YNAB You Need A Budget

[ynaebber]

Hi there,

how do you guys treat your life-insurance?
This is money which I currently spend, but on a business point of view it´s money which should not really be spent it should be kind of a transfer, right?
But how do you handle that? Because it´s not the actual value that´s transferred, because you have some fees or tax or whatever that´s subtracted and interest that´s added...
Is your life-insurance an account or not? Any tips are very welcome!!

Thanks
Luke

[Budget_Ninja]

I have term insurance. I treat it like a bill not a transfer to an external account, so only have a category for it that I budget money to every month. The bill is paid yearly so the balance grows until the bill comes and wipes it out.

[ynaebber]

OK, so maybe I didn´t explain enough in the first place...
Of course a life-insurance is a bill I have to pay.

My life-insurance though is as well an investment I can get back after a certain amount of time, like a pension. So it´s actually kind of transferred money, waiting for later.
Maybe I should have asked how do you treat investments?!

Thanks for any help
Lukas

[Joel]

OK, so maybe I didn´t explain enough in the first place...
Of course a life-insurance is a bill I have to pay.

My life-insurance though is as well an investment I can get back after a certain amount of time, like a pension. So it´s actually kind of transferred money, waiting for later.
Maybe I should have asked how do you treat investments?!

Thanks for any help
Lukas

How liquid is it?

Can it be easily cashed out now, if needed?

If not, I would treat it just like my retirement accounts. And that is to not include them at all. I budget for the expense and contribute 5000 per year to my IRA. But there is no sense and tracking the monthly or even yearly balance because I can't touch the money until I am 60.

I have a feeling the life insurance you must keep paying for a certain amount of years before you can touch it. That's why I would just handle it like any other bill. No reason to have it as an account.

[Budget_Ninja]

I agree with Joel. I used to keep investment account in YNAB, now I just keep contribution room and show it like a liability. As I contribute my contribution room decreases. I find tracking this is more beneficial to me than tracking account balances.

[imnotplutonium]

I agree with Joel and Budget_Ninja. I have, what sounds like, the same type of insurance where I am putting it in now and can pull it out without penalty later on (earlier than 60 though). I just show it as an expense with its own category and pay it monthly. No use keeping track of the balance unless you REALLY want to. It would just be another account you have to keep adding interest earned on.

[smallLife]

I budget for the expense and contribute 5000 per year to my IRA. But there is no sense and tracking the monthly or even yearly balance because I can't touch the money until I am 60.

As an aside, your contributions to a Roth IRA are able to be withdrawn at any time. In addition, you can take an annuity-like deduction from your 401K (I believe it's called a 42t or something similar). So the money is definitely touchable, even if you have to do a few workarounds for 401Ks.

[litterbug]

I don't consider my 401k to be available. I don't even consider it to be an emergency fund. I could take a loan out of it, and sure, I'm repaying myself, it's still credit; if I can't pay it back I pay penalties or something like that. It's retirement money, not an investment account. Sorry if I sound a little strident, but the whole point of investment into retirement funds is making money on the long term. Short term investing is a loser all around.

[smallLife]

I don't consider my 401k to be available. I don't even consider it to be an emergency fund. I could take a loan out of it, and sure, I'm repaying myself, it's still credit; if I can't pay it back I pay penalties or something like that. It's retirement money, not an investment account. Sorry if I sound a little strident, but the whole point of investment into retirement funds is making money on the long term. Short term investing is a loser all around.

With 401Ks that is certainly the best way to think about them (except for early retirement folks) - taking out a loan on them is never a good idea. Roths are a different beast and can be a great savings tool as well as an investment tool, depending on your goals. I was just saying that it is possible to use those funds, but they should be planned for expenses and not to be considered as loans. Why anyone would ever take out a loan from their 401K - where they not only lose out on investment growth but have to pay back with interest - is beyond me.

[PatM]

I don't consider my 401k to be available. I don't even consider it to be an emergency fund. I could take a loan out of it, and sure, I'm repaying myself, it's still credit; if I can't pay it back I pay penalties or something like that. It's retirement money, not an investment account. Sorry if I sound a little strident, but the whole point of investment into retirement funds is making money on the long term. Short term investing is a loser all around.

With 401Ks that is certainly the best way to think about them (except for early retirement folks) - taking out a loan on them is never a good idea. Roths are a different beast and can be a great savings tool as well as an investment tool, depending on your goals. I was just saying that it is possible to use those funds, but they should be planned for expenses and not to be considered as loans. Why anyone would ever take out a loan from their 401K - where they not only lose out on investment growth but have to pay back with interest - is beyond me.

I agree that borrowing from a 401K is bad. But your paying the interest back to yourself. That is the only good news in that type of transaction.

[Joel]

I budget for the expense and contribute 5000 per year to my IRA. But there is no sense and tracking the monthly or even yearly balance because I can't touch the money until I am 60.

As an aside, your contributions to a Roth IRA are able to be withdrawn at any time. In addition, you can take an annuity-like deduction from your 401K (I believe it's called a 42t or something similar). So the money is definitely touchable, even if you have to do a few workarounds for 401Ks.

I suppose I could pay a 10% fee to withdraw the money, if i had to. But if it came down to that, why not just count it as income then? No reason to update my ira balance every month when its not going to be touched until 60.

You can withdraw some of it for your first home purchase. I believe 10k? However if I did that I would not run it through ynab, just like I would not have an asset account for the house or a mortgage account for the loan. There is no value added in maintaining that account in ynab when all the information is available on the monthly statement or online at the click of a button.

[smallLife]

I suppose I could pay a 10% fee to withdraw the money, if i had to. But if it came down to that, why not just count it as income then? No reason to update my ira balance every month when its not going to be touched until 60.

There is no fee to withdraw CONTRIBUTIONS, the earnings on those contributions are another matter. I plan on retiring at least 10 years before 65 so these things matter to me. They matter in YNAB because I find watching my net worth grow motivating - and at a time when maxing out my ROTH is 16% of my pre-tax income that motivation allows me to get to the point where it's fully funded. I also plan on using the Roth as an extended emergency fund down the road (have 1 month in a true cash EF, fully funded rainy day funds, and insurance premiums in cash). But that's beside the point.

The point is that you can have as much or as little of your financial picture in YNAB. Joel prefers the bare minimum for managing his daily expenses. I prefer to have the whole enchilada to keep me motivated and give me a better picture of how the "big" accounts fit into my monthly budgeting. It's personal preference. Same goes for the life insurance.

[DeguelloTex]

I suppose I could pay a 10% fee to withdraw the money, if i had to. But if it came down to that, why not just count it as income then?

You could start pulling money from your IRA almost immediately, with no penalties or fees, if you wanted to. If you did, you could certainly just count it as income, especially since that's how it would be taxed.

[Joel]

Where are you guys finding that there is no fee to withdraw contributions or that you can pull money from your IRA almost immediately, with no penalties of fees?

Are we all talking about a Roth-IRA like I was originally discussing?

No where am I seeing that it would not be a 10% fee unless it is a "qualified distribution", and for anything does not make it a qualified distribution.

Needless to say, we are getting off topic.

You can track it if you are truly concerned about your net worth and want to include every account you have, and maintain every account you have (at least monthly). Or you can only include your liquid accounts and only worry about what you can actually use in the short-term, while knowing your true long-term net worth is growing.

[DeguelloTex]

Where are you guys finding that there is no fee to withdraw contributions or that you can pull money from your IRA almost immediately, with no penalties of fees?

Google "72(t) Substantially Equivalent Periodic Payment".