Overdraws can occur, even when money is 'available'
I've been using YNAB for almost a month now, and absolutely loving it. One of the things I love is when you see that green $2400 in a category for this month, you know the money is there. However, in some cases, let's say that's my mortgage category, and it's auto-pay from my checking account. Showing a green $2400 in the budget means I have the money, but it does NOT guarantee that money is in my personal checking account. It could be in savings or other accounts. This could easily lead to an over-drawn bank account when the auto-pay hits.
I don't know the solution, I just wanted to bring this up, and get peoples' thoughts. I like the simplicity of the budget not caring where the money is (budget items are not attached to bank accounts), so I am not suggesting adding this complexity. It would just be nice to figure out a simple way to guard against auto-pay items that you know will come from a certain account, and let you know if there is not money there to cover it. Maybe it's a simple matter of just moving all our money into one account, but I was trying to take advantage of what (albeit tiny) interest could be gained in a savings account, since we have a good amount just sitting there.
Other than moving your money into a single account, yeah there's not much to be done because YNAB is a spending plan, that's it. It's still up to you to make sure the money is in the account it needs to be in. After using YNAB for a while, you should hopefully get a sense of what your outgoings are. I know that unless I'm replacing a major appliance, my monthly outgoings are about $X. Therefore at the beginning of the month, I make sure that my checking account has $X+Y% in it. All other money goes to live in an account with a higher interest rate. Since the vast majority of my spending is on credit cards, even if I do have a super spendy month, there are at least 21 days between account closing and payment being due, plenty of time to move money around if I absolutely have to.
When I first started using YNAB, I had several bank accounts. I soon realized that this complicated matters, as I had to keep an eye on what payments were coming out of what account. I consolidated my accounts into 1 checking account and one higher yielding savings account and this helped tremendously. There really was no reason for me to have more than 2 accounts for my on-budget money. I make sure at the beginning of the month that I have enough cash in my checking account to cover all the bills that need to be paid until the middle of the month. Around the 15th of the month I check again to make sure everything for the latter part of the month is covered. The other thing that helped me is that I now pay all bills out of only the 1 checking account I have. Many of my monthly bills are are auto pay but most of those go onto a credit card that gets paid in full out of the checking account. This has really simplified things for me.
YNAB doesn't have cash flow management built in. What I do is use the toolkit to see the running balance and that along with scheduled transactions allows me to see at any point for the upcoming 30 days if I were to go negative. Then I can transfer funds from savings if necessary.
One more thing I do to improve this process is to change all 2 week cyclical transactions such as my paycheck into two 4 week transactions so that I can see how both paychecks affect my balance. Also, like jenmas, I do the majority of spending on CC which allows me more time to make sure I have ample funds for upcoming withdrawals.
I'm not about to forego interest from a higher rate account. Spending when multiple deposit accounts are on budget is a two-step process:
1. Can I afford this? Check the category balance. If insufficient, move funds from some other category if high enough priority to continue.
2. Can I use this payment method? Check the account balance. If insufficient, move funds from some other on-budget account.
As others have mentioned, using a paid-in-full CC greatly cuts down the number of times you have to do #2. Thankfully, the Toolkit Extension provides some measure of cash-flow prediction via the running balance. The stock product (and mobile apps) are abysmal in this regard.
Hi, Randy Gamage
I found myself wrestling with this cash-flow uncertainty early on in YNAB. My chequing account gets 0 interest, and I can get between 2% to 3.25% interest (depending on promotions) by keeping an eye on interest offers, so I'm not interested in going to a single account or leaving gobs of money in chequing. But I don't have overdraft protection either, so I don't want to risk an NSF charge for not paying attention.
One underlying cause of cashflow uncertainty was that I was trying to run my chequing account too lean. It finally dawned on me one day that this practice was actually a residual approach from my pre-YNAB budgeting-by-account days, where I relied on account balances to tell me if I could spend on something and when I only put into accounts those certain amounts that I was allowing myself to spend on particular expenses in a month.
Once I figured that out, and because in YNAB account doesn't matter, and because I do, in fact, rely on categories for spending guidance, it was a simple solution to increase the minimum amount I have in chequing. With a little experimenting, I came up with a standard formula that works for my spending:
- my average monthly spend +
- any big irregular expenses scheduled to outflow in the next 4 - 6 weeks +
Once I figured out that this account balance should be in chequing at the start of each month, I made it part of my monthly practice to just confirm that my account has that formula in it after I transfer from chequing to savings, at which point I know that I'm good to go.
What I do is keep categories that are funded by checking and savings in different areas. All bills and sinking funds that I'd need money for right away (vs. transferring from my online savings account in 3-5 days) are in one area. Things that are covered by savings (emergency, holidays that are a few months out, when car registration is many months out, etc) are under a "@ Ally Bank" master category.