Overspending - how to handle in YNAB vs YNAB 4
I am trialling 'new' YNAB after loving YNAB 4 for many years, and one of the things I cannot wrap my head around is practicality of dealing with overspending in categories where we used the red arrow before (I understand the reason behind it, and think the extra awareness will be a good thing) but how does it work?
We had a number of categories like our 'no questions asked' money where we allowed ourselves to carry the overspend into the future month, and then bring it back into balance next month
How do I cover that overspending in the current month, yet make that category pay it back next month? If that makes any sense..
If i overspend on my fun money, and family outings, and birthday presents and cover each with emergency funds so it's all square, what do I do so that next month that money comes back out of those categories and into the emergency fund again?
Am I writing little notes so I don't forget which category owes which other category money? and manually moving stuff backwards and forwards each month? or is there an easy way to make this all happen?
My concern is that by covering any overspending from the emergency fund without some way to make sure I get it back again then we will just be dipping into our emergency fund to pay for some jeans that were on sale now not next month, then not realising next month we actually have less fun money available, and doing that over and over will not be a good thing.
(I am still reading through how to cover reimbursements and get my head around that as the red arrow was such an easy solution for that too)
We have a holding category where we keep extra money. If something comes up that we just gotta have right now, I borrow from holding. I then leave a note in whatever category I stole for that $X needs to be paid back to holding. Doing it this way means I never have to steal from any important categories. It's not something we do often, but it's nice to have as an option every now and then.
Habanero Salsa said:
I need a way to carry over a negative balance to the next month for some categories to keep my long term target in place
So this is where we differ. That long-term target was formulated perhaps months ago. Gamely sticking to that static target in the face of ever changing priorities denies the changing nature of those priorities. And whos to say you guessed the originally priority/amounts correctly in the first place?
Acknowledging the fact that "money has to come from somewhere" is powerful. Spending more than you planned on has consequences, and if you dislike those consequences more than you like whatever caused the overspending, you will naturally change your behavior. OTOH, if those consequences are no big deal by comparison to what you gained by reallocation, then your plan is better aligned with your true priorities. That's a good thing.
Kicking the can down the road with carried overspending loses this benefit. You will not have nearly the understanding of those underlying priorities as a result. In this specific example, one might realize those end-of-summer sales were important, and that you might consider saving up to be able to take advantage of making your money go further.
Having accurate category balances is important too, but that's not the only reason Rule 3 exists. Developing this intuitive understanding of underlying priorities is quite invaluable.
Overspending in YNAB theory is dealt with across categories in the same time period (this month, right here, right now) à la Rule 3: Roll with the Punches rather than in some vague future time where you will adhere perfectly to the plan and reduce your spending in that same category to make up for it.
I implemented Rule 3 fairly early on in my YNAB use as a test of the methodology that I will admit I fully expected would fail dismally -- I was absolutely convinced there would be a lot of spillage in my categories -- and it was so simple. It just worked. I spent more where and when I needed to spend more, but my overall spending each month came in actually lower than it had ever been. I'd say that was a phenomenal and unexpected result. And the bonus was no longer keeping track.
By first testing the theory and then permanently implementing Rule 3 (it's been five years now), and by not allowing any overspending to cross the month's threshold into next month, I finally learned how to make value decisions for every overspend rather than shrugging it off, sneaking one through, or pretending it would be dealt with in the future. I was also able to finally see that one of the reasons I had previously had issues with, what I thought was, overspending was that I was underfunding some categories. Well, no wonder I was overspending!
Habanero Salsa said:
It's recognizing that my Clothing spending is ahead of pace and needs to slow down
I think we're speaking past each other here. I totally agree in some circumstances that same category takes the hit. The reason I think that's fine is precisely because of what you said, which I quoted -- it is now a lower priority.
This is in contrast to the flawed logic of "because I overspent there in the first place". Sometimes it won't be a lower priority and following this approach in such an instance would lead you to short a more important category.
I really can't sum it up any better than this: the lowest priority category should take the hit, both when seeking to reallocate as well as planning with new money. Any other criterion has the potential to be misaligned with your priorities.
I think we're speaking past each other here. I totally agree in some circumstances that same category takes the hit.
Habanero Salsa said:
Again, “I spent too much on clothes this month, so I want to allocate less to clothes next month” isn’t flawed logic.
I think you both just said the same thing. 🙂
If it makes you feel better Habanero Salsa , I agree with you that the YNAB 4 "Red Arrow" was a really convenient way to have YNAB automatically subtract overspending from the same category in the following month. But it's gone now, so you'll have to suffer without it.
