Should we move our savings to break the paycheck to paycheck cycle?
My wife and I are new to YNAB. Started in the middle of this month, just a few days ago. We are long time mint users, who are used to budgeting money we don’t have yet.
Maybe this has been asked before but I couldn’t find it. Would it be wise to transfer money from our savings in order to break the paycheck to paycheck cycle? Or is it best just not to touch the savings and try to work on aging the money in our checking over time? Either way I see it as savings but it has been hard for us to save lately. This is why we are trying YNAB. To get a better handle on what are dollars are doing.
We have about 8400 in savings and I think it would break the cycle to move about 3400 into our checking.
I see this could be dangerous if we over-budgeted/overspent in the current month. At the same time the whole point is to have enough money in your account to pay for nexts months budget. Hopefully someone can give me their opinion.
Your savings account should be on-budget with money assigned to savings-related jobs. Moving money between savings and checking doesn't really break that paycheck-to-paycheck budgeting cycle. In fact, it has zero effect on the budget. It does, however, make it easier to avoid overdraft.
You should never be over-budgeted, that's an avoidable user error.
Just my personal/own opinion:
If I would have a lot of high-interest (credit card) debt, I would probably use some of the savings to pay that off. If it's just to break the paycheck to paycheck cycle, I would not touch the savings and break the cycle over the next few weeks/months.
For me, the $8,400 is a nice buffer for emergencies!!
Cadet Blue Packet said:
the whole point is to have enough money in your account to pay for nexts months budget
A subtle correction: It's desirable for next month's budget to be backed by cash in hand somewhere in your account(s). If you have more than one cash account, all you need in any account is enough to pay the actual outflows prior to them occurring. The rest can be in an account that pays a higher interest rate (also desirable). That article I linked earlier should help explain the distinction between "intended purpose" and "location" of your money. The "point" concerns purpose rather than location.
That's why I just opened a Discover Savings account last week and transferred all the "long term savings" to this account! 1.70% sounds much better than the 0.05% we got with our Credit Union savings account.
You can probably transfer even more
I moved all the savings (>80%) except the "Travel Savings" because we have some out-of-state weddings coming up and I don't want to transfer forth and back all the time.
Plus got a nice bonus for opening the account and transferring $15k over to the Discover Savings.
Cadet Blue Packet said:
I guess I didn’t specify that I was treating my savings account as an E-fund.
Again, I would put this on-budget (if it's not already) and have an EF category. I would also reallocate enough of this EF money to allow you to push your checks into next month's area. YNAB works best if you budget in month-sized chunks aligned with the calendar. You could always reallocate back in the event of an emergency (losing those advantages, of course), but until then why not make your life easier?
It's common for new users to segregate money by account, but that's relatively clumsy compared to using categories.
To address your question, though, I would keep enough in checking to support the next 4 weeks of actual outflows on top of a cushion with which you're comfortable to handle outflows you didn't plan on. The running balance combined with scheduled transactions makes this evaluation quite easy.
I'm in favor of using the efund to break the paycheck to paycheck cycle IF you have wrapped your head around the method and are committed to following the approach. If you are still figuring it out and are not committed to spending based on category balance, I think you could see that money evaporate and I would take some time to be sure you have things working. While the BIG payoff comes when you get a month ahead, there is some value in feeling the scarcity of paycheck to paycheck in getting really understanding the method.
If you are still figuring it out and are not committed to spending based on category balance, I think you could see that money evaporate
I wish I could like this multiple times. I'd protect that savings until you learn the method, too. Three months was the golden amount of time for us.
Month 1 = weird numbers to allocate ALL money
Month 2 = figuring out mechanics and structure
Month 3 = using mechanics and structure
Months 4-12 = hey, this unexpected thing happened, let's add it to the plan.
But making decisions in monthly chunks is very very important.
A lot of others have already answered this really thoughtfully, I'll just add that the thing that really helped me was asking this question whenever I got paid: "What is the next thing I need this money to do for me?" It's referenced quite a bit through initial training videos on YNAB and it's counter-intuitive at first. But once I started writing the dates in and ordering my bills in my budget, it really clicked and I started funding things differently.
Just remind yourself it's perfectly okay to be paycheck to paycheck at first. Keep at it and before long you'll be making those dollars last a bit longer each time. It has the added benefit of teaching you what matters to you, which is something that just starting right out of the gate with a fully funded budget might not do as effectively. The money is still there should you need it, of course, but if you can grin and bear your way through it, you'll come out ahead, I think.
Also, remind yourself that it's no different now compared to what you've been experiencing, except that YNAB is making you think in the present and face what living paycheck to paycheck really means. You can do it! Also, if you haven't watched them, YNAB's videos are great and their live classes are too, and you can ask questions about it as you learn to, their team of educators rocks!