Immediate Obligations vs. True Expenses
Hello. I think I understand the difference between these two preset YNAB category groups, but I'm not quite sure what can qualify something as one or the other. I think of Immediate as day-to-day expenses and True as those things that are not as frequent. True expenses used to be called "Rainy Day" I think.
What I'm not sure of is how frequent an expense needs to be to be "Immediate". Every week, every two weeks? I'm just not sure where the line is and am curious what others do... or if they even use these preset groups.
Don't overthink it. You can manage your categories anyway you want.
The idea behind true Expenses is to be aware of and regularly budget for expenses that don't happen every month. Whether it's a sinking fund or just a recurring bill that happens every 3, 6 or 12 months, you should make it a goal to budget to them in regular amounts every month so the money is there when you need it.
I differentiate between everyday spending, once per month expenses, recurring non-monthly expenses, and sinking funds/savings goals. But the target amounts budgeted to each category remain the same from month to month.
"Immediate" is up to you - I think the general guideline is: "Immediate" are things that you are obligated to pay this month (whether it's once or several times this month) while true expenses are expenses that are less frequent than monthly so you want to set aside money for them. But you can change/rearrange these to category groups that make sense to you. For example, my water & power bill comes in bi-monthly but I set aside the same amount of $$ every month for it (because I know what monthly average is) so it doesn't quite fall into the default YNAB categories. I prefer to separate out my fixed "immediate" obligations (mortgage, car payment,water/power ) from my flexible monthly obligations (groceries, dining out). It's flexible so use category groups that make sense to you. 🙂
We are paid fortnightly, so for us Immediate covers what needs to paid that fortnight, so rent, groceries, fuel
I have split the True Expenses section into 2 sections.
One for ad hoc expenses, like clothes, gifts, medical, car service. We know we need money for them, but can never be sure of when or how much.
The other for the more known expenses that are monthly, quarterly or annual. So insurance, electricity, internet. These categories are set-up with goals.
I threw out the Default headers (and most of the default categories). I have:
- Monthly Expenses (rent, car payment, utilities, groceries, gas, etc.)
- Intermittent Expenses (car maintenance, kids' summer camps, medical, etc.)
- Just for Fun (dining out, entertainment)
- Quality of Life (buffer, vacation fund)
- Business Expenses (I'm a very part time artist, so supplies, shipping, memberships, etc.)
This isn't what you asked but I also - and this is a tip I got from the forums, I think - include the due dates for the recurring transactions in the category name, so that as I'm budgeting, I know which categories I can skip or only partially fund because that expense comes after my next paycheck.
The way I distinguish what is an "Immediate Obligation" versus a "True Expense" is as follows.
Immediate Obligations are expenses that:
- Have a fixed, or nearly fixed, amount that is paid at a regular and frequent interval (monthly, every two months)
- Must be paid in order to sustain a basic need (shelter, food, water, etc...)
- Have a binding contract requiring them to be paid to sustain the contract (lease, loan, etc...)
True Expenses are expenses that:
- The cost of the expense may vary substantially each month
- Is an expense that is not paid on a fixed schedule
- The money currently allocated to a specific expense can be allocated to another expense without causing a major disruption to a basic need or your quality of life
Note that this is how I envision the purpose of these expense types. You may find that what I consider to be an "Immediate Obligation" is something you consider in an entirely different way.
The best part of YNAB is that you get to organize your finances in a way to makes sense to you and focuses on what you feel is important. Find what works for you and run with it!
Interesting and thanks everyone! What I find difficult is I like to order and group accounts in certain way to make them easier to fund when I get our paychecks or to help track when they're due but then I would rather have them grouped a different way for reporting. For example, how much are we paying for our home? That might include bills, day-to-day (immediate) expenses and then some longer-term ones. So I'd have to re-order my categories just to get that information in a report but then put them back for funding. It would be better if you could save different "views" of your budget. No idea if that's even a planned feature.
I too have a category for "Monthly Bills" and include the due dates and order them by their due dates. It's the first category I fund when we get paid.
