Tracking Savings Goals with open Line of Credit?

TL:DR - I'm trying to discover the best practice for tracking savings goals in the app, while keeping all income in my line of credit. 

I have HISTORICALLY used the app where I have 5-10 'long term' savings goals (everything from cell phone and car replacements to trips next year to new roof), so I keep investing in these goals with a 'target balance by date'. This means I have anywhere from $10-40k sitting in my account pre-allocated to these goals. For ease of explanation let's just say $40k.
Simple enough so far, so here's where it gets complicated:

I bought a house with a HELOC loan at 5% -for those who don't know, a HELOC is basically an open line of credit. So with my bank I can just make a phonecall and have money deposited into my bank account FROM my heloc within an hour. 

So  instead of keeping that $40k just sitting there in my account doing nothing, I want to go ahead and put it towards the HELOC, so I'm paying less money with that 5% on the loan.... then when I HIT those planned goals, I'll just take THAT specific amount back out of the HELOC. 

(In essence, this is the same as my $40k making 5% return, just working backwards)

SO what I don't know is: What is the best way to TRACK these savings goals in YNAB when the money is THERE, just currently 'sitting' in a HELOC account. 
It's easy to allocate this in my bank account, because I just have 'pockets' of pre-allocated money. But in the HELOC it's still there, just sitting in a lump of what the app sees as debt (house loan). 

Should I create a separate 'fake' account in YNAB and have the savings goals tracked there- where when I transfer the $40k into my HELOC I also tell the 'fake' account I put $40k in it so I can still track the progress of the goals?

This all seems complex as I'm writing it out, so please let me know if you have questions. 

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    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 1 yr ago
    • 3
    • Reported - view

    Hi, Blue Jackal .  Congratulations on your home purchase.

    I wouldn't recommend that you create all sorts of phantom processes, accounts, or categories to display the $40,000 that you spent on a house downpayment as somehow still available in your budget somewhere. You don't still have the $40,000 for buying cars, vacations, etc.  Acknowledge that you've changed the purpose of those real dollars. Start rebuilding your savings. If/when a purchase comes up, one that you had initially saved money for then used for the house, you will have to make a decision about whether to go without, reduce your expectations, stretch out your timeline, or take on more debt for the purchase.  I know how lines of credit work.  I have one too. It's a debt instrument, and I agree with you that the interest rate on it makes it a more attractive debt instrument than my credit card. That's for sure.

    One thing that YNAB hammered home for me was that my dollars can only be assigned to one thing. When I "borrow" from myself, either from the future category line in the budget (I'll just spend next month's entertainment money and do nothing next month) or from another category this month, and pretend those borrowed dollars are still there to be spent, I get myself into a load of trouble.  Basically, -100 and +100 = zero. I would just rather see the zeros displayed because I make better financial decisions when I see the real truth. Or, in your case -$40,000 and +$40,000 = zero.

    Reply Like 3
    • HappyDance I appreciate you taking the time to respond, but I don't think you understood what I'm doing or saying. Perhaps you misread my original post. 

      I didn't spend the $40k on the downpayment. I already bought the home and have $40k sitting in my budgeted savings- COMPLETELY separate/having nothing to do with the house. 

      My goal was to receive the largest amount of interest possible with that $40k, as it will be sitting there for years. A basic savings account makes a maximum of 1.5%. But if I place the $40k into my HELOC WHILE it's sitting there, it makes %5 reverse interest as I'd be paying interest on a loan that is $40k less during the time that savings isn't being used. Then once I reach the time to use it, I just redraw it. Essentially moving my money around to produce the lowest interest payment as possible. 

      Yes, I'm using the HELOC as a credit line, that's the whole purpose. But paying interest on a loan that is $40k less expensive saves me money, even if it's just for 2 years (typically $2500/year). So if I keep that $40k wrapped in the HELOC for 2 years before I redraw it, that saves me $5000 in those two years. 

      So my goal was to find a way to calculate that in YNAB while also tracking the savings as if I had not moved it into the HELOC account, so I know exactly how much to draw from it in 2 years, so that I'm still being responsible with my savings, whether it's wrapped in the HELOC or not. 

      All this to say someone very helpfully pointed me to this article: 
      https://www.youneedabudget.com/handling-offset-and-redraw-accounts-in-ynab/
      which seems to have exactly the information I needed. 

      Again thanks for taking the time, and I hope that all makes sense :-) 

      Reply Like
    • Alia Gee
    • Let me explain... No, there is too much. Let me sum up.
    • Pink_Keyboard
    • 1 yr ago
    • Reported - view

    In November we bought a rental unit using a HELOC, so I know exactly where you're coming from.

    I would use the memo feature, so if I want to keep track of a particular goal within the HELOC I could search for that goal and tot up my sums.

    I've only been using YNAB a month and I wish I could sit down and explain to it that we don't *actually* have negative net worth, but... illiquid assets, man. They're just not liquid.

    At least the angry red font encourages me  to pay the HELOC off early... sigh.

    Reply Like
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 1 yr ago
      • 3
      • Reported - view

      Pink Keyboard 

      Some YNABers  will manually add the current market value of the real estate as a tracking account. Then, the negative loan and lack of on-budget liquidity is offset somewhat by the value of the asset in your net worth report.

      Reply Like 3
    • Pink Keyboard 
      Through Reddit someone pointed me to THIS article and it was exactly what I was looking for:
      https://www.youneedabudget.com/handling-offset-and-redraw-accounts-in-ynab/

      Let me know if that helps you as well! I'm glad you understand where I'm coming from!

      Reply Like 2
  • HappyDance said:
    You don't still have the $40,000 for buying cars, vacations, etc. Acknowledge that you've changed the purpose of those real dollars. Start rebuilding your savings. If/when a purchase comes up, one that you had initially saved money for then used for the house, you will have to make a decision about whether to go without, reduce your expectations, stretch out your timeline, or take on more debt for the purchase.

     ^ THIS.

    Blue Jackal said:
    HELOC is basically an open line of credit. So with my bank I can just make a phonecall and have money deposited into my bank account FROM my heloc within an hour.

    Realize that this capability isn't actually giving you an easy way to access "your savings" - it's giving you an easy way to take on additional debt.

    At only 5% interest, this may be an appealing option, but still realize that that's what's happening.

    The $40,000 isn't really "there" anymore, it's been spent/paid towards the house/LOC debt. Taking it back might be easy, but it's pretty much like taking a cash advance on your CC at this point - certainly at a lower rate than those generally are, but it's still taking on additional debt to withdraw the funds at this point.

    To track this accurately in YNAB, you'd want to add the HELOC as an on-budget account, for whatever its current total (negative) value is. Any additional withdrawals you make from the HELOC would be recorded as transfers from the HELOC to your bank account.

    Reply Like 3
    • Resistant Punch Roller 
      Thanks for the response, but I'm not sure you're understanding what I'm doing. 
      Basically I could just as easily keep the $40,000 outside of my HELOC and continue leaving it in my regular bank account, budgeted in YNAB as savings goals. 
      The problem with that is I'm getting a 0.01-1.5% interest at the most. If I temporarily move that money into the HELOC, it then makes 5% reverse interest, saving me roughly $2500 for each year I leave it 'in' the HELOC. Even if I draw it back out (as you said- "Take on additional debt") two years later, it still saves me $5000 in the meantime. 
       

      So what I was trying to discover was how to track that money while it was in the HELOC, so I'm able to correctly and responsibly steward that money as if it was an investment into the larger amount, making 5% reverse interest throughout that timeframe, while also tracking it so I can use it for its original purpose: To spend towards my savings goals, even though it's currently in the line of credit. 

      Thankfully someone on Reddit pointed me towards this article:
      https://www.youneedabudget.com/handling-offset-and-redraw-accounts-in-ynab/
      which seems to be exactly what I'm looking for. 

       

      Thanks for taking the time to respond!

      Reply Like
    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 1 yr ago
    • 3
    • Reported - view

    Hi, Blue Jackal

    Let me start by saying that I apologize for not technically answering how to track positives within negatives for spending and taking on more debt.  YNAB doesn't make that an easy process.

    I did understand. I chose to skip to the happy ending of my own experience. It made me sound obtuse. I guess you could say that I was being deliberately obtuse. I responded from a position of ultra conservative financial management.

    I used to play those games of having debt over here and investments / savings over there and pretending they didn't cancel each other, as if the interests earned/spent made a difference and I would always earn enough income to keep all those balls in the air.  I went through an unexpected unemployment that ended up lasting two full years (part of the fallout of the 2008 world economic financial crisis and oil price collapse). It has permanently scarred me with regard to how I view personal finances.  But....Ha-ha! It just so happens that I had no debt at the start of this crisis,  and I also had real savings to my name. I was able to  come out the other end two years later without having incurred any debt at all, almost broke yes, but not in debt. I count that as a major victory. I would not have been able to say the same if I had still been doing the separating debt from savings and playing mind games with pluses and minuses.

    I also think these all-in-one accounts are an insidious bank product designed to keep people paying excessive fees, and keeping them shackled with permanent revolving debt, and all the while keeping them grateful for paying lower interest rates. Say What?  With no debt payments at all, and with real money earning exceptionally well in investments, I've been able to double my net worth in the last four years. Thanks, YNAB!

    My hope is that my post plants a seed for future consideration, and that it provides anyone reading this thread with food for thought.

    Reply Like 3
    • HappyDance I appreciate the thoughtful response and you sharing your experience!
      We're locked into a 3 year contract with the 5% and our ability to draw when needed, so for at least 3 years we're fine. I'm just doing my best to help all my money work for me so that I can get the best return and also get our house paid off in that timeframe.  :-) 

      The caution is greatly appreciated, and that very caution is why I'm wanting to make sure I have everything tracked and accounted for, I'm just trying to figure out how to do that in YNAB.

