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.
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!
This thread is popular in searches lately, and I wanted to include a few resources. We think of savings differently at YNAB, and recommend that your savings accounts are budget accounts. That way, you can give every single dollar a job! Add savings categories for your savings dollars. 😉
Here are a few resources:
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.
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.
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.
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.
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.
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.
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.
Thank you for starting this topic! About six months ago I moved my emergency fund to a higher interest rate savings account and moved it out of budgeting and into tracking. You see, I discovered there was a loose nut behind my keyboard that kept scooping money out of my emergency fund! So I needed pulling money from emergency to be more work, not less.
It is working pretty well for me, except for my age of money metric, that has really suffered. In my mind, I know the $ value I need to cover 3 - 6 months of expenses. I then pay my emergency fund as I would a bill each month. And when I look in reports, at my spending pie, I can see a % of my "spending" going to savings i.e. Emergency Fund, Retirement Fund, College Fund . It makes me feel better to see the slice and know that some of my "spending" is for future emergencies.
If I have to pull money from the emergency fund... I categorize the transfer back to checking as my emergency budget category and then move it from emergency budget into the category that needed the funds. This allows my emergency fund "spending" to be adjusted down in my reports.
I totally get the budgeting into the future months as an emergency fund, the logic side of my brain loves the idea. But the un-logical, irrelevant to accounting, emotional side of my brain feels better thinking of savings as "spending". I also like the feeling and false sense of security of seeing that big lump sum sitting in that tracking account. So the heart won on this one.
Annieland My "YNAB Confessions" post would be "I do it because it feels better, not because it's better"
Navy Blue Foal said:
Maybe instead of telling bbn people they are doing it wrong because they dobt do it your way you can learn to accept bot everyone does things your way.
If this was merely a workflow preference -- alternatives ways of achieving the same result -- then I think people would be a lot more accepting. (However, I think it's fair to point out that some workflows are less efficient than others. It's a public forum and onlookers can draw their own conclusions!)
However, insisting on keeping Emergency Funds (EF) in off-budget accounts is usually more than just a workflow preference -- it is a HUGE RED FLAG that you haven't fully bought into the YNAB system and aren't realizing all of its benefits.
You should reflect on why you feel it necessary to keep your EF money in an off-budget account. Does "hiding" EF money in a savings account make you less tempted to spend it? I.e. are your spending decisions still based more on account balances than category balances? (If so, why bother to sort money into categories if you're not going to heed them when it really matters?)
I'm not intending to single anyone out here. The "you" in the above paragraphs is just rhetorical; these are questions that all YNAB users should reflect on! And I certainly don't wish to imply that the "YNAB system" is the one-and-only-way to operate a budget. I've adopted a slew of workarounds to suit my needs. But on this particular topic, I don't think there's much wiggle room -- category balances, not account balances, should drive your budgeting & spending behaviors. That's fundamental to the envelope budgeting system.
I think this is right, Bret, and I also think it's okay if it takes someone time—even a long time—to get there.
Make your savings part of the budget is scary. If you haven't gotten to the point where you really trust your categories, it feels a little like withdrawing all of the money in Benjamins and putting it into your wallet along with the money you were going to spend at Wendy's.
So for many YNABers, I think it has to go in stages. You leave your savings account off-budget, or you sync it to a category, or you (and this is also the rhetorical "you") add your your "regular" savings account to the budget but not your emergency fund savings account.
And then, sometime later—a few weeks, months, or years—you have a moment of clarity. YNAB is doing something really good to the money in my checking account. The balance keeps going up, and I've stopped spending all my money without realizing where it's going. Maybe I should see if it can do the same for my savings account...?
It can, of course. And it can do more than that: having your savings in your budget is the only way to truly reap the benefits of Rule 3, because if you can draw on a pool of off-budget savings, you're not really rolling with the punches, because you can't see the tradeoff you're making.
So, we still recommend that all YNABers make their savings part of the budget right away. But if it takes time to get there, I completely understand that.
Navy Blue Foal said:
more problems to keep everything in sync.
What are you keeping it in sync with? None of my category balances add up to any particular account balance so there is zero work to have all my accounts on budget.
Navy Blue Foal said:
jenmas yes because any on budget money has to match up with on budget account balances (after accounting for uncleared transactions), I would have figured that should be obvious...
You're trying to budget-by-account in a budget-by-category software. You can make this work, but it's a whole lot of unnecessary work.
the total of on-budget accounts does have to add up to the total of all the categories.
But this is handled automatically by YNAB. It is the whole purpose of the software. If there were anything users have to do for that, nobody would buy YNAB. So I still don't get what is the extra work with having the Emergency funds on budget that Navy Blue Foal is talking about.
I've often thought a fun thread would be a "YNAB Confessions" where we all share the stuff we do that is not the official line... But I'm afraid it would get ugly really fast.
Did I call it, or did I call it?? 🤯
Nobody is going to convince Navy Blue Foal that keeping savings accounts off-budget is suboptimal so why try? And if anybody is confused reading through this thread, there is nothing special to keep in sync when your savings is on-budget. You fund your savings categories and keep your accounts reconciled. That's it.
Navy Blue Foal said:
You got the company line down pay.
HAHAHAHAHAHAHA. (Deep breath.) HAHAHAHAHA. Does anyone smell toast? It feels like I’m having a stroke.
You really, really don’t know what you’re talking about.
Navy Blue Foal I found your people! 🤣 This will allow you to bypass YNAB and its error-prone math altogether.
How 14 Bank Accounts Saved Our Budget
Navy Blue Foal said:
oh how these forums need a duljdlike button
I'm not familiar with the duljdlike button but yes, after many years of crowd-sourced YNAB budgeting, we've got YNAB best practices down to a science. If you stick around, you'll get there. By the looks of your other thread, you are open to experimentation so that's a good start.
If you think YNAB has arithmetic errors, you should probably stop using it and find something that doesn't have math errors. If I had a calculator where 1 +1 never equaled the same thing twice, I'd throw it out.
Yes, SFTF is a thing, but there are easy ways to prevent it, and the math still works out if you follow the instructions on how to calculate the amount of money in the budget that are provided by YNAB. I've never seen that number incorrect ever.
I just discovered this awesome Youtube channel that explains how to use YNAB with such clarity. YNAB should hire this guy! This video explains 3 different ways of doing savings in YNAB, you may want to watch it to help clarify you're thinking on how you want to track your savings in YNAB.