Your mileage may vary.
I was trained in accounting and, though I don’t do much accounting these days (I can still hold my own with some pretty sweet tax strategy), all of the ideas are still very much a part of me: double-entry bookkeeping, accruals, deferred revenue…blah blah blah.
One takeaway I got from some 150 credit hours of accounting? Keep things simple. Should there really be any other way?
One Checking Account
We have one checking account. Julie has a debit card and I have a debit card. The debit card is used at Costco and for a few places that don’t take a credit card (health insurance and electricity). We also write a few checks a month (rent, tithing, babysitting -> worth every penny, etc.). There’s very little volume in our checking account. Looking at it right now, 2/3 through the month, there are 12 transactions.
Whenever we earn money, it always hits the checking account. The checking account is the gatekeeper. To get in, you go through there.
One Credit Card Account
The credit card gets quite a bit more volume. We run everything we can through there and enjoy the measly cashback of 1%. Right now, on the 21st of June, there are 29 transactions in there. I just saw four in a row from Target, all on the same day.
Just kidding. I’m sure she has a very reasonable explanation. And I’m sure we budgeted for it (right?).
These two accounts are the only ones I actually track in YNAB. The checking account and credit card are both at the same bank (alright, it’s Wells Fargo okay? I love the stagecoach so much.) I’m sure there are credit cards with better cashback and all of that, but I thoroughly enjoy having the same bank handle both — payments (in full) on the credit card from the checking account are instant. We have several more savings accounts that I’ll get to in a second.
Savings Accounts – A Lot – But Not a Lot of Work
Car Replacement Fund
Each month we budget $75 into our Car Replacement category. Our savings account is set up to automatically transfer the $75 from checking. Yes, we realize that $75 is terribly low when you’re saving for a BMW Hard-Top Convertible, but it’ll have to do and no, I’m not giving up the dream.
How does it work in YNAB? I just plug $75 into the Budgeted cell of the Transportation : Car Replacement category and let the balance accrue. At the time of this writing, we have $1,315.14 in there. Last year we made $23.28 in interest. This year so far it’s at $14 (interest rates have dropped).
Yes, because of that interest, what my balance shows in the Car Replacement category is not the actual bank balance. I don’t really care at the moment. I’ll do a true-up when we actually buy the Beamer (in about 30 years at our rate). When we do buy the Beamer, I’ll transfer the money from our savings back to checking, record an uncategorized inflow into the checking account for the interest, record the transfer of money, and budget a negative $40,000 in the Car Replacement fund to make it Available. I’ll then spend all of that money on a piece of well-engineered metal.
House Downpayment Fund
We also socked money away into this account for some five-odd years. Pleased to report that we are now first-time homeowners (as of yesterday), not just first-time homebuyers or, before that, first-time homebrowsers.
I transferred all the money in that account to checking and wired that money to the title company. None of this has been entered into the budget yet, because it’s not Sunday (I’ll get to that).
Julie’s Fun Money
Julie has so much fun money saved, it actually seemed worthwhile to have her open her own savings account to earn interest and shortly retire. That money just sits there, taunting me. She never spends it.
Jesse’s Fun Money
This account is much smaller, but that’s only because last year I bought a practice putting green for the office, a set of clubs, and innumerable driving range buckets. There’s just enough in there to pick up some hybrids, which will take my game to the next (low) level. Oh, and last year I took up golf. Thanks to Mom and Dad for the graduation present, which fully-funded this quickly-dwindling account.
You got it. There for emergencies only. We’re working on getting it to six months’ expenses. It’s taking F-O-R-E-V-E-R. (As an aside, we’re also starting to stock up on food, bullets, and gold bouillon — a necessary component of any TEOTWAWKI plan).
A little over two years ago I started playing the float by taking our average expenses and having that amount automatically sucked into this online savings account right after we paid our credit card off. It would then automatically be spit back out of this account into our checking just before we paid the credit card again. All in all, it meant that money was sitting there for about 23 days per month. We now have in this account $130.63 (approximately).
I stopped playing the float early this year because recording the transactions in the checking account of YNAB was starting to annoy me.
I also believe that since I came up with the scheme that the $130.63 should be transferred to Jesse’s Fun Money. We’re yet to reach consensus. Until we do, I guess that money will just sit there earning piles and piles of interest (at 2.75%).
