Overdraft but not really

Just started in with YNAB a couple days into October after several years of spreadsheet budgeting.  I love the philosophy of it and I think it will really help, but I'm having a little trouble figuring out what to do with my card payments.

For quite some time I've been in the habit of paying off all my credit card balances in full every month.  Right after I started in with YNAB, I paid one such bill —but I didn't have anything budgeted towards that payment at the time, so it's been red and will continue to be red until the next couple of income sources roll in.  (But I paid it with real money, I promise —nothing's actually been overdrawn except the YNAB budget balance.)

My plan, initially, was to cover this "overspending" with my next paycheck.  However, since then I've noticed YNAB's double-entry credit card payment strategy.  It works like this:

  1. Start with CARD's balance at -$500, in the red.
  2. Also start with a Grocery budget of $0, because there are no dollars for that yet.
  3. Spend $50 on Groceries with CARD.
  4. At this point, CARD's balance is -$450 red, and Groceries' balance is -$50 orange.
  5. Fast forward to my next paycheck, and let's say it's only $400.  At this point I have three options:
    1. Budget all $400 to CARD. Nothing left to fix the -$50 on Groceries or plan any future expenses, but I've fixed the most serious-looking overspending (no more red!)
    2. Budget $50 to Groceries first, then $350 to CARD. Nothing left to plan any future expenses and there's still red overspending, but I've addressed the creation of new debt (the orange in Groceries).
    3. Budget $100 to Groceries to fix the overspending and plan for next week, then budget the remaining $300 to address some of the red. This feels best because I can see that there's some money available to spend on Groceries —but YNAB tells me I can't trust that as long as there's red on CARD.

As I write this, I'm sort of wondering if I got myself into this when I was filling out the initial budget for my opening balances?  But a lot of that money was already earmarked for other purposes in my spreadsheet and I didn't want to undo all that planning just so that I could start my card balance in the green.

What's the best practice here?  I want to make sure I'm using the tool correctly since I really like how it's set up —but if I'm always seeing red it's going to be discouraging.

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  • So it sounds like you have been living on the credit card float, wherein you relied on tomorrow's paycheck to pay for today's purchase. Lots of people do this and even manage to do it in such a way that they never pay a penny in credit card interest. However, YNAB gets up in your face that this is how you are living. When you start YNAB you need to budget for the existing balance on your credit card because given that they happened in the past, they were never included in your YNAB budget.

    Poke around the forums and the support articles for how to get off the float. The simplest way to do it is to take money out of a category that you aren't planning on spending from in the near term and add it to the credit card payment category until such time as the available amount in the credit card payment category matches the working balance (cleared+pending transactions) of your credit card account (though the account balance will be a negative number and the category balance will be a positive number). And from that moment forward keep an eye on the category balance as there are numerous ways it could get out of sync (reward redemption, returns for example).

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