YNAB You Need A Budget

[mbowling]

I would like to know if my budget reconciles with my checking account register.

In the budget I accumulate money each month for annual or semi annual expenses and my checking account register grows over time so I will have money to pay the irregular bills. But I really don't know if the correct amount actually exists in my checking account register.

I can verify that the checking account register matches the checking account balance at my bank but I can't verify that the checking account register matches my budget. I think I remember someone posting a formula to make this calculation but I can't seem to find it.

I've struggled with this and tried to figure it out but my mind turns to mush before I have an answer.

[Patzer]

I can verify that the checking account register matches the checking account balance at my bank but I can't verify that the checking account register matches my budget. I think I remember someone posting a formula to make this calculation but I can't seem to find it.

Current Month Remaining + Current Month Available + Primary Income for Next Month = Sum of Account Balances

On the left side of the equation, we have your dollars by job status: The are either already assigned a job (current month remaining), waiting to be told what job to do (current month available), or waiting to report for work next month (primary income).

On the right side of the equation is the traditional account-based view of your money. It may be checking + savings + cash - outstanding CC charges, or some variation depending on what accounts you have. The represents all the money you have that should be given jobs.

Patzer

Edited 4/10/2009 to change "Balance" to "Remaining," matching a change in accepted YNAB terminology.

[Sairey724Gamp]

I was going to post a link to "Patzer's Equation", but I see he beat me to it by giving it to you directly.
Patzer, how do you track down that link so fast? Or do you just keep the equation on the tip of your fingers to be ready whenever anyone asks?
Sairey

[Patzer]

Patzer, how do you track down that link so fast?

If I needed to find a link to where I've posted this, I'd be lost. I just type.

The key isn't memorization. The key is understanding. If I understand something, I don't need to remember the equation; I can always figure the equation out from general principles.

Patzer

[mbowling]

Excellent, thanks for the info.

I want to be sure I'm interpreting Primary Income for Next Month correctly. I have a full buffer in my checking account and I am paid once a month at the end of the month. I currently have the buffer amount showing as "Available to Budget" in July. I will be paid on June 30. In YNAB I actually record this as Primary Income on July 1 so it will be available in August.

Is Primary Income for Next Month the amount that I am paid on June 30 or the "Available to Budget" amount in July? The "Available to Budget" in July is slightly less that my one month salary because of an unexpected vet bill this month.

[Patzer]

I want to be sure I'm interpreting Primary Income for Next Month correctly. I have a full buffer in my checking account and I am paid once a month at the end of the month. I currently have the buffer amount showing as "Available to Budget" in July. I will be paid on June 30. In YNAB I actually record this as Primary Income on July 1 so it will be available in August.

Is Primary Income for Next Month the amount that I am paid on June 30 or the "Available to Budget" amount in July? The "Available to Budget" in July is slightly less that my one month salary because of an unexpected vet bill this month.

I think you're reading this correctly, but let me talk this through as of today (June 21) instead of June 30: The paycheck you got on May 31 was recorded in YNAB on June 1 to make it primary income for July. This is money that is currently in your checking account, and you see it on the budget page of YNAB by hovering your mouse over the July Available number. This will be one line item in the calculation of the July Available. (Other line items include overspending from June and any budgeting for July that you might have already done. It is possible that all the other line items making up July Available could be zero, in which case July Available would equal primary income for next month.)

Your June 30 paycheck hasn't happened yet, so it shouldn't be in your account balance or in your budget page numbers. On the last day of the month (June 30), if you record the paycheck as of July 1, you will have two months of Primary Income to account for in balancing your accounts to your budget. Then on July 1 things go back to normal.

Patzer

[mbowling]

After three times of carefully making the calculations the Sum of Account Balances (used in my budget, savings accounts are not used) is $1,030.75 greater than Current Month Balance + Current Month Available + Primary Income for Next Month (Available to Budget in July). So it appears that I have an extra $1,030.75 in my checking account. I always thought there was a lot of money in that account. It's my lucky day!

What entry should I make to add the newly found funds to the budget without affecting the account registers? The account registers match my bank balances.