(We could play the float because we charge virtually everything on a credit card – not to mention having the Buffer)
How this all Fits into YNAB
Like I mentioned above, the only accounts that are in YNAB are the checking and credit card accounts. All of these other accounts have such a low volume that it wouldn’t add much value to track and reconcile them to the same level that we do the Big Two.
Each of these savings accounts I listed is simply a budget category in YNAB. When we physically move money into any of those accounts then we record a category-less outflow from Checking and make sure we input the budgeted number. The balances accumulate sans interest and everyone’s happy.
How do we handle Cash?
If I have cash in my wallet it’s officially off-radar (Oh What a Beautiful Feeling!). We record outflows in the budget when the withdrawal happens and that’s the end of that.
Why is my budget-centric mind comfortable with this? Because we withdraw very little cash — somewhere in the neighborhood of less than 1/2 of one percent of our spending is with cash. Increase that number to somewhere around five percent and the story would change.
I think sometimes Julie extorts money by buying something with the credit card, then returning it and getting cash back. How else does she ever manage to not spend her Fun Money? I see a charge on our card, inquire…and she just says, “Oh I took that back.”
“And they gave you cash for it? Dearest?” I lovingly ask.
“Yep” replies the normally very-talkative Julie.
Wise men simply leave it at that. And so do I.
Budget Frequency – Weekly
Back before we could import bank transactions, this was a nightly affair. Also, back then we were learning a lot more about spending and awareness and it was important that the frequency be pretty high.
Now, things are so much better. We feel “in the groove” with spending so to speak. We update the budget every Sunday evening. On the first (or last) Sunday of the month we’ll sit down and have our Budget Meeting (Emily wrote a great piece on that a bit ago). We’re usually done in about 15 minutes.
Our Budget Categories
Our budget categories are basically what you see as the default when you start a new Budget. I think that’s far too many (we’ll be changing it). Lately I’ve been working on consolidating categories as much as possible. In my ideal world, I think I would have a Walmart category so I didn’t have to do receipt splitting (it’s the only store that requires splitting for us!). I’d also consolidate all of the insurance premiums into one category (health, life, auto, home). Those are just a few ideas though.
Fewer categories, as a rule I think, is better because it means less thinking, typing, and checking.
However, if you’re really trying to apply some downward pressure on your spending, more categories means more granularity, which means more awareness, which means less spending. You’re the only one really qualified to decide.
Retirement and Investments
I didn’t mention retirement accounts or things like that. It’s getting kind of nuts on us again and I don’t like it. We have 529 plans for the three kids, one from each parent, so that’s six plans in all (bleh). It’s some goofy Utah thing I guess where the parents can’t combine their allowable deposits into one account. We have a Roth for me and a Roth for Julie. We started a SEP-IRA last year, funded that, and now aren’t using it anymore because I moved to a Solo 401(k) (should’ve done my homework earlier and never done the SEP in the first place).
We also have a few single stocks (AAPL, GE, COP and SVN if you’re at all interested). SVN was delisted, demoted to the pink slips. That’s how good of a stock picker I am. I bought AAPL back in 2005 because I kept seeing more of their laptops (one of which is sitting atop my lap) on the university campus. Wish I would have bought more. I bought GE because Fortune told me to and man were they wrong. I bought COP because I wanted to feel slightly happy when gas prices go up (the happiness doesn’t offset the sadness however). Wish I would have bought more. Oh and yeah, Fortune told me to buy SVN as well.
I’ve been clean with single-stock buying for a year now. Don’t know when I’ll sell.
How do we handle these investments with YNAB? They’re all just outflows in their respective categories. Why? I’ve purchased a mutual fund, a stock, or a bond with our cash — just like I purchase milk. The only difference is that when I sell, I’ll record an inflow again. Budget-wise, retirement is pretty darn straightforward.
Hopefully this helps someone out a bit. Just try and keep your finances simple. Don’t get all crazy and have quarters falling out of your pockets while you’re chasing dimes, so to speak. If you’re just starting to really “manage” your money, then you’ll need to be more involved with it and update your budget more frequently. That will naturally bring your spending down and increase your awareness. And you’ll start winning.