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.
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I'm 100% with you, but that's not how ynab thinks of savings. I'm learning to adjust, maybe we can start a support group. Ynab has a good articles on this too.
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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.
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Ben K. I don’t think I understand when you say “that’s not how YNAB thinks of savings”. What is the usual YNAB approach?
bobbucy yes it’s only emergency, “hopefully never to be used unless something unforseeable happens” money in that account. The true expenses/annual stuff is in another account
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Karine The community will answer without fail. In short, the categories control your money, not the account it's in. Unlink the account to the use of the money in your thinking. That's a big leap for me, who had like 5 separate savings accounts...
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Khaki Storm Yeah, I'm trying to understand this. I use GnuCash for my accounting purposes (which is great for accounting, but it's budgeting sucks, so I'm trying out YNAB to be used as well. I tried using Quicken and it was entirely horrible).
Anyway, before YNAB, I started getting into the CC rewards a little more (e.g. Discover, Citi, Amazon Chase, each giving their own cash back advantages). Between that and my mortgage/loan, it was getting annoying trying to make sure my checking account was retaining enough value. So I switched it around. Every week, I move money automatically from my checking to my "Home Loan Savings", which I'll check once a month to make sure it'll have enough before the autopay hits. I then did this with my car loan. And now my credit cards - every week, I'll move money from my checking to these accounts. The rest goes into "long term" savings.
There's a few kinks I'm working out, but overall, it's been pretty good. It's a little intensive, but the auto-pay means I won't forget. It'll pull from savings that nothing else ever pulls from (so no potential overdraft because 2 bills came in unexpectedly), and during that interest free period after the statement comes through, I'm earning interest - not much. And since I'm funding the accounts every week, it's keeping me honest on how much money I actually have. 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.
Merging that "system" with YNAB has been....fun.
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With YNAB, you should be including your savings in your budget. It would be worth while to read
the relationship between your budget your accounts its complicated and budgeting your savings.
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.
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Tardigrade
Tardigrade said:
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.The reason many seasoned users don't recommend more than a month out is that when your plans change, instead of only having to change one month, you have to change 3-6 months worth of budget entries. It doesn't even have to be an emergency to make changes.
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nolesrule That is a fair point, but I would have to ask how often are you having those "emergencies" and what are you counting as one. If it is happening frequently, I would have to question if it really is an emergency or what else is going on that they happen so often.
I would much rather see how far out I can cover the basic of my budget and have to re-adjust when something major happens. This also lets me know how far out my budget has been affected by the emergency.
The end result is the same, the money comes from somewhere. So not going more than a month out, is most people preference. I disagree with that method, but it is your budget. 🙂
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Tardigrade it's not that you have to make changes for emergencies, it's that you have to make changes for the little things: when your cable bill goes up $1.23 or do to an escrow analysis your mortgage goes down $7.81 or if you do balanced billing on your utilities. Making these little changes in 6 different months increases the chances for typos.
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Tardigrade What jenmas said. It's the micro-changes to fixed costs that become a major PITA. Monthly expenses. Monthly budgeting toward annual expenses. So you want to budget 6 months ahead....
Netflix goes up a dollar/month. Change 6 months.
Amazon Prime goes up $10/year. Change 6 months.
Annual car registration increases. Change 6 months.
Auto insurance increase. Change 6 months.
And so on.
These are all costs that are budgeted the same every month... until you get an increase (or decrease). And with each increase, you have to change your budget. And the farther out you budget, the more months you have to change.
And don't forget this is zero sum. For every category you increase, you'll have one or more categories that will need to be reduced to offset the change... in each month.
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Tardigrade I budget into the future as well. My E-fund is my income replacement fund as well. I am 9 months out. I know what others have said about changing things in the next nine months but I have everything set up as goals or recurring payments. When something changes I just change the goal and or the recurring payment, lower the goal on another, then just click through the next few months. but then very few things change for us on a monthly basis.
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Karine said:
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.
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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!
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Karine
I have a couple of TFSA accounts. I would not recommend keeping a TFSA account on-budget. You can't spend directly from the account.
Categorizing the shifts in account value in your budget are a major pain. If the market corrects resulting in a drop of 30%, which category takes the hit? If the value increases, do you record it as income? Best to leave it off-budget in a tracking account.
Edited to add: If you have a shorter-term savings horizon, plan to pull the funds out within a few years, and the funds are invested in guaranteed investments like a HISA (high-interest savings account), then that type of TFSA investment won't cause you trouble being an on-budget account.
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Karine said:
TFSA savingsPlease explain what that is?
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Ben K. TFSA is Tax-Free Savings Account. I believe that specific term is mainly used in Canada, but the UK has a similar type of account. The US does not.
edit: It's basically a Roth IRA with no minimum age for distribution, IIRC.
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mamster Nice! I can understand your question better know. It's kinda both a savings account and a retirement account.
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Karine said:
Is this wrong?Seems a shame that it's only the emergency savings that is accumulating at the higher interest rate. Let's just say that you can do better.
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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.
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Navy Blue Foal Your auto loan example isn't equivalent here. You do what you do in spite of YNAB's recommendation because it provides additional value to you. That's a personal call without question, and apparently the additional value is worth the additional effort in your mind.
In the case of an off-budget emergency fund, there is no additional value -- logical separation, interest earned, even the risk of accidentally spending it is the same in either case. There is, however, more effort involved with it being off-budget.
With no difference in value, I would contend that the approach requiring more effort is the wrong way to do it.
That really only leaves the question of whether the value is the same. To date, I've seen no compelling arguments to the contrary.
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Navy Blue Foal Yeah, totally different thing. I also track my net worth in YNAB and it gives me great value. Especially over time. I think that's more of a beginning budgeter recommendation by YNAB. You don't need extra complications when you're just starting out and learning the method. If YNAB didn't want you to track net worth, they wouldn't have tracking accounts.
Tracking net worth is a more advanced financial concept after you have budgeting under control.
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Navy Blue Foal 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. Either to learn better (or worse) methods, or just have fun. But I'm afraid it would get ugly really fast 😂.
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dakinemaui the point is it makes no difference either way. It really isn't any more complicated it matters what works best for each person.
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Navy Blue Foal It requires more effort. More effort is more steps. More steps is more opprotunities for mistakes. Therefore it is more complicated.
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