How can I use YNAB productively whilst paying off the Credit Card Float?
I've been using YNAB since August this year and have discovered that I'm a "Credit Card Floater".
The good news is that (by being disciplined) I am reducing my CCF by around $1k per month, however at this rate I still have around 6 months ahead of me before the CCF is history.
My question is how to make YNAB useful for me in the meantime. I have to pay off my CC in full each month (it's an AmEx charge card) so my TBB figure is always in the red. The TBB figure at the end of each month is usually $1k better off than the previous month (which is great) BUT I only get to see this once the month ends. Thus, my spending discipline is in spite of YNAB's help, rather than because of it.
I'd really like to get some value out of YNAB before I pay off my CCF. Is there a trick that I can use to make the YNAB figures mean something for the next 6 months?
Thanks for any advice...
Don't overspend your categories, or if you do, adjust your budget to cover the overspending. And make sure that you spend enough using your credit cards so that you have enough money in the payment category so that by the time you make the payment you have enough in the category to do so.
Each month, budget that money to the card payment category to reduce the float, and you won't be in as tight a bind with continuing your credit card spending.
Thanks for the reply, but I confess I'm not sure I follow you. I've already aggressively reduced the amounts in all of my categories (which is why I'm saving $1k per month), but I can't reduce them to the extent that TBB is green (I still have to pay my mortgage...)
I also have to pay off my AmEx in full each month. For sure, I'm riding the float, but I would hope that, at the time when I really need the help of a tool such as YNAB, it could provide better information other than "you're overbudgeted".
but I can't reduce them to the extent that TBB is green (I still have to pay my mortgage...)
Uh, you kinda have to. TBB must be zero (or higher) otherwise you have money assigned to your categories that you don't have.
Rule 1 is Give Every Dollar a Job. You can't give a job to money you don't have.
You can't use money to get off the float if you need it to pay the rent. When you get income, then you ask yourself what the money needs to do until the next time you get paid, and give it those jobs.
But (if I understand correctly) isn't that the reality of the Credit Card Float situation? This month's money going to pay last months bills, etc?
Although I'm riding the float, my cash situation is good and all debts are paid off on time, I'd just like to use YNAB to show me some useful data whilst I'm on the journey.
From the thread I've seen, there appear to be quite a few people in this situation Isn't there a useful way for these people to use YNAB for the months during which they are paying down their CCF?
Apologies if I'm being stupid (or if I haven't explained myself well). In a nutshell:
- I am meeting all of my current financial obligations
- In addition, I'm paying off my Credit Card Float at the rate of $1k per month
So I AM meeting my obligations in both areas (although more slowly in the case of the CCF). And in 6 months time I will be debt free. But I'd like to understand if YNAB can show me useful budgeting information (and not just a red TBB figure) throughout the month until that time?
I guess I don't understand how the the float works then - apologies if I've misled you. 6 months ago my credit card debts were around $9k. Now they're down to $4k so I'm happy that I'm moving in the right direction. Perhaps I should just focus on continuing to save money and start using YNAB properly when I pay off my debts.
Just before pay day, my checking account is around $1k in credit
My credit cards total around $4k in debt
Then I get paid around $6k (current account to $7k)
Then I pay off my credit cards (down to $3k in credit)
Then I budget absolute essentials to the tune of $5k. Around $3k of these are paid using credit cards.
Then the monthly cycle starts again (with the CCF reduced by $1k).
You get paid $6k. That's awesome! But your order for what you do when you get paid is backward. Credit cards, not even paying them down, should never, ever be first.
First you budget absolute essentials to the tune of $5k.
Then you have $1k to pay down, but not off, your credit cards.
Anything you then spend on your credit cards should be already accounted for in the "essentials" at $5k, which means you won't add more debt to your credit cards. In three months, you'll finish paying these off, though it will cost you in interest. Then you have an extra $1k for your budget every month.
I'm simplifying, but the most important thing is: budget for essentials before any paydown of credit cards happens.
