YNAB You Need A Budget

[Phil3]

I hope this is the best forum for this question, but if not, please redirect me.

I am about as new to YNAB as one can be, and no doubt, my question is basic. I set up a checking, savings, Visa, and car loan account. The checking and savings now total to the "Your Starting YNAB Buffer". The "Available to Budget" is the same amount. I have entered no transactions. It appears as though YNAB wants me to budget for all the money in the Checkings and Savings. This is a big number, and not sure what to do with it. Am sure I am missing some fundamentals here and perhaps did not set up the accounts properly. ???

Thanks.

- Phil

[elpozo]

Newb answering your question here.

It's possible that YNAB set up your all of your starting balances (for both your Checking and Savings) as Income:Available This Month. That's why in your budget page, it shows up that everything needs to be budgeted.

Maybe you could just leave it as is, then budget the amount that you'd like to keep in savings. Then the rest would be used for the real expenses. So let's say you have $5000, and you only want to really budget $4000 out of that amount, what you could do is, in your budget page, in your savings category, you put in $1000, then you budget everything else to the other categories

Hope that's clear

[lindy]

Since the money in your checking and savings accounts is entered in the category "Income: Available this month" as inflows, it's true that YNAB wants you to budget these funds.

But that doesn't mean YNAB wants you to spend all this money. The idea is to set up categories and budget your money into them, including categories for all of the things you will spend money on this month (food, rent, car loan, doctor bills, entertainment, etc) and categories for what you are saving for, for example, a rainy day category, a new computer, retirement, dues you pay only once a year, etc.

Does that help?

[thefish30]

1. Budget out your expenses for your starting month:

a. necessary living expenses
b. bills due this month
c. amounts to save monthly to in order to pay future semi-annual bills
d. amounts to save monthly to in order to cover 'lumpy' expenses (repairs, clothing, school, Christmas, etc.)

This should sum up to roughly your monthly income, unless you have a particularly large semi-annual or lumpy expense due presently.

2. If there's enough money left over, mark this month's income as 'Available next month". You have a buffer!

3 If there's still money left over, you can assign money to whichever lumpy categories you feel you will be needing it in before they have had a chance to build up. This is a judgment call. Assign these categories as you need for peace of mind. Some people choose to budget this money in the month previous to starting month so as to not 'mess up' the first month's budget.

4. Anything still left over is pure savings. You may budget it to categories like Retirement, Emergency Fund, or College. Many people prefer to take this money off-budget so it's not such a temptation to raid it, or to keep their YNAB free of things they don't really need to track day-to-day.

[grant]

2. If there's enough money left over, mark this month's income as 'Available next month". You have a buffer!

This is where I get a bit confused.

I understand the OP - he's got the balance of his accounts and YNAB is saying it's all available to budget. But he's also got in the back of his mind that he's got to create a buffer. What do you guys do? I've just discovered if I don't need to budget all my salary that I can just set up my salary as a split transaction and make it money I need to budget now (income available this month) and money I don't need for this month's budget (income available next month), but I only know how much I don't need to spend after I set my budget up for the month. Is this the way to go about it? In the past I'd just leave it as income available this month and I wouldn't spend it.

I'm pretty sure this is the same confusion the OP is having.

[lautzu]

If that is the OP's question, here's how it works: When you have accumulated enough funds that it equals the amount you need for a buffer, that's when you need to switch to Income: Available Next Month - this is best accomplished at the beginning of a month. You budget all that Available amount down to zero (this is the part that feels a little scary when it is the first time, because you feel a bit like you're stepping over a precipice...) and then as pay comes in, you make it A:NM - in this way, your Available to Budget number won't go back up in the current month, but will accumulate in the next. Then it is just rinse and repeat...

[EDIT/ADDENDUM: as far as it being a big number - it is! But you have to give all your dollars a job in YNAB, even the ones that you don't plan on using right away. Remember that budgeting for savings or an emergency fund is still budgeting - budgeting them doesn't mean you're planing to spend them all this month.]

[grant]

Thanks, that's a big help.

So to summarise what the OP should do (and what has effectively been said already) is:-

1. Budget for your expenses first
2. Budget an amount for savings
3. Do you have enough for you buffer? If not, allocate some to that. I personally would do that before allocating to a "savings" category in your budget; it's effectively the same thing.

