YNAB You Need A Budget

[wizard210]

i don't understand this. Here's why!

I'm looking at August right now. For groceries for example I've allowed myself $20 and I''ve spent 14.02 of that $20. I now have 5.98 left for that category. For September I've allowed myself $50 for groceries. It's carried over the 5.98 from September. I know I don't have that 5.98 becaused I spent that 5.98 elsewhere, say for car gas. So what now. I'm so confused. YNAB is basically telling me I have an extra 5.98 towards groceries when I really don't.

[YYC27]

Positive categories carry forward month-to-month. If you spent $5.98 on gas, that money would come out of the gas category balance, not groceries. If you'd like to reallocate the unused money, change the budgeted amount for groceries to $14.02 and increase your gas budget by $5.98.

[rollercoaster]

If you spent that money elsewhere, you need to tell YNAB that. We call it Whack-a-mole here. Re-budget your grocery category to 14.02 instead of 20, then add the 5.98 to your gas category.

[jam40jeff]

This again brings up why I'd like the "green arrow" implemented. I may want to see that I overspent in gas and underspent in groceries, yet have the underspending cover the overspending by pushing the underspending into the buffer rather than carrying it over to the next month. I think this often times makes more sense than playing Whack-A-Mole, especially if you want to go back and look at a previous month's spending habits.

[mozzie61]

For September I've allowed myself $50 for groceries.

Do you have a buffer (Rule 4)? If not then you should not be budgeting for September expenses in September. You can budget now for expenses that won't be incurred until September, but the budget allocations have to come from August income and only be for the period up until your next pay day. For example our last pay day was 20 August and we're not paid again until 3 September. Our dollars have all been given jobs (Rule 1) in the August budget column, but some of those jobs don't come up until early September, including the last few days of our grocery spend. At this stage, late August, I don't know if we will underspend or overspend on groceries (YNAB helps keep an eye on this), but I will not be allocating any more dollars to groceries until the next pay day. If by chance we had an extra $50 income available to put to groceries it would be entered in the August budget even though we probably wouldn't spend it until September. The essence of YNAB is to stay in the present and only budget the dollars you actually have not the ones you expect to make.

Also it seems that you may be confusing account balances with category balances. Ultimately your on budget account balances must equal your category balances but YNAB doesn't care where your dollars are kept.

In the example you have given presumably you have also allocated some dollars to your Gas category. If you have spent an additional $5.98 on gas then that category will be $5.98 poorer. Dependent on how much you allocated and your other spending in that category this may or may not represent an overspend. If it is an overspend YNAB will automatically adjust your next month starting balance (Rule 3 - roll with the punches). Alternatively you can actively manage the overspend by playing whack-a-mole and allocate more to your Gas category.

Again using your example, you have $30 income and allocate this as $20 Groceries and $10 Gas. As the transactions are entered YNAB shows a total spend in the Groceries category of $14.02, and for Gas you spend $15.98 (the additional $5.98 being the money you didn't spend on groceries).

Category balances at end of month :-
Groceries: $5.98
Gas: -$5.98

You now have $50 more income available for September. Left alone YNAB will automatically carry forward $5.98 into Groceries, and take $5.98 from the $50 income to zero out the Gas category (this is roll with the punches in action). This leaves you with $44.02 to allocate. If you put it all to Groceries then you are left with $50 in that category, matching the dollars you have on hand.

Alternatively in August you could have taken the $5.98 from Groceries and reallocated it to Gas, effectively zeroing out both categories as you go into September (this is what is referred to as whack-a-mole), and leaving you with $50 to allocate.

[mozzie61]

Hmmmm....maybe I should learn to keep my posts more succint . Hope I haven't confused you.

[wizard210]

I understand what you're saying. I think I have just confused myself really.

I guess I just don't see the point in carrying over to the next month. I know I allocated $20 towards groceris but only spent 15. So I have 5 left towards groceries.

Okay I guess the thing I'm having trouble at doing is seperating my budgeted money. Let me try to explain. I have my income I get every month. I have my fixed bills I have every month. I have my irregular expenses every month(groceries, car fuel, home repair, etc) I guess for me I all most need two seperate accounts. One for fixed bills, one for irregular expenses.


My biggest struggle is this. Do I set money aside in a seperate account for my irregular expenses. I have trouble seperating the two(budgeted vs irregular)

Very stupid I know. But I'm my own enemy.

[jam40jeff]

You now have $50 more income available for September. Left alone YNAB will automatically carry forward $5.98 into Groceries, and take $5.98 from the $50 income to zero out the Gas category (this is roll with the punches in action). This leaves you with $44.02 to allocate. If you put it all to Groceries then you are left with $50 in that category, matching the dollars you have on hand.

Alternatively in August you could have taken the $5.98 from Groceries and reallocated it to Gas, effectively zeroing out both categories as you go into September (this is what is referred to as whack-a-mole), and leaving you with $50 to allocate.

And if the green arrow is implemented, maybe the first suggestion could be called "roll with the punches (red down arrow) and punch back (green down arrow)."

[YYC27]

I understand what you're saying. I think I have just confused myself really.

I guess I just don't see the point in carrying over to the next month. I know I allocated $20 towards groceris but only spent 15. So I have 5 left towards groceries.

