Purposely allowing for Overspending, to help keep your budget
My family and I are financially secure, but we're using YNAB to help with budgeting, so that we can really focus on saving/investing. Our situation allows us to cover all of our expenses...but herein lies the problem. Let's say we want to put away $700/mo for vacation. That works great, once you're saved up, but we're new to YNAB, so let's say we've only put away $1400 (in YNAB)(we've been using it for 2 months), and we decide to go on a $3000 vacation. We're going to overspend that category. YNAB wants me to budget more money to cover this expense. I want to keep a negative balance on that account to show that we've already overspent that category, and we need to rebuild a balance before we take another vacation.
Is this against "best practices"? It seems like what will happen is, when the month rolls over, YNAB will automatically try to "balance" the negative vacation account to $0. I want to keep the negative balance (-$1600), budget my normal $700/mo, and carry on. Slowly working up a vacation budget. I think YNAB wants me to cover the spending in the current month, in which case, I'm not learning....I'm just using my extra income to overspend, and then erasing the overspending and immediately budgeting more money to that category.
How do you guys handle this? Does carrying a negative balance in the "Vacation" line erase your "age of money"?
Thank you for your help
YNAB is an allocation budget system with functionality designed to promote and support the method (Read about the YNAB method and the 4 Rules). It means every dollar you have is given a job, and one job only. When you have overspending in a category, it means you have given your dollars more than one job because you have spent money from other categories, but you just chose not to update YNAB.
If you don't fix the overspending by the end of the month, YNAB will force-fix it for you as a last resort but the expectation is for you to fix it yourself. If it's cash overspending, it will reduce what you have available to budget in the next month. If it's credit card overspending, you won't have money reserved to make the payment.
So you need to just be honest. You spent money on vacations that you had earmarked in your budget for something else. You prioritized spending money in a category that didn't have enough in it over spending money in a category that had enough. You made your priority decision. Now make your budget reflect those priorities. Move the money to cover the overspending.
Sounds like you can cover it from your other categories, so cover it from your other categories. The program doesn't care. It's not there to judge you, so there's no sense in lying to yourself about it. Reduce other categories to cover the overspending and then rest assured that your category balances will give you accurate information to guide your spending decisions.
One way to make yourself see the effects of taking money from a well-funded category to cover a large overspend elsewhere might be to rename your categories:
Vacation (Not funding until EF is back to 10k, then 700/mth due to big Vacation)
EF (1000/mth until 10k then 300, extra due to big Vacation)
(Or whatever categories you had to use to cover the extra)
I think you bring up a very good point. It's something that I've been struggling with actually.
For instance for this year, my goal is to save $4,000 for vacation. But that will be used for multiple trips. As I spend money from the category, YNAB subtracts It from the goal and then tells me I need to save more to make up the goal.
There's no real way to track a goal that will not be replenished as you spend.
For now, I use my Financial Wellness Spreadsheet to track this. Not sure is anyone else has any other ideas.
I might try to pull money from other categories in order to correct the balance. Then you can set a goal in your vacation category to hit either your "overspent" amount of $1600 to reallocate OR make your next goal even higher to avoid the initial overspending.
YNAB doesn't let you overspend in a category and pay it back later, which I've found can be frustrating if you're waiting on someone else to pay you back or you plan on using money from the next month. I think the whole point is to make sure you're taking into account your overspending so you know where your money is going. I hope you can find a solution!
Let's say we want to put away $700/mo for vacation. That works great, once you're saved up, but we're new to YNAB, so let's say we've only put away $1400 (in YNAB)(we've been using it for 2 months), and we decide to go on a $3000 vacation.
$700 per month may be an appropriate accrual for your Vacation category, but how much should it have had in it when you started using YNAB? If you intended to take a $3000 vacation 2 months after starting YNAB, and intended to accrue $700 per month for vacations, the initial balance of your Vacation category should have been $1600 before accruing that first month. This would represent money put aside for vacation (probably not consciously) before starting YNAB.
One of the nice things about an allocation budget is that it puts purpose on your savings. You might have $10,000 in a savings account; but how much is really an emergency fund, and how much is really accrual for expenses that don't happen every month? With YNAB, you live by the categories. So you can see that you needed $1600 of that $10K for Vacation, and maybe $2K or $3K for various other things, so you actually have much less of a true emergency fund than you were thinking. For example, suppose you have a property tax bill of $3000 per year. You need to accrue $250 per month, right? But if the bill is due in September and you start YNAB in February, you won't have built up $3000 by the time the bill comes due. The category should have had some money in it when you set up the original budget.
Don't feel bad about missing this. It's something that no new budgeters figure out the first time. If you end up reworking your budget in a major way and doing a fresh start, you have a decent chance of setting up a new budget this way on your 2nd or 3rd try; but the first budget is a major learning experience. Failing to fund the categories as they needed to be on Day Ones doesn't make you a failure. But when you put the money into the categories where it belongs, that gives clarity as to what your actual financial position is.
In your position, I'd simply move $1600 from the emergency fund category to Vacation, continue to accrue Vacation at $700 per month, and not take any more vacations that aren't already budgeted. Meanwhile, build the emergency fund back up to whatever level you need for peace of mind.
This will feel chaotic and like you're moving backwards for a few months, until you go through an entire cycle of your normal non-monthly expenses and get those categories funded at the levels where they belong. After you get through that cycle, you'll have many fewer incidents of having to take money from the e-fund to cover a category that should have had more money in it when you started YNAB.
you bring up a good point. I almost always cover my overspending by "stealing" from my Emergency Fund.
Déjà vu flashbacks here after reading that statement. 🙂 I used to raid my "emergency fund" for EVERYTHING, making it an "Impulse Fund". Life is so much more stable now. Using the YNAB allocation and category system for 4.5 years......I have money coming out of my ears, or more precisely in every category. Okay, so I can't do everything quite as quickly as I'd like to, but every category is funded at a rate I can afford based on my income, and my emergency fund is now a true emergency fund (I break mine out to specific sub-categories). It hasn't been raided in a couple of years.