And fat checking accounts for all.

envelope with moneyI bet you know your checking account balance. I bet you check it daily, maybe multiple times daily. I bet it’s the first number you look at when you or your significant other ask that not so useful question, “Can I afford it?”

I’m sorry you have to look at your checking account all the time, because I know how much stress that number produces.

But I wonder if you realize why your checking account balance stresses you. “Because it’s low,” you say? Fair enough. But that’s not why it’s a stressful number. It’s stressful because it gives you vague, incomplete information.

Your checking account doesn’t know whether you can/should buy something. All it know is whether you’ve run out of money.

Wouldn’t it be cool if you didn’t know your checking account balance, because you didn’t need to know it?

It’s possible – all you have to do is detach your financial decisions from your account balance. How? By assigning your available dollars to individual needs and wants in your life.

It’s called envelope-based budgeting because many of the people who use the concept actually take cash out of the bank and divide it among correctly-labeled envelopes (“Groceries,” “Clothing,” etc). When the cash in an envelop is gone, they’re finished spending.

It’s a brilliant system, and YNAB didn’t invent it. YNAB took envelope budgeting and made it digital, allowing you to take your meaningless checking account balance and turn it into near-perfect awareness of your needs and wants.

It’s a beautiful system that produces a couple desirable results in your life:

1. Reduced stress as you’re able to let go of obsessive account balance checking.

2. Fat-approaching-obese checking accounts.

A couple of years ago, before I adopted the YNAB way, Jesse (YNAB founder) and I were having lunch. I’m sure my financial stress came up in conversation, and Jesse happened to mention he had no idea what his checking account balance was.

“What do you mean, you don’t know how much you have in checking?”

“No idea. Lots of thousands.”

Sure, you say, Jesse had lots of thousands in checking because he’s the fancy-pants founder of a successful company.*

Wrong. Well, sort of right. He is the fancy-pants founder (the fanciest!), but that’s not why he had lots of thousands in checking, and it’s not why he had no idea what his account balance was.

It’s all about the digital envelopes Jesse – and all YNABers – use to maintain high awareness of our money.

Jesse didn’t know what he had in checking because that wasn’t the important number in his life. Every time he got paid he divided his dollars among his family’s needs and wants, assigning the money to virtual envelopes called budget categories.

Budget category balances give useful answers to important questions:

“Can we buy a new car?” Check the “Car Replacement” category.

“Can I buy some new running shoes?” Check the “Clothing” category.

No more vague, contentious conversations about “Can we afford it?” – only rational chats about whether the category balance is big enough to buy it, whatever it is.

My tax refunds hit my checking account this week, and I laughed when I noticed the new balance: $24,436.97.

For pre-budgeting me, $24,000 might as well have been $24,000,000,000. I was equally likely to have either amount in checking in those days, in spite of much higher earnings.

Of course, my budget categories – my envelopes – have already spoken for the money. Some for needs and a good amount for wants. But thank goodness I don’t have to think about the number itself anymore.

If you’re a person who has to monitor your checking account balance like Keanu Reeves watching an airport shuttle’s speedometer, take our 9-day money management course by email.

Life’s circumstances produce plenty of stress; don’t let low-awareness money management compound your worries!

*I kid. Jesse is one of the least fancy people I know.

14 Responses to “And fat checking accounts for all.”

  1. Rebecca K.

    The other day, I looked at our checking account balances, and told my husband what we had. Neither of us had any clue we had that much because we’ve just been checking category balances! It was such a good feeling to see such a high number without feeling like we had to try that hard to get there. :)

  2. Mike L.

    Love your software and blog.

    Wouldn’t it make more sense to invest some of that checking account money and only keep enough in your checking account for the current month and the next month. (Unless you use checking as your emergency fund also, but isn’t that what a savings account is for?)

    • Eric Williams

      Hi Mike,

      I’m in the same boat as Mark (high amount of money in my checking account). We don’t have a savings account because our checking account earns 3.01% interest.

      Might not be Mark’s case, but that’s the reason I keep most cash in our checking account. The savings account interest rate just doesn’t cut it!

      • Ben

        If you don’t mind me asking, where on earth do you earn 3.01% interest on a checking account these days? I’m starting to get a nice sum build up and would like to earn a little more interest if I could.

