Permanently in overdraft
Here in Israel, many people live in permanent overdraft. I don't think our bank account has been out of the red for around two years. It seems like YNAB isn't really set up to handle this situation. Does anyone have any experience with it? Even with work, it'll be at least a year until we're back in the black. It would be nice to start budgeting and thinking about priorities before then.
Our main checking account is a mortgage account that works like that, it's very common where I'm from but doesn't seem to a something the US has. I've done a work around by making my account balance the available in the account. So for me currently the account is overdrawn by 10000 but I have 5000 available because the limit is 15000, so I set my account balance as the 5000 available.
I then have put a 15000 debt in the tracking area so the reports still show the true debt I have.
In the budget I have put a line called revolving credit (that's what this type of thing is called here) and each month budget money for the interest due and have also set a goal to pay it off so eventually that 10000 in debt will be gone.
I hope that helps, probably isn't the way ynab would say to do it, but I've been doing it that way for 2 years and it works for me.Reply
Yeah. You can permanently live in bank overdraft in Canada too. I did that for a few years myself. Bad times. Overdraft in the US is not the same concept from what I gather.
I no longer have the option of overdraft. I eliminated it from my accounts when I was able to self-fund through any overdraft risk, and doing that reduced my bank fees. But I do something similar to what PhoenixFlying suggests for my line of credit account. Rather than enter it as an on-budget account, I entered my line of credit as a tracking account, and I have chosen the other liability account type for it. My thought is that if I should ever need to borrow from the LOC, I would enter a transfer from Line of Credit to Chequing (categorized as Income To Be Budgeted), then budget those funds where needed to deal with expenses. The balance on that account is currently zero. If I entered a transfer from it, the amount transfered would then display as a negative amount in the tracking account. When repaying it, I would enter a transfer from Chequing to Line of Credit, until it was back to zero. In order to make this work, you will need a budget category to budget your payments to overdraft. I suggest you call it Overdraft Smackdown. 🙂 Good luck!Reply
It sounds like you're referring to what we call off set accounts. There is a way to follow that in YNAB but, apologies in advance—LONG directions:
In order to set up your offset accounts in a budget, you will need two key pieces of information: the current balance of your account, and the maximum credit line on your account.
Step 1: Add Your Offset Account
You’ll add an account that represents your current debt balance. This is the account you will spend from and record all transactions in.
Add a new account and select account type “Checking.”
The balance of this account should be set as the current balance of your offset account and will be negative.
Step 2: Add an Offset Credit Limit “Account”
This is not a real “account” with your bank, but simply a way of expressing your borrowing limit in a way that offsets your debt balance.
Add a new account and select account type “Checking.”
The balance of this account should be set as the limit you are able to borrow, expressed as a positive number. For example, if your borrowing limit is $150,000, enter that as a positive amount in the account set-up process.
Step 3: Check your Budget
If your accounts have been set up correctly in steps 1 and 2, you should now see a positive amount in To be Budgeted on your budget. This number represents the difference of what you can borrow and your current debt balance. It does not represent liquid assets, and you should not plan to spend all of it!
Step 4: Set a Goal
Your next step is to set a goal to pay off that offset balance completely. You want out of that debt, right?
1. Establish a category in the Debt Payments category group called “Offset Payoff” (or whatever you’d like to call it!).
2. Select that category and click “Set a Goal” in the Inspector.
3. Choose a Target Category Balance by Date goal.
4. For the amount, enter the credit limit of the offset account.
5. For the date, enter the month and year that your loan matures (when your bank will require you to have paid off your loan).
The amount displayed in that goal is the minimum you should set aside each month to pay down your offset account to zero. Budget at least that amount now! If you don't, you'll be living on debt, not the assets you are depositing in the account.
Step 5: Budget
The remainder of the amount in To be Budgeted should be divided among your categories. But remember that this represents all of your available credit. You should budget and spend as little of it as possible, budgeting most of it to your Offset Payoff category. In the future, you'll focus on budgeting new funds that arrive from new income.
*As noted above, spending any of these funds before depositing more income increases the amount you owe on your Offset Account.
Step 6: New Income
This is the exciting part! When you receive new income, enter it in the Offset Account as To be Budgeted. This money will be available to budget, and unlike your initial budgeting in Step 5, represents real money! Be mindful of budgeting first to that Offset Payoff category to meet your goal, and follow our prioritization process.
Step 7: New Spending
New spending should always be entered in the real-life, real-world Offset Account. This will allow you to track an accurate balance on that account.