I like the idea of creating groups that are for frequent, important expenses (things we really need to keep funded) all the way to the least frequent (meaning we could borrow from them if needed). Though it can be more of a "spectrum" and some categories (like clothing) could really fall into more than one.
Thanks for your suggestions and examples!
I switched the name of my "True Expenses" Category to "Future Debt Prevention" to help me recognize the money going into my True Expenses Category doesn't have to be spent immediately and should be allocated to items that I would be incline to put on my credit card like auto maintenance and tax filing fees.
What I have is:
Monthly True Expenses
Future Debt Prevention
Semi-Annual True Expenses
Annual True Expenses
Quality of Life
Things are funded in the order they are listed, and items in each category are listed in order of occurrence of Monthly Obligations, but of importance for everything else. If I am short or need to move funds I start at the bottom and work my way up.
I am considering renaming a few of the master categories. My budget is a work in progress.
I look at Immediate Obligations as the things I need to pay for that would maintain my current lifestyle if my income was reduced. It includes my monthly bills, car insurance, tax, MOT etc. I've also put my Netflix subscription in there along with my internet. I could survive without a Christmas fund but you'll never take my Netflix 😂.
My categories are divided into several groups so that I can make better decisions as to where I want my money to go. The groups also make sense to me for when I'm deciphering the pie charts & other reports. My groupings are:
Credit card payments -self explanatory.
Debts to pay -also self explanatory.
Just for Fun - movies, dining out, recreation, entertainment, etc and anything I could live without, all fall under this category. Basically, if for some reason my work hours are reduced, I lose my job, or the zombiepocalypse happens, these are the first things I'd cut out of my budget.
Quality of Life goals - this is where all my savings, emergency fund, major appliance purchases, & such go. If it's improving my quality of life or if it's something expensive/huge but could make daily functions of life easier (especially as I age), it falls under this group.
Special events - birthdays, anniversaries, holidays, and travel/vacays are listed under this group. It not only serves as a reminder of special daysit goal dates to come (since I'm forgetful), but it also allows me to put money aside each month until that day arrives - rather than freaking out & trying to scrape funds on short notice (I named the categories with the date of the event when applicable, i.e., Anniversary Mar30, Child1 Bday Feb5, Thanksgiving Nov24.)
Recurring expenses - bills that I can expect, those that don't fall under the other categories & repeat at regular intervals (monthly or quarterly bills, oil changes, annual antivirus, weekly groceries, vehicle fuel every 10 days, yearly income tax filing fees, etc).
Immediate expenses - this is for all other categories that don't fall under any of the other groups. (emergency Car repairs, court costs/ fees, meds/health/wellness, emergency home/appliance repair, atm fees, credit card interest, etc.)
My budget is still quite young and definitely a work in progress (but isn't life as well?)
The categories I have now are:
Monthly fixed expenses: imediate obligations really. Fixed monthly bills (mortgage, heating, water, car insurance etc) and slightly fluctuating costs (groceries, petrol)
True expenses (up to yearly): everything from infrequent bills for insurance to gifts, clothing.
Just for fun: dining out and fun money
Quality of life goals: extra payment on mortgage and (minimal cost) student loan, extra trip with husband, summer holliday, college fund son.
Wishfarm: excited about this. Read a blog about it on YNAB recently. I'll allow three wishes in there at a time. No set goals, just letting it grow when I've got money.
Savingsaccount: I know location of money isn't the point. But in this one case our emergencyfund and savings for an electrical car are in one account (were before I started the budget) and also in one category in YNAB, so I don't touch them. I got very confused deviding my safetyfund between all the different categories. And was I unknowingly using it? I put it all back and am now going to save for true expenses as well as keep the emergency fund.
Credit cards: do have one, hardly use it
Wishlist: connected to that wishfarm. Truely a wonderfull concept. Going to write everything I'd like in there. No money reserved for it. Only if a wish moves to my wishfarm can it start to gather money. I'm hoping this approach will make it easier to start budget meetings; till now my husband doesn't want to budget. But he doens't mind discussing priorities. So a meeting about just what to move to the wishfarm , maybe...?