Overspending on True Expenses
Sorry if this has been answered already, I've searched quite a bit and wasn't able to come up with the appropriate literature.
I moved last month and incurred some out of the ordinary expenses beyond my monthly income. Luckily I have a savings account and was able to transfer money over to cover the extra costs. I don't have the savings account connected to YNAB.
Instead of simply transferring the funds over and wiping my hands clean, I wanted to think of the expense as a loan to myself. So I created a fake credit card and issued all of the expenses towards the phony account, instead of my checking account.
Then overtime I was planning on making 'payments' to myself to pay off the debt to myself. However, I find the system a tad confusing, at least the way I have it set up.
Is there a better way to track 'loans' to yourself, when you incur a true expense that went beyond your monthly budget?
Put your savings account on-budget and make categories to represent your intentions for that money. (It doesn't have to be "linked" for automatic import.) The fact you needed to use some of that money for moving expenses is a simple reallocation from some other category. (You should take from the lowest priority category in the entire budget.)
If you have a set timeline for that category you took from, larger contributions will still allow you to meet it. Use a Goal if you need help computing the new required contribution level.
It doesn't need to be any more difficult than that. All transactions match those that occurred in the real world. There is no need to "track loans to yourself". There's only the realization that you would have budgeted that money elsewhere to start with if you could better predict the future. The reallocation you did is simply doing that in hindsight.
why not just bring the savings account on budget, and budget that money into relevant categories?
I feel like YNAB works better and better, the more I lean into it rather than away.
If you bring the savings account into your YNAB budget, and then budget the funds to whatever, in the back of your mind, those funds are for, then it will be visible to you that those categories are now underfunded and they need attention. For example if they were your emergency funds, you now have less available in your EF than you did before.
You might need to do a bit of work but this is the approach I use. I know it's not in line with the Methodology, I honestly don't care, this is the only way I'll get the traceability I need.
1. Log all transactions in their respective categories.
2. Create one tracking account and one "Contra" budget account. Let's call it Tracking Account A and Contra Account B. For accounting purposes, any intercategory transfers are logged in these two accounts. [This only needs to occur once]
3. "Draw" from your tracking account A by logging an outflow transfer to your contra account B. Set the category to the one you overdrew. This will offset your deficit. The deficit is captured in your tracking account as a debt.
4. If you're funding your deficit from another category, set up an outflow transaction from B to A and mark the transaction to the other category. If you're payinig yourself back over time, set up scheduled transactions which you will approve as they come in. Do this immediately so you don't forget.
5. Continue all budgeting activities as normal from here on out.
If you need to find out how you still "owe" on the "loan", filter by category on your contra account with the running balance turned on and sort by date: Descending (latest first). The running balance next to the first transaction is your "balance payable". If you want to "pay off" a category, then enter an outflow transaction for the "remaining balance" from B to A and delete any remaining scheduled transactions. This way you keep your paper transactions segregated from the real ones.
I paper-trail the intercategory transfers this way so that I know which category I borrowed from and which categories need to be paid back and how, especially if I "borrow" from savings. I almost never change the budget itself because that's the baseline against which I analyze variance.
There is no need to "track loans to yourself". There's only the realization that you would have budgeted that money elsewhere to start with if you could better predict the future. The reallocation you did is simply doing that in hindsight.
I love this.
Great distillation of what makes YNAB different from other budgeting systems.
Agreed with what others stated about making your savings account on budget and allocating savings funds to categories. We've always had our savings set up that way and it's really useful for situations like you mentioned, as well as saving for and then using funds for things like vacation. We have a category in savings we call "Rainy Day Funds" for unexpected auto repairs, broken appliances, etc. and set a par level of $3K. When we need to use it we just transfer the money over and prioritize replenishing that category. For vacation we accumulate funds in savings and then transfer as needed to checking (where we also have a category called Vacation / Travel). We could conceivably save all those funds in checking but I prefer to keep the typical checking categories for expenses that are a little more regular and allocate to them in a way that handles all the ordinary expenses. Mainly because I find if I have more funds laying around in a category it's too easy to spend them without looking far enough into the future. Still working on that habit, and we're many years into our YNAB journey! 😁
Beige Motherboard said:
We have a category in savings we call "Rainy Day Funds" for unexpected auto repairs, broken appliances, etc. and set a par level of $3K. When we need to use it we just transfer the money over and prioritize replenishing that category. For vacation we accumulate funds in savings and then transfer as needed to checking (where we also have a category called Vacation / Travel).
What do you mean by "A category in savings" and "transfer to checking where we also have a category..." YNAB doesn't do "savings categories" and "checking categories". Checking and savings is just a location for your money. Rainy Day Funds and Vacation / Travel are categories that tell the money what to do.
It doesn't matter what account your money is in, it can be in savings and still assigned to "Vacation / Travel" The only real reasons there are for having a separate checking and savings account is that savings (typically) has a higher interest rate, and it also keeps the money that won't be needed for a month or so out, from possibly being siphoned out of your checking account by fraud.
The only thing you have to ask yourself when making a purchase is 1.) do I have enough money in the category? (If no, you can't afford it. Either wait, or WAM from some other category) and 2.) Is there enough money in the account I'm thinking about using to pay this? (If no, transfer some money from savings first, so you won't overdraw your checking.)
That's it. Categories are independent and don't matter where the money sits. One of the popular analogies on this forum is If I have $5.00 in my front pocket to pay for lunch, it doesn't matter if I move it to my back pocket or not. if it's set aside for lunch I can pull it from my front pocket as easily as my back pocket.
Then again, it's entirely possible I misread the above quote, and you weren't saying what I thought you were at all. In which case, hopefully this will help somebody else who doesn't know that categories and accounts are not tied to each other.
I agree with what you're saying conceptually as far as stashing funds into whatever category regardless of in which account they sit, but for my situation that didn't work well. It's easiest for me to divide our budget into categories groups I align with regular fluctuations and frequent spending from our checking account, and those that are more stable and geared towards long-term building of savings with our savings account. For instance, the category groups I have that reflect activity that occurs in my checking account are "Variable Payments," "Set Payments," "Ongoing Expenses," etc. I have another category group titled "Savings Goals" and under that I have categories for my rainy day fund, vacation, and a future house fund. The available funds in the "Savings Goals" category group is always easy to match with the amount of money I have in savings, which makes it easy to ensure what's in the other categories is also an accurate reflection of the money I actually have in savings. I have been using YNAB for a long time and found that was the simplest way for me to be sure that what my budget says I have available to spend on the day-to-day always matches the account I'm spending it out of. This is doubly important to me because I share my accounts and my budget with my husband and he is not as conscientious as I am of how we are spending.
I think one of the advantages of YNAB is the ability to customize it to your individual needs. I was simply sharing our method for keeping available funds for emergencies and such while also keeping track of the need to replenish those funds, as the original poster was discussing.
The biggest cognitive switch for me was looking at budgets and categories instead of accounts and balances. You may have to, say weekly, be sure your physical balances cover payments you need to make. But start looking at life as dozens of envelopes you fill and empty. The more I use YNAB, the fewer actual real-world accounts are needed. Good luck!