      Reply Like 2
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 1 yr ago
      • 2
      • Reported - view

      Blue Jackal 

      You're welcome.  It's funny how much pleasure I get in passing along what little wisdom I've picked up, and the YNAB forums provides people asking all the right questions.  You've chosen to stay on the path that I found lead me round in circles for 10 years. I sincerely hope you are able to avoid the disasters I witnessed other people struggle with on that same path. One last parting suggestion:  regularly look at your net worth report in YNAB as a guage of how well you are doing. In the beginning of using YNAB I found looking at the net worth report provided me with a bird's eye view I could not argue with.

      Reply Like 2
    • Patzer
    • Retired at age 60. Thank you, YNAB!
    • Patzer
    • 1 yr ago
    • 5
    • Reported - view
    Blue Jackal said:
    Basically I could just as easily keep the $40,000 outside of my HELOC and continue leaving it in my regular bank account, budgeted in YNAB as savings goals.
    The problem with that is I'm getting a 0.01-1.5% interest at the most. If I temporarily move that money into the HELOC, it then makes 5% reverse interest, saving me roughly $2500 for each year I leave it 'in' the HELOC. Even if I draw it back out (as you said- "Take on additional debt") two years later, it still saves me $5000 in the meantime.

    That's one way of looking at things.  I don't think it's the most helpful way of looking at things.

    From a financial perspective, paying down the HELOC incurs risks that are not incurred if the money is put in a savings account T Bills, I-bonds, or anything else that is a real asset not subject to market fluctuation.  HappyDance mentioned the recession of 2008-2009 and how it affected her budget.  Do you know what else happened in that time frame?  Issuers of HELOCs unilaterally reduced credit limits, making funds no longer available to draw.  People who counted on the HELOC as the emergency fund had problems of varying magnitude depending on how aggressively they counted on drawing new funds from the HELOC.

    No recession right now . . . but there are political rumblings about trade wars.  Economic consensus is that a trade war would put the United States (and by extension, probably much of the rest of the world) into a recession.  If housing prices fell in that recession (people out of work, less demand for houses, prices fall), HELOC limits could well be cut again.  Will it happen?  I don't know.  I hope not.  But if you plan on future expenditures being supported by drawing funds from the HELOC, you accept this as a risk.

    I'm not a big fan of the new credit card handling, but it seems to me that paying extra on the HELOC with the idea of drawing funds as needed in the future is a natural for setting the HELOC up as a credit card in web-YNAB.  You would budget for the HELOC payment, and leave all the future expenses you plan to use if for underfunded by the amount of extra principal you've thrown into the HELOC.  You'd save that 5% in the real world.  When that future expense comes in, you'd draw from the HELOC and record it as a transfer to checking.  YNAB would automatically increase debt and put the drawn funds into your budget at TBB, at which point you budget them to your planned expenditures.

    This would be a more helpful way of looking at things for getting ahead.  You really don't have the vacation or property taxes or whatever funded in the budget; you have a plan to fund them by increasing debt, and a plan to pay less interest on that debt by temporarily paying it down and then increasing it when the expense rolls in.  Conceptually, this is not unlike borrowing to buy a car, paying it off, and later borrowing to buy another car.

    And a funny thing might happen behaviorally.  When you don't show the funds in the budget, you may be more reluctant to borrow to pay for discretionary stuff.  This is a Good Thing if one of your goals is to build your asset base and net worth.  Financial management isn't just about crunching numbers and finding 5% return instead of 1.5% return.  It's also about managing your own behavior to optimize the use of money.  Looking at funds available to borrow as money available to spend does not help with the behavioral aspect, and the behavioral aspect frequently has a bigger impact on results than the financial number crunching aspect does.

    Where I'm coming from:  I have about $20K in my budget for the types of categories you describe.  I can't tie those categories to specific accounts, but I have a savings account currently paying 1.60% APY on-budget, and about $11K of I-bonds paying government-claimed rate of inflation plus 0 to 0.3% interest, changing every 6 months.   That $20K of categories is a bit low right now, because I just bought a car last October and the Car Replacement category is now targeted to build up to replace that car in October 2027; so the Car Replacement category is pretty light compared to where it was a year ago.

    And if we get a trade war that causes a recession, I *won't care* if it makes borrowing temporarily impossible or expensive for me.  I won't need to borrow to fund my planned expenditures.

    Reply Like 5
    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 1 yr ago
    • 3
    • Reported - view
    Patzer said:
    And a funny thing might happen behaviorally.  When you don't show the funds in the budget, you may be more reluctant to borrow to pay for discretionary stuff.  This is a Good Thing if one of your goals is to build your asset base and net worth.  Financial management isn't just about crunching numbers and finding 5% return instead of 1.5% return.  It's also about managing your own behavior to optimize the use of money.  Looking at funds available to borrow as money available to spend does not help with the behavioral aspect, and the behavioral aspect frequently has a bigger impact on results than the financial number crunching aspect does.

     I think you've been reading my diary. 🙂

    It really came down to spending behaviours and choices for me, and the bonus was that I changed my ways before my financial crisis. I did spend more when I thought I had those funds extra.

    -$10,000 in debt and +$10,000 in savings = 2-week all inclusive Vacation in Cuba (Party, baby!)

    zero debt and zero savings = a day outing and a home-packed picnic lunch at Head Smashed In Buffalo Jump Interpretive Centre (someone else driving)

    Reply Like 3
  • Patzer said:
    And a funny thing might happen behaviorally.  When you don't show the funds in the budget, you may be more reluctant to borrow to pay for discretionary stuff.  This is a Good Thing if one of your goals is to build your asset base and net worth.  Financial management isn't just about crunching numbers and finding 5% return instead of 1.5% return.  It's also about managing your own behavior to optimize the use of money.  Looking at funds available to borrow as money available to spend does not help with the behavioral aspect, and the behavioral aspect frequently has a bigger impact on results than the financial number crunching aspect does.

     This is exactly why I want to be able to still track my savings while the money is in my HELOC, because I don't want to see my HELOC as a credit line that I can just draw on 'whenever I feel like it'. I want to ONLY ever draw if it's something I have intentionally been planning to draw on only after I put that specific amount into the HELOC over the previous year(s). I'm putting $xxx into my savings per month to buy an upgraded car in 2021. Tracking it insures I only buy that car in 2021 if I have put in that planned amount of money, as if it were in a savings account. 
     

    I understand and appreciate the caution you are giving, and that caution is the very reason I'm wanting to track the savings goals so they don't get 'lost' in my HELOC. The wealthy individuals I have mentoring me are training me on how to do both: Make that 5% reverse interest, and ALSO responsibly steward my savings goals. All I'm trying to do is figure out how to track that in YNAB. 

    Reply Like 1
  • Blue Jackal

    I realize we're strangers on the internet, so we're not going to have the same credibility to you as your mentors.  I also understand you just want to know HOW to do want you're asking not whether you should do it. 

    That said, I agree with Patzer  and HappyDance .  Let me try to put it more mechanically in YNAB terms.  YNAB is a truth telling machine.  And here is the truth that YNAB is unapologetically telling you: You have more than 40,000 in debt!  It must be paid off.  It's not clear why you think that depositing money into the HELOC draw account gives you resources to fund either a car, or additional renovations, or whatever you want to buy with it.  Once you pay down the HELOC, the decision of whether to buy the car at a later date is a decision of whether to borrow the money from the HELOC or not.  The fact you deposited some money in there earlier is immaterial.  That's what YNAB is telling you.  And it's true.  YNAB won't lie to you.  Dollars have one job, and that job can't be both pay down debt AND buy a car.  If you think money deposited in the HELOC draw account is doing both, then you are lying to yourself, and YNAB is not good at facilitating that, which is why you are here asking this question.

    Here's the crux of it:

    Blue Jackal said:
    Tracking it insures I only buy that car in 2021 if I have put in that planned amount of money, as if it were in a savings account. 

     You haven't done that at all with your approach.  What you will have in 2021 is less debt than you do now, and the ability to borrow at 5% from HELOC (maybe - 2021 is more than 3 years away, after all).  At that point the question is how much are you willing to borrow for the car, not how much you paid down the HELOC during 2018-2021.  Convincing yourself you saved that money at 5% interest is encouraging you to spend more on that car than you would otherwise, since you never had that money, you were always borrowing it from the bank.  Listen to YNAB, it speaks truth!

    Reply Like 3
  • LarryinLA said:
    And here is the truth that YNAB is unapologetically telling you: You have more than 40,000 in debt!  It must be paid off.  It's not clear why you think that depositing money into the HELOC draw account gives you resources to fund either a car, or additional renovations, or whatever you want to buy with it.  Once you pay down the HELOC, the decision of whether to buy the car at a later date is a decision of whether to borrow the money from the HELOC or not.  The fact you deposited some money in there earlier is immaterial.  That's what YNAB is telling you.  And it's true.  YNAB won't lie to you.  Dollars have one job, and that job can't be both pay down debt AND buy a car.  If you think money deposited in the HELOC draw account is doing both, then you are lying to yourself, and YNAB is not good at facilitating that, which is why you are here asking this question.

     Yet again.... I'll try to re-explain it. But either I'm doing a terrible job or you haven't read the responses above. 

    I have $40k sitting in my BANK ACCOUNT (savings, earning around 1%). 
    I have a COMPLETELY SEPARATE line of credit (HELOC) that is being paid back on track, regularly, with plans to pay it off completely in three years, regardless of what I do with that separate $40k in my savings account.


    What I'm planning to do is pay off $40k of the HELOC early using my $40k savigs so that I save the 5% I would pay on the unpaid LOC, as putting $40k into it early will lower that interest payment, and I'm doing nothing with that $40k now anyway while I'm waiting to put it towards the goals for which I set it aside (new car in 2021, new roof in 2028, etc.)

