, ummm… listen, I don’t know how to break it to you… but …. I owe $4000 in credit card debt.”
Budget: “Okaaay…What was it for? What did you buy?”
Me: *sigh* “ I wish I could remember. I know there were some meals out, a new phone, a weekend away, and I had to charge a car repair on there too. Sorry. I promise I’ll be better!”
Budget: “I see. Well, don’t worry about it. We’ll just put it all together in this Pre-YNAB debt category and consider it gone. Just budget something each month to pay it back.”
Me: “Ohhhh, I get it. So I tell you NOW that the money is gone and I just tell you when I plan to pay it back. You’re the best. Thanks for not making me feel bad about it and for giving me a way to deal with it.”
So remember, you can only acquire stuff once, and when you acquire it, that’s when you tell the budget.
The outflow column is about the acquisition of stuff.
*As an aside, we do understand that this is not intuitive and are working in development to improve credit card handling in the future.