Let me know if I'm on the wrong page here! :)Reply
Albert Faness at YNAB I'm also in NZ with a new offset/ revolving credit mortgage structure - was really struggling to work out how to set up YNAB with the same as I've used and loved YNAB the last couple of years. I've just done a test budget with Faness at YNAB 's suggestion above which works well.- thanks! But as a reasonably savvy, non-new YNAB user I've found it super difficult to find any info on this before now- perhaps some clearer info under your help docs? It's pretty difficult to find answers buried midway through a forum post! I'm pretty sure I would have given up if I wasn't already a YNAB-coolaid drinker :)Reply
An overdraft is a line of credit in most ways.
The method I use is to set up a credit card account called overdraft. Whenever the checking / current account went overdrawn I would fund it from the credit card account to ensure it never went below zero. I treated the overdraft in the same way as a credit card in YNAB as it is similiar in many ways.
This helps me see the overdraft as a separate debt that I can budget for and pay down.Reply
I also live in New Zealand and have a revolving credit as part of my mortgage (called a Flexi Home Loan). I'm trying to keep this account balance slightly negative (but not too negative) for the life of my mortgage and put any surplus towards my fixed mortgage account.
I'm new to YNAB and have wasted multiple hours trying to get my accounts to do something sensible using a Line of Credit account type. If I weren't so determined, I would have given up long ago.
I just found this forum, but after reading it I'm still confused about the best way to set up my accounts. The chatter about Overdraft Protection in this forum is also confusing. I appreciate what Albert has said - there has got to be an easier way.
Currently I'm still having problems - either with 2 accounts and with way too much money available to budget or with 1 account and no money to budget.
What YNAB account types do I need to set up to do budgeting when I have a New Zealand style revolving credit account? The United States is not the center of the world.Reply
Hi all - sorry to bring a topic back from the dead but - I cannot find any other support. I have an account which, for various reasons... is £10,000 into an overdraft. I'm not clearing it first because the interest rate is far lower than any of my other debts. But it is the true balance and it's an account I use every day.
I'm in the UK - there doesn't seem to be any way of handling this, quite common, occurrence at all?Reply
Another uk person here. With a lot of debt. Husband and I both have current (checking) accounts with big overdrafts (ie agreed negative balances on which we pay low interest to the bank), and between us we have 10 credit cards, all carrying balances we can’t clear month to month, and 2 loans. Our starting account position total gave me the shudders when I set YNAB up! It was good to know exactly where we are for the first time. Problem is, when either one of us gets paid, our checking account goes (briefly) into positive balance, and we have a tiny ‘green’ to be budgeted amount, but not enough to even cover minimum card/loan payments, let alone groceries, bills etc. Struggling to see how we can use YNAB to sort this out. Our overdrafts are our least toxic borrowing, we are unlikely to pay those off first. But if there’s never enough in “to be budgeted” to make sense... and as soon as we allocate some of it / do a couple of transactions, we’ve nothing to budget, but we need to use the overdraft to cover. We want to sort this out, and I am hoping YNAB will help, but can’t see how to set it up.Reply
Tetsugaku and Slate Blue Tugboat
Here's a link to a step-by-step instruction post in anther thread on overdraft, posted by dakinemaui . It is a practicable and workable method of dealing with Cdn- or UK-style overdraft in YNAB.Reply
The other thing that exists is a redraw facility.
This is more what I was thinking about. I'm sure it's natural to want to "park" as much as you can in that account, while maintaining that money in your budget categories. I didn't realize rates would be different, but unsurprising in hindsight. Thanks for all the information!Reply
I do have a similar problem in understanding how I could implement European reality in YNAB. The situation here is as follows:
One typically has attached to a standard checking account (usually called *giro* or *current account*) something similar to a "Line of Credit," often referred as *dispo.* In addition to this there is the possibility of additional overdraft that works just as overdraft in the US. In difference to the US, most credit card debt is typically consolidated in this *dispo* at some fixed date in the month. Unfortunately, YNAB is handling this very poorly, as it should be possible to
(1) treat the amount available as budgetable AND
(2) keeping these in one account instead of drawing these out into a separate and fictitious "Line of Credit" account AND
(3) compute the quarterly interest on the *dispo* in function of the days and amount in [- value of dispo line, 0]
The second aspect of these is that very often credit cards moonlight as money market accounts when the balance is above 0.
Please note that in addition to these, we also have "Line of Credit" accounts, classical instalment-based credit cards and debit cards, albeit as far as I know, the former is much more common. I have tried to set my dispo up as Line of Credit first then switched to overdraft as already the setting up made every little transaction super-complicated and further ruined the budget overview. Having switched to treating these as simple overdraft entirely cuts out my ability to budget money I could actually budget (and will be very obligated to do so). It would be very nice to have these features included.
