
Tracking savings and savings rate?
Hello, my wife and I use YNAB to track our spending and to budget monthly expenses. We also use it to keep track of some savings goals. We're having a hard time managing our savings goals which is frustrating because making sure we are saving lots of money towards our goals is our main financial goal and driver. Here is our current situation.
We have checking accounts and savings accounts on budget (and unlinked). We also have investment accounts which are off budget (and also unlinked). Monthly expenses are fine. Every month we get money into our checking accounts and we're able to budget that for our monthly expenses. However, some of that money is slated to be saved into one of at least 5 savings categories (future baby, future house, next years travel, big vacation next year, general financial independence).
The way we handle this right now is in the budget we have a super category for savings and categories for each of the above savings goals. Every month we budget some amount of money towards each of these goals from our paychecks. Then we correspondingly transfer money from the checking accounts into the savings accounts to reflect this*.
One big goal that we have is to have a historical record of income, expenses, and savings over time. For example we would like to be able to calculate savings rate on a monthly basis. I mention this because it motivates why the software experience causes problems for us.
The big problem with this approach is that we are accumulating our savings in the "budget" column. Unfortunately there is no budget history so we're not able to look back and see *when* we contributed *how much* to the various categories. We can only see the current total.
Another problem is we have to do a bit of math regularly to ensure the amount we have budgeted into the various savings categories matches the total amount in the savings accounts. (This could somewhat be mitigated by consolidating the savings accounts where possible but even with that the problem persists).
Possible solutions we have thought of:
- Take the savings accounts off budget. We can keep the categories but now saving will look like expenses meaning it will be tracked in a historical manner and will be clearly visible in the spending reports. The problems with this are 1) if we just having 1 savings account for all of this it won't be clear how much money in the savings account is apportioned for each savings goal** 2) we can no longer track budgeting goals and 3) I'm not sure how this will look in a few years when we start actually drawing from these accounts because the money would then be re-entering the budget as income which would artificially inflate our income again making the savings rate difficult to calculate.
- Make multiple savings accounts off budget, one for each savings goal. This just seems like an anti-consolidation headache. We'd have so many superfluous accounts and it would be annoying keeping track of all of them. Same budgeting approach as above.
- Perhaps some of this could be solved by having multiple "budgets"? One for short term spending and one for longer term saving/spending? We haven't thought much about this approach yet.
Can anyone make suggestions for how to handle medium and long term savings, and particularly handle it in a way that makes it easy to calculate savings rate each month?
*We're aware of this post https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/ but we need separate accounts because these are medium to long term savings goals and they should be collecting interest far above what is collected in a checking account.
**Actually this would be a nice feature request. A way to divvy up the purpose of a tracked account towards different goals. I guess this is basically what a budget does already... Thinking about this is what gave me the idea of multiple budgets.
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Beige Wildebeest said:
*We're aware of this post https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/ but we need separate accounts because these are medium to long term savings goals and they should be collecting interest far above what is collected in a checking account.I think you may be misunderstanding that article a bit. That article is telling you not to match an account balance to a category balance. I have about 4 savings accounts and 3 checking accounts plus CDs all on budget. I have a category called Loss of Income which would cover me for 6-8 months and I literally cannot tell you which account it is in because it does not matter at all. I keep as little as possible in my checking account but it still doesn't match any particular category. I know that most months my outgoings total $X therefore I make sure that on the first of the month my main checking account has $X+15% in it. Everything else that comes in gets moved to a savings account to maximize interest. Location and purpose of my money are 2 completely separate things.
I also cannot tell you what my "savings rate" is. I can tell you that including employer match, 24% of my gross income goes into either 401(k) or IRA, plus I send a set amount to my taxable investments every month. I am saving up for a kitchen remodel right now, but I wouldn't count that as "savings" because as soon as I hit a certain amount (and have the strength to deal with contractors), I'm going to spend that money right down to 0. The vast majority of "savings" is just delayed spending.
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Every category is savings in YNAB; it's only the timeframe that varies. I mean, "savings" is merely "delayed spending" when you get right down to it.
When financial experts talk about "saving" a certain percentage, they usually mean for retirement.
I think you're complicating things unnecessarily. Why do you care what percentage of income goes to those 5 "special" categories? YNAB would have you operate everything on a priority basis. The important things should get money (within the constraints of income) and if something has to go unfunded, it should be something not as important.
Basically, if you don't have any lower priorities that are going unfunded and you still have unallocated income, you should accelerate a high priority -- possibly one of the Big Five -- regardless of whether that causes them to exceed some arbitrarily set percentage or not.
Think about the future house, just as an example. If you want a house in X years, you're going to have to save a significantly higher percentage if you're going to buy, say, in California compared to Kentucky.
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Beige Wildebeest said:
We're aware of this post https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/ but we need separate accounts because these are medium to long term savings goals and they should be collecting interest far above what is collected in a checking account.You should read that post again, then. It actually outlines why you can put money in a higher rate account without impacting the budget. Purpose (category) is independent of location (account). It describes why you do not need to make categories match an account (and doing so is more work).
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You are way overcomplicating this. And you may be aware of that article but it doesn’t appear that you understand it. There should be no direct correlation between categories and accounts. The accounts are just containers. Some make more interest than others and that’s their only purpose while your checking account, most likely, makes little interest but is how you pay for things and receive your income. I have more in high yield savings accounts than I do in my medium to long term savings categories combined.
As far as savings rate is concerned, you could probably calculate it using YNAB reports. Just turn on your medium and long term categories.
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Ok, I'll take a stab at this one. Why don't you reverse the idea, and be proactive, and tell YNAB how much you want to save? So like, let's say I'm gonna be one of those FIRE people and save 40% of our income. I have December already budgeted. I take all of this month's income and put it in a holding category for next month. I put a note under the January header "Save 40%" and when I budget Jan. I calculate 40% of the amount in my holding category and distribute that amount amongst my 5 biggies and budget the remainder as normal. Boom.
If I make it through the month without starving to death, and I wanna push myself a little further, now let's try 41% or 42%. Write a note as your goal for Feb. And repeat.
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I'm curious what formula one uses to calculate savings rate? There are so many ways it can be done that it's just about pointless to throw out a number. As Superbone mentioned, there's money taken out directly as payroll deductions. There's employer matches. There's post-tax savings. What number do you use for the denominator? Gross wages? Bonuses? earned income? AGI? Take home pay? Do you reduce by the cost of employer benefits? Do you add back in employer match?
Savings rate is a figment of the imagination. Rather than figuring out a percentage that you are saving, figure out the target number needed for retirement, and reverse engineer that back to an annual dollar amount needed to be saved.
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I recall thinking my savings rate was the end-all, be-all in budgeting. That was before YNAB, and maybe for the first year-ish of using YNAB, too. I had a budget template, and I would compare it against my take-home pay to figure out the percentages. At the time it was essential to me that my spending rate be less than 60% of my take-home. That 60% number was chosen simply because my unemployment insurance gave me 60% of my previous income in the event of loss of income, and I had been through a prolonged unemployment in my recent past.
When I measured my budget template against that measuring stick of a 40% savings rate, I know that I saw that as a health-metre for my finances and lifestyle. It didn't matter if the savings was for wants or needs, for medium- or long-term future spending; I just needed to see that my current plan was a 60-40 split, and that I didn't need more than 60% of my income to meet essential needs.
And....once a year, when I'm doing my planning for the upcoming year, I still calculate my percentages for that magic 60% mark. I kind of equate this with wearing a string of garlic to ward off vampires. 😉 You don't know why it's important or if it really works, but it gives you comfort.
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