How to prevent a negative balance with cash categories?
I'm feeling a little stupid right now, but I'm doing something wrong in my categorizing and I can't figure out how to prevent a negative balance from happening. Can you help me figure out what's wrong with my system?
So, first off, I have several piles of cash in my life. Most notably the cash in my wallet and some emergency cash I keep in my house. I considered creating different cash accounts for these but that seemed too unwieldy, so I have one main cash account and then categories for Cash in Wallet, etc. If I have $40 in my wallet, I assign $40 to my Cash in Wallet category. If I then buy ice cream for $2 using cash, I put the expenditure under Eating Out but then transfer $2 from Cash in Wallet to Eating Out.
All that works fine.
But last night Friend A gave me $20 cash to give to Friend B. I was running low on cash in my wallