Savings Fund is being budgeted
Hi everyone, I'm new to YNAB. I linked a savings account that I use for my emergency fund. I want to be able to see this account and it's progress in YNAB, but it is included in the "to be budgeted" category. I don't want to budget the money in my emergency fund! Is there a work around or different way to track the emergency fund?
Option 1) create a category called Emergency Fund and budget everything in your savings account to that category.
Option 2) create a tracking account, using option type Other Asset
My personal preference is #1 because if you do #2, any future additions to the emergency fund will appear as spending in your budget because and money leaving the budget (either by spending or transfer to an off budget tracking account) appears as spending in the budget.
Logan Seger said:
I just disagree with the notion that an emergency fund can/should be included in regular spending accounts and included in the budget. Or maybe I should say I just prefer it to be in a separate account. Again, I understand how it would work with the account vs. budget relationship, but 1) I don't view the emergency fund as an "operational account", and 2) if you're truly saving 3-6 months worth of expenses in that emergency fund, it makes more sense to put the fund in a money market account or high-yield savings to gain (a little) more return than a regular checking/saving account.
Of course the opposing argument is that you've budgeted for an emergency equal to the amount of your EF for that month. The money then rolls over to the following month if nothing is spent, which is what is happening with the software in this case.
It doesn't matter what account the money is in. By having all of your accounts on budget, it means that the "operational" account (checking) only needs to have enough money in it so that it won't bounce any payments. You can mostly do that by cashflowing from your paychecks that get deposited into the checking account, and you can do that because in addition to your monthly operating expenses and emergency funds, you also have True Expenses that you are saving up for, but pay irregularly.
My income replacement money makes up about 33% of the money in my budget. My checking account currently holds about 4% of the money in my budget (that's enough to get me through about February 19th). Where's the rest? It's spread across high yield savings accounts at 2 banks, 15 CDs, I Bonds and gift cards.
There's also credit card spending that's budgeted, and by the time the credit cards come due in late February I'll need more money in the checking account, but we are expecting 4 more pay checks by then (and if for some reason that doesn't happen, I'll transfer money from one of my savings accounts).
The rest is made up of True expense monthly savings for the next 2 cars, vacations, IRA money for 2019, life cycle event savings for the kids, money for summer camp, home maintenance, home improvement and a slew of other categories that don't get spent from every month. In the 4 years since starting YNAB, I've moved money into savings from checking almost every month. There have only been a handful of months where I did the reverse or moved nothing.
This technique optimizes interest return on money in my budget better than segregating money by accounts because it allows me to keep more in higher yield accounts than I would if I was separating "operation" money vs. emergency funds.
Just taking a minute to follow up on this topic. My paycheck cleared and the first wave of February transactions have come through. Wow. All of you were spot on, great explanations.
Admittedly, I was being a little dense about this topic because I had everything planned out in my mind about how this "should" work. Wrong. I guess I just needed to see the funds moving through YNAB to fully understand.
Thank you all for the great feedback. It was extremely helpful.