How to budget reimbursement?

Hi All 😊

I got challenged recently by new YNAB'er (my girlfriend) with below question. Hope you can help! I couldn't find good answer in the internet.

TL;DR:

Example 1: The car fuel reimbursement from someone you driving with (e.g. to work).

Example 2: Electricity costs reimbursements from your employer while you work from home.

Should above go to "Inflow: To be Budgeted" or to the Fuel/Electricity Category? (Explanation why would it go to either below)

 

Longer version:

I am using YNAB nearly one year now. It works really great for me. Recently my GF started budgeting as well and we had discussion about the reimbursements...

My approach:

Let's assume fuel and electricity costs me $250 and $200 respectively each month. 

The way I used to categorize any reimbursements is when someone gave me money for fuel I categorize this money under the Fuel Category. I budgeted $200 for fuel and someone gave me $50 so I have $250 to spend while having $200 budgeted.

Other example, I work from home and employer reimburses my for electricity ($10 per moth). I budget $190. Employer gives $10. This gives me $200 to spend. 

This means: Because I got money from additional sources I reduce my budget categories and spend less for each category. Saved money ($50 fuel & $10 electr.) goes to savings category

My GF approach:

Let's assume she has the same fuel and electricity costs - $250 and $200 respectively each month. Let's assume she gets the same reimbursement each month ($50 fuel and $10 electricity).

What she does is she budget full costs in each category: $250 for Fuel and $200 for electricity. The $50 and $10 that she gets reimbursed she adds as the "Inflow: To be budgeted". 

This means: When she gets reimbursements from additional sources she treats it as a extra money and she doesn't reduce her budget in each category (fuel/electr). The logic behind it - as she explains - is that she still have to pay $250 for fuel each month anyway and she still have to pay $200 for electricity anyway but because of having this additional reimbursements she can have these as a extra money. And then move it to Savings.

Comment:

She explains that with my approach you lose the track of how much in reality the fuel or electricity costs you. Budgeting less because someone reimburses you,  implies you pay less. But the bills are the same every month anyway so you don't pay less in reality. 

I do feel that her approach is wrong based on my nearly year journey with YNAB but I don't have good arguments why. I feel there is a logical error in her approach but can't find where...

The only arguments that I have is that with her approach (budgeting full amounts and reimbursements as a extra money) the YNAB analytics falls over because after few years you will have 10s or 100s payees that are added to "Inflow: To be Budgeted". Also I feel that only your paycheck and money you really earn should go to "Inflow: To be Budgeted".

At the end we've got the same results regarding the money. But which approach is correct when plan using YNAB for longer?

Can you help which approach is the correct one?

Thanks,

Pawel

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  • The recommended practice with reimbursements is to inflow them back to the original category. That way when you're looking at averages of YOUR spending, you will see your true number and not what you paid for someone else who paid you back. If you send them to TBB, it also inflates your income, which may or may not be a big deal for you.

    Either way works, it just depends on what you want your averages and reports to represent.

    Like
  • The two goals of reimbursements are 1) don't lose track of what is owed and 2) make it easy to budget reasonable values moving forward. To my thinking, the latter is a question of what is "normal" and what would I therefore want my averages to include?

    Fuel: If the second person is not a regular occurrence, I'd probably budget for the $250 and categorize that income as Inflow: To Be Budgeted. This keeps the average sufficiently descriptive of her normal usage, which helps her to budget in the future.

    As far as electricity, I'd lean toward keeping that from corrupting averages and budget entries. Unlike the fuel scenario, she is spending more than normal. If she expects to return to the workplace, it makes sense to consider that the "normal". I would categorize the inflow to Electric to keep averages at the lower level. (Actually, my preference would be to categorize both inflow and a portion of the outflow to a dedicated Work Reimbursement category.)

    ---

    What about goal #1, though? The desire for visibility/awareness typically tips the balance toward keeping the reimbursable amount in its own category where it is consolidated/totaled and easily seen. (Outflows would be split.) Consequently, that spending would be kept out of the "normal" category.

    It's going to be a priority-based decision when the two goals suggest different tracking methods. Is it more important to have visibility or a more descriptive basis for future budget entries? The fuel is potentially an example of this. If there's a lump sum paid at the end of the month, the explicit tracking could be very useful and might well be the overriding consideration. OTOH, if the other passenger just hands her a couple dollars every trip, keeping track is not really a concern (so use whatever is more helpful for Goal 2).

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      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • Reported - view

      Sorry, I misread the Electricity scenario. I thought that was temporary because of COVID. Still, one argument for keeping that budgeted at $190 is if you switched jobs to work outside the home, you wouldn't be incurring those expenses.

      I suppose there's something to be said for simplicity, though. If that extra $10 comes in as part of your normal paycheck, I'd honestly just call it all TBB and budget $200 to Electric.

      Again, neither approach is wrong. Just different consequences to consider.

