Cash on Hand in Budget?

I'm probably overthinking this, but how do you handle a cash on hand balance that you maintain in a checking account as a minimum balance requirement?  If I input the checking account balance in YNAB as my starting balance, that amount gets included in TBB, but I cannot "give that dollar a job" since I want to always maintain a minimum $500 in the account.  I guess it just seems strange to have a budget item for minimum balance.  

11replies Oldest first
  • Oldest first
  • Newest first
  • Active threads
  • Popular
  • After re-reading my post (and another similar one) I realized that the reason it seems strange to have a budget item for minimum balance is because I'll never spend against it (except for the initial assignment of the opening balance), and then when I move forward to next month, I guess I don't need to adjust the budget amount?  

    Reply Like 2
      • mamster
      • mamster
      • 1 yr ago
      • 3
      • Reported - view

      gmtom1 Yes, exactly! You're giving these dollars the job of being your minimum balance, so budget them in that category.

      Reply Like 3
  • Ok, so once I've budgeted the $500 in the checking account to my "minimum balance" category, and entered a $500 transaction in the checking account register and categorized it as minimum balance, what happens when I reconcile the balance at the end of the month?  The statement will still reflect the $500, but using the Reconcile Account button would lead me to create an additional transaction to account for the additional funds that I "spent" on the minimum balance?

    Reply Like
    • gmtom1 There is no need to enter a $500 transaction after you have assigned $500 to the "minimum balance" category.  The money is still in your checking account, so entering a transaction to imply that it has left the account is misleading.

      In a way, you can think of *all* your categories as "cash on hand" categories. Let's say I start YNAB with $1500 in my checking account. I create three categories (Rent, Groceries, and Minimum Balance) and assign $500 to each. Until I actually spend that money, all three categories represent cash that is sitting in my account. The only difference between Minimum Balance and the other categories is that I don't expect to make any transactions in that category, so when I start my second month of YNAB I will already have $500 there.

      Reply Like 5
  • My checking account has a minimum balance of $200 but I don't budget for it. If my checking account ever got that low, it would be because of a dire emergency in which case a bank penalty would be the least of my worries and I would close the account. I only spend what is in my budget and since my budget includes a Loss of Income fund (spread across 6 bank accounts) that would cover me for 6-8 months, there is no reason for my checking account to ever get that low.

    Reply Like 2
    • jenmas Disregarding the minimum balance for budgeting purposes can work out fine once you're in the luxurious position of having plenty of buffer & savings on hand, but I'd consider it more of an advanced (or at least "intermediate") YNAB concept.

      For YNAB beginners (and even for many not-so-beginners!), on the other hand, there are a whole lot of reasons bank accounts could get low enough that minimum balances become very relevant, so I'd be cautious of suggesting that ignoring minimums is a best practice.

      Reply Like
      • jenmas
      • jenmas
      • 1 yr ago
      • 1
      • Reported - view

      Resistant Punch Roller here's the thing, once you have more than a single checking account on budget there is always the chance that the $500 minimum is not going to be in the checking account. It's just going to be scattered around your various accounts so creating a budget category does nothing to ensure that you keep $500 in your checking account just that somehow between all of your budget accounts there is $500 allocated to the category called account minimum. Location and Purpose of money in YNAB are 2 separate things. The only thing that is going to do that is being aware of your bank's requirements and where you stand vis a vis that requirement. YNAB isn't going to do it for you. If an individual is concerned about remembering that there has to be $500 in the checking account, the best route is to shop around for a bank account with no required minimum balances. Many of the online only banks offer that option.

      Reply Like 1
    • jenmas This is exactly why YNAB's beginner / best practice recommendation is to put all budgeted funds in a single account.

      Using YNAB with multiple on-budget accounts is certainly possible, but it's also a more intermediate/advanced concept, because of the increased complexity.

      No need to complicate things right off the bat for those who are still figuring out the basics :)

      Reply Like
  • It took me a bit to understand what @jenmas is saying, but she is correct. I have a checking account that to keep fee free I have to have either direct deposit or a min balance. I keep it only because it's joint with my parents, which has come in handy many times for transferring money back and forth, especially when I'm overseas and because it's my only brick and mortar bank.

    When I started with YNAB4 I did the same thing people here mentioned, which is keep the min balance in an holding category, but I would constantly need to true-up the account balance if I used the ATM or because my life insurance comes out of that account. The holding category never changed, but I did use the account some, so by parking the minimum in a category all I was doing was locking that money in my budget. I wasn't actually ensuring my account balance didn't drop below it.  I finally realized that I always had the same amount across many categories that was meant to "sit" there, such as my income replacement/emergency fund. I just had to mentally tell myself that the minimum balance was the sitting in that category.

    So, lets say your minimum is 200$. You put 200$ in a category for minimum balance. But you use this account and there is say...300$ in there at the moment. You pay for 100$ of groceries, but you misplace your wallet one day and spend 50$ with that account on daily spends. No biggie, money in categories right? Only now your account is at 150$, which is below the minimum, and the category min balance is still 200$, so that category balance didn't help you keep your account above the minimum, only paying attention to the account balance will do that. Still, you don't want to assign those 200$ to spending categories. But wait! You have a 1000$ baby emergency fund a la DR. You don't ever plan on touching that money unless it's a serious emergency. Maybe you say to yourself mentally that "Okay 200 of that 1000$ is in that account and is the min balance".  

    But what if an emergency necessitates the whole fund? Well, then the fee may be the least of your problems, but generally as you get farther and farther ahead, your budget reserves will grow and 200$ will go from 20% of your emergency fund/budget reserves to much less. My current account min balance on that account is roughly 0.7% of the cash I have on hand on budget. If I ever need that min balance for an actual emergency then I have far far bigger issues than account fees! 

    Hence, @jenmas point that it isn't a worry if you are in a decent place with reserves and if you are that close to the line otherwise with very little cash on hand, perhaps finding a fee free account is a better option, or simply call the account min category your emergency fund and build it up from there.

    Reply Like 2
  • gmtom1

    Some of us started out by adding those minimum balances to our emergency fund category.   As  jenmas points out, in the event of an emergency, you're not going to care that you get a penalty for going under a specific balance, but it won't stop you from making an error if you have more than one account (and that includes a cash account).  And as Resistant Punch Roller points out, beginners and even not-so-beginners need to pay attention because setting things on auto-pilot doesn't always work when your account balances are on the slim side. You might be just getting started and have little in reserve, or you might be choosing to throw every spare dime at killing off debt. Either way that means you need to be vigilant and aware.  Use your budget for spending guidance, reconcile your accounts regularly, and double-check which account you are spending from and the balance.  The risk of going under your account balance by accident will diminish over time and with experience.

    Reply Like 1
  • Hi gmtom1 !

    This is a great discussion that goes over a number of possibilities! As you start out, budget those funds towards a category where you know you won't use them - Minimum Balance, Emergency Fund, etc.

    While those funds are budgeted, so they aren't purposefully included somewhere else, if you use that account for transactions you'll want to keep an eye on your account balance on the left hand side of your budget. Even though you'll have $500, to make sure it's in the account that requires the minimum balance, keep an eye on your actual account balance. If ever it falls below the minimum, like in one of the examples above, you'll need to transfer funds from another account to cover it. :)

    Reply Like 1
Like Follow
  • 1 yr agoLast active
  • 11Replies
  • 930Views
  • 8 Following