[Patzer]

After three times of carefully making the calculations the Sum of Account Balances (used in my budget, savings accounts are not used) is $1,030.75 greater than Current Month Balance + Current Month Available + Primary Income for Next Month (Available to Budget in July). So it appears that I have an extra $1,030.75 in my checking account. I always thought there was a lot of money in that account.

That's rather a lot to be off, isn't it? $1,030.75 is a large mistake or the accumulation of a lot of small mistakes. Even if I couldn't identify to the penny how that error arose, I'd feel a lot better if I knew something I did that could cause that, so I could be sure I wouldn't do it again. So first I'd advise you to check the obvious things that people sometimes overlook.

Have you done a mouse-over the July Available to be sure that it matches the primary income? For example, my July Available right now shows about ($1550), consisting of about $1580 primary income, ($5) overspends from June, and ($3125) budgeted, because I've put some pre-budget numbers in for July. My Primary Income for Next Month right now is about $3130 more than my July Available. Do you have about $1000 of overspends from June and/or July budget numbers poplulated?

Do you have any non-zero Available numbers in prior months? If you do not budget to zero, YNAB sends the non-zero Available into hyperspace when the month rolls over. Some people have tried to defer money to the next month by not budgeting all of the Available; it doesn't work. You have to budget Available to zero in the current month to get correct numbers when the month rolls over. You have to have budgeted Available to zero in all past months for the current month to have correct numbers.

Do you use a credit card for budgeted purchases? If so, the credit card should have a negative balance corresponding to your outstanding charges. Was this included as an offset to the sum of the account balances? (i.e., is $1000 of your checking account really earmarked to pay your card when it comes due?)

When you originally set up your Budget, did you start with Supplemental Income equal to all of your account balances, including negative supplemental income (outflow) for the balances of any credit cards that you use for budgeted expenses? Setting up the initial budget is perhaps the most confusing part of working with YNAB. Unfortunately, people have to do this before they have any experience with the program.

You have what I would consider almost a double buffer, where you defer income from June 30 to August. Does your current sum of account balances exclude the paycheck you expect to receive on June 30?

Are all the bank accounts reconciled to the bank? In this context, "reconciled" doesn't mean they match the bank. It means they account for all the transactions the bank does, plus any transactions you know about that haven't posted to the bank yet. Uncleared checks used to be big, but now you have to watch for slow-clearing debit card charges and slow-posting credit card charges.

If you are tracking cash, does your cash account balance match your cash on hand?

Now, suppose you've looked at all of that and you don't have any of those problems. Kind of spooky, but it is what it is. You pump $1,030.75 more into your budget with two transactions in your biggest account, presumably checking:

$1,030.75 outflow, category blank. This removes the amount your checking exceeds your budget numbers.
$1,030.75 inflow, category supplemental income (or primary income, if you prefer.) This increases your June Available (or primary income for July) to make the equation balance.

I tested doing these as a split transaction with zero total. To make it work right, I had to enter the supplemental income as negative and the blank category as positive. Apparently YNAB defaults to expense for a blank category.

I'd give these two transaction (or one split transaction) a payee of "Adjusting Entry" so I could find it easily if it turns out that there's an error I haven't yet found and this adjustment is the wrong answer.

When you do that, you should have an additional $1,030.75 in June Available. Budget it to zero in June. (Alternatively, you have an additional $1,030.75 in Primary Income that you will need to budget to zero when you do your July budgeting.)

I hope you can identify what was going on that made your numbers diverge. If YNAB was set up right initially, and you did standard sorts of transactions and budgeting in YNAB, and you budgeted the Available to zero every month, you should have started in balance and stayed in balance all along.

Patzer

[mbowling]

Wow Patzer, thanks for the thorough analysis of the situation. I feel like I should pay you. lol

The short answer is that when I started YNAB a couple months ago I did have extra money in the checking account that was not included in the budget. I guess you can call it an additional invisible buffer. I didn't track the amount and was going to sort it out later, which is today. When I started using YNAB I based my budget on one month's salary with a full buffer and ignored the extra money in the checking account. I was a little lazy when beginning the budgeting process. I've been recording all transactions each day since April so I feel confident that what I have entered into YNAB is accurate.

