Emergency Fund in Tracking?
I have a savings account that I use for my emergency savings and have it set up as a tracking account. When I make a deposit from my chequing account I do it as an outgoing expense to my "emergency fund" category.
Is this wrong? Should I have it as a budgeting account and just keep growing my available amount?
If I have an emergency expense I currently transfer money to my chequing, so it shows as "to be budgeted" then I move that money to the category that best suits the emergency (e.g. auto maintenance when I was in a fender bender). My reasoning is that this way I can also see where my "emergencies" are costing me and see if I need to budget more in some categories - likely for my car and pets.
The way that you are doing this is perfectly acceptable. I have done it that way in the past as well. Our emergency fund is in an account at Ally Bank, and this worked well for us when we held only emergency funds in that account. It only becomes an issue if you want to use the money in the tracking account for more than one purpose. In our case, most of the money in our Ally Bank account is considered emergency fund, but some of it is earmarked for college tuition for our daughter. So I moved the account back on budget to more easily allocate the balance between the 2 categories.Reply
With YNAB, you should be including your savings in your budget. It would be worth while to read
With YNAB your savings doesn't depend on what account it is in. You should be looking at your budget to know how much to spend on things not what is in your bank account.
Having it as a tracking account throws things off because when you move money out it looks like and expense and when you bring it back in to use it looks like income. Now, if you don't care about the report tool in YNAB, then using the tracking account works. However, this is not giving that money a job. There is nothing that say that job cannot be to sit there and wait for when you absolutely need it.
Rule #1 EVERY dollar has a job, that should include your savings. Even if it's job is to cover the unexpected.
Side note to think about. I have seen many post of don't go more than a month out with budgeting. In my opinion, budgeting out 3-6 months in advance then becomes the emergency fund. That is the basis for an emergency fund. Having 3-6 months worth of expenses set aside. The difference with YNAB is you can do that by budgeting out the moths ahead so long as you have the money.Reply
My reasoning is that this way I can also see where my "emergencies" are costing me and see if I need to budget more in some categories - likely for my car and pets.
Additional note: An emergency fund turns a crisis into an inconvenience. You can also get that information by instead of directly using the emergency fund category, just move the money to the category it was needed in, and look at your average spending to see if you are budgeting enough. If you are overspending in a category and covering form your emergency fund, what that really means is you are not being realistic in how much your need for that category.Reply
Keeping savings off-budget is very high up on the list of bad ideas. Take it from someone who once insisted on keeping my very important not to touch major emergency fund off budget and, once was comfortable with the budget, spent six hours one night re-doing 14 months of transactions so that that account would be on-budget from the start.
You'll get all the same information just from using the reports for your car and pets categories. I evaluate my averages every 6-12 months to make sure I'm budgeting appropriately. Any moving of money that I am doing consistently winds up showing up in that self-audit, and I adjust my budgeting accordingly at that time.Reply
So, a few thoughts:
Budgeting 3-6 months out, why? If you know your monthly expenses are $x, then you can set an "income replacement" category as $x times 3, or 6. Then it sits there, and if you lose your job, you start budgeting from it.
On budget savings: this is mostly two fold: 1) so you aren't showing savings as spending and 2) so you don't double count your savings. Often you might think "well, I have $5000" and that will cover any one individual emergency. But saying it's for car repair/replacement, and job loss, and medical deductible, etc., tends to make us really underestimate our need for savings. Someone on the old board had their teenage daughter drive the car into the garage, and wipe out three deductibles in one day - auto insurance, medical insurance, AND homeowners insurance. With one bucket of savings, this didn't stretch far.
If you are using it for car repairs and other types of unexpected expenses, YNAB would say those aren't unexpected. Make categories, and save funds for them.
If you want the categories to match an account, then make a master category for all the savings categories.Reply
Thanks everyone, it looks like I should move it back into my budget account! And suck up my feeling of having a (one day) big pile of money “sitting there”. Would the same go for my TFSA savings, which I see as medium term but don’t actually know what I’m going to do with? I do have retirement savings that I want to keep in tracking because I will never touch that except to add to it, for about 30 more years!Reply
Purple Packet said:
. My next problem is that my "long-term savings" probably needs to be split slightly, because it acts as a spending buffer & emergency fund & long-term goal saving, which is annoying to have all in one account.
This is exactly the problem that YNAB solves for you (if you let it.)
Most people have a lots of competing financial goals -- large purchases (e.g. new car/house, vacations, etc.), savings for retirement and/or college, safety-nets for loss-of-job or unforeseen emergencies. Managing separate bank accounts for each of those goals is impractical. It doesn't scale.
YNAB invites you to keep all your money in one (or very few) accounts and instead organize it into categories, which you can think of as "virtual accounts." It's cheap, fast & easy to create dozens of categories and shift money between them as often as you like. Much easier than opening dozens of real-world bank accounts and constantly transferring funds.
TLDR; budgeting-by-account is antithetical to the YNAB method. Your categories are what gives your money purpose; the bank account is just a location.Reply
I am going to say something very controversial for the ynab community and say no it's not "wrong" if that's what works best for you.
It is not ynab's recommended way. But especially if your emergency fund is the only thing in the savings account it really doesn't matter.
However, if you have multiple savings accounts the ynab recommendation will help simplify things by combining all your savings into one account and tracking each savings goal in a budget category.
I personally do many things that go against ynab's recommendations. For example I actually have a tracking account for my auto loan because I do want the visibility that provides and my reporting needs aren't so extensive as to justify buying something like quicken to use along side ynab. Another example along the same lines is I have a tracking account for my vehicles value. I started with the fair market value from Kelly blue book when I bought the car then once a year I recheck the fair market value and add a depreciation expense for the difference to I can track depreciation year by year.
I've 0ersonally gotten to the point where I don't care if people here will say what I'm doing is wrong because it works for me and it is PERSONAL finance afterall.Reply