Thanks slightlysmall - that does make sense. But it also seems that route would cost me more money (in interest). If I understand correctly, my options are:
- Continue with the approach that I have taken so far. Benefit: no interest charges. Drawback: I'm not using YNAB properly, so don't get the budget visibility benefits. Or...
- Partially pay off my credit cards. Benefit: YNAB visibility and insights. Drawback: interest charges.
Both approaches will get me to being debt free within a few months. I need to choose whether using YNAB properly is worth the extra interest charges.
Or maybe there's a third way that I'm missing?
nolesrule thanks - I think that makes sense. In a way, that's the approach that I've been taking but without using a specific category in YNAB (so I've been trying to keep the negative TBB number constant!)
So just to confirm:
- I've created a new category group, "CC Float"
- Within this category group, I've created a category called "Float"
- I budget -$4k to this group, which brings the TBB to zero
- On pay day, I assign dollars to budgets and use YNAB in the normal way
A couple of questions:
How will the float category reset to zero? Do you mean that the float category for the new month will be zero by default? And in that case, do I just re-enter the float amount in the new month (minus $1k)?
Do I need to do anything else with the float category? Or do I just keep it as a monthly reminder of progress?
The way "riding the float" is supposed to work is that budgeted purchases made between the statement closing date and the payment due date is used to raise the CC Payment category sufficiently to cover the payment. Thus, the budgeted purchases you can consistently make impose a ceiling on the amount of float you can ride. In more severe cases, you can budget some of the income received between the close and due dates to sufficiently raise the CC Payment category. Budgeting income like this increases the amount of float you can ride, but you usually can't put your entire check toward the float, because there are some things that must be paid with cash. Thus, there is still a ceiling on the amount you can float.
Since your CC Payment category goes negative following your payment, you are trying to float more than your budgeted purchases will allow. However, that money has to come from somewhere, and in fact, you've sent money that's earmarked for other uses to the CC company. You're deluding yourself into thinking that it's available in those other categories -- it's simply not there, and one or more of those category balances are flat out wrong.
I suggest you own up to that reality and move enough money from an emergency fund or long-term categories to make the CC Payment category $0 immediately following your payment. In other words, cover the overspending in the Payment category. This sets up the budget to reflect the maximum amount of float available to you, and you have roughly 4 weeks to raise the CC Payment via budgeted purchases up to the new account balance. (Remember, the account balance on the closing date is the statement balance that you will have to pay 4 weeks later.)
If you ever fail to make enough budgeted purchases before your payment, then you must again cover the overspending in the Payment category. This is hardly a surprise, so you might as well move funds in advance of your payment.
Bottom line example: if you can consistently only make $3k in budgeted purchases each month, that's the maximum balance you can float without directly supplementing the payment with income. If you make $5k/mo and make $1k/mo in cash-only purchases (e.g., rent), then the maximum balance you can float is $4k. In that case, you must budget that $1k (since purchases will account for $3k) to the Payment category each month -- ideally before the payment.
If you're using income received after the payment but in the same month to cover that overspent Payment category, you REALLY are behind. Again, just own up to that and reduce other categories to cover overspending immediately upon your payment. Those other categories are erroneous anyway, so why lie to yourself?
Here's the crux of the matter: You've demonstrated that you do not run out of cash after making the payment, so just update the plan (a.k.a., budget) to reflect the reality of that cash you have remaining after your payment. NO RED ALLOWED -- TBB or categories. In other words, the real issue is that you're pretending you have more cash than you really do.
Lastly, the only way to reduce the amount you're floating within the budget is to budget to the CC Payment category. (If you're directly supplementing the payment category with income, you need to budget MORE to the CC Payment category than required to take the post-payment Available to $0.) The idea is to gradually increase the amount left in the Payment category after your payment until it equals the account balance. That's paid-in-full status.
I'll say it again, you're fooling yourself into thinking you're reducing the float. But you aren't as long as you have a negative TBB.
Absolutely true. It's fine to reallocate the money that's not needed from the CC Payment category (leaving it at $0 immediately following the payment), because you'll build it up before the next payment. (The definition of riding the float, for interested readers.) What's not fine is pretending you have more money than you really do. I mean, why not budget $1,000,000 to the Hookers & Blow category, ignore the fact that TBB is -$999,000, and throw one heck of a rager? Probably because the entertainment, ahem, "providers" won't care about your fat category balance.
