
On-budget or off-budget Savings account
Hey guys
I’m torn between using an on-budget account vs an odd-budget savings. It seems like an on-budget savings account isn’t more time consuming and more potential for errors. What do you guys think?
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I recently had an issue with onbudget savings account that did finally get resolved.
In some ways if you plan to use your savings account only as an emergency fund, then you might not need it as an on-budget account. I once considered that, because it gets confusing for me how YNAB recognizes checking to savings transfers. So by having the savings offline, you can simply transfer money from your savings to your checking, and then budget that money as needed.
Oh the other hand, an on-budget savings account gives an overall report of your wealth.
I look forward to the feedback of others on this question.
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By having the account on budget you are doing a few good things to make your life easier:
1) Giving defined purposes for money in the account, giving you a better way to plan with your money. Having a savings account not in the budget just means it's a big pile of money with no purpose. And when you do that, you start giving it multiple purposes in your head.
2) Removing the necessity of keeping money for specific purposes in specific accounts, making your budget easier to manage. Sure, you could split the money in the savings account into multiple savings accounts, one for each purpose, but then you're just creating extra real world accounts to manage when the same thing could be accomplished within the categories of your budget and no additional accounts (this is true for accounts both on and off budget). You can move money around freely between any accounts that are on budget, maybe because you want a little better security from fraud or to take advantage of changes in interest rates at various financial institutions.
3) Removing the categorized transfer issue from the equation, making your reports more accurate when it comes to actual spending. With an off-budget account, the money sent to the savings account leaves the budget, and must be categorized, just like spending. And if you bring money back into your budget from the savings account, you must also categorize it. And then when it leaves the account from being spent, you categorize it a third time. This then impacts all of your reports and can make a mess.
Read the following: The Relationship Between Your Budget & Your Accounts: It’s Complicated
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Don't keep your savings account off budget.
There's actually nothing to debate.
I say that as someone who was certain I had Reasons(TM) why my situation was special and my needs were different and of course my savings account belonged off-budget. After a year, I wound up spending hours one evening bringing it on budget and adjusting 14 months of budgeting so that it was on budget from the start.
Don't keep your savings account off budget. Learn to use the budget instead. Once you understand how the budget works, having your savings off budget will be an annoyance and a hindrance.
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nolesrule said:
1) Giving defined purposes for money in the account, giving you a better way to plan with your money. Having a savings account not in the budget just means it's a big pile of money with no purpose. And when you do that, you start giving it multiple purposes in your head.
This is truth. Savings should be on-budget.
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I think what I will do to simply this whole thing is to just Combine checking and savings and just use one account since looking for “interest” is unfruitful given our current economical environment.
I have a brokerage account right now with around $30k in it right now that I didn’t link to YNAB nor will I ever. The same goes for my 401k.
But what I will do is combine my checking and my savings, so that I don’t have to worry about transferring to-and-from my savings when I ‘budget’ for it. And once I build up my Savings over $5k then I will move that tranche over to brokerage. Then rinse and repeat. Fill up $5k —> move over to brokerage account out of YNAB.
My concern hasn’t been that I’m living paycheck to paycheck (I guess we all are in some capacity) but rather control my spending in a more calculated way. This is the reason I love YNABs credit card payment feature. I’ve always spent on credit card and paid off but had a hard time controlling my money in relation to my budget.
How does that plan sound?
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Purple Vacuum said:
. I on the other hand think all signs point to a strong economy for the next couple of years and want to take advantage of that.As long as you have a plan for what happens when you need to spend the money but it's not there due to an unexpected downturn (bear market, crash, etc.) then that's fine.
Hope for the best, plan for the worst.
Allocation budgeting doesn't work very well when the total value of your budget is volatile. You can always hold more in cash for your budget and increase the risk in your investments.
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nolesrule said:
Every category in your budget is for spending. Some of it is current, some of it is for 6 months from now, some of it is in a year, some 5 years, some of it is for stability (Income Replacement Fund which might be tapped today or never). Only money that has no purpose goes into volatile investments.As a new user, this is what I'm doing. My e-fund savings account is added to YNAB and a budget item ("Income Replacement Fund" too, funny enough) and has 8-12 months worth of expenses available. Should I stop receiving enough income from my regular job, I will budget my immediate obligations and recurring expenses at least one month in advance to see how much to transfer over (this should put me in the red). Then, I'll move what I expect to use for the month into checking from savings, and I will use YNAB to move that same amount from "Available" to "Inflow: To Be Budgeted" to zero things out.
Am I thinking of the scenario in the right way?
I guess an alternative could be to flat out budget all 8-12 months to see how much runway you have? But then you get a job in month 3 and paychecks in month 4, and you're still budgeted to infinity, and that seems all sorts of weird.
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The third part of this video does a good job at explaining the off budget method (starting at about 20 min):
https://www.youtube.com/watch?v=tATZ3PhooW0
The only thing I would do different from the video is have the savings category group ONLY for making transfers too and from savings (not for spending). This gives you the advantage of planning how much to spend each much, in addition to planning how much to save each month, and keeps them separate so there is no confusion. Put the last 4 of each account number on each corresponding budget savings category (1435 - Car Repair). Then you just match numbers when categorizing transfers to and from that savings account.
Also, you will find yourself opening more and more accounts if you go this route (the biggest drawback). Ally Bank allows you to have unlimited savings accounts. I'm sure there are others. Most banks allow you to automate transfers into your savings accounts, from a checking account, which makes saving like making a payment to yourself.
Here are some arguments for keeping savings off budget.
Savings out of sight
We often forget how much we have saved in certain categories because we are just focused on the month and what we've planned to spend.
I think there is less temptation to spend savings when it isn't constantly in front of your eyes.
Get to see budget go to zero each month
More like a traditional budget where you budget what you want to spend and see it go to zero. There aren't these savings account balances mixed in with your budget. Can budget how much you want to save and that money goes to zero as it is transferred to savings.
Delayed Spending from Savings
If you let YNAB connect to bank accounts, you have to wait a day or two before a transfer shows up from savings on your budget, instead of having it always on budget ready to transfer and spend at any moment.
Something Nice about Separate Accounts
It's neat having a separate account specific to one thing. It's more real, instead of just virtual.
Your actual account shows a real balance.
Less reliance on YNAB
If there is ever an issue with YNAB, all of the savings accounts are still there with correct balances (physical tracking instead of virtual)
Not so easy to accidentally mess up savings account balances
If you move money from a savings account there is no way to know how much should be moved back unless you remember
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SgtBatten said:
Maroon Keyboard said:
Savings out of sight
A savings master category towards the bottom is easily as out of sight as one should desireThis is funny to me. Two different ways of looking at savings. Avoiding using them and trying to build them. I personally want to build my savings therefore they are my most important categories. Therefore, they are at the top of my budget and the most prominent.
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Superbone said:
Calling it "the lazy way" is laughable to be honest. It is in reality "the smart way" or more simply, "the YNAB way".As a software developer, a lot of times, we'll refer to ourselves as "lazy" or "I did it the lazy way" But really what that means (in that context) is that I did it smart, so I won't have to repeat a bunch of stuff. Lazy as in efficient, I guess?
So perhaps calling it the lazy way does fit, in that context. It's "lazy" because you don't have to do a bunch of busy work to make sure it doesn't all come crashing down like a house of cards.
But yeah, I totally get what you're saying.