Ok, this is a long thread but I don't think I saw this remarked on. I've been playing with the new target date spending goal to deal with these situations. For instance, our gas cost goes up and down over the year depending on my son's school schedule. So based on averages, I set a spending goal for the whole year, based on a balance between expectation and averages, and budget to that goal each month. When one of those expensive months come up, hopefully I have enough in the category. If I DON'T, then I have to cover it, but then the goal is lowered the next month, essentially "paying me back" for having gone over the month prior.
I know dakinemaui recently opined that it isn't a useful goal because it lowers the goal in subsequent months, ignoring the fact that this might be a higher priority category than previously considered. I totally think that's valid, and I'm only testing it with certain categories where I think it could be useful. The monthly spending goal has been pointless for me, even though I'm still testing it in a couple categories.
As far as the red arrow, just get over it. Find a new way. There's a million ways to move money around in the budget, legitimately or in that gray monopoly money area. Find what works for you. But after 6 years of YNAB3/4 and 4 years of nYNAB, no red arrow is definitely better.
wow - this is apparently a heated topic
thanks Habanero Salsa for so accurately representing my logic in my absence :)
So it seems like there are two options to do what i want to do - write myself clunky notes, or trial the goal option; or i shift how I have thought about budgeting for many years :)
I get all the arguments about keeping an eye on what my true priorities are etc - and I think not having the red arrow will be good and will bring better awareness, and some of your other arguments will stew
Hi Green Boat ! I wanted to address your original question about how to handle overspending, cash or credit. When you do have overspending—regardless of the type—it’s best to use Rule Three to cover it by moving money from a lower priority category. After all, that’s what Rule Three is for!
And if you can't (or don't), here's a little more on what happens to overspending when the month rolls over.
The reason we don’t recommend you keep negative red Available amounts is because with cash overspending, you have already spent the money and taken it from a different category. You can choose to let the red amounts stand for a few days since you know you're going to cover it, but it's a good thing to remember and to acknowledge: red in your budget means you’ve spent money that was set aside for other categories.
YNAB is at its most powerful and useful when it reflects only the dollars you actually have. Your best information comes from looking at your actual spending rather than how accurate your first budgeting guess was.
For instance, if you regularly budget $500 for groceries but typically spend $600, it doesn't matter that you were wrong about the budgeted amount. The only thing that matters is the decision about whether you should budget $600 moving forward or change your shopping habits to spend less. Those choices are the most important thing to focus on.
Habanero Salsa said:
Can you explain how I can otherwise apply a negative amount into the budgeted amount for next month, without notes?
Perhaps just general awareness? An August 31 "Clothing" overspend should be fresh in your mind as you're drafting your September budget. When that happens to me, my thought process is something like: "Gee, I just bought a lot of clothes yesterday, I probably won't need to spend as much this month."
I guess what I'm struggling with here is that you seem perfectly willing to ignore your budget in some circumstances -- i.e. you feel justified in overspending if there's a good sale. So what does reducing your budgeted amount in the following month accomplish, exactly? What's stopping you from simply ignoring that new (reduced) target and overspending again (and again)?
At some point you have to reckon with the fact that, when you overspend, the money has to come from somewhere. YNAB is just really strict about things and forces you to reckon with that fact immediately. (The red arrow allowed you to ignore it indefinitely.)
Habanero Salsa said:
What reducing my budgeted amount in the following month accomplishes, exactly, is keeping on track with long-term spending goals and avoids spending too much over time
But what's stopping you from overspending the (reduced) budgeted amount in the following month? If you were OK doing it once, why not again? What's different? I'm genuinely trying to understand the mentality here.
Is there some threshold that you simply don't allow yourself to cross when it comes to overspending? In your example, the overspending was small enough that you could correct it in a single month of reduced spending. But what if you overspend so badly that you'd have to spend $0 for multiple months to bring things back in alignment with your long-term goal? How far in the hole do you allow yourself to get? $500? $1000? Is there even a limit?
Assuming you do have some upper limit (and I certainly hope you do!), then consider simply padding your category balance by that amount. E.g. make $1000 your new baseline for "Clothing" instead of $0. That'll keeps you from running afoul of YNAB's strict rules about overspending. Make your normal $200 monthly contributions to clothing. If the balance approaches $0, then you know you need to slow down your spending (or increase your contributions.) If the balance approaches $2000, perhaps it's time to slow down contributions and redirect the excess money elsewhere.
That's how I handle "lumpy" spending in general (e.g. for car repairs, home maintenance, clothing, etc.)
Green Boat said:
this example is not mindless overspending, and it is not an example of a change of priorities - it is about sticking to those priorities over months
Of course it is a change in priorities. The original level of importance led to budgeting $X, but yet it was important enough later on to spend more than $X.