If you don't have enough for a one-month buffer right from the start the options are to build up an amount in a "savings" category and budget down to zero until you do, at which point you can delete the category and assign the balance as "income available next month"...then you're off and running with the YNAB system. The other option is to do as I've done and instead of putting leftover income into a category of its own assign it as "income available next month". This might mean you'd have to split your income transaction into two amounts - one amount to cover your monthly expenses this month, with the rest allocated to income for next month.

Whatever you do, allocate every dollar to something...be it personal expenses, savings or your buffer.

[Patzer]

I am about as new to YNAB as one can be, and no doubt, my question is basic. I set up a checking, savings, Visa, and car loan account. The checking and savings now total to the "Your Starting YNAB Buffer". The "Available to Budget" is the same amount. I have entered no transactions. It appears as though YNAB wants me to budget for all the money in the Checkings and Savings. This is a big number, and not sure what to do with it. Am sure I am missing some fundamentals here and perhaps did not set up the accounts properly. ???

Is the Visa a card that you pay in full each month? If so, part of the money in your checking and savings is really dedicated to paying that bill when it comes due. You would recognize this by categorizing the Visa's initial balance (an outflow) as Income:Available This Month. That reduces the amount Available to budget, because that much money has already been spent.

YNAB assumes credit cards are old debt cards that you're trying to pay down, and by default puts no category on the initial balance. If that's your situation, this is appropriate; but since you state that you have a "big number" in checking and savings, I suspect you probably pay the Visa in full each month. If not, the Visa (like the car loan) would be what we call an "off budget account." You can track off budget accounts in YNAB; but you need to be familiar with how they interact with on-budget accounts. My recommendation for new users is *not* to put any off-budget accounts into YNAB until you are comfortable with the budget and the software in general. If you do choose to track off budget accounts in YNAB, look at the reminders in Lao-Tzu's signature on any of his posts.

Patzer

[lindy]

Does "OP" stand for opening post or something else? And what is "A:NM"?

Also,

YNAB assumes credit cards are old debt cards that you're trying to pay down, and by default puts no category on the initial balance. If that's your situation, this is appropriate; but since you state that you have a "big number" in checking and savings, I suspect you probably pay the Visa in full each month. If not, the Visa (like the car loan) would be what we call an "off budget account."

Can you point me to a specific explanation of off-budget accounts somewhere or do I just need to search the forum for related posts? I don't understand why the Visa or car loan would be an off-budget account. When I did a balance transfer on a credit card (fortunately at 0% interest), I set up an account for that card, entered my opening balance, and tracked my payments to it.

[Patzer]

Can you point me to a specific explanation of off-budget accounts somewhere or do I just need to search the forum for related posts? I don't understand why the Visa or car loan would be an off-budget account. When I did a balance transfer on a credit card (fortunately at 0% interest), I set up an account for that card, entered my opening balance, and tracked my payments to it.

I don't have a comprehensive explanation post at my fingertips, but here's a thread illustrating some of the confusion the on-budget versus off-budget distinction can cause.

In YNAB terms, on-budget and off-budget don't mean precisely what you might expect from general usage in society and discussion of how Congress treats the budget. Essentially, a collection of your accounts will be your budget universe. These are the on-budget account. Whenever money enters or leaves the budget universe, the transaction needs a category so YNAB knows money is coming or going. Within this budget universe, your category balances tell you how many dollars are assigned to which job.

An off-budget account is one that you might want to track in YNAB, but not include in the pile of dollars assigned to jobs. For example, a car loan is usually an off-budget account. It contains negative dollars (a liability) that are not assigned any job. When you make a payment on the car loan, you typically want to record that payment as having a category like Auto:Car Payments. That shows an outflow, or money leaving your budget. If you also track the loan in YNAB, the payment is a transfer from checking to the car loan account. That transfer needs a category in the checking account (to show money leaving the budget) but does not have a category in the car loan account.

Savings accounts may be on-budget or off-budget. You would keep a savings account off-budget if your budget focus is on how much you can "pay" to savings each month. When you transfer money from an on-budget checking account to an off-budget savings account, your budget would show that you "spent" what you budgeted for savings. Using this method, being under budget on the savings category is generally a bad thing.

You would make a savings account on-budget if your focus is on how much you have saved and what jobs that savings is supposed to do. When you transfer money from an on-budget checking account to an on-budget savings account, there is no category in either account because the money is staying in the budget universe. The real action showing what is saved happens on the budget page, where you may budget dollars to Savings:Car Replacement, Savings:Home Improvements, and so on.