So, after making the outflow/inflow adjustments you suggested my numbers are matching. I allocated the new available amount for June to various categories. The "Available to Budget in June" is at $0. The budgeted numbers and account registers look much more in-sync and accurate.

Current Month Balance + Current Month Available + Primary Income for Next Month really does equal Sum of Account Balances

You are very kind to take so much time to help me resolve this. I really appreciate your assistance!

[Sairey724Gamp]

Setting up the initial budget is perhaps the most confusing part of working with YNAB. Unfortunately, people have to do this before they have any experience with the program.

Mike, it sounds like this comment describes your situation perfectly. I'm glad Patzer was able to get you sorted out. Isn't it great when not only do things work as they are supposed to, but now you also understand what's happening? That understanding is the key to proper management. Onward and upward!
Sairey

[outdoorgrrl]

I was tracking expenses that hadn't posted to my account yet in the "unassigned" tab, and the formula wasn't working out. Here's a modification for anyone who is also doing this:

Current Month Balance + Current Month Available + Primary Income for Next Month + Sum of Unassigned Expenses = Sum of Account Balances

[Patzer]

I was tracking expenses that hadn't posted to my account yet in the "unassigned" tab, and the formula wasn't working out. Here's a modification for anyone who is also doing this:

Current Month Balance + Current Month Available + Primary Income for Next Month + Sum of Unassigned Expenses = Sum of Account Balances

In this situation, I'd regard "Unassigned" as one of your accounts. If I understand what you're doing correctly, it will typically have a negative balance . . . which won't show in the production release. The next release will show the balance of the Unassigned tab, making this easier to see.

Patzer

[JDB3363]

I try to keep things simple...

I have set-up a Checking and Checking Unreconciled accounts for each of my checking accounts. The Checking account register will keep a running balance with my bank and the Checking Unreconciled account register contains all entries that I made but have not cleared the bank. As items clear the bank, I right-click on my entries in the Checking Unreconciled account and select "Move to Account" and select my Checking account register. This makes "reconciliation" very easy for me - I typically check my accounts online throughout the month and just move the items that have cleared the bank - the running balance on the tab will always match the bank's balance.

All entries assigned to a category will show in the Budget across all accounts, so moving items between registers when a category is assigned makes no difference in terms of the Budget.

Jeff

[Annette]

I was going to argue with Jeff/JDB that there is no way that would simplify things, but I guess I'm wrong.

I just went though my checking register, moved the few items that hadn't cleared yet, and I have a perfectly reconciled account. Dang....I'm shocked.

This is definitely something I will play with.

Debits go through almost immediately, but I do try to use my debit card as a credit card, and checks of course, take time to clear.

I also like to show that I've paid for things at least a few days in advance, just so they show up as spent in my budget.

This might work well for me. Thank you.

[sgeidel]

I try to keep things simple...

I have set-up a Checking and Checking Unreconciled accounts for each of my checking accounts. The Checking account register will keep a running balance with my bank and the Checking Unreconciled account register contains all entries that I made but have not cleared the bank. As items clear the bank, I right-click on my entries in the Checking Unreconciled account and select "Move to Account" and select my Checking account register. This makes "reconciliation" very easy for me <snip>
Jeff

How elegant! This is exactly the solution I was looking for; thank you for posting this suggestion. I don't know why any other mode of reconcilation would be needed with this terrific tip now shared.

My slight variation on it (which others are probably already doing) is to simply split my screen into two windows, with my UNRECONCILED CHECKING on the left, and my online bank account on the right. I hold down the Ctrl key and click each item in my UNRECONCILED CHECKING that appears. Then, with multiple entries selected via the Ctrl key, I right-click, choose MOVE TO ACCOUNT, and they all move at once. My CHECKING tab is then perfectly in sync with the bank. How much is in my account? CHECKING minus UNRECONCILED CHECKING.

Thank you again, Jeff, for this elegant and simple tip. I see no need for any other type of reconcilation. Geez... as a new user I thought the "missing" reconcilation feature in YNAB might be a weakness. In fact, I actually find this "double-tab" method of separating cleared and uncleared transactions to be superior to the reconciliation module in my old financial software (MM).

stan