    So my options are:
    Continue to pay down my HELOC loan as scheduled, and keep $40k sitting in my bank savings account making around 1% for the next 3 years
    OR
    Put that $40k into my HELOC loan, thus paying the loan down faster and lowering the interest payment (5% reverse interest on the $40k), but TRACKING IT METICULOUSLY USING YNAB so that I know exactly how much I put into the HELOC that WOULD HAVE OTHERWISE GONE INTO SAVINGS, so that I only ever draw that EXACT AMOUNT BACK OUT OF THE HELOC, because I don't want to ever draw money from the HELOC that wasn't previously accounted for. 

    THIS is why it is important that I TRACK IT METICULOUSLY because I would only ever draw money back out of the HELOC if it was money I would have OTHERWISE put into savings. Thus 
    "temporarily placing it" into the HELOC instead of just leaving it in my savings account making roughly 1%. 

     

    Does that make sense? 

    Reply Like 1
      • LarryinLA
      • Larryinla.1
      • 1 yr ago
      • 3
      • Reported - view

      Blue Jackal 

      I do understand.  You have $40,000 in debt and $40,000 in savings accounts.  In your mind that means you have categories with $40,000 in budgeted dollars and a debt you plan to pay off with monthly payments, just like a car loan.  But, it would be advantageous to store the savings in the HELOC account, because you would pay less interest to the bank that way.  I understand completely.

      I would encourage you to do the following instead, because it more accurately reflects reality.  Deposit the money in the HELOC and treat it as having executed the job of paying off the debt.  Now, take the payments you were making towards the HELOC and use them to build up the categories that had the 40k in them.  At the point where you were originally going to have the HELOC paid off, things will be equivalent.  Until then YNAB will more accurately reflect that the money you’ve been storing in savings is the money you borrowed from the HELOC.   If you choose to spend money earlier you will have to borrow it from the HELOC.  As Patzer points out you are less likely to want to do that if you ask yourself “how much do I want to borrow at 5%?” at that time, than if you pretend you actually saved it when you actually just already borrowed it from the bank.

      It is very normal and encouraged to think the way you are in our economy.  The reason that you have to sort this out in YNAB is that the method is showing you a different view of your money where if you really want to budget the money you borrowed you’re going to have to jump through some hoops to do it because it’s not really your money, it’s actually money you borrowed.  That’s a good, if uncomfortable, thing.

      Reply Like 3
    • LarryinLA Perhaps you missed the fact that this HELOC is on a HOUSE purchase. I'm not sure where you got the idea that my HELOC loan is $40k.... if that were the case I would OBVIOUSLY just pay off the debt immediately and then just save up $40k again in that three years. No. As stated previously this is a HOUSE purchase with the HELOC.  
      My loan is $250k. It's a loan on a house. I can't pay it off earlier than the 3 year plan (as stated above, will be paid off on schedule in 3 years). I am on schedule to pay it off in the 3 year period. My question is and has always been: If I put the $40k I have set aside for savings into the HELOC throughout that 3 year period -thus lowering my HELOC loan a bit to save that 5%- how do I track what I put into the HELOC in YNAB so I make sure I don't pull any more out than I had put in (under the 'Savings' category) for the savings goals that are 'due' in 1 year, 2 years, etc. 

      Reply Like
    • LarryinLA said:
      It is very normal and encouraged to think the way you are in our economy. The reason that you have to sort this out in YNAB is that the method is showing you a different view of your money

       ^ Exactly! :)

      Blue Jackal - Everyone who's responded to this thread actually does understand what you're proposing. We get it. What you're doing does make sense mathematically. But as Patzer pointed out, the mathematically-advantageous option isn't automatically the most ultimately advantageous option, when it comes to personal finance.

      We're encouraging you to consider a subtle shift in thinking: that if you do throw the $40K you have available at the HELOC, that you then allow yourself to think of that money as "spent", and shift your focus to rebuilding that savings.

      Blue Jackal said:
      [...] if that were the case I would OBVIOUSLY just pay off the debt immediately and then just save up $40k again

      ^ Interestingly, it actually seems like you'd be on board with this shift of thinking if your HELOC was *ONLY* $40K, so why not consider it even though the HELOC is greater?

      You'll still gain the 5% interest savings you're craving, with the added benefit of having a savings goal to work towards (which just might be motivating enough that you find yourself building up more than $40K and can throw even more at knocking down the HELOC!).

      Just something to consider. :) We're trying to show you that there's a deliberate reason that YNAB doesn't smoothly handle what you are considering, as we've realized that it's those shifts in thinking that YNAB encourages that make the most significant impact for a lot of its users.

      Reply Like 3
      • LarryinLA
      • Larryinla.1
      • 1 yr ago
      • 3
      • Reported - view

      Blue Jackal 

      Blue Jackal said:
      Perhaps you missed the fact that this HELOC is on a HOUSE purchase. I'm not sure where you got the idea that my HELOC loan is $40k....

       

      Blue Jackal said:
      My loan is $250k

       I missed it because you never said it.  Calling it a HELOC, and never mentioning the size of it specifically, while noting it is for a very limited time period gave an entirely different impression.  So, you have a mortgage with an offset account.  Yes, that's exactly covered by the article you linked earlier about offset accounts.

      If you couldn't put the money into the account, you would have the mortgage as an off-budget (tracking) account, and just budget the cash in your spending and savings accounts.  This is an attempt to minimize interest costs as a variant of that.  I get it.  You can do that with YNAB.

      That said, if you can pay it off in 3 years, but your income isn't high enough to support the consumption you want over that time and pay back the loan, then you really should treat it the way we've all been saying.  Use your savings to lower the LOC.  Pay off the remaining debt over the next 2.5 years.  Then start saving for consumption and investment.  A little patience and you will be rich in 3-5 years.  Delay the consumption, then save and invest.

      The $1500/year you'd get by arbitraging your interest is small potatoes in your world.  And you are taking on risk by doing it (that the money won't be liquid when you need it) and you will spend more on consumption by doing it this way, because you are dedicating more to consumption than you really have available.

      Be a little patient and in 3-5 years the debt will be gone, and you will have an enormous amount available to invest and meet your consumption needs.  That's when you start getting rich.  Not by saving $1500 a year in interest arbitrage.

      Reply Like 3
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 1 yr ago
      • 7
      • Reported - view

      Blue Jackal 

      Blue Jackal said:
      My loan is $250k. It's a loan on a house. I can't pay it off earlier than the 3 year plan (as stated above, will be paid off on schedule in 3 years). I am on schedule to pay it off in the 3 year period.

       If I understand this correctly, you have sufficient cash flow that you expect to retire $250K of debt in 3 years.  Call it $80K per year of debt service.  That's above my pay grade, but I can work with the numbers.

      $40K saving 5% instead of earning 1.5% is an incremental $1400 per year.  That should be chump change in your world, not worth the time of managing the details.  I have much less income than you do, and I wouldn't want to take on the tracking task that is required for your plan to get $1400 per year incremental.  My time is better spent managing my investment portfolio than chasing small potatoes interest rate arbitrage.  (FWIW, if my net worth changes by less than $1400 on a given day, it's an awfully quiet day in the market.  Or the market is closed that day.)

      You apparently have a pretty high income.  I see two possibilities:

      a) You have so much income that it can fund everything you want, and assets just accumulate without your having to work at accumulating them.  If this is the case, you might not even need a budget at all; though I think the assets might accumulate faster if you can wrap your head around how YNAB makes you think about money.

      b) You have this high income, but assets aren't accumulating.  You need a budget to control your expenditures so assets will accumulate.  If this is the case, you *REALLY* need to wrap your head around how YNAB makes you think and play it straight, just in order to have assets accumulate.

      The wild card is, your proposed course of action carries a risk that you might not be able to draw funds when you  need them.  Perhaps this risk is small.  I am not in your situation, but let me do a thought experiment.  Suppose I had an opportunity to gain $1400 per year through interest rate arbitrage by liquidating $40K of my budget temporarily, as you suggest.  If all goes well, I am just ahead by $4200 after 3 years.  But there is a 1% chance that things go south and I can't re-draw the $40K when needed.  That would require me to liquidate $40K of investments, paying the associated income taxes on the capital gains; or withdraw an extra $40K from my IRA, paying taxes on the associated ordinary income; or withdraw $40K from my Roth IRA, forgoing the tax free return on $40K for the rest of my life; or borrow $40K from some other source, possibly at less advantageous terms.

      Even with a chance of 0.5% that it goes south, that's too risky for me.  The consequences if the risk comes home are too severe.

      Disclosure:  I don't expect my house to burn down, but I buy homeowner's insurance.  I don't expect to get into an auto accident, but I wear a seat belt and pay for car insurance.  I don't expect the markets to seize up and destroy my ability to borrow, but I arrange not to need to borrow.  My investments produce enough income that I can live without touching the principal until such time as I experience an expensive medical condition.  And I spend an awful lot of time thinking about risk management.  I will never have to work another day in my life.  But I might not be wealthy by your standards.

      Reply Like 7
    • LarryinLA 

      LarryinLA said:
       I missed it because you never said it.  Calling it a HELOC, and never mentioning the size of it specifically, while noting it is for a very limited time period gave an entirely different impression.

       Maybe I didn't make it clear. But I did say multiple times that I had a HELOC I just took out on a house, and was thinking of putting $40k of savings towards it. You are right that I never gave a specific number (the $250k), perhaps I should have specified that but I didn't think it necessary at the time because I wasn't looking for advice on how to manage my money- I was simply looking for advice on how to manage TRACKING these goals within the app while they were placed within the HELOC.

      (though I appreciate all the free advice everyone here is ready to give :-D ) 

      LarryinLA said:
      That said, if you can pay it off in 3 years, but your income isn't high enough to support the consumption you want over that time and pay back the loan, then you really should treat it the way we've all been saying.  Use your savings to lower the LOC.  Pay off the remaining debt over the next 2.5 years.  Then start saving for consumption and investment.  A little patience and you will be rich in 3-5 years.  Delay the consumption, then save and invest.