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  • Pawel said:
    after few years you will have 10s or 100s payees that are added to "Inflow: To be Budgeted". Also I feel that only your paycheck and money you really earn should go to "Inflow: To be Budgeted".

    The category is "Inflow:" not "Income:". Even then, "income" is simply money that "comes in" to the budget. 

    As an example, you don't really earn bank interest -- you didn't do any "work", right? It's basically a bribe for letting that bank use your money. Alternatively, it's a negative account maintenance fee. 🙂

    Purchase rewards on a CC? It's a discount/refund, and technically should be distributed -- proportionally -- back to all the categories that had reward-eligible expenses. Normally that's WAY too much work, so calling it new money (aka Inflow: To Be Budgeted) is the expedient option.

    Avoiding the use of TBB can lead to undesired consequences. For instance, you deposit money in your checking account from a home equity loan for a kitchen remodel. If you categorize that inflow as Kitchen Remodel (instead of Inflow: TBB), your expense report will say that remodel cost a grand total of $0 after the dust settles. 🤔

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  • Pawel said:
    because of having this additional reimbursements she can have these as a extra money. And then move it to Savings.

    On the flip side, by having the reimbursements hit the spending category, the budget entry is lower. This leaves TBB correspondingly higher which can be put toward savings-related categories.

    The desire to "move it to savings" isn't a differentiating justification since it happens with both.

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  • Pawel said:
    after few years you will have 10s or 100s payees that are added to "Inflow: To be Budgeted".

    Only if you use unique payees. For the one-offs, you could use "General Reimbursement" as the payee and put the person's name in the memo for reference.

    A similar thing applies if categorizing back to the spending category. I have dedicated reimbursement categories for the "regulars" and a "Reimbursement: Other" for anybody else to avoid category bloat.

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  • My problem with using the budgeted category to enter the reimbursement is that when it is entered as a negative in one month, and then a positive in the other, they don't cancel each other out--in my experience. Does anyone else have that problem?

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      • Bruce
      • Software Engineer
      • Bruce
      • 13 days ago
      • Reported - view

      Lydia Wimber no, I haven't had that problem. I guess maybe if you put a negative in that was bigger than the balance of the category, then it would take that category negative, which YNAB would correct the next month. Then maybe there would be a problem with the amounts balancing. 

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      • Lydia Wimber
      • Tutor and Teacher
      • Silver_Pegasus.2
      • 13 days ago
      • Reported - view

      Bruce So then you would need to budget for the category the first month, then move it out the second month after you receive the reimbursement?

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      • Bruce
      • Software Engineer
      • Bruce
      • 13 days ago
      • 1
      • Reported - view

      Lydia Wimber Yes, if the option you're choosing is the pre-funded category (rather than the Debt, option) the category needs to be prefunded.  For Instance, I have a category that I have seeded with $200 in it.  I call it "Reimbursable ($200)" so I know how much I seeded it with.  Now, let's say I have an expense for $150.  I categorize that to the "Reimbursable ($200)" category..  The available for that category is now $50.  I can see that it's lower than the seeded value of $200, so I know somebody owes me something.

      The month rolls over to February...

      The available is still $50.

      I get half of the expense reimbursed (the other half will be reimbursed in March).  I categorize that in my "Reimbursable ($200)" category, and see that the available is now $125.  I can see that I am still owed money, because the available is still not the same as the value in the name of the category.  Now I can have another expense, and as long as it's less than $125, I won't have to change the seeded amount.  And in March, I will once again put another $75 for the 2nd half of the reimbursement.

      Like 1
      • Lydia Wimber
      • Tutor and Teacher
      • Silver_Pegasus.2
      • 12 days ago
      • Reported - view

      Bruce That makes sense! Thank you.

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  • Lydia Wimber said:
    then move it out the second month after you receive the reimbursement

    Most would just leave the money in the category so they're ready for next reimbursable purchase.

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  • I'm trying to track my purchases and the reimbursement amounts, since the category is ONLY reimbursed purchases.

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      • dakinemaui
      • dakinemaui
      • 12 days ago
      • Reported - view

      Lydia Wimber are you asking how to handle an expense that is part reimbursable and part personal? If so, then a split transaction is what is needed.

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      • Lydia Wimber
      • Tutor and Teacher
      • Silver_Pegasus.2
      • 5 days ago
      • Reported - view

      dakinemaui No, I have a category to keep track of money that I spend for my church that I get reimbursed for. I have been using it to keep track of the money that I spend and when it is reimbursed. I have to use a separate receipt, so splitting the transaction is not needed.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 5 days ago
      • Reported - view

      Lydia Wimber It sounds like you need to prefund the category with the maximum amount you might need to have out at one time. Than don’t move the money after it’s been reimbursed. 

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      • Lydia Wimber
      • Tutor and Teacher
      • Silver_Pegasus.2
      • 5 days ago
      • Reported - view

      WordTenor yes, that sounds like what I will need to do. Thank you.

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