1. My credit cards total around $4k in debt
2. Then I get paid around $6k (current account to $7k)
3. Then I pay off my credit cards (down to $3k in credit)
4. Then I budget absolute essentials to the tune of $5k. Around $3k of these are paid using credit cards.
Statements #1 and #3 indicate you paid $1k to the CC companies. The problem is that you said you're making $3k of CC purchases per month (in statement #4). When riding the float, you must pay off all purchases from the preceding month, so something doesn't jive.
It would make more sense if #1 was $6k in debt ($3k statement balance + $3k purchases between the close and due dates), then you pay down to $3k. You get a bill for $3k, but run the balance back up to $6k, etc.
TBB should be non-negative through all of this. If TBB is negative, that's the first problem to fix.
But (if I understand correctly) isn't that the reality of the Credit Card Float situation? This month's money going to pay last months bills, etc?
At the risk of being overly verbose given my other responses, I just wanted to respond to this fundamental question.
You're correct that is the reality of riding the float -- this month's money goes toward last month's bills. However, you need to budget this month's money into the CC Payment category to reflect your intent to send it to the CC company. Most importantly, doing so reduces the amount that you can put elsewhere (e.g., in the rent category). At least it does if you don't let TBB go red/negative.
Firstly, I want to thank everyone for their help and comments - I really appreciate everyone trying to help me out here.
Please be assured that I’m not “delusional”, “lying”or “fooling myself” about the situation. I know I have an issue. It’s why I’m here and I’m doing my best to fix the problem.
The good news is that I’ve made significant progress (in my eyes at least) over the past few months. Previously, I was significantly overdrawn at the end of each month. Those days are now firmly in the rear view mirror and I’m now attacking my credit cards and making good progress there as well.
Unfortunately, I don’t have savings or any way to find the funds to simply pay off my cards. Believe me, I’ve often thought of that - it would be great, but sadly it’s just not going to happen this side of a lotto win. (And you have to buy lotto tickets for that...)
YNAB has been a great help on this journey over the past few months. Just having to record every transaction has helped me save money. But I also set a budget that is $1k less than my income and stick to it. I get “scarcity” - and it’s helped a lot.
Unfortunately, despite this, YNAB hasn’t seemed to reflect my progress and that was my question - how do I get it to be more representative during the time that I’m digging myself out of this hole. Sure, I’ve tried to keep the (red) TBB figure constant during the month, but the actual figure was pretty much arbitrary to me (and changed after my salary was paid).
That’s why I think that nolesrule ‘s approach will help me. It’s simple and, most importantly, I understand it. Effectively, I now have two targets: firstly to keep within my monthly budget (and TBB green) and secondly to reduce the float category by $1k each month until I reach the promised land. It also means that I can continue to pay off my credit cards in full and not incur interest charges - which would be counter to what I’m trying to achieve.
I apologise if I’m not using YNAB in the right way. I confess that I’ve really struggled to follow some of the posts and principles involved here. But I think I have a way ahead that I can work with now. Any other thoughts welcome, of course!
I see an elephant in the room:
The YNAB credit card payment method stumps even the very smartest newbies. All of our most brilliant users and the YNAB staff are turning themselves inside out to explain it. Poor ChippyAft who is doing a great job of debt paydown, still can't figure it out.
I wish YNAB would address this extreme confusion with something that seems logical, that everyone can understand. I don't remember having this problem in Classic YNAB ever.
Unfortunately, I don’t have savings or any way to find the funds to simply pay off my cards.
This is where you're misunderstanding, because every month you do find money to pay off the cards. The problem is that it's still earmarked elsewhere in the budget as available for various other purposes, which is the delusional part. The money is gone, but you don't seem to want to lower category balances to reflect that fact.
Granny Bogle said:
who is doing a great job of debt paydown
Budgeting down debt at the expense of a negative TBB is not doing a great job. That's just shuffling things around giving the appearance of progress.