      As stated, I will (or at least plan, life can always surprise us) to pay the HELOC off regardless of what I do with my savings, I'm just trying to optimize how to get the highest 'return' on that $40k instead of having it sitting in my bank account- if I can put it into the HELOC and lower my payments until I need the pieces of the $40k I would rather do that than have $40k in a savings account making ~1%. My HELOC is set up in a way where I can text my banker and have him initiate the transfer the next business day if -for instance- my tires burst tomorrow and I ended up needing to pull the portions of the $40k I had allocated towards new tires. So why not have it in the HELOC making 5% reverse interest until I need it? 
      The things I have calculated in my savings are not what I categorize as frivolous consumption- they are things like replacing the roof on the home I purchased, tires, upgrading my car as it should be about to putter out by 2021 (my dear beater civic will be nearing 20 at that time and based on my algorithms will be more expensive to keep running than to upgrade). 

       

      LarryinLA said:
      The $1500/year you'd get by arbitraging your interest is small potatoes in your world.  And you are taking on risk by doing it (that the money won't be liquid when you need it) and you will spend more on consumption by doing it this way, because you are dedicating more to consumption than you really have available.

       Well, that's the point that brought this whole subject up: I don't NEED the $40k to be liquid. It's savings goals... Most of these goals won't be met/needed for 1, 3 or 10 years. The earliest I would need it is if my tires burst, which I would just pay for from my emergency fund until my banker transferred the money from the HELOC the next business day where I would then 'reimburse' to my emergency fund.
      BUT this is why it's so important that I TRACK my savings goals well. Otherwise I could be irresponsible and draw money from my HELOC for things that WERE frivolous, but if I can reference my allocated goals, then I'm holding myself accountable to my original goals in case I need to draw that amount in 1 year, so I ONLY draw the amount I've put in (as it would have been sitting in savings).

      As for the 'small potatoes', I have to kindly disagree. This is fascinating to me. Some people paint figurines, I like to play with numbers and find loopholes.
      As a fun example.... My financial mentor is the same, and he found a CD that gave him a 6% return. So he put his 5% HELOC loan into the 6% CD, so over the coarse of 3 years just got a free 1% on the money his bank lent him simply for tinkering with numbers. 

      Essentially, I'm just a nerd and love figuring things like this out. Is it always a good value for my time? Probably not. But I enjoy researching the best car released 3 years ago because I plan to buy one in 5 years and I love how YNAB makes it so easy to begin pre-allocating towards that 5 year car purchase. So I have about a dozen of these planned future purchases, and the whole goal was to find a way to securely receive the best return on the lump some I have set aside towards those goals. But I couldn't figure out how to stretch the YNAB software to help me track these while they are 'placed' into a HELOC even if I plan to redraw them in 1, 2 or 3 years. So that was my original question (that I apparently didn't explain well): How do I TRACK those savings goals while they are in a LOC. 

      I think me not explaining things that well, combined with those on this site being incredibly eager to give me advice on how to manage my money better, combined to help us all get a bit off topic. But I enjoy discussions like this and hope I've done a good job of helping to reach understanding :-D 

      Reply Like
    • Patzer 

      Patzer said:
      $40K saving 5% instead of earning 1.5% is an incremental $1400 per year.  That should be chump change in your world, not worth the time of managing the details. 

       This is a matter of opinion. First off: I'm a bit of a nerd and playing with numbers like this is my version of painting figurines or working on a classic car in my garage.  
      Secondly, $1400 is close to three days of work on my income, so even if I spend 10 hours a year clicking on some budgets and texting with my banker to initiate transfers to/from my accounts, that's well worth my time. 

       

      Patzer said:
      a) You have so much income that it can fund everything you want, and assets just accumulate without your having to work at accumulating them.  If this is the case, you might not even need a budget at all; though I think the assets might accumulate faster if you can wrap your head around how YNAB makes you think about money.

      b) You have this high income, but assets aren't accumulating.  You need a budget to control your expenditures so assets will accumulate.  If this is the case, you *REALLY* need to wrap your head around how YNAB makes you think and play it straight, just in order to have assets accumulate.

      I am very blessed that I discovered/started using YNAB 4-5 years ago when I was making such a small income that I HAD to budget because I couldn't survive without tight budgets. That mindset carrying over to my current income means that I still live more frugally than people I know who make 1/4th my income. 
      I think "have so much income that it can fund everything you want" is a bit of an odd statement. Whether I make good income or not doesn't change the fact that YNAB seems to be designed to help accumulate an age of money while building towards goals (whether those goals are to get out of debt, or to build wealth). Budgeting as I see it- is at its essence based on setting structure around ones goals to help them stay on track towards those goals. So even if I am in what you categorized as your 'a)' section, I believe I still need my budgets to help me reach my goals just as much as when I was struggling and in debt. My goals haven't changed. I've just (finally!) reached the stage where I'm saving towards multiple goals, and now trying to use the YNAB app to OPTIMIZE my money: Thus my desire to figure out how to track savings goals even while I have that same savings money working for me. 

       

      Patzer said:
      The wild card is, your proposed course of action carries a risk that you might not be able to draw funds when you  need them.  Perhaps this risk is small.  I am not in your situation, but let me do a thought experiment.  Suppose I had an opportunity to gain $1400 per year through interest rate arbitrage by liquidating $40K of my budget temporarily, as you suggest.  If all goes well, I am just ahead by $4200 after 3 years.  But there is a 1% chance that things go south and I can't re-draw the $40K when needed.  That would require me to liquidate $40K of investments, paying the associated income taxes on the capital gains;

      I don't think this relates to me, because I'm not putting the $40k into a Roth IRA. I'm putting it into a line of credit so that I get 5% REVERSE interest (saving paying 5% on that amount). The money I'm putting in is savings towards my different goals, so it's not money I need to be able to draw immediately..... worst case scenario my tires burst and the amount I'd set aside saving towards their replacement comes out of my emergency fund, then I call my bank and they move that amount from my HELOC into my bank/emergency fund the next business day.

      Reply Like
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 1 yr ago
      • 2
      • Reported - view

      Blue Jackal 

      You missed my point.  The point is, there is a small risk that you will not be able to draw from the HELOC as planned.  You need a contingency plan for what to do if that risk comes home to bite you.

      Moving along from the risk aspect, which apparently does not bother you, I continue to believe that the way you are looking at things is not the most helpful way to look at them.  But it is the way you will look at them, regardless of what I say.  So let me think about the practical problem.  Suppose, for some reason that I cannot fathom, I wanted to enter into an arrangement such as you describe.  How would I track it?

      My first blush reaction would be, track YNAB honestly.  Reduce or eliminate the savings categories that are funded by future draws from the HELOC, because they aren't backed by cash.  Just build a spreadsheet to track what I believe are extra payments on the HELOC that I'm willing to pull out for the specified expenses, and allocate that to the list of specified expenses in the spreadsheet.  That labor wouldn't be too bad if there are only 6 or 8 such categories.

      The Australian redraw facility workaround might keep everything in one budget, assuming it can be massaged to work with web-YNAB.  The 2013 blog post talks about how to do that in YNAB 4, and I have not looked at it in sufficient detail to understand how much adaptation is required to do it in web-YNAB.  I don't like that, because I would end up with a budget that is partly backed by cash and partly backed by the ability to draw new debt.  If the risk that does not bother you comes to pass, I'd have a lot of work to sort out how I'm going to cut funds out of my budget to reflect reduced/eliminated ability to draw from the HELOC.

      Then I had another thought.  I might want to keep the primary YNAB budget honestly, reducing/eliminating the savings categories and paying down the HELOC.  Then I could create a second YNAB budget to track the categories I think are backed by my ability to draw new debt from the HELOC.  I'd create only one account in this budget, call it a checking account, and give it some name like "Extra HELOC Payments."  Every time I paid the HELOC in the primary budget, I'd go over to the other budget and record the part of the payment I regarded as extra principal as TBB.  Then I'd budget it to whatever list of categories I consider to be supported by my ability to draw from the HELOC.  I might open the two budgets in different browser tabs, or in different browsers, in order to be able to work with both at once.

      When I draw from the HELOC for planned expenses, I'd show it as an expenditure in the appropriate category or categories in the secondary budget, and a TBB inflow to the primary budget that would be budgeted to the appropriate categories.  Then the actual spending would happen in the primary budget, and the reports of spending in the primary budget would be accurate.

      If for whatever reason I decided this was the way to go, I'd really want to see the difference between categories fully backed by cash (the primary budget) and categories only backed by my ability to draw new debt (the secondary budget).  Ideally, I'd like the secondary budget to be comprised entirely of categories I am willing to totally forego in the event that the HELOC is frozen and I can't draw from it as planned.  But if I put my property taxes (definitely a mandatory category) in there, and the HELOC was unexpectedly frozen, at least I'd have an honest primary budget to comb through and hunt for a source of funds to pay the tax bill.

      Or you can mimic the Australian redraw situation if you like, with the labor as described in the link to the 2013 blog post and whatever modifications turn out to be needed to make it work with web-YNAB.  The choice is yours.

      Disclaimer:  I do several workarounds in web-YNAB for my own budget.  Every time I describe one of them as apparently applicable to someone else, YNAB support shows up to comment that they don't recommend the workaround I described.  I believe that the workarounds I describe above should be functional for your situation and desire to track additional principal payments on a HELOC as categories available to spend.  Before YNAB support shows up, I would like to say that I do not recommend this approach; I merely believe it will be functional for what you request.

      Reply Like 2
  • Patzer said:
    The point is, there is a small risk that you will not be able to draw from the HELOC as planned.  You need a contingency plan for what to do if that risk comes home to bite you

    This is the second time you have brought up the 'risk of not being able to re-draw' yet I don't understand what that information is based on. My HELOC is a fixed-interest line of credit with my bank for 3 years. I have a personal banker who is on-call to be able to transfer money from the HELOC to my checking immediately (by next business day). So the 'risk' is the same as if I kept it in a bank account of the same institution (unless by 'risk' you are saying the 'risk' that I will mismanage it by drawing too much, which is the very reason I'm wanting to track everything diligently). Would you mind going into detail about the risks you keep referring to? This is why I seem like the "Risk aspect does not bother me" because I don't know of the risks you keep referring. 