My recommendation for new users to leave off-budget accounts out of YNAB entirely is based on reading a lot of posts with a lot of confusion about how to deal with the transfers. If the off-budget car loan and the off-budget savings account are not tracked in YNAB at all, it becomes very simple. A payment on the loan is like the payment of any other expenses and gets a category. A transfer from on-budget checking to off-budget, not-in-YNAB savings is a payment like any other payment and gets a category. This is clean, simple, and leaves your full attention for figuring out how the budget works and how best to set up categories for your situation.

Later, when you have a more solid understanding of the program and the methodology, you could bring the off-budget accounts into YNAB for tracking purposes. At that point, you need to deal with the reminders in Lao-Tzu's signature (see any of his posts in the linked thread).

Of course, if you believe you can handle learning about the program, figuring out your own budget, and figuring out how to deal with on-budget and off-budget accounts all at the same time, you are free to put it all in YNAB and deal with it. The program can handle it. But there are more moving parts to figure out.

Patzer

[chrish]

Does "OP" stand for opening post or something else? And what is "A:NM"?

OP - original poster (but it is sometimes used to reference the post instead of the poster)

In the previous post A:NM meant Income: Available Next Month. I:ANM probably would have been better but there isn't yet a common shorthand for Income: Available Next Month and it gets annoying to type so that's probably why it got shortened.

[lindy]

Chris,
Thanks a lot for explaining those abbreviations. I wonder if there's an abbreviations list posted somewhere in the forum or if there could be.
Linda

[lindy]

Patzer,
Thank you so much for writing such a detailed explanation of on-budget/off-budget accounts! I think I understand now but let's see...

An off-budget account is one that you might want to track in YNAB, but not include in the pile of dollars assigned to jobs. For example, a car loan is usually an off-budget account. It contains negative dollars (a liability) that are not assigned any job. When you make a payment on the car loan, you typically want to record that payment as having a category like Auto:Car Payments. That shows an outflow, or money leaving your budget. If you also track the loan in YNAB, the payment is a transfer from checking to the car loan account. That transfer needs a category in the checking account (to show money leaving the budget) but does not have a category in the car loan account.

When I had that credit card balance transfer and I tracked payments to it in YNAB, I made those payments by transferring funds to that credit card account from checking. The transfers had a category in the checking account but not in the credit card account. Does that mean the credit card account was an off-budget account?

And with my savings and checking accounts, I transfer funds between them with no categories in either account. The only item in my savings account that gets a category is the monthly interest entry. Does that mean my savings account is on-budget? I also watch how much I save in my various Savings categories on the budget page.

I recently started reading the forums a lot and the terms "off-budget" and "on-budget" seem to pop up everywhere. Have off-budget accounts always been part of the YNAB discussion? I started using YNAB in 2007 and I don't remember reading about them back then.

Thanks again!
Linda

[Patzer]

When I had that credit card balance transfer and I tracked payments to it in YNAB, I made those payments by transferring funds to that credit card account from checking. The transfers had a category in the checking account but not in the credit card account. Does that mean the credit card account was an off-budget account?

Yes. This would be the normal way to deal with a card that has old debt you are paying down. It's nice and clean if you don't use the card any more.

If you use a card regularly and pay it off every month, you want it to be on budget. The charges to a card like this would be categorized, but the payment of the card would be a no-category transfer from checking to the credit card.

If you're carrying old debt on a card and still using it, tracking it for the budget gets messy. It can be done, but a better plan is to stop using that card and turn it into an old debt card as described above.

I recently started reading the forums a lot and the terms "off-budget" and "on-budget" seem to pop up everywhere. Have off-budget accounts always been part of the YNAB discussion? I started using YNAB in 2007 and I don't remember reading about them back then.

Those terms wouldn't have been around in 2007, because YNAB didn't have accounts in 2007. Generally, the stuff that pops up everywhere on the forum is stuff that gives people problems. In 2008, after accounts came out, we talked a lot about how to deal with transfers. After the transfer function was added, we talked a lot about the importance of budgeting to zero so that you didn't create or destroy money at month rollover. After YNAB 3 fixed the month rollover bug, the next big thing that gave people tracking problems was inclusion of tracking accounts that aren't really part of the budget. So now we talk a lot about on-budget and off-budget accounts. When/if a version of YNAB is released that has software support for the on/off budget distinction, we'll be talking about something else that confuses new users.

Patzer

[malisab]

Thanks for the history Patzer.