Priorities change. Pretending they don't is why traditional budgets typically fail.
Green Boat said:
trying to staying on track across months seems like a good thing
Understanding when the track needs to change is a better thing. That track is often laid out months before. Is it reasonable to think that estimate -- a.k.a., guess -- was spot on, both for the immediate level of need back then as well as anticipating the level months later?
Habanero Salsa said:
If over- and underspending net out to the target, the track doesn’t necessarily need to change.
Sure it does. It means that at some point in the past you didn't prefund the category enough to meet your baseline. I'd explain it in terms of sine wave equations, but I don't know if you ever took trigonometry.
Habanero Salsa said:
Understanding when the track doesn’t need to change just because spending isn’t steady state is a good thing, too
Totally agree, and I could have written that very phrase. I keep coming back to the fact that your current priorities are the best guide to allocating that new money. If those dictate Clothing is lower so that New Car can be put back on track, then so be it. Priority and Payback result in the same action.
However, if it's November and you feel it's important -- translated "higher priority" -- to take advantage of Black Friday sales, then those priorities would dictate Clothing get more than it would under the payback logic (and maybe more than the nominal/average). I mean, if you're planning to take advantage of those sales, too, isn't it better to put that in the actual plan (a.k.a., budget) rather than a low-ball number you're just going to ignore?
Incidentally, this is why the issue keeps circling back to overspending rather than the "replenishing" aspect. Some other posters are anticipating the consequences in cases where the payback logic falls down. Issues with how you replenish will cascade into issues with overspending in some cases.
To summarize, using the current priorities will, by definition, always align with your priorities. (Capt. Obvious, I know!) OTOH, payback logic MAY not do the same. Having done it both ways, I know which works best for me.
Habanero Salsa said:
I don’t need a higher default because that puts too much into Clothing (an example category, by the way) which I don’t need. I have the right amount, it just doesn’t necessarily line up with the dates
Sorry, that's not how YNAB works.
If you want to make a Clothing purchase that exceeds the current category balance, then you don't have the right amount. You do need more. "It doesn't line up with the dates" is just another way of saying that you're borrowing against the future.
You've insisted that you're not asking for a red-arrow, just more tools for tracking past spending to help inform your future budgeting (and spending) behavior. I assume you're familiar with YNAB reports. There's also a convenient "Average Spent" and "Spent Last Month" total visible on the budget view when you highlight a category. Are there additional numbers you'd like to see that you think would be helpful? I sometimes wish there was a rolling "Average Spent Last <3/6/12> Months" stat I could see on the budget screen. Maybe a Toolkit feature request?
But I still feel like "awareness" is central here. In your side-of-beef example, I'm going to be pretty aware of the 500 lbs of beef occupying my deep freezer. I don't need a category note or a spending tracker to remind me that I won't need to buy any more meat this month (or the next), and will factor that into my budget allotments in those months.
Habanero Salsa said:
I’ve used YNAB for about a third of my life. I’m familiar with the concept. I simply want to repay the specific category from which I covered overspending from the category that received the extra money.
I can force it manually. It’s kind of silly because it doesn’t even affect the current month, but it’s my impression that YNAB doesn’t listen much to user input anymore. Oh well.
I think they do. But they're only going to do what they think is best for their customers and what enhances their method. The YNAB method here is to make an adjustment and move on. They're not going to add a feature that only a handful of customers are asking for and is not part of their method.
I will agree that when they do make changes to their software, it's like watching paint dry. It seems to take years. You're welcome to put it in their suggestion box but I'd be very surprised if they ever implemented it. Luckily for you, you can do it your way with a note and a little math.
Sorry, it got long, and I stopped reading. But your reply made some sense. What you are looking for actually COULD be a feature request. It's like another goal. A "don't spend more than $xx" goal. So you could set a monthly funding goal of say $100/month but also a yearly spending goal of $1200, so if you spend AND COVER $1200 in clothing by August, the system would tell you that you've already spent the $1200 and not to budget or spend anymore. Like a warning if you try to buy more clothing - "You've already reached your yearly spending limit of $1200, do you want to increase that" kind of thing.
That makes a lot more sense than the red arrow/not actually covering the overspending.
Manually, you can adjust the category name and/or leave a note to remind yourself not to add funds, or not to do anymore spending.
Me, I just set caps on those accounts. Once the clothing budget is at $200 I stop budgeting to it. If I spend $200, I build it back up to $200. If I spend $50 and only have $150, then I build it back up to $200 over time. But I also don't set yearly goals for that kind of spending, and things like clothing are really low priorities and often only funded when I actually need something.