     

    I do agree with your 'multiple budgets' approach, as it may be what I end up doing. And I have never been under the impression that what I'm trying to do is anywhere near the realm of YNAB's 'intended use', so I appreciate the disclaimer :-D

    In simplified terms, all I am looking for is a way to TRACK how much of my savings I put into the HELOC so I can keep a "paper" record of what I 'would have' just kept in savings. This could easily be done on a spreadsheet, but I love YNAB and would like to find a way to do all that tracking in one place while also getting accurate pictures of my finances/budgets. 
    I could easily just download a separate 'savings tracking' app and track those budgets separately, but I like to tinker and love to problem solve- so the idea of finding a way to do it all in YNAB has become an interesting hobby this week.

     

    Thank you for sharing your opinion and wisdom, and if you know risks with HELOCS that I don't please describe them as I have calculated all my plans on the knowledge I have. 

    Reply Like
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 1 yr ago
      • 5
      • Reported - view

      Blue Jackal 

      Blue Jackal said:
      This is the second time you have brought up the 'risk of not being able to re-draw' yet I don't understand what that information is based on. My HELOC is a fixed-interest line of credit with my bank for 3 years. I have a personal banker who is on-call to be able to transfer money from the HELOC to my checking immediately (by next business day). So the 'risk' is the same as if I kept it in a bank account of the same institution (unless by 'risk' you are saying the 'risk' that I will mismanage it by drawing too much, which is the very reason I'm wanting to track everything diligently). Would you mind going into detail about the risks you keep referring to? This is why I seem like the "Risk aspect does not bother me" because I don't know of the risks you keep referring.

      I think third time, but who counts?

      In the 2007 to 2009 time frame, there was a major banking crisis driven by a real estate market crash.  At the time, there were people who aggressively relied on a strategy like the one you describe to save more interest paid than they would have earned on cash.  Some of them went so far as to have their entire paychecks direct deposited to the HELOC, then use the HELOC to pay bills.

      When housing prices fell, the most aggressive of these people were surprised that their HELOC draw limits were reduced right down to the outstanding balance, eliminating their ability to get to the money they had counted on.  I saw several online posts from people cautioning others not to fall into that trap.  And yes, these people had contracts that said they had several years of ability to draw left on the HELOC.

      Obviously, the current economic conditions are not the same as in 2007.  But it could happen again.  The probability of it happening again within 3 years is small, but the prospect of a trade war creating a recession makes it big enough to consider.  If housing values fall, you can count on issuers of HELOCs reducing the credit limits.  In extreme cases, the credit limits could be reduced right down to the outstanding balance.  You might have a contract that doesn't say they can do that; but government regulation could over-ride that contract.

      Big risk?  I don't think so.  But it's not a risk I would want to take with money I *have* to spend.  And it has nothing to do with  how well you manage your finances or how fast your personal banker can transfer funds.

      Reply Like 5
      • jenmas
      • jenmas
      • 1 yr ago
      • 6
      • Reported - view

      Patzer @blue_jackal My brother and his wife had this happen to them back in 2008 or so. They were planning on paying for a home reno project out of their HELOC, but shortly before they were going to get started, they got a letter from the bank that the HELOC was being reduced to their home's new value post crash and that basically meant they coudn't take a penny out for anything .

      Reply Like 6
    • Patzer Thanks for explaining, and that makes perfect sense. 
      Since I'm only planning to place non-vital savings (car upgrade, long term roof replacement, etc.) I don't mind the slight risk, as these 'savings' could be easily paid for from other resources I have if the worst of the worst were to happen. A market crash in my mind fits into the 'emergency' category, which is why I have a separate emergency fund (that is not being placed in the HELOC). The main purpose of my inquiry is to just make sure I'm tracking the goal towards those savings so that I'm not spending anything frivolously and am sticking to my planned timelines instead of going "Oooh I have a line of credit, let's use it"

      I appreciate all the caution and it's definitely made me pause and think through all my plans.

      Reply Like 2
    • jenmas Yikes! that sucks so badly. I imagine the 'new value' was minuscule compared to their purchase price :-( 

      Reply Like
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 1 yr ago
      • 3
      • Reported - view

      Blue Jackal 

      I'm glad to hear you have other resources.  A lot of risks are no big deal when other resources are available to cover the worst case scenario.  The people who got hurt worst in 2007-2009 were those who didn't consider the possibility of weird things happening and tied up all their liquidity chasing best yield.

      Reply Like 3
  • Blue Jackal

    Have you figure out a way to do what you are trying to do? I have been searching for a way to do this too.

    Sounds like you are trying to Paycheck park and cash flow to beat the banks at their own game.

    Reply Like
    • Welorf 
      Sort of, I'm not sure what you mean by "Paycheck parking", but essentially I wanted to put my sinking cost amounts into the HELOC to gain the reverse interest back. 

      But did I figure out a way to do it.... not really. YNAB just isn't set up for this. YNAB is the perfect tool for getting finances in order and managing them well, but isn't exactly designed for 'wealth building' (i.e. making all of your money work for you).  So I LOVE YNAB when it comes to managing my day-to-day budgeting and flow of money. 
      There are ways to do it, if I wanted to create a completely separate budget for nothing but management and tracking, or have a separate excel spreadsheet, but I'm inherently lazy and it felt like a lot of work to switch back and forth- let alone a lot of room for error. 

       

      S0 what I did instead was create a TRACKING account (still on my main budget) that contains the HELOC loan, and then I put all of my taxes into the loan (about 26k thus far- based on my calculations I'll save a lot of money by simply paying the fees for not paying quarterly taxes vs. saving the 4.95% interest), then in March/April I'll just pay my taxes from the HELOC itself. It's still the same amount of money, I just had it temporarily stored in the HELOC gaining a reverse 4.95% instead of in a savings account gaining 0.02%

      Essentially this works for any amounts that are constant that you don't have to TRACK (i.e. "I put x amount towards a car upgrade, so once I reach x amount I can upgrade my car!"). With my taxes it doesn't matter the amount because that amount is going towards taxes on a specific date regardless of anything else. So it isn't confusing at all to have it wrapped into the HELOC.

      I'm still trying to discover the best, safest and most streamlined way to put the rest of my non-essential savings categories (car upgrade, new roof fund, etc.) into the HELOC.  I don't want to blindly pay those amounts from the HELOC when I need a new roof, I want to keep tracking them, but as I said I'm inherently lazy, so the thought of diligently using YNAB AND updating a spreadsheet of "I moved this number into this number!" every two weeks.... makes me lose interest. 

      BUT putting my taxes alone into the HELOC will save me a decent amount of money. 

      If you find a better way please let me know. 

      Reply Like 1
      • Alia Gee
      • Let me explain... No, there is too much. Let me sum up.
      • Pink_Keyboard
      • 1 yr ago
      • 1
      • Reported - view

      Blue Jackal So here is my current version of this, which isn't streamlined but oh well: 

      I have a separate "Category Group" titled the oh-so creative "Longer Term Savings Goals (goes to HELOC until needed)"

      The name of each sub-category has both the thing, and how much money I'm supposed to have in it (ie, "YNAB, $10/month since August") 

      At the end of the month, I'll use the "available" number at the top right of the section and round up to the nearest 10 and put all of it into the HELOC. If there's anything left (fingers crossed) I'll put it towards September/increasing my Age of Money/buffer.

      I'm hoping that means that, when it's time to pay/buy The Thing, it will be easy for me to say "Oh yes, it's been 12 months since I paid the YNAB subscription, so I should have $120 for that"... and because I'm keeping it a nice round number, the math will be easy (and the extra $20 that doesn't actually go to YNAB will just keep sitting there working its HELOC-reducing magic)

      It's clunky but it makes sense to me, and I think right now that's a win.

      It will be harder with expenses that are amorphous (my Christmas budget has never been a budget. I buy "enough" presents, which vacillates wildly), or don't have a set date for payment (French drains, my old nemesis, I see we meet again). Going to use the "Memo" and "search" features a lot, I expect.

      Good luck with your wealth building! :D

      Reply Like 1
      • Alia Gee
      • Let me explain... No, there is too much. Let me sum up.
      • Pink_Keyboard
      • 1 yr ago
      • Reported - view

      Blue Jackal Also, how did you find wealth mentors? :D

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • Reported - view

      Alia Gee I've never heard of a wealth mentor. What I do know is that most people in the Wealth Building "industry" build their wealth by "teaching" you how to build wealth.  It's like the large scale version of the old "Make money stuffing envelopes" scam.

      1. Put an ad in the paper that you'll teach people how to make money stuffing envelopes. Just send $10.
      2. Someone sends you $10, and you send them information on how to place ads in newspapers soliciting $10 for advice on how to make money stuffing envelopes.

      A lot of these people well sell you the information on how they built their own wealth, but what they won't tell you is that there is also quite a bit of luck and timing involved in being successful. And that most of their wealth came from "teaching" their system to others and not from "using their system.

      Buyer beware.

      Reply Like
    • Alia Gee In this instance my father in law is someone who has been very successful in his endeavors, mostly in real-estate and investing. When I met him (while he and my now wife were just dating) I began to reach out to him as a mentor and he kindly has been teaching me everything he can. 
       

      But beyond nepotism I'm just someone who has always asked a lot of questions. I currently have a full-time career in the film industry because 12 years ago I met a successful producer and bugged him (literally, bi-weekly emails for about 6 months) until finally he caved and said he'd put me in the crew of his upcoming projects (mostly to shut me up I think). I had the same approach with the other producers I met through that project, and from there went on to help produce many award-winning projects, and now have my own company. 

