Maintaining cushion in checking account

I am just getting started with YNAB and am not sure I've got it down conceptually yet. I typically like to keep a balance of about $3,000 in my checking account just to be sure I don't accidentally overdraft. How do I account for this in YNAB? Should I have a category just for "checking cushion" and budget $3000 there each month? 

Also, do the budgets have to be monthly? For example, I have an emergency fund that I have almost fully funded. Do I create an emergency fund category and budget the whole amount from my savings there? Will it go back to zero when the next month begins?

 

Thanks for your help!

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  • If your emergency fund is larger than $3000 I see no need to have a category just for a checking cushion. if all of your bank accounts are in your budget, it doesn't matter which account you keep your money in. The purpose of the money in your budget and the location of the money in your accounts aren't linked and do not need to be.

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    • nolesrule Ah, I see what you mean about not linking the location of your money and the purpose of your money. But how to you make sure you don't have an accidental overdraft if you aren't watching the location of the money? Thanks for replying!

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
      • 1
      • Reported - view

      Forest Green Keyboard 

      On the subject of ensuring a minimum balance and self-protecting against overdraft: 

      I like to start each month with a particular amount in my chequing account. That amount is slightly different from month to month because it is based on this formula:

      • $1,000 +
      • my average monthly spend +
      • any large anticipated or planned expenses in the upcoming month

      If the amount in my chequing account exceeds the total of this formula by a significant margin, I consider whether I will need excess funds in the next month+1, and if not, I move the excess to savings. If the amount is less than the formula, I move funds from savings to chequing. Because I can see the cycles so clearly now  and all my upcoming scheduled transactions, I rarely need to move funds out of savings to chequing. I don't like my account balance to be below $1,000 for very long. It acts as my baseline and overdraft protection.

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  • Regarding the concept, think of it like envelope budgeting.  Once you put money in an envelope/category, it rolls into the next month still in the same envelope.   In YNAB it will stay there until you spend from that category or you move it from that category to another category.  

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  • I'm also new to YNAB, but I'm also worried about "location of money" concept. In general I agree that location of money and purpose of money are separate, but there are exceptions:

    • Debit orders (in the US you call them autopay, I think) will go off against a specific account. I will default on an insurance premium if the money for it is not in my checking account, regardless of whether I have it under my mattress or in savings.
    • I plan to put my investments on-budget, so I can track the purpose of the money there. But those have varying levels of liquidity, the money there may only be available in 2-5 days. Perfectly fine to back a future auto repair bill, but not so good for groceries.
    • I have my kitty of cash on-budget, for the simple reason that I pay my gardener's wages in cash from there, and if I don't have cash on hand, I'm late for work because I need to take a trip to an ATM. 

    All of these one can manage outside YNAB like HappyDance suggest, but it does feel like the kind of thing YNAB could help with (although I wouldn't want to over-complicate the beautiful simplicity of YNAB either).

    What does YNAB do if you have an upcoming transaction scheduled against your credit card account, say, and you have enough money for it in the budget category, but not in the account? Does something show red/yellow?

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
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      Pieter Nagel The YNAB Toolkit (available only for the web app) has the ability to add a running balance to your accounts, and it includes the scheduled transactions. This can allow you to see when an account may go negative. The only limitation is that it only calculates on the first instances of a scheduled transaction, so if something is recurring more frequently than once a month, it won't be accurate past that point.

      YNAB4 had a running balance built in, and you could move future dated transactions into the register  from the scheduler (and back out if you wanted), which allowed you to project future account balances (and also have future transactions reduce your category balance for better budget accuracy). This is actually one of the reasons I still use YNAB4 and haven't moved to the online YNAB.

      But really, unless you are trying to optimize, the answer is to start the month with the money to cover:
      1) regular monthly expenses that come out of the account
      2) upcoming credit card payments that come out of the account
      3) irregular payments coming out of the account that month
      4) cushion for the unexpected.

      As you receive income you can re-evaluate your upcoming spending and decide how much of it to move into a different account.

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
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      Pieter Nagel 

      I tried putting my investment accounts on-budget. I had to assign the market fluctuations down to a category, which made it look like a spend in my reports. It got very muddled very quickly.  Because of that experience, I would cation you to reconsider or at least carefully consider putting non liquid investments into your budget.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
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      I only keep cash-like accounts in my budget as it keeps things cleaner. So FDIC-insured accounts, Treasury Direct account (savings bonds), and credit cards. The budget keeps money intended for short and medium term use. The investment accounts hold money with a 10+ year horizon and I have no budget goals with that horizon. There is no overlap in the timelines, so it's easy to just keep them separate.

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  • Not disagreeing with any of the other answers from more experienced YNAB-ers, but I have a bunch of categories devoted to various account minimums. They are in a supercategory called, unsurprisingly, "Account minimums". I like a lot of padding.

    Some of them are super-small, like the $5 in one of my savings accounts that can't be spent due to a quirk of how my credit union works. One of them, the required minimum in my checking account, is quite hefty. Maybe this is overkill, but I like to account for these amounts and know they are earmarked.

    I wish YNAB let us 'bake' this in to the accounts, because I still have to remember not to let the balance of that particular checking account fall below the required level. However, at least this way I can be sure that money won't be promised to something else. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
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      doctor_who There's nothing wrong with doing what you're doing. But that's overkill for what the OP is trying to do at $3000. And furthermore the money in your budget is fungible, so it doesn't really matter what account the money is in except when you go to actually spend it. If you've got some long-term categories that are going to be sitting around, that's plenty to cover the needs of minimum balances across multiple accounts.

      And ultimately when push comes to shove and you are in such dire straights that account minimum balances start to become a problem, well, then you're going to have much bigger problems to worry about.

      Like 1
  • Hey Forest Green Keyboard !

     

    I had this same worry when I first started YNAB, not only for my checking account balance, but for when I had to make a big purchase (annual car insurance, etc) and the money was set aside in a savings account. 

     

    My "a-ha" moment was reading the Simplify Guide  (long after I started YNAB!) when I realized I could use my checking account as one big bucket account, and not use a savings account at all! Then, as long as I have a "buffer" (like mentioned above) it doesn't matter the actual location of my money, I just use categories to define my savings/purpose for the money. Then, I can rest assured that I won't overdraft and it cuts out the whole transfer debacle too, for those big purchases!

     

    Anyway,  I'm not sure how you handle the details, but that's how I've been doing it for our family! 😊

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