The Acquisition of Stuff

blue shirt

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.

50 Responses to “The Acquisition of Stuff”

  1. Beth

    Man, thanks so much for this article. It’s the beast of my budget and hurts my brain thinking about it. This article helps a lot and I still think I’m going to have to read it four more times!

    • Cate

      It took me about a month to really grasp the idea. Once I realized my checking account was dramatically increasing as the month progressed, it really hit home what was occurring. (we use our credit card for most of our purchases since we earn rewards for purchases. We always pay it in full each month, so it’s a tool for us).

  2. Adam

    Maybe I’m different, but I always found this to be intuitive, even before I started using YNAB. If you don’t treat credit card spending the same as debit card spending, then you’re spending money you don’t have and haven’t accounted for.

    But, if many are confused by it, improvements to the software are always welcome.

    • erin

      I think it’s the immediate categorization of the old debt that throws folks for one. And I do think it’s a reasonable expectation to see what feels like a payment in the outflow column.

      • Rasta

        I agree with Adam – the way YNAB handles credit card payments makes perfect sense to me. And when I was starting out with pre-YNAB debt it took me a minute, but wasn’t a big deal.

      • Laurie

        We pay off our credit card every month and I understand how the posting cycle works. What I don’t understand is how to get rid of the pre YNAB debt (current credit card balance) that we entered 18 months ago when we did the initial set up. (I don’t think we should have entered it.) When I try to do an adjustment it screws up my account balances.

      • Laurie

        This -$4000 has been riding in our budget all this time, but it is not real debt.

      • mark

        Hi Laurie – That’s a tough one to walk you through in a blog comment reply, but the solution isn’t too tough to implement. I’d recommend signing up for the live credit cards class – they’ll show you how to take care of it!

  3. Bernice Fritz

    How do you handle debt that you owe to your lawyer? For the most part, my account amount should go down each month, but each time my ex takes me back to court the amount of that account goes back up. Right now, I pay my lawyer’s bill as any other bill, but I’m wondering if I should set it up as pre-YNAB debt. If I make that change, how do I handle adding the increases that occur when he’s bringing me back to court? Thank you.

    • erin

      Hi Bernice,

      Honestly, I’m a big fan of keeping things simple. I’d keep treating it as a bill and just keep making the monthly payments. That’s the most important thing.

  4. rwhicomb

    As much as I like YNAB and understand it’s a budgeting program, credit cards will be challenging since buying with them is budgeting, but paying for them is accounting. I think it might help to go into some accounting basics, like double bookkeeping.

  5. Terri

    I guess I’m an oddball like Adam. This has never confused me. But the pre-YNAB debt may need some linguistic tweaking; I do notice a number of people getting confused about that part of the YNAB budgeting.

  6. Khana

    You say it’s not intuitive, but I really like this system. Makes sense to me.

    But on the other hand… I have to admit… I am used to it, and I did watch all the videos before I got started.

    But on the other other hand, the whole budgeting thing made no sense when I started. I didn’t have a clue what I was doing. So I kind of needed the classes regardless. And once I had them, the credit card thing made perfect sense.

    Just my 2 cents.

    • Craig

      I have to agree with Khana here, watching all the videos before I took the plunge with YNAB was time well spent. I did all my thinking and questioning whilst watching (and occasionally re-watching) the videos, so when it got to using the software it all made sense.

  7. Lucas

    I took me a while (and a few classes) to figure it out properly, if I had read this before, it will be clear faster for me.
    Thank you, this might help a lot of people who have doubt about it.

  8. Tawnia

    Add me to those who this makes total sense for. Use that development time somewhere else ;)

    • erin

      I’m so glad to hear that for you, and some others posting here today, that this was easy to understand. However, I work with new users on a daily basis and it is – in my opinion – understandably confusing. I want it to be easier to understand quickly. I don’t want people to have to spend a lot of energy learning it and applying it. But I assure you, it can improved upon and doing so won’t make it worse for anyone else.

      We want budgeting to be as easy as possible. :)

  9. kristina

    I wish YNAB would tell me (somewhere) the amount I should pay on my credit card each month based on amount spent last month on cc (but in budget) + amount towards PRE-YNAB debt. This would be very handy for bill pay time.

    • erin

      This is exactly the kind of thing we are working on in development – making the payment amount obvious. :)

      • denny

        ^^ Very excited to hear this is what you’re working on! Right now I have a separate little spreadsheet that tells me my credit card payment amount:

        Purchases for the month (from my statement)


        Any finance charges incurred (from my statement) (sad)

        Auto-payment (I have all of my credit cards set up to at least automatically pay the minimum payment each month just in case I forget)


        Pre-YNAB payment (of my choosing)


        Credit Card Payment

  10. Jay

    Great article! This is a great primer on how credit cards work on YNAB. When I started, I had to watch the CC video about 2.5 times. It sunk in quickly after that and it makes perfect sense to me now. Credit cards were the steepest part of the YNAB learning curve for me, but it didn’t take long to get the hang of it at all!