      When I was young and single I observed someone over a period of time who I decided had a very healthy marriage (something that wasn't modeled to me at all growing up) and I kindly and repeatedly asked if I could buy them lunch/coffee to ask them about healthy relationships. We met weekly for 3 years where over that period of time my opinions on how I treated relationships and women were altered. I left California and moved to Nashville where I quickly met my now wife and am happily married and changing the legacy of what marriage will look like to MY children. 

      So naturally after observing my now father-in-law for enough time to come to the opinion that he was respected and successful in his mindsets and practices around money, I pursued him and asked to take him to lunch.
      Now that we're married he has an even deeper motivation to see me successful, because that helps his daughter, and over that time I have seen even deeper just how wise and successful he is at stewarding his wealth, and I consider myself very grateful to be able to learn from someone like that. 

      So all that to say.... if you meet someone who is (not appears to be- most millionaires I've met actually drive Honda Accords or old 'budget friendly' sports cars) successful, buy them coffee. If they say no, tell them you'll buy them dinner. If they say no, email them again until they either block you or say "Fine". 
      Do your research before you meet for lunch and come with at least 10 smart questions. Take notes and then take action on what they teach you. If you can convince them to meet with you again pull out that same notepad and start by saying "Here are the things I did since we met last. Now I have followup questions"

       

      In my experience people who are truly successful in their fields don't BROADCAST their success (because there are SO MANY PEOPLE who are doing that who actually build their income solely on telling people how to build income) but if you actually get them sitting down in front of you and they see someone eager to learn, they usually are great teachers. 

      But that's just my experience, and I'm someone who considers my father-in-law my business mentor... so that probably seems less impressive. But I did the same thing with him that I have done with Film Producers, Business Leaders, Boss's and anyone I thought had reached success in something I felt I didn't have a firm knowledge of.

      Reply Like 2
      • Alia Gee
      • Let me explain... No, there is too much. Let me sum up.
      • Pink_Keyboard
      • 1 yr ago
      • Reported - view

      Blue Jackal Thank you! That reminds me a lot of The Millionnaire Next Door, actually. I grew up in Central PA to terrible parents, so your story is certainly familiar to me. :}

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 1
      • Reported - view

      Blue Jackal You'll have to forgive my generalization above about wealth mentors. That's actually quite a good story you told. But it does have to be someone you know and trust, not someone who is out there looking to suck you dry. :)

      But as far as the HELOC is concerned, one does have to realize that if you are using it for funds as a way to access your equity, this is just a form of leverage and while leverage does serve as a reward multiplier, it's also a risk multiplier. It can just as easily bankrupt you as it can enrich you. It all depends on your need, willingness and ability to take risk.

      Reply Like 1
      • Welorf
      • Welorf
      • 1 yr ago
      • Reported - view

      Blue Jackal 

      I am still looking for a way to track the accounts as well. right now I am ignoring the "to be budgeted" part of YNAB. I am just using it to track expenses so that I can get my monthly averages down.

      Paycheck parking is the buzz word of this guy: http://vipfinancialed.com/How-It-Works .

      I recommend that you watch some of his videos, it sounds like what you are doing. I started coming to the conclusion that doing this is what is "optimal" if you are disciplined. Heloc's can be great, but that problem is that if/when the RE market tanks, the Heloc's get frozen. Using the same principle, using PLOC's would be "less" risky because they don't get locked down during RE bubble pops. You cash flow through them to keep your ABSOLUTE interest costs down, and you have access to funds when it makes sense.

      Reply Like
  • On a $250k loan, getting a standard 30 year mortgage at prevailing interest rates would have saved more money than storing $40k in the HELOC at 5% (and a 20 or 15 year would have been even lower). And if you are going to take the money back out in 2-3 years, then you're not really saving anything in the long run.

    Reply Like 3
    • nolesrule I didn't bother to share all the details in my original post because I was looking for YNAB feature advice, not financial advice. 

      But I do value the opinion and don't mind sharing a bit more-
      I have a 3 year fixed HELOC with a simple interest rate on my house (fixed being locked in for that rate for the 3 year period, it's actually 4.95% but as I wasn't going into detail I just said 5% in my original post to make it easier).
      I am on target to have the loan fully paid off by the end of that 3 year period.

      What I was trying to figure out when I posted this was how to best make use of the money sitting in my account (things like taxes, car upgrade savings, new roof savings) WHILE I'm paying off the house loan within that 3 year period. So instead of leaving 40k-ish in my bank account making nothing- I was going to roll it into my HELOC just to make the interest payments go down (simple interest HELOC means that I pay the fixed rate on the remainder of the total, so the closer I get to paying it off, the less it costs me in interest, this is why mathematically the 3 year plan saves more money if you pay it off than the 30 year compound interest mortgage- in my situation it saves more than $150k to do a 3 year HELOC vs a 30 year mortgage).  

      Anyway- In the month since posting the original post I realized there really isn't a way to track these savings goal being inside of my HELOC in YNAB, and since I plan to pay the whole thing off in 3 years anyway (now 34 months) it makes more sense to just put most of those moneys into the HELOC anyway (without planning to pull it back out) and just save for those items (like a car upgrade) AFTER the loan is paid off in lieu of the then paid-off monthly house payments. 

      So all said, YNAB just doesn't support this kind of financial tactic. Which is really fine as it's not built for that, and with my new plan it doesn't matter.

      Does the above make sense now that you have a fuller picture?

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 1
      • Reported - view

      Blue Jackal It sorta makes sense, except for this...

      Blue Jackal said:
      this is why mathematically the 3 year plan saves more money if you pay it off than the 30 year compound interest mortgage- in my situation it saves more than $150k to do a 3 year HELOC vs a 30 year mortgage).

       Generally speaking a 30-year mortgage can be had for a lower interest rate than a HELOC. If your plan is to have the HELOC paid off in 3 years, then you can also pay the 30-year mortgage off in 3 years while paying less interest due to the lower interest rate on the 30-year mortgage.

      Additionally, with a plan of paying it off in 3 years  you would have been better off with a fixed-rate mortgage of any duration, or even an ARM, since all would have had a lower interest rate. People focus on the amortization table for mortgages, but really once you make extra principle payments, you can throw that table out the window, as you'll be paying less in interest every month and shortening the length of the mortgage.

      Reply Like 1
    • nolesrule Hmm, interesting. I'm curious to learn more. 
      Based on my research when I made the purchase, my understand was that though a 'fixed rate' could be applied to a 15 or 30 year loan, there were a lot of fees involved in paying off a mortgage early, and if I wanted to pay it off quickly (3 year) it was best to lock in a rate with a HELOC as interest rates were planning to risee and the simple interested ended up being less out-of-pocket per month with the advantage of the HELOC being a line-of-credit where I can 'store' other moneys that need to be re-drawn before the 3 year period was up (i.e. things like 30k/year in taxes which stored in my HELOC lowers the monthly payment temporarily from April-April).

      Much of this was planned through my business mentor who I deeply respect for his wealth-building accumen and he purchases properties with fixed-rate simple interest HELOC loans. So if you know more or have links to calculators for the state of Tennessee (Nashville) I'd be very curious to learn more, not that it changes my situation, but because this kind of thing fascinates me. 

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 2
      • Reported - view

      Blue Jackal If you're planning to get into real estate, then leveraging equity to buy more real estate makes sense... until the market collapses and your HELOCs get called. Again, see 2008.

      But a HELOC is a horrible replacement for a mortgage if you're just using it as a mortgage. It's plain, simple math. You will always get a lower interest rate on a mortgage than on a HELOC, so that means you'll always be paying more interest on the same balance. The HELOC calculates interest dailt, while a mortgage calculates it based on your monthly balance (imagine a year being 12 days long with each day the length of a month). So any draws on the HELOC will cost you even more in interest.

      The amount of your payment, regardless of your loan type, is made up of principle plus interest accrued in the previous period. And the interest is based on the principle amount. So the more you pay in principle, the less you pay in interest.

      In the first month of a $250k mortgage, regardless of the loan type, you are going to owe $833.33 in interest at 4% and $1041.67 in interest at 5%. if you make a $2000 payment, $1166.67 will go to principle in the 4% loan but only $958.33 will go to principle in the 5% loan. So in the second month, you'll be paying interest on a $208.34 higher principle balance, and at a higher interest rate.

      So the result of the higher interest rate will always be that it costs more to pay off the loan. So when your goal is to pay something off, you always want the lowest interest rate you can get. It's basic math.

      If your goal is leverage, you also want the lowest interest rate you can get, but sometimes other factors may be just as important.

      And for the record. I have a 3.125% 20 year mortgage that I am not paying down. The money goes into the stock market in tax-efficient investments and earns better than the 3.125%. I'm not interested in real estate because I don't want a second job. For those who want to get into real estate, just be careful not to get in over your head. It's not nearly as easy or simple as it's made out to be. There's a bit of survivorship bias by those who were ultra successful.

      Reply Like 2
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 2
      • Reported - view

      Blue Jackal I forgot to address the fee... I've never seen a payoff fee for a mortgage higher than $75. And I've paid off 3 mortgages, twice from refinances and once from selling. $75 is 3/100 of 1% of a $250k mortgage You'll notice in my math in the previous post, you saved $208.34 in the first month just on the interest spread, or nearly 3x the payoff fee.

      Reply Like 2
    • nolesrule This is all interesting and yes the math makes sense. I was under the impression that paying off a simple fixed interest HELOC was much more cost effective if you want to pay the house off quickly. As stated in another comment my FIL / business mentor suggested this route, and I look forward to learning more details about why this was the recommended method. 

      In the meantime I have a house that already has far more equity than I expected and the value keeps going up, and we're on track to having it paid off in 3 years, while also minimally funding our VTSAX accounts, so even if I should have gotten a mortgage over a HELOC I can't feel too down about it. 

