Buffer vs future months
My main goal using ynab was to create 6 month salary / expense buffer. I’ve almost achieved this - 5 months so far. However i’m not sure the best way to do this in ynab??
1) should i budget all five future months to zero
2) just budget one month ahead and put the remaining buffer balance to a specific category in the following month so that i’m always one month. Then repeat each month ???
That's not a buffer. That's an Emergency Fund or Income Replacement Fund, and it should be a single category. You will then redistribute money from that category in case of job loss or emergency.
The "buffer" (I hate that word and wish people would stop using it) is the ability to budget an entire month in one go using the previous month's income. The purpose of this is to decouple your income and expense cycles and eliminate the paycheck to paycheck mentality. Unfortunately YNAB has removed the automated function that used to exist in the previous version to help one manage this.
Besides that, the other reason you don't want to budget out 5-6 months ahead is the work involved every time you want to make even a small budget amount change to a category. it requires changing at least 2 categories across 5-6 months for a dozen changes at the minimum. Waste of time and energy.
I deliberately inflow all income received this month to a holding category, then when I'm ready to budget next month, I move those entries to the To Be Budgeted category.
I really tried hard to work with the app as intended. I kept an open mind about this when I transitioned in December of last year. I tried budgeting to the current month as income was received and letting it roll over, and I stuck with it for three months. This made all my categories orange with underfunded goal warnings for the bulk of the month. I can't find adequate words to describe how much I HATED THAT. I finally had to delete the budget and transition from YNAB4 a second time. I then revised to budgeting to next month as income was received. The trouble with this methodology is that the header information is completely useless in guiding me as to how much was received last month versus this month. I couldn't keep the amounts straight in my head without a note pad and a calculator, and there was the inadvertent vortex of money being sucked backwards or forwards into the wrong month if I did manual entry. I did that for two months, and I HATED THAT TOO.
I rather like my current workaround. All my income is set up as recurring transactions, categorized to inflow directly to a savings category named: Buffer: Next Month's Income. Some recurring amounts are known. Others have to be manually entered when I find out what they are, so the future recurring transaction has a zero entry. Then when I have it all in place and am ready to budget to next month, that's when I do a search in the all accounts view, and globally move the inflows to the To Be Budgeted.
My hard rule is that anything invested in an asset that can fluctuate in value does not belong on-budget.
This is my line, also. So the cash portion of my investment account at Schwab is on-budget, the investment portions are not.
I am still debating exactly how I want to deal with my HSA. I am keeping it off budget right now to avoid tying an account to a category. But now I am spending directly from the HSA which means I can't see how much health care spending I am doing any longer in YNAB and that is giving me pause.
Alice Blue Horse
Don't you have an ISA option in the UK? As I recall, the ISA is very similar to the Canadian TFSA (tax free savings account), where there is no penalty for withdrawals, and any amount withdrawn doesn't reduce the contribution ceiling. I'm leaning toward keeping an amount equal to 3 months of average monthly expenses in my savings account for emergencies and simply moving the rest (along with funds saved for my next car) into tax free savings accounts. I wouldn't invest the emergency fund dollars into higher-risk investments like stock (which I do for long-term retirement investing), but I don't see the value in leaving the entire amount in savings accounts, then paying income taxes on every penny of interest earned, when I can put the same amount in a tax sheltered savings account.
I’m still confused 🤷🏻♀️ so this month everything is budgeted for except changed some categories and added an EF cat and Xmas cat after my initial budget and they are both zero.
I have 2 lots of fixed income before the end of the month and then my salary on 28th (although it arrives in May it’s to be spent in June) - my salary is always variable due to overtime hours.
I was going to move the two lots of fixed income to June categories when they come in and then do the same with my salary. Then with any spare - get up to date with my EF and Xmas cat goals.
If there’s still any left I’d share that between over paying my credit card debt and....
allocating to July or adding more to EF - does it matter which?
If eventually I got my salary at end December say and budget for February with that - have I broken the salary to salary cycle?
I'm still grappling with this concept. I started by creating a category that I called Unallocated: Checking and then planned to move that back into TBB when needed to fund the upcoming month.
However, that throws off the "total budgeted" amount and sets it to $0 since the amount used to fund the new month's categories will be equal to the amount of what came out of the Unallocated - Checking category.
So, even though YNAB wants TBB to be at $0, what's wrong with leaving the "buffer" money in TBB rather than creating another category for it?