Here’s a question we get once in a while (OK, a lot) in classes and support: “How do I use YNAB to track my car loan?” or “I have a loan of $15,000 I want to be able to track in YNAB.”
At the risk of telling you what you’re thinking, I’m not convinced you really want to track the balance. I mean, I understand the impulse. But my guess is what you really want is the car loan gone. Right? That’s the big prize.
So, in terms of YNAB, you don’t need to add an account for this. Don’t do it. Just create a category, budget for the payment and pay it. Then go out for ice cream.
“But whyyyy Erin? I waaaaant to track the balance.”
Okay, you deserve to know why. I’ve found that there two big arguments for adding the car loan as an account, and they just don’t hold a lot of water for me.
The I-Want-To-See-The-Balance-Going-Down Argument
You’re hoping for cause-and-effect. It’s natural to think that tracking the balance will lead to a lower balance, by motivating you with awareness. And we believe in awareness. Big-time. Making your decisions visual through a budget has a big pay-off.
In this case, you’re thinking something like, “By adding that account I’ll see it going down (cause), and be motivated to pay more (effect)!”
And maybe you will. But there are trade-offs. The more accounts you have, the more work you have to do, so the complexity increases. More accounts means more transferring, reconciling, and checking of balances.
Your budget doesn’t need more moving parts. It needs fewer. It doesn’t always feel right, but as a rule, things that are more complicated don’t work as well.
I remember a school I worked at years ago that had a horribly complex schedule. Every other day was a different color, black or red. Red days had different classes than black days. There were eight blocks each day, but which block was first depended on the day of the week. The four morning classes rotated independently from the four afternoon classes. Not following? Yeah, neither were the kids. Or the teachers for that matter!
I remember a student wandering into my room in tears the second week of school one year saying, “It’s red Tuesday! What time is it? Where am I supposed to be?” The schedule was just too complex.
The last school I worked in had a simple schedule, four classes one day, four different classes the next day. Easy breezy.
Simplicity is perfection. How many accounts do you want to reconcile and manage? 12? 27? 42? (Yes, I’ve seen that.) How about 3? How about one checking account, one savings account and one credit card?
In the end, if cause and effect is what you’re after, consider this: Setting money aside for the car payment and paying the bill (cause) will result in a lower balance (effect). Setting even more money aside leads to an even lower balance. And your budget, uncluttered by the bookkeeping that comes with adding lots of accounts, will find those extra dollars for you.
Cause and effect? Just budget. Stick with your budgeting. The balances will take care of themselves.
By the way, it works the other way too. Want your checking account and your savings account balances to go up? Budget more to your rainy day categories. Save with purpose. Save for vacation. Save for the next car. The effect of budgeting will be higher balances.
The I-Need-To-See-All-My-Financial-Data-In-One-Place Argument
Some people want all their financial information in YNAB. But your budget isn’t about tracking. It is a place for decisions. For taking action. Are you adding things that are actionable? You add that car loan and look at that balance, and then what?
The action is in the budget. If you want to pay off the car loan sooner, maybe you move some money from restaurants or clothing or any category that’s not as important to you as paying off the car. That’s action and it’s action that creates the change you want.
(It’s also cause and effect, but I kind of wore that one out already.)
Budgeting keeps you focused on the things that matter—your priorities.
You don’t need to see everything in YNAB, in fact, that’s not what it’s for. You could put your mortgage loan in YNAB, too, and list your house as an asset. But why? It’s your mortgage payment that makes a difference in your budget. You know you’ve got a big debt and (hopefully big, but very potential) asset on the other side. You don’t need to see them alongside the tool you use for deciding how much to spend on new clothes.
Your budget and YNAB are designed to be awesome at helping you manage cash flow. And it is. Focus on getting awesome at managing cash flow. Look at your budget. Prioritize. The rest will take care of itself.
Give your dollars jobs. If you want that car loan gone sooner, budget more dollars to your car loan category.
Keep things simple. Let YNAB do what it was created to do and you’ll be ahead of things in no time at all.