      • GP

        Wow, Eric! Which bank do you use? I’d like an interest rate that high on my checking account! :)

      • Dave C

        A number of banks in the UK offer current (checking) accounts paying 3% interest on balances. My own bank pays this on up to £5000 provided I stay in credit and pay in £1000 a month. I can have up to three of these accounts following the same rules for each. Now I don’t have £3000 pm coming in, but there is a tweak… a standing order once a month pays £1000 from account #1 to account #2. The next day account #2 sends that £1000 to account #3 and a further day later account #3 sends it back to account #1. I didn’t work this out for myself… my bank manager set it up for me when I went in for my annual review prior to the end of UK tax year.
        As a footnote, most UK savings accounts only pay around 1.5% interest at best and that includes an annual bonus of 1%. At the worst the interest is as low as 0.1%pa.

  3. Seposm

    I tried the envelope method, great concept, I just had a hard time making it fit reality. What if I was on my way home from work and I needed to pick up something from the store, did I go home and get the grocery envelope? how about split transactions, What if I am buying things from 4 or 5 different categories in one trip, do I make change from each envelope? do I do multiple transactions? What happens when there is a real need that isn’t budgeted for, like a dead refrigerator.

    One of the things I love about YNAB is that flexibility while still maintaining the budget. If I need to replace my daughters running shoes because hers were stolen, I do it. OK, we didn’t budget for it, but she needs decent running shoes. So the question becomes how do I handle this. Do I take from my savings to supplement the clothing category, or do I run a deficit in that category until I can allocate the funds for it, or do I take from another category or take from my available balance for next month. The issue is no longer we spent more than we planned, it now becomes, so you need to spend more than you planned, how do you want to handle it?

    I do love the concept of detaching Account balance from spending though. and thanks to YNAB even if I am broke at the end of the month because I have spent all my budgeted money, I still have what most people would consider a nice fat bank account because next months money is in there already.

  4. gpamerritt

    Very well written, Mark and a great explanation of why YNAB and envelope based budgeting work so well. I also no longer worry about what is in my checking account daily. Every dollar has a job, and is assigned to envelopes. Sometimes I take from one envelope to put in another envelope, I guess that would be the Roll with the Punches step. Fortunately I have some getting fat envelopes I can raid as necessary.

  5. Purfectoptions47

    YNAB has changed me. I was one of those people who either checked my account balance daily, or…. I would go into a spending fog, and then be afraid to look. I remember when finishing the month with $92 in my checking account was a good month! Now I’m happy to say I’ve joined the ranks of “I have no idea what my bank balance is, but I know it’s plenty!” I can tell you how much is in my grocery category with a quick glance at my iPhone. Those category balances are the ones that matter and they’re what guide my spending now. Also, having a full buffer really takes the pressure off and feels great! It took me a while to get there, but I now see why Rule #4 used to be Rule #1.

  6. Eric Williams

    Fantastic post Mark! Haven’t thought of it like that, but you are exactly right. Who cares what my account balance is as a whole? It comes down to individual decisions and whether or not I’ve assigned the correct amount of dollars to that decision. If not, YNAB makes it easy to adjust on the fly.

  7. mizzmax

    This was a great article. Last week, I was invited to go to a movie (ticket was free) and then we unexpectedly went to a restaurant. Now, normally that would have stressed me out because I would have been looking at my checking account balance, but because I had my money in “envelopes” I knew I had money to have dinner and a drink. It was a great feeling.

  8. Kimberley

    This is why I love YNAB! 14 months after starting, I could see my monthly averages and highest cost for utilities. My checking was truly bloated. I did my version of a fresh start and on Friday payday, I will be buffered. Buffered after having to replace washer/dryer; after three major car repairs; after paying off two high interest credit cards. I still have two credit cards and a car loan to deal with, but am feeling a sense of financial freedom like I’ve never felt before. Thank you Jesse for the software! Thank you Mark for the inspiring blog posts! Thank you YNAB team for keeping everything rolling smoothly! One last thank you to Rachel’s sister for going after a job post I shared, cementing for me why this is such a fantastic company!

  9. Tess

    I know what my checking balance is. But, that’s because I’m a nerd, and I’m fascinated by how much it is after 18 months of YNAB! Especially now…we just achieved Rule 4. I like to open YNAB and just look at the beauty of our budget.

  10. simplify...

    I have Modest balances in multiple accounts (different goals). After a write-up awhile back, I have been toying with the idea of combining everything and truly working / trusting YNAB and it’s ability to remember every dollar’s name. Haven’t yet pulled the trigger on that…

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