If you asked most people what it means to save money, they’d probably mumble something about a savings account, or maybe stashing money in a safe, or if you have really interesting friends, perhaps burying cash in a bean can in the backyard. Hey, it takes all types, right?
We’re a little different here at YNAB. The way we determine if money is for spending or for saving revolves around Rule One: Every Dollar Has a Job.
We don’t look at our bank account balances, we look at our budget.
Well, we look at our balances too, but mostly just for reconciling our accounts and for the occasional gloating session. But it’s our budget that tells us if we have money available to spend, and if so, what we can spend that money on.
And believe it or not, it’s far easier and more accurate than breaking out the metal detector to find the buried bean can to count the cash stashed inside. In YNAB, saving money doesn’t mean hiding it away in a separate place, although you can if you prefer to do that; saving money means earmarking those funds for something specific and choosing not to spend it on anything else—regardless of where that money hangs out in the meantime. And it works!
How Do You Save Money in YNAB?
The first and most important step to figuring out how to handle savings in YNAB is to decide what you’re saving for. If you just shrugged your shoulders and said something along the lines of, “Emergencies or whatever,” then imagine a loud buzzer going off and me asking you to try again.
Get Clear About Why You’re Saving
Let’s face it, saving money is usually nowhere near as much fun as spending money. That’s just a fact for the vast majority of people.
A lot of folks go the traditional route of starting a savings account, throwing some money in there when they can, and thinking of those funds as a generic backup plan. But the vagueness of that can lead to problems. Say you want to order DoorDash but your Dining Out category is exhausted. But you really, really want Mexican food and you want someone to drop it off.
If your money is just hanging out as “savings” — well, that’s tempting to steal a little bit from. It’s just sitting there, waiting to be turned into delicious tamales. It sure seems like a justifiable expense. However, if you have to take that money from your Trip to Tahiti fund…you’re a little more likely to go make yourself a peanut butter and jelly sandwich.
Create Detailed Categories
Giving every dollar a job works for money you’re saving too. Some dollars get the job of fulfilling your dreams, securing your future, or bringing you peace of mind. If your dollars have jobs, you’ve set intentions for them.
That money in your six-month emergency fund? It’s like an invisible security guard, standing watch and prepared to protect you. That house downpayment money? Look at it there in its hard hat, gathering materials to build your future nest. The cash you’re stashing away for vacation? It’s like an invisible concierge, waiting to make your dreams come true. Having food delivered is great and all, but it can’t beat that.
Create a list of the things you want to put money away for and clearly define those desires by creating a category for each one in your budget. Focus is key to staying motivated and building momentum.
Set Targets to Save Money
Once you’re clear on intent, it’s time to break out the tools. Setting a spending or savings target in a budget category allows you to visualize your progress, and is a great way to break your big goal down into more manageable steps. There are three target types in YNAB and you can set monthly, weekly, or “by date” deadlines:
- Needed for Spending: Allows you to fund up to an amount, with the ability to spend from it along the way. Ideal for trips to the grocery store, holidays, vacations, etc.
- Savings Balance: Save over time and maintain the balance by replenishing any money spent. Perfect to start saving money for bigger items, such as an emergency fund or a down payment on a home.
- Monthly Savings Builder: Best for savings goals with unknown targets, contribute a set amount to save each month until you disable the target.
Saving is Fun…No, Seriously!
When you’re thinking about savings categories, don’t forget the fun stuff. Setting specific targets for something more exciting than upgrading your water heater can go a long way towards encouraging you to get into the habit of saving money on a regular basis, and being clear about what you want helps avoid the temptation of deciding that buying a hot tub is actually an emergency.
Learn to set up a Wish Farm and water your wishes whenever you can so that you can look forward to harvesting the fruit of your savings efforts.
Keeping it All Together
Do you need a savings account? In our opinion—not really.
But I feel like I need a savings account, you might protest. Okay! Have one.
It’s not that it’s a bad idea, especially if you manage to find a savings account with high interest rates. Just shift your mindset to understand that having separate accounts doesn’t really change your budget.
You’ll notice that if you make a transfer from your checking account to a savings account within YNAB, there’s no category required—because those dollars already have jobs. You can bury that money in a bean can for all we care, as long as it’s accounted for in the categories.
In your budget, all of your dollars hang out together. It’s like they’re all waiting for their train to work—they can sit on different benches, but they’re all at the same station, wearing their work IDs with their category names and hoping no one ate the leftovers they left in the office fridge.
You don’t need a savings account to save in YNAB. You need clearly defined categories, targets, and a willingness to send your dollars to their job—along with the dedication to make sure they actually get to that job, and don’t impulsively end up in a hot tub. Temptation is tricky like that.
But we believe in you, and your dollars, so get to work and start saving!
Worried about missing out on interest gained in a savings account? Wondering if it is bad to keep money in a savings account? You’ll find this worth a read!