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 1
      • Reported - view

      Blue Jackal It's important to learn and it's important to run the numbers. :)

      I went the other way. We pay a little extra to the mortgage and throw the rest at VTSAX and VTIAX in our brokerage. Our mortgage rate is 3.125% on a 20 year loan that we'll have paid off only about 2 years early. Meanwhile the brokerage account has had an annualized return of 15.2% since we started about 3 years ago, which I admit is an above average CAGR.  But I figure in the long run we can beat 3.125% easily in the stock market with little effort. 😉

      Reply Like 1
    • nolesrule Definitely. This has been an ongoing conversation with my best friend (he's a financial planner). The VTSAX has averaged 7.5% since 2008, which is pretty incredible (especially -as you said- since it's been getting the teens the past few years). It was a tough choice to choose the FI path or the No Debt path, but I'm doing both, just prioritizing debt-free first since I feel more security in that direction. We are still putting towards our VTSAX just not as much as we will in 3 years. 

      Reply Like 1
  • Blue Jackal said:
    (simple interest HELOC means that I pay the fixed rate on the remainder of the total, so the closer I get to paying it off, the less it costs me in interest, this is why mathematically the 3 year plan saves more money if you pay it off than the 30 year compound interest mortgage- in my situation it saves more than $150k to do a 3 year HELOC vs a 30 year mortgage)

    This statement has been haunting me for the last few days, and I've finally had a chance to sit down and do a little research into why on earth this claim would exist.

    Because the fact of the matter is that this is not how interest calculations work.

    HELOC's most certainly DO NOT have "simple interest." The concept of simple interest doesn't even exist for revolving lines of credit.

    More importantly: ALL types of interest work by calculating a % based on the remaining amount you owe (as you say "on the remainder of the total, so the closer I get to paying it off, the less it costs me in interest") - regardless of whether they are simple or compound, mortgage or HELOC or credit card or any other type of liability whatsoever.

    That's just how math works :)

    If you compare a $150K 30-year mortgage with 3% APR and a $150K 3-year HELOC with 3% APR, the interest accrued in the first month IS IDENTICAL. The ONLY reason the HELOC will get paid off faster is because the 3-year term REQUIRES you to pay off more in principle each month. However, barring any pre-payment/early-payoff penalties (which nolesrule has addressed), you can OPT to do the same on the mortgage. If you were to send the same size payment to both loans in that first month, the interest accrued in the second month is also identical, and this pattern continues to all future payments.

    On the other hand, if you compare a $150K 30-year mortgage with 3% APR to a $150K 3-year HELOC with 5% APR, the interest accrued in the first month of the HELOC is 2/3 higher than for the mortgage. And this pattern will continue over the length of the loan - if you pay enough towards each loan to pay them off in 3 years, you will pay 2/3 more interest on the HELOC than you would on the mortgage. This is ALL determined by their relative interest rates.

    I'm fascinated that this "HELOCs have simple interest!" myth has been allowed to perpetuate as much as it seems to have, because it's simply mathematically untrue. The only thing different between an amortized loan and a non-amortized one is in how minimum required payments are calculated. If one chooses to make the same size larger payments to each type of loan, they will each accrue interest at exactly the same rate, and will be paid down in exactly the same amount of time.

    Reply Like 3
  • Again, I know you aren't looking for advice on whether this is a good idea, and $1,400 is like 25% of my family's combined income, not 3 days of work for me, but my unsolicited thoughts anyway.

    As a preface: I know what a HELOC is. I understand what you're doing.

    However, from a YNAB-budget perspective, your HELOC is essentially a credit card that has:

    • a really big balance
    • a comparatively low interest
    • asset backing by the value of your house.

    That's it. If you owe $250k and you put $40k you were planning to save up for other expenses onto it, you've reduced your debt to $210k. That's it. Those dollars are spent. If you then went to use that $40k in, say, February 2020, your debt would increase from the ~$105k remaining (assuming you're halfway done paying it off by then) to $145k.

    I don't see how that's different from me having a credit card balance with $2500, taking $400 from my vacation fund and putting it on the credit card and thereby reducing the balance to $2100, continuing to pay it off slowly, and then making an otherwise-unbudgeted $400 purchase on that card when the balance is $1050.

    You can access your HELOC. It might be the most wealth-building thing you can imagine doing. But if you spend $40k from it without backing that money with cash rather than a non-liquid asset like a house, you're still spending unbudgeted money. You may reduce the interest you spend, but you'll still pay interest.

    And FWIW, if a car is one of your imagined purposes for that money, you can, with good credit, get 0% APR loans from dealerships. Why in the world would you pay 5% by taking the cash out of a HELOC?

    Reply Like 1
      • Welorf
      • Welorf
      • 1 yr ago
      • 1
      • Reported - view

      slightlysmall 

      Because why have $6,000 (or whatever amount) sitting in a checking account making 0.08% interest (while losing purchasing power of ~3% per annum)?

      What is wrong with credit/leverage; it is simply a tool. You can misuse it (consumer debt), or you can utilize it properly.

      For example:

      ".... If you owe $250k and you put $40k you were planning to save up for other expenses onto it, you've reduced your debt to $210k. That's it. Those dollars are spent. If you then went to use that $40k in, say, February 2020, your debt would increase from the ~$105k remaining (assuming you're halfway done paying it off by then) to $155k."

      Yes, your dollars are spent by putting that money on the HELOC. But why would you not, the account is a revolving account, you can put in and take out at will (in accordance with the lending agreement)? You can stuff it in the HELOC account and then access it when you need it, thereby reducing TOTAL interest paid, or you can leave it in your checking account and lose 3% of the purchasing power, per year, to increased costs because of monetary inflation, or you can stuff it in to the HELOC and reduce your expenses.

      The beauty of having access to credit is that you don't pay for it when you are not using it, but it is still there to act like an emergency fund; which means, if done properly, you don't have to have 6 month's living expenses sitting around losing value. Instead, you can put your money to work, making you more money.

      I fully agree with being debt free, etc; however the fact of the matter is that the federal government allows the banking system to leverage your deposits, at your expense. Using leverage & credit responsibly helps turn the tables back to your favor.

      TL;DR: 

      What we are looking for is a way to account for putting our digital federal reserve notes to work for us by not sitting around idle in a checking account.

      Reply Like 1
    • Welorf For one thing, I earn 1.58% on my checking account. The savings rate for $40k at my credit union is 0.6% (which is, to note, 5.6% higher than paying 5% interest on it). A 36-month CD is 1.34% and a 60-month CD is 2.63%. Money that you're guaranteed, which, as many people have noted, isn't true with the HELOC. The amount you can borrow from it can be changed.

      I have a $10k limit on my credit card. I use that card to purchase my vacations. But the $8k difference between my current $2k balance and my credit limit is not budgeted just because the money could be spent.

      I don't see how this is any different.

      Like I mentioned in my post, if you want to do it this way, do it. Set it up as a credit card, with a current balance, pay on it, spend unbudgeted money when you're ready to, then pay it back in the HELOC credit card category over time. (that's how I'd work around it in YNAB, btw). But call it what it is.

      FWIW, I have spent unbudgeted money from my credit limit before. The credit card I have, I opened so I could get 0% interest when I needed $2k I didn't have in my liquid emergency fund. But I'd rather my money sit in a category earning some interest (see above, although with $40k I'd be looking at Betterment, not my credit union), than having to pay 5% interest on a purchase I could have budgeted.

      It could be a risk tolerance thing, too. I'm freelance, so my income varies. I've earned as little as $260 and more than $5,000 in different months. I can't rely on Future Me to pay off my purchases; I save up for them in fits and starts.

      Reply Like
  • To each their own. Nothing wrong with being less risk averse.

    However, you may be making 1.58% in checking, or .6% or what ever the case may be, but you are still losing ~3% per year on the purchasing power & value of that money, and you have to pay taxes on the income generated that way. The other method is putting that money to work for you so you paying less in TOTAL interest over the long haul.

    Correct, secured loans tend to lock up when the underlying value of the asset securing the loan declines in value. Unsecured loans tend not to, because there is no asset backing it up. If you cash flow through it, you pay less interest overall then doing the "normal" thing.

    https://youtu.be/4W2ltk7wYXA here is a link to a video on YouTube that has better information on the strategy I am talking about. check out that guy and about a dozen other people, learn what they have to say and think it through.

    It took me about 7 years on my own to figure this strategy out, and then lo and behold once I finally started figuring it out, I found people to fill in the details much quicker than I could have on my own.

    What I have resorted to was using a cash flow work sheet I found to figure out my cash flow, and then I use YNAB to track my averages. Have to do everything manually right now.

    Reply Like 1
  • This has been a most fascinating discussion.  I came here trying to figure out what Blue Jackal originally asked: how to still track money sitting in the HELOC. 

    I'm in a similar situation (rounded numbers for simplicity):

    • I started with $80K left on my HELOC tied to my home (no mortgage).
    • I had (roughly) $80K in liquid in cash as well. 
    • I transferred $65K from my liquid account to my HELOC, so the balance is around $15K.  I'd rather save a couple hundred a month in interest that have it sit in a lower-interest account. 
    • I have $15K liquid left for emergencies.

    I kind of jumped the gun on this before exploring if YNAB could handle the situation.  It sounds like the general answer is: you can make it work with some trickery, but HELOCs are no "checking" account.  

    I was hoping that the HELOC could be treated as simply an account where my money could reside.  I always tell my wife, "it doesn't matter what money the money is located, it can still be placed into "job bucket" in our budget.  Well, it sounds like in the case of a HELOC, it's not that simple.  I kind of see it like Blue Jackal that the money is still mine, it's just sitting in a different account.  Assuming that the money is always "liquid" in my HELOC, why not keep it there instead of a much-lower interest account?  But it sounds like based on the discussion, there is a risk that HELOC can be frozen, which I was not aware of.  Blast. 

    I would love to just take all the money and pay off the HELOC in one fell swoop and own the home...then build back up those categories.  Not all of the goals will be spent all at once, so I feel like with the spacing, we will be just fine saving up for each one sequentially as needed.  My wife on the other hand has become a YNAB convert over the years as we've faithfully budgeted once a month together.  Giving "one new single solitary job" to all dollars in all categories takes a mental shift and kind of freaks her out.  There is definite merits to not doing that, as I'll have liquid money that can last for quite a while if there were a financial crisis.  