Category balances carry forward because of Rule 2 (Save for a Rainy Day). Some expenses aren't monthly, and you need to save up for them over a period of several months. By budgeting a regular amount each month, you're building up a balance that will pay off the large expense without disrupting your finances. It's also helpful for variable expenses. If I significantly underspend in groceries one month, that's a good indication that I have a larger than average grocery trip coming up in the next month. Budgeting a regular amount and carrying forward underspends helps to even out those kinds of ups and downs.

[jam40jeff]

Category balances carry forward because of Rule 2 (Save for a Rainy Day). Some expenses aren't monthly, and you need to save up for them over a period of several months. By budgeting a regular amount each month, you're building up a balance that will pay off the large expense without disrupting your finances. It's also helpful for variable expenses. If I significantly underspend in groceries one month, that's a good indication that I have a larger than average grocery trip coming up in the next month. Budgeting a regular amount and carrying forward underspends helps to even out those kinds of ups and downs.

I agree, but not all underspending follows these rules, just like not all overspending does. That's why I think we should have the choice of whether to "Save for a Rainy Day" (current behavior or right green arrow) or to "Roll With the Punches in Reverse", or as I call it "Punch Back" (down green arrow).

[Patzer]

My biggest struggle is this. Do I set money aside in a seperate account for my irregular expenses. I have trouble seperating the two(budgeted vs irregular)

YNAB has a different mindset for this type of thing. There is no budgeted vs. irregular, because everything is budgeted. There is regular vs. non-monthly or lumpy expenses. Let me give an example of a non-monthly, lumpy type of expense.

Consider my need to buy clothing. Many months I spend zero. Sometimes I'll buy a pair of shoes ($40-$200, depending on what I buy). Maybe every year or two I have to buy underwear ($10-$20). Once in a great while I'll have to buy a suit ($200-$400). Every year I ought to buy about 3 business casual shirts for work ($80-$120). You get the idea. This is not a smooth, spend $50 every month category, even though my budget is $50 per month.

The budgeting trick with Rule 2 (save for a rainy day) is simple: I have to let that $50 per month build up over time, or I can *never* buy a suit. Right now, I don't know when I'll next need a suit. But that doesn't matter. If I keep putting $50 per month into the clothing category, and *not spending* it on anything but clothing, over time the months of no clothes shopping or cheap purchases of underwear let money build up so I can afford a pair of shoes or a new suit when I need them.

Now, YNAB doesn't care whether I put the clothing money in a separate account. In fact, given the nature of my clothing expense, it would be horribly clumsy to try to have a separate account for my clothing category. But I do need a mechanism that tells me not to spend the money that's earmarked for clothing just because a new computer sounds cool. That mechanism is my budget. I look at the category balances. If I have $40 in clothing, I can't buy a suit or a pair of shoes, but I could buy shoelaces or underwear or socks. If I have $200 in clothing, I can buy a pair of shoes easily, maybe two pair. If I have $600 in clothing, I could buy a suit. The trick is, I'm not going shopping for suit unless the clothing category has enough money to cover the purchase.

Now, not all categories look like clothing. I have some utility categories that build for two months and get spent to zero in the third. I have an Auto:Insurance category that accumulates money for premiums due every six months, at fairly predictable rates. I have an Auto:Car Replacement category that is a good candidate for actually keeping the funds in a different account. But the idea is the same for all the non-monthly categories; I need to fund the categories over time, and not touch the money that is waiting to be spent on its designated purposes in some future month. The mechanism that keeps me from spending that money on the wrong stuff is the budget. If I'm out of money in the Dining category, I can't eat out for the rest of the month, period. It doesn't matter that I have a lot of dollars in my checking account. All those dollars have jobs other than dining out.

Patzer

[malisab]

For September I've allowed myself $50 for groceries. It's carried over the 5.98 from September. I know I don't have that 5.98 becaused I spent that 5.98 elsewhere, say for car gas. So what now. I'm so confused. YNAB is basically telling me I have an extra 5.98 towards groceries when I really don't.

I understand what you're saying. I think I have just confused myself really.

I guess I just don't see the point in carrying over to the next month. I know I allocated $20 towards groceris but only spent 15. So I have 5 left towards groceries.

Or, don't allow $50 for September, only allow $50-$5.98, $44.02. Then you can "pay back" your gas overspend.

Others have already covered the 'don't budget until you have it' and 'think about building up some categories' and 'don't confuse accounts vs. categories' angles. But if you don't change anything else, when you DO budget for September, that would be one day to 'top up' groceries and if you let the $5.98 overspend (I presume) on gas roll forward (arrow to the right), you have the extra $5.98 to allocate in Sept. that you would have allocated to groceries.

[katsmeow]

Remember that budgeted amounts don't have to stay the same. That is if I think I can underspend groceries and need to deal with an overspend in fuel then I would change my budget for groceries for that same month and increase the fuel budget. Patzer gives a clear explanation of how to let funds build up in categories over time.

Of course, sometimes unexpected expenses come up. To use Patzer's example, let's say you have $200 in the clothing budget but need to get a new suit this month. Then you have to reallocate from other categories to cover it.

[lebdavidson2]

I'd like the "green arrow" implemented. I may want to see that I overspent in gas and underspent in groceries, yet have the underspending cover the overspending by pushing the underspending into the buffer rather than carrying it over to the next month. I think this often times makes more sense than playing Whack-A-Mole, especially if you want to go back and look at a previous month's spending habits.

I never thought of that, but I like the idea. The major drawback I see is that it makes things more complicated and I like the simplicity of YNAB

[jam40jeff]

I don't think it makes things any more complicated than the red arrows. To me it's confusing that overspending and underspending are treated differently.