YNAB You Need A Budget

[fambi]

As some background to this question, you may want to take a look at this post: ynab-f96/logging-the-existince-amounts-required-rainy-day-item-t17992.html

Following the advice which YNABers gave me, I now use the notes feature to keep track of how much I should put aside each month for non-monthly expenses, vacation saving etc.

What I would now like to know is... how do you know what the money in your bank account is supposed to be for?

For example, let's say I earn $2,000 per month. $1,500 gets used on monthly expenses and $500 is contributed to a number of non-monthly expenses which I expect to happen. $100 gets set aside for 10 months in preparation for my $1,000 vacation and 5 installments have been made. And $400 gets put aside in preparation for my $4,000 car replacement and 3 installments have been made.

How can I know, by a single glance, that although I have $3,700 in my bank account, $2,000 is for this month's budget, $500 is savings for my vacation and $1,200 is savings for my car replacement?

Is this something I should be doing in Excel? Am I even making sense?

Thanks

[artee gee]

I have a number of sub catagories under my savings catagory so I can tell what I am saving for.
Ex. Savings
sub- Emergency $2385
sub - tax prep fee $360
sub - car ins. $550
I also put in the Name line how much I need to save each month and the total for the year.
Ex. tax prep fee $30/$360

[KES]

fambi,

You shouldn't look at your accounts to figure this out - you should look at the category balances in your budget.

If you have earmarked (budgeted) $1000 for a specific purpose (say car repairs) it doesn't really matter in which of your account that money lives until it's time to pay the bill. And the only reason it matters then is because you don't want your check to bounce or your card declined.

When making spending decisions you should always consult your budget balances. Do you have enough money in your electronics budget? If yes, then by all means, buy that new gadget. If not, then you need to either move money from another budget category (priorities, priorities...) or wait until you have saved more money - no matter how much money is in your account(s).

As long as you follow these rules, the money you have saved for rainy days will always be there when finally needed.

I'm sure someone else can explain it better than me. Understanding budget category balances vs account balances is one of biggest hurdles for many newcomers to YNAB, I think (it certainly was for me).

[Joel]

Simple answer: Your category balances.

Long answer:

fambi,

You shouldn't look at your accounts to figure this out - you should look at the category balances in your budget.

If you have earmarked (budgeted) $1000 for a specific purpose (say car repairs) it doesn't really matter in which of your account that money lives until it's time to pay the bill. And the only reason it matters then is because you don't want your check to bounce or your card declined.

When making spending decisions you should always consult your budget balances. Do you have enough money in your electronics budget? If yes, then by all means, buy that new gadget. If not, then you need to either move money from another budget category (priorities, priorities...) or wait until you have saved more money - no matter how much money is in your account(s).

As long as you follow these rules, the money you have saved for rainy days will always be there when finally needed.

I'm sure someone else can explain it better than me. Understanding budget category balances vs account balances is one of biggest hurdles for many newcomers to YNAB, I think (it certainly was for me).

[fambi]

Aaaaaaaaaaaaaah! I understand.

This is my first month of taking YNAB seriously, so I didn't get to understand the balance column on a futuristic basis. But it all makes sense now.

Muchas gracias.

[philospher77]

For example, let's say I earn $2,000 per month. $1,500 gets used on monthly expenses and $500 is contributed to a number of non-monthly expenses which I expect to happen. $100 gets set aside for 10 months in preparation for my $1,000 vacation and 5 installments have been made. And $400 gets put aside in preparation for my $4,000 car replacement and 3 installments have been made.

How can I know, by a single glance, that although I have $3,700 in my bank account, $2,000 is for this month's budget, $500 is savings for my vacation and $1,200 is savings for my car replacement?

The easy answer: you look at your budget categories.
Assuming for the sake of this discussion that you use really simple categories, they would look like this (and I am going to correct something in your description, assuming that the 500 "non-monthly expenses" are the vacation and car replacement, and not other bills):
Monthly Expenses: 1500
Vacation: 600 (500 previously budgeted + 100 budgeted this month)
Car Replacement: 1600 (1200 previously + 400 budgeted this month)

So a single glance tells you that right now you have 600 saved for vacation, and 1600 saved for the new car, and 1500 devoted to paying this month's bills.

The tricky thing to grasp is that YNAB doesn't care where the money is physically at. You could have the 3700 in your checking account, or all in your savings account, or 1000 in checking and 2700 stuck in a coffee can in the kitchen. Which would look like this in YNAB, assuming all these accounts are on-budget:
Example one: Checking account: 3700, Savings account: 0, Coffee Can: 0
Example two: Checking account: 0, Savings account: 3700, Coffee Can: 0
Example three: Checking account: 1000, Savings account: 0, Coffee Can: 2700.

If, in example 3, you decide that a savings account is a safer place to keep your money than a coffee can, you take the money in the can to the bank, stick it in the savings account, and record a transaction in YNAB transferring the money from Coffee Can to Savings, with NO CATEGORY associated. You are just moving where the money is located, not what it is assigned to do. Before doing that, and after doing it, if you wanted to go buy a car, you would look at the Budget screen and know that you could spend up to $1600 on a car without it impacting your other financial decisions.

And just to be complete, as you spend money on this month's bills, you record those outflows against the category. Let's say that's two bills, one for rent for 1000, and one for food for 400 (yay! you managed to spend less than you had budgeted!).
At the end of the month, the category balances will look like this:
Monthly expenses: 100 (1500 - 1000 - 400)
Vacation: 600
Car Replacement: 1600

So the next month when you do the budget, assuming the same conditions, you will wind up with categories that look like this:
Monthly expenses: 1600 (100 + 1500)
Vacation: 700 (600 previously budgeted + 100 budgeted this month)
Car Replacement: 2000 (1600 previously + 400 budgeted this month)

Since you managed to not spend all of the monthly expenses last month, you could either budget less to them this month and put the extra 100 somewhere else. Or you could realize that last month was a fluke, and keep the extra in the category. At the start of the month, your account balances should be 4300, divvied up however you want in your accounts. But knowing what's available for what is all on the budget screen.

Hope this helps!

[fambi]

It does help, thanks.

I think my struggle is moving from someone who is obsessed with the bank balance... as opposed to the budget.

[melalvai]

On a related note, is there a mechanism to indicate what your savings goal is in each of the categories? We have some short- and long-term savings goals. I guess we can put it in a note on each saving goal category, but I wondered if there was another way within the software to remind ourselves what number we chose/ negotiated.

[Turf_Hacker]

You could either use a category note or put the target amount in the category name. For example, Car Replacement - $10,000.

[fambi]

melalvi, I also hope for that to be added one day. Until then, I am doing what turf said and, in addition to the total required, I also mention the date it is needed by, how much has been saved and the based on how much is needed, the amount that should be saved for that month.

For example:
- saving goal: $1,000 by Nov 12
- total saved so far: $800
- total needed: $200
- monthly allocation: $100

I'd be interested to know what experienced YNABers think.

[litterbug]

I think my struggle is moving from someone who is obsessed with the bank balance... as opposed to the budget.

You're among good company. Like many here, I used to pay my bills (including minimum payments on my debts), transfer a small amount into a savings account, and then spend the rest. What a difference it is! And it's only one of the many 'aha' moments you'll have with YNAB.