    I guess I'm trying to figure out two things now: how to even use YNAB for my scenario (same thing as  Blue Jackal ), and should I even be doing that? I feel like saving $270/month is worth the risk of letting it sit in a HELOC as opposed to only making $40/month in a "high-interest" Capital One savings accounts. (I have recently discovered that there are some pretty decent high-interest accounts listed on nerdwallet.com just to throw some additional variables into the mix. I didn't realize this until after initiating my HELOC plan.) I read the post on the Australian way of doing it. It was slightly confusing (I need to read it slower), but it seems like an offset account is like a checking that IS liquid, but you still get the benefits of it being applied to your home--kind of the best of both worlds.

    Short question: Am I just out of luck?  I'm reconciling in two days with my wife and am not quite sure what to tell her as we have a huge $65K uncategories "expense" to our HELOC from our checking that I need to apparently pull from somewhere.  

    Reply Like 1
    • CamJPete Glad to see someone else is trying to solve the same fascinating quandary. 
      I ended up being sort of lazy about it (I'm a nerd when it comes to financials, but having multiple budgeting accounts in YNAB was the point where it wasn't fun anymore and felt too much like work) so I just put the HELOC in my YNAB as a line of credit. The benefit of this is that I was then able to set a goal target to have the whole LOC paid off before its due date (thus having the house paid off in 2.5 years) so it gives me a monthly target to hit, which makes my nerd nerves happy to have that number. The downside is I'm not able to track what went in there from what category. So I'm just rolling ALL of my tax money into the LOC, and will then have to take it out in April. This isn't a huge issue, as it means I'll be saving money on interest from May-April, and the money needed will just come out of the LOC, but it does mean I don't have an easy record of HOW MUCH I put into the LOC from that category. 

      The other upside is that it simplified things with my budgets... instead of going "Okay I'll save for a car AND put money towards the LOC" it made me go "Okay, maybe I just put all my car savings towards the LOC, then quickly save for a car once the HELOC is totally paid off." Thus using YNAB a little bit more like it's meant to be used. Just prioritizing my savings goals.

      It's not quite as detailed as I would like, but again, doing all the 'separate accounts' tracking blah blah just was too much work. So I'm at peace with this. 

      Reply Like
      • CamJPete
      • CamJPete
      • 1 yr ago
      • Reported - view

      Blue Jackal Thanks for the response.  Yeah, I think I wouldn't have an issue with it if it were as simple as knowing you took $40K from one category only.  My problem is that I want to have money from many of my categories sitting in my HELOC and have no way to track how much we've saved up in that category.  I think the fundamental difference in what YNAB wants me to treat it and the way I want to treat the money is that when I put money into a HELOC, it has changed jobs.  No dollar can serve two masters, so have to transfer it out of the original category.  I understand that, but at least I'd like to be able to track somewhere how much was in there before.  I suppose I could put it in the title, like "Vacation - $1100", and I spend $350, I would have to go in manually and calculate how much i spent from off the title's dollar amount.  Me no likey. 

      I tried to setup a budget today in Mint.com , but it's pretty daunting as I haven't used that in years. I'm not sure how it works on that software either. Maybe they won't let me do what I want. Perhaps a homemade spreadsheet is the only solution. Boo.

      Reply Like
  • CamJPete said:
    Short question: Am I just out of luck? I'm reconciling in two days with my wife and am not quite sure what to tell her as we have a huge $65K uncategories "expense" to our HELOC from our checking that I need to apparently pull from somewhere.

     As you can tell from the other posts, I'm not a fan of the HELOC as a storage account. But to answer your question, the HELOC must be on budget in order to keep the money transferred to it in your budget. The problem then of course becomes accurate balance of the HELOC as a budget account and what it does to the sum of money available to your budget.

    It would have worked in YNAB4, but you can't hold the debt in a category from month to month without some manual effort. The problem of course becomes measuring how much of the debt you've actually paid off, versus you just have money sitting there to reduce interest but not actually reduce debt.

     

    Just as an FYI the easy, no effort 1.85% accounts are Capital One's Money Market account and Ally Savings. They will earn about $100/month, not $40. At Vanguard, their Federal Money Market fund (used for the settlement fund) is currently earning 2% and the Vanguard Prime Money Market Fund is earning 2.13%. Now, these aren't 5% like your HELOC, but it's better than the 0.8% you seem to have quoted (but even the Capital One savings is at 1%, not 0.8%).

    Reply Like 1
  • I think I may have found at least a workaround.  It is by no means perfect, and will likely be met by differing opinions.  That is okay.  If it works for me, I think I'll give it a try.

    It dawned on me while talking to my wife that I want part of my HELOC to act like a debt account (the portion that I want to pay off and never pull out of again if I can help it), and part of it to act like a checking account (the portion of my savings that I want to store in the HELOC account).  All I did was create TWO HELOC accounts.  One I called HELOC debt, which started with about $82,000 debt.  Then I created a HELOC checking (heresy, I know), that I transferred $64,000 into.  This still allows me to budget those dollars for the categories that I had already earmarked them for.  When I reconcile, I have to make sure that the sum of the HELOC debt and the HELOC checking equal the actual HELOC balance with my bank.  

    I realize there is risk associated with leaving my dollars in the HELOC that I have earmarked for other things.  If there is a freeze on my HELOC, then I won't be able to pull that out perhaps.  At least I will have my home paid off though, and I the other categories are for not super critical items.  My true "emergency savings" is more liquid--some in a real savings and some in a real checking.  That way I still have my emergency cash if needed.

    Whew, I sure used the word HELOC a lot in this post.

    Reply Like
  • I know this post is getting old but I am new to YNAB (this is my first post) and I'm trying to set up something just like what CamJPete and Blue Jackal are describing.  This banking method is much more common outside the US with mortgage/checking combo accounts or offset accounts. 

    It's all about leveraging and I understand the risks.  I think this type of leveraging is why US banks will pay people to "sit" their money at their bank in checking and savings accounts and probably why it isn't offered here.  They leverage our money all the time and I would rather leverage it myself rather than give it to them to do the same thing.

    I will have additional emergency savings outside of this account in case it is closed during a crisis.

    I found the following thread where it looks like a walkthrough in order to set this up perfectly: https://support.youneedabudget.com/t/631dbp/permanently-in-overdraft. I did a test budget and set it up as described from YNAB support and it seems like it would work rather flawlessly.  Has anyone tried this?  What do you think of this set-up?

    Reply Like 2
    • Hi Ran Dee !

      Welcome to You Need A Budget and to the forum - we're happy you're here! :)

      That thread contains how we officially suggest handling offset accounts. There are a few comments about using it there, but there's also a link to a suggestion created by another YNABer.

      If you have any specific questions about implementing an offset account, please don't hesitate to ask!

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 1 mth ago
      • Reported - view

      Hi Faness !  I set up my HELOC as a line of credit rather than a checking account, can you guys switch it to a checking account on your end so that I don't have to start over with a new budget, import everything, categorize everything, and link the transfers all over again?  Thanks in advance!

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

      Tomato Rain You can do it on your end. Just create a new checking account, select all transactions in your old line of credit account and move them to your newly created checking account.

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 1 mth ago
      • 1
      • Reported - view

      Superbone Will that keep all the relationships between the transactions across accounts?  (i.e. transfers to/from)

      Reply Like 1
    • Hi Victor Rodriguez !

      Yes, as long as it's a new account (and not an old account that would conflict with the entered transfers), the transfer transactions should remain in place. For instance, if you had a transfer from Account A to Account B, and tried to move that transaction to Account B, it would mean making a transfer to itself, causing an issue. In a new account, that shouldn't happen. :)

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 1 mth ago
      • 2
      • Reported - view

      Thanks Faness So, if accounts A and B exist and have transfers to/from and I create a new account C and I move all the transactions from account B to account C, the relationships will now be from account A to account C?

      Reply Like 2
    • Victor Rodriguez Exactly! It's a visual tongue twister, but it should work exactly how you described! :)

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 4 wk ago
      • Reported - view

      Thanks Faness !  Can I make a copy of my budget before I do that, just in case I mess something up?

      Reply Like
    • Victor Rodriguez You can't make a copy of a budget, but there's an Undo option in the web app! The circular arrows towards the top will let you undo changes as long as you don't refresh the page or log out.

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 4 wk ago
      • Reported - view

      Thanks Faness !  It's just scary.  Can I undo the transaction moves even after going to look at a report?

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 4 wk ago
      • Reported - view

      So Faness so right now the transfers to the HELOC from the checking account say "Payment:" instead of "Transfer:".  If I move those HELOC transactions to a new checking account, will those "Payment:" transfers be changed to be "Transfer:"?  Thanks!

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 wk ago
      • Reported - view

      Victor Rodriguez YNAB uses the Payment word in transfer-type transactions to desgnated debt accounts.

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 4 wk ago
      • Reported - view

      nolesrule Right, so if I move those transactions to a checking account, will those payments automatically be called transfers instead?

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 wk ago
      • Reported - view

      Victor Rodriguez Are you asking if you change the recipient account of the transfer to a checking account?

      Reply Like
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 4 wk ago
      • Reported - view

      Victor Rodriguez Yes, they'll automatically become transfers when you move them over to a checking account.

      Reply Like
      • Victor Rodriguez
      • Husband, Father, Software Engineer
      • victropolis
      • 4 wk ago
      • Reported - view

      nolesrule Superbone Yes.  Say account A is a checking and account B is a line of credit and there are transfers/payments between them.  I'm going to create account C as a checking account and move all of the transactions from the line of credit to the new, empty checking account C.

      Reply Like
    • Victor Rodriguez Correct. You can view reports and still undo the changes. You'll just want to be careful not to refresh the page.

      Reply Like
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