Should I change my investment account from tracking to budgeted?

I have an investment account where I have everything placed in high yield interest bonds. We are going to build a cabin this year, and the money there is intended for this purpose (though not necessarily all of it). I also have a buffer account that I do use in my budget.

Currently, I have not budgeted any money for the cabin, even though I have a pretty good idea of how much I need for this. If I were to change my investment account from tracking to budgeted, I would be able to actually place money towards the cabin and also include this in the pile of money for budgeting. It would also give me more ease of mind with budgeting. I would spend money from the buffer account first, before selling from the investment account, yet still have a healthy overall budget.

My worry though is that adding this to my budget means I would have a very large amount of money under budget. Several months' worth of salary. So it could skew my view of how much I have available.

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  • I have my investment account in my budget. However it's invested 100% in broad market stock index funds for tax efficiency. I do not have bonds in any non-tax deferred accounts (that includes I Bonds which are tax-deferred up to 30 years and are inflation protected).

    Unless held to maturity even individual bond FMV can fluctuate just like stocks, and high yield bonds have a volatility and risk profile similar to stocks, but are not tax efficient.

    That said, my recommendation would be that if you have an investment account on budget, no less than 50% of high-volatility assets should be dedicated purely as an investment category to absorb gains and losses without putting the rest of the budget at major risk of loss.

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  • It actually sounds like your current budget is skewed, as you are planning on spending some of it on the cabin ("I would spend money from the buffer account first"), but that's not reflected in the budget. 

    Yes, if you want to plan with the money currently invested, it needs to be on budget. You should also plan on losing some of it to negative market movements.

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  • Maroon Beat said:
    I would have a very large amount of money under budget. Several months' worth of salary.

    Get used to it. It's commonly recommended to have an Income Replacement category with at least 6 months worth of income. Combined with various true expenses and near-term savings goals, etc., that's a fair chunk that most would not subject to loss due to the vagaries of the market. Your risk tolerance, of course.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 5 days ago
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      Maroon Beat said:
      So it could skew my view of how much I have available.

      What's to skew? It is what it is. What's its real purpose? Just make sure to put it into appropriate categories. Since I have everything else covered, my largest category is my Freedom Fund. It absorbs market gains and losses and my goal is to continue to grow it over time at least until I retire. Then the fun begins. 😄

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      • Ceeses
      • Ceeses
      • 5 days ago
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      Maroon Beat I'm in Australia with an offset account on our mortgage. The offset account is like a checking account but the money held in the account offsets the interests paid on your mortgage. So if you have $100K mortgage and $60K in the offset, you only pay mortgage interest on $100K-$60K = $40K. But the $60K is still your money, you can have a debit card attached to that account, you can pay bills from the online system, have direct debit etc. So using YNAB, you can keep a lot of money there and make sure you only spend what you want to spend and not more simply because you have the money.

      We have a $580K mortgage, and almost the whole amount in offset accounts. It is a few years of wages, not just a few months! The whole amount of the offset is on budget. It is necessary as part of the money is a family loan. It's an advance on inheritance, we could be asked to pay it back anytime, unlikely but possible. And it is nice and safe in its own category in YNAB so we won't spend it. Part of the offset is to save for some extension work on the home: $200K for now. Part of the offset is to pay for the mortgage: transferring liquid savings into illiquid savings. Parts of the offset is our various True Expenses and other saving goals (new car, bikes etc. ). I can easily manage all these parts within YNAB and then just need 2 offset accounts: one linked to a debit card with a small balance and one unlinked to a debit card with most of the money (harder to steal the money from). 

      It doesn't skew my view of how much I have available. I still have the issue I need school shoes for my boys and forgot to budget for those this month as it's their first year (school year starts in February) so I have to figure out where I am going to take the money from. I really don't want to take it from the home extension category as we really would like to do the extension so it'll have to come from somewhere else.

      If numbers look high, it's because it's Australia. The average wage in USA is about $45K and it's about $75K in Australia. And Australia is far from everywhere with a small population, so everything costs more here.

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