YNAB Podcast Episode 70: I'm Saving This Money. (For What?!)


Hello YNABers. My name is Jesse Mecham and this is podcast number 70 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I want to specifically talk about saving money and how you do that in YNAB. Why you shouldn’t just save money, but should save money with a purpose.

I was talking to my sister – my sweet, sweet sister – and she said, “I’m saving money. Where should I put it? Should I invest it?” So I said, “Well, what’s the money for?” “Well, it’s just savings.” I said, “Well, what are you saving for?” “Well, nothing. I’m just saving it.” And I told her I really couldn’t give her an answer because I’d have to know more about what she was going to use the money for. So I said, “Well, is it for retirement? Is it for a house down payment? Is it for a vacation? Is it for a crock pot? What exactly are we saving for?” Until you decide that, you can’t really save with the same focus and the same intensity you could otherwise.

Savings that don’t have a job, savings that are just savings, will be raided at the first sign of an emergency, or an excuse. So you’ll say, “Oh man, this came up. Well, let’s just use our savings.” Well, if that savings was for a new MacBook Pro or it was for a vacation or for Christmas, you’d think twice about raiding the savings to bail yourself out of some perceived emergency. That emergency is probably an under-funded rainy day fund from Rule Two. Sometimes there are legitimate emergencies where an emergency fund would need to be utilized, and an emergency fund is savings. You’re saving for an unforeseeable emergency, not for a larger, less frequent expense like Christmas.

So, make sure your saving has focus. YNAB handles that really well for you. There are a lot of different ways you can handle savings in YNAB. You can keep the savings completely off-budget and simply when you transfer money, let’s say, from checking to an off-budget savings account you would categorize it as savings for car, savings for vacation, whatever category set-up you have. And the money flows out of the budget and then it’s gone. It goes into that savings, and you don’t see the savings on your… in YNAB at all. It’s not even an account, not even an off-budget account, it’s just not there. So it’s like an outflow.* The category is like a gatekeeper for your budget. Categories let money come in and let money go out of your budget. If it never enters the budget, it obviously doesn’t get a category; and if it’s never leaving the budget, it doesn’t get a category there either. So one way that you can do savings is to not have your accounts in the YNAB software at all. 

Another way is to have your savings as an off-budget account. That way you could record transfers, but you just want to make sure that your transfer out of your checking account is categorized because it’s leaving the budget, it’s going off-budget. And any transfer from your savings back to your budget would be categorized because it’s entering the budget, and those categories are the gates for the budget.

Another way you could do it is to keep your savings on-budget, where you’re transferring money from your checking to your savings account and neither is categorized because the money is staying within the budget. In that regard, you can just use your categories and set… fund those categories – say $400 for car replacement. You put that in your car replacement category, you budget for it, and you watch that category balance grow. And then you do the transfer – physically when it happens at the bank, and then also virtually in YNAB. Transferring on-budget to on-budget obviously means there is no categorization. So, that’s another way to do it.

Finally, you don’t have to use a separate savings account physically at all, and you simply use your category balances to track all your savings. Your checking account will grow to a size that you likely have never seen, and it’s kind of cool. That’s what we do. Our emergency fund sits in our checking account. Our new car fund, before it was massively depleted, sat in our checking account. We just have a big, flush checking account. And then if little, niggly things happen like Rule Three and having to roll with the punches, it makes it much easier to actually roll with those punches.

So, there’s four different ways you can handle savings. We have a best practice way – I can’t recall it off the top of my head which one of those it is. But if you have any questions you can check out our support page, and go to the video and see Erin, our lead teacher, explain that much better than I just did, with some visuals and everything.

So, I just wanted to make everyone aware, you know, be aware of how you can manage those savings, and also talk about why it’s important to have a purpose with your savings. Savings without purpose is savings with a target on its back.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.