  11. Kristen

    Hey Erin – we’ve discussed this before, but thought I’d comment anyway. In theory, it makes sense. But what I find problematic within the confines of the budget software is the fact that when you budget money to pay the debt, it acts as if you just paid the debt.

    Now, perhaps you did. Perhaps on Day 1 of the month you budget $100 to the debt and you immediately pay $100 to the credit card – great! There’s nothing that shows (in the budget screen) that you did (which I still disagree with), but you know you did.

    But if you don’t? Still looks like you did. If you think – Oh, I’ll go back to that later – or you pay all bills on the 10th of the month – well, the budget has already reduced the balance and acts as if you DID pay it. A glance at the budget says, “All set!” And it’s not.

    I get why it’s problematic, I don’t know what the solution is, but I can totally see how a person could each month budget the money into the category but NOT necessarily pay the bill and think they are all set.

    But hey – when I started back up again, it was the impetus I needed to just use some back up funds and pay off what I owed so I wouldn’t have to deal with it at all. But what I owed wasn’t much, and it was easy for me to do. Not everyone has that luxury.

    • erin


      You’ve hit upon the other piece of confusion. If you don’t see the outflow, how do you know you even made the payment? It’s a totally valid point.

      And don’t worry, the development team is super smart. They’ll come up with something amazing I’m sure!

      • Magess

        This is the piece I’m hoping to see.

        I get that I’m supposed to take the left over balance of Pre-YNAB debt and subtract from my account balance to get my payment amount, but for a piece of software that’s already doing a lot of math, it feels like it should just tell me what my CC payment needs to be.

  12. Denise Canellos

    Thanks Erin – I can tell you are a teacher! This has been confusing for me, because if I see a place to select a category, I feel like I am supposed to select a category – but with a transfer to a credit card I am not supposed to select a category. Maybe we should have a category that just says “transfer”? This confusing part has made me use my credit cards a lot less, which is a good thing.

    If I am paying old debt, without any new charges, how do I categorize that transfer?

    • erin

      You won’t categorize that transaction. You told the budget about all that old stuff you acquired (that led to the debt) when you set up the account. Look in the outflow column for the first month you created the credit card account. THAT’S the stuff you bought. When you make this payment, you aren’t buying any stuff. :)

  13. mohammad

    this was a hilarious article! great job guys….it’s starting to make sense. Gonna follow the other person’s advice and go watch those videos again.

  14. Sara B.

    I cannot express enough how much I LOVE YNAB’s handling of credit card purchases. It’s a little tricky because it’s a different approach than many are used to, but man is it NICE just knowing the $$ for the cc bill is sitting right there in the account and already allocated. I had actually closed all my cc accounts except one…which I wasn’t using much at all. When I figured out the YNAB system of budgeting for CC purchases as they are made I started to use it a bit more. I no longer have to worry about overspending!

    • erin

      That part is the brilliant part Sara. :) We won’t lose that with any improvements that we make, I promise!

  15. Adam

    I don’t find the “acquiring stuff” analogy very intuitive. I prefer to think of it as what it really is: an allocation of funds.

    I think the real issue is that people think in terms of accounts rather than total funds and outflows. They think they need to “pay” the Credit Card account. I did this myself and I’ve watched a friend do it when first introduced to budgeting too.

    What I do instead is think of all my “available to budget” and category balances as being “on me”, as if I have a virtual backpack hovering around following me with all my funds ready to go. When I spend (whether I’m “acquiring stuff” or spending for a more subtle reason), funds are leaving “me” and going somewhere else. Regardless of what happens in my real accounts, the money has left my virtual backpack.

    For credit cards, while it’s true there’s not actually any money leaving a deposit account, it is leaving a credit card account. I’m borrowing the money and will have to pay it back later. It’s important to realise I’m not borrowing money I don’t have – it’s already in the virtual backpack in the form of my deposit account. But now that money in my deposit account will be needed to pay back the money I just borrowed from the credit card. So I still think of this as an outflow (from “me” – or the virtual backpack), which is nice because that’s exactly what YNAB calls it.

    Even though that money is still really in my deposit account, the budget has removed it from my virtual backpack. When it comes time to finally pay off the card, my virtual backpack stays the same. All that’s happening in reality is a simple transfer from the deposit account to the credit account. I’m not spending any money. The money leaving the deposit account was already allocated (removed from the virtual backpack) when I spent and logged the original outflow.