It is static. The overdraft limit is static. And that's what the bogus account is for. What is not static is how much of the limit is currently used. But this is covered by the checking account. So dakinemaui method works. And I believe Tetsugaku agrees it will work. He just doesn't like it because it's a workaround and not something ready-made in YNAB.Reply
there not being a structured process you can build into YNAB to pay down that overdraft in a formalised way
It really seems like you have not read the post that HappyDance linked earlier describing the approach for UK overdraft operation. In that post, there absolutely is a definite, systematic path to getting off the overdraft, with obvious progress as you go. It absolutely maintains an accurate (negative) account balance yielding a totally seamless interface to reconciliation. It is trivial to setup and trivial to dismantle when you're off the OD (about 30 seconds for either).
I've had a post telling you all this sitting in "Pending" status for 2 days now, for some reason, which still hasn't been approved.
Do go read that post. Don't bother to reinvent the wheel. It works perfectly, judging from the feedback of various UK users who have said it was exactly what they needed in order to continue using YNAB.Reply
How long are you going to continue to pay for software that doesn't meet your needs? Having been a YNABer for a very long time, I can tell you that YNAB isn't going to add support for what you are requesting any time soon if at all.Reply
I've just tried using a workaround that I used in YNAB classic for using a UK overdraft on a regular basis and seems to work at the moment!
In the main budget, I set an 'Overdraft' line under 'Debt Payments'.
I then created a checking account with a starting balance of, say, -£1000 (negative balance). In the checking account I then changed the starting balance category form 'To Be Budgeted' to 'Debt Payments: Overdraft'.
I then added a new transaction in the current account with a payee of 'Starting Balance', allocated the category as 'To be Budgeted' with an inflow calculated to be where my current balance is. E.g. if my current balance is £250, then the amount enter in the inflow is £1250 (difference between overdraft and current balance).
The working balance is now £250 in the current account and when you go back to the main budget is displays a figure of £1250 to be budgeted and identifies that £1000 as an overdraft debt which can then be budgeted for paying back in the usual way through goals etc.
Not sure its the perfect answer but it seems to be working, certainly for this month at least!Reply
Here's how I do it : Much like the explanation in the beginning of this thread.
I live in Belgium, and here most people are allowed to overspend their checking accounts up to a certain amount, but usually 1240 eur.
Now, the problem at first was that this money is not ACTUAL money, but it can be spent if need be.
That poses a tricky problem which I solved by creating an additional account with a credit line of the said 1240 eur, entered as inflow to start with. This allows you to budget the money (although you don't actually have this money).
In an ideal situation, I have a budget category that is called 'emergency funds' where I budget AT LEAST these 1240 eur. So basically the credit line that is available, is there for emergencies only.
Now, if at some point we need to overspend, we move the money from the emergency fund to the category needed, but we will try to get the minimum of 1240 available in the emergency fund asap.
So basically, our line of credit is (a part of) our emergency funds category.
This has a certain logic to it, since this credit line is indeed invented for those emergency moments where you need some extra cash for a limited time.
The only problem I'm still facing is that the line of credit is not "linked" to the said checking account.
In an ideal situation, when overspending e.g. 100 eur in the checking account, the line of credit should be showing 100 eur less automatically, which it does not. Also the line of credit shows up below the credit cards, which I understand, but it is not showing anything when using the line of credit.
I know we need to get to debt free asap, but sometimes people have no choice.
Here in Belgium, you need to have a POSITIVE balance on your checking account at least every 3 months. So it would be ideal if the following scenario would work in YNAB :
1) Add a line of credit LINKED to your checking account, with the limit of the credit as a positive balance.
2) Budget the money of that line of credit if need be in to e.g. an emergency category.
3) When overspending on the checking account, it should show a negative balance (since you need to be able to reconcile, BUT the overspending amount should be automatically subtracted from the balance of the credit line. Once this credit line is at 0, you're done spending.
4) The Credit line in the budget shows a negative balance of the amount spent, much like the credit card. You could enter a goal to get this line of credit back up to 1240 by a certain date (in my example three months from now), showing you what amount you need to budget next month on building your credit back up.
My initial thought was to add transactions to the checking account until this hits zero, after which one could add transactions to the line of credit account BUT, you hardly never hit 0,00 with 1 transaction. The last transaction is usually partly paid from available funds and partly with the line of credit. Furthermore one could no longer reconcile the checking account after you hit the line of credit, since it would stay at zero.
Just a thought.Reply
I think your detailed procedural is something to be used for someone using an offset account or an all-in-one account (as we call them in Canada). This implies that all the accounts and debts are in one big pot and separating debt from asset, when complicated by mortgage and equity, is a math exercise.
Sounds like this actually IS the right thread to me!
There is no separate mortgage and nowhere to move money between.
But happy to start a new thread for people outside the USA 🙃 Even though I suspect the same solution will be put forward.Reply