My Mom, the budgeting rock star (no joke), is currently experimenting with a transition from Quicken to YNAB. She’s already signed up for an intro class, but last night we spent a few minutes sharing screens and talking about her first pass with YNAB and the Four Rules.
Five questions came out of the conversation:
1. How do I manage my car loan on the budget?
You don’t. Make the loan an off-budget account and budget the payment as a normal category and outflow.
(Yes, you technically can manage loans on budget, but it’s messy – with no benefit to your budgeting success.)
2. Is there a difference between a known, infrequent expense and a Rainy Day fund?
Nope. YNAB vernacular throws new folks a little. Traditionally you’d think of saving for a rainy day as something that only refers to unexpected expenses. For YNAB’s purposes, Rainy Day funds refer to any expense that gets paid less frequently than every month.
Your choice of jargon doesn’t help or hurt your ability to live the 4 Rules. Mom has a master category called “Known Infrequent Expenses” (or something to that effect), and another called “Rainy Day Funds.” That’s fine. She’s giving her dollars the right jobs; naming conventions don’t matter much.
3. Do I have too many on-budget accounts?
Okay, Mom didn’t actually ask me this question. Looking at her budget, I said: “Ma, you have too many on-budget accounts.”
Now, I realize having multiple on-budget accounts doesn’t break YNAB or any of the Four Rules in particular. But it breaks simplicity.
I told her I’d only put accounts on budget if they were directly involved in my monthly outflows and inflows. Turns out she does have money flowing into and out of several accounts at any given time – but out of habit, not necessity.
In my opinion, working with lots of on-budget accounts creates unnecessary mental overhead, and creates opportunities for mistakes.
I’m a fan of “as few accounts as possible,” so for me it’s:
- Credit Card (zeroed monthly)
- Emergency Fund
- Student Loan
4. Is it okay to budget a month in advance?
YNAB isn’t going to boot you off the software if you’re budgeting ahead of the current month.
But you are breaking Rule 1, and as a beginner, the practice of allocating money you don’t have (“forecasting”) is a threat to a successful budgeting habit.
The True YNABer keeps “Available to Budget” at a radiantly green $0.
Okay, but here’s the deal. I use next month as a placeholder for my typical category allocations. Am I breaking Rule 1? The shame of it.
5. Should I create a second budget for the rental properties or manage them in my main “Household” budget?
As far as I’m concerned, this could go either way. The key factor in Mom’s situation is that rental income and expenses flow into her personal bank accounts.
The mix of personal inflow and and outflows with property incomes and outflows told me she should manage the properties on her main budget, and use YNAB’s Payee field and slick reporting features (where you can filter by Payee and export to a spreadsheet) to pull relevant data out of the budget at tax time.
I’d be curious to hear how other YNABers deal with property management.
The beauty of YNAB is its flexibility. Could my mom go completely against my advice? Sure (it’s typically the safe move). What matters is finding a work flow that helps you make better, more thoughtful decisions about your money.
How would you have answered my mom’s YNAB questions?