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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  • In a podcast a bit ago Jesse talked about how, after a while, his family have stopped having ‘emergencies’ since when they have one he would start a new true expense category. I can’t remember what examples he gave, but it made sense. Although you would end up with a LOT of money on standby… more than I am disciplined enough to accrue.

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  • Just starting this journey, and I've read through this thread.  Lots of good information here, but still a few unanswered questions for me.  The big question is down a bit further if you want to go straight there:

    Just so I can clarify, the three methods we're talking about is:

    1. Link your emergency fund and track it, because it's in a separate bank account already...
    2. ...or, make it an unlinked account that you need to periodically reconcile.
    3. Consolidate your funds into a single account and just earmark the emergency funds by putting them in their own budget category that rolls over every month.

    Is that correct?

    For option 1, what happens if the fund isn't fully funded to your satisfaction, and you make a transfer from your primary checking to your emergency funds savings account?  Two transactions will show up, right?  Where would you drop them in your budget?

    For option 2, seems there's too much manual updating.  And, if you transfer money from your checking account to your unlinked emergency fund, how do you reflect that decrease in the budget?

    For option 3, although your money will be "co-mingled" into one bank account, it seems you would be able to easily assign it to an emergency fund category and when you actually have an emergency, you'll be able to move money from that budget category to the category the emergency actually affects.

     

    THE BIG QUESTION:

    What if you pull money out of your house for a single purpose.  Remodeling.  And, you want a payment card dedicated to that account so you can accurately delineate between transactions recorded at Home Depot, Amazon, etc., without having to sift through personal transactions.  Would you link that account and then create a budget amount and only assign funds in that account to that budget item?  If that's the case, when you spend $1000 on lumber, how do you track that it's lumber in YNAB, or HVAC, or Plumbing...?

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
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      • Reported - view

      SmashCrashBoing 1 is your best option. When both accounts are in your budget, transfers have no effect on your budget. The funds are already in your budget. You're just moving them from one account to another.

      Read this a few times until it sinks in:

      https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/

      Here's another reference:

      https://docs.youneedabudget.com/article/1679-why-doesnt-my-category-balance-match-my-account-balance

      Same thing for your big question. Just add the payment card to your budget. You need to get away from thinking about accounts. It's your categories that define the purpose of your funds, not the accounts. You'll be budgeting funds from your checking/savings and then just paying with the dedicated remodeling card. When you purchase items on the card, YNAB will transfer budget funds from the spent category(s) to the Payment category on the card. When you pay the card, you'll just be transferring funds from checking to the card and reducing the Payment category on the card.

      The only time you need to worry about account balances are when you're making a payment from that account to make sure you have enough in the account to cover the payment.

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    • Superbone Add the "payment card" to the budget as a budgeted item and fill that value with the amount allocated to the remodel, yes?  That makes sense, but like I mentioned in another post, if that value is significant, and can grow over the course of the remodel (which is going to take about a year) then I might want those actual funds in a higher yield account.  I get what you're saying, mechanically.  It makes sense.  It's a bit like gmail, where all of the mail is in the inbox, but tags determine how you can filter out and see the "folders" of information.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
      • Reported - view

      SmashCrashBoing No, not as a budgeted item, just as a payment account. It has nothing to do with where the funds sit. That's the point. They should absolutely stay in a higher yield account until needed. When it's time to pay the card, you can then transfer the funds needed to your checking account to make the payment. Or even pay the card from the savings account. Just be careful as in the US there is a 6 withdrawals per month limit from a savings account.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
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      • Reported - view

      SmashCrashBoing Along those lines, I just changed my yearly DMV registration and bi-yearly Property Tax payments to come directly out of my savings account thereby accruing interest right up to the moment they are paid.

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    • SmashCrashBoing For me, this is a question of How Much Should I Keep in Checking? I keep enough in checking so I don't need to transfer often to prevent overdrafts. I might re-adjust every couple of months, or if I happen to have a large purchase, but otherwise all of my money is in savings (earning a bit of interest). The amount in my emergency fund has nothing to do with the amount in my savings account. Both accounts are kept on budget, and I assign the dollars based on my priorities, not on their physical location.

      In your case, I'd make sure to track everything carefully in the remodel category, and put the money in whichever account makes the most sense. You can use tags in the memo section for HVAC, lumber, plumbing, etc.

      You could consider a separate budget for your remodel - in that case you would want to use a separate account that isn't reflected in your main budget, and you would use different categories for HVAC, lumber, plumbing, etc.

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    • SmashCrashBoing Just to clarify your setup: It sounds like you plan to have a dedicated credit card for your remodel and plan to pay that in full from your checking account? 

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    • Marisa We don't have credit cards.  There is a separate bank account that contains all of the remodeling funds.  I have just created a category for it and dropped the full balance of the bank account into the budget category.  When we determine pricing on a particular portion, like fixtures, or tile, or cabinets, I'll just move money from the full budget category to a different category and lump everything under a sub-heading or group for Remodeling.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
      • 1
      • Reported - view

      SmashCrashBoing As you get more comfortable with YNAB, you can get away from having separate accounts. It's an extra unnecessary complication. Categories are where you park your funds in YNAB. It is very powerful once you get familiar with it. Separating funds by accounts is the old way of budgeting before YNAB. One checking account and one savings account will suffice. It may also help you to keep more in savings accounts where you can make a little interest on your funds. Most mature YNABers keep the bulk of their funds in savings and just enough in checking to cover upcoming bills plus maybe a small buffer.

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