    • erin

      Hey Adam,

      That’s a GREAT analogy, thanks for explaining it. One thing I’ve found in teaching is that it helps if ideas and concepts are explained in different ways. For some folks it’s that one explanation that finally clicks for them. I’m sure this analogy will help it click for lots of folks! :)

  16. David Needham

    I’ve only been using YNAB for a few days, but I have to acknowledge that I’m a little anal when it comes to these records. When I set up a new budget, I went ahead and immediately imported my bank/credit card statements and categorized everything… which I realize technically isn’t what I was supposed to do when first starting out.

    Now I feel like my budget is accurate, but I’m not sure what to do with all of those existing transactions for payments to the credit card. Do I need to remove them and re-add them as transfers?

    I’m also a little confused about where I should categorize things like interest (positive for checking, negative for credit), or other bank fees.

    I’m totally appreciative of this post and wouldn’t mind if you redirected me to previous articles / forum posts that would help answer my questions.

    Thank you!

    • msmo

      i had issues with this too, so i just forced myself to start at point zero on Day 1 and import data from the first of the current month. but also, i was trying out ynab so i had 37 days to acclimate. by then i was over it [the need for anal detail]. :)

      i created a subcategory in Everyday Expenses labeled Bank Fees and Interest to capture just what you described.

    • erin

      Hi David,

      Just double click on those payments and change them into transfers. You’ll need to remove the category as well (the article above explains why you don’t need it.)

      Interest you earn is just income. With interest you pay, I prefer to keep it simple and just assign to the credit card category. Some people make a special category just for interest. It’s up to you.

  17. Richard Baldwin

    Credit card debt was the hardest for me to grasp also. I finally realized that I cannot allocate funds to pre-ynab debt. It messes it up. Rather I use the allocation column in pre-ynab debt to tell me how far ahead or behind I am with my credit card balance. Quite often there will be a negative number there after I’ve entered all the info from my credit card statement. This tells me I’ve added more to my balance than I’ve paid and thus “got behind” by that number. As you make transfers to the CC account that number needs to be manually changed to match the balance on your accounts list. This is because when you buy something with a credit card and enter it into YNAB, The budget thinks you received something, and most of us think we lost something (incurred more debt) when we use the card. In a sense, it’s no different than if you went to the bank machine and charged cash on your credit card. The machine gives you the cash, so you received something, yet your account balance for the card increases. Hope that makes sense. Well… it did to me.

    • erin

      I’m not quite sure I follow you. Are you recording credit card purchases in the credit card account and assigning them to categories in the budget? That’s what you do for new spending.

      For old unbudgeted spending, that gets assigned to pre-ynab debt. Then you just budget to pay down that balance. Our video walks you through this in detail.


      • Richard Baldwin

        Perhaps I didn’t explain it clearly, my apologies.
        Pre YNAB debt categories kind of work like a positive and negative scale for me. As you record activity from the card the amount appears, whether positive (you made a payment) or negative (you made a purchase or were charged interest) on the allocation slot. Thus, I do not need to enter a number into the budget category when I want to make a payment or allocate funds towards payment on the credit card account.. If I do, the totals between the budget amount and the actual account balance go out of sync and it messes up my bank account balance. Hope that clears it up.

      • Richard Baldwin

        What I do is:
        1. Enter all transactions from my credit card statement into YNAB. Each “purchase” gets a category.

        2. Open the budget and balance out all the negative numbers the transactions may have generated. By allocating funds to make the balance column under that category 0.

        3. Look at the total in the allocation tab under the pre-YNAB debt category for that card. For example, if I entered all purchases, payment and transactions from the statement and zeroed out the balance column, the number will indicate how far ahead or behind I have become with that account for the past month. If purchases and interest exceeded my payment, the number will be negative. It might read something like -$148.00 which means I need to make a minimum payment of $148 just to break even. Anything over and above that will actually pay down the balance.

  18. LuLessa8

    YNAB does a great job and really helps me be conscious of my credit card spending. Thanks!

    It is not YNAB’s fault that handling credit cards doesn’t seem intuitive.
    Credit cards are NOT intuitive by nature. That’s the main reason people tend to get in trouble with credit, specially when they first get a card.

    YNAB makes credit cards more intuitive, if anything. Simply re-educating you to understand that paying your credit card “bill” is actually transferring your cash to the credit card account. That transfer is meant to cover the short-term loan that the card provides. Read that again. It’s not exactly a bill. You’re not exchanging your money for a service or product, so it doesn’t get a budget category.

    A credit card is more like a tab at the local bakery. You get your baked goods, say “put it on my tab” and at the end of the month you pay the baker for everything you’ve already purchased on your tab.

  19. Jason

    Here’s my problem. What if you use your card and end up overspending more than you bring in? How do you determine how much money you can pay on your credit card? Before YNAB, I’d just look at how much is in my checking and savings and use some of that. Now, I don’t know how much in my checking account is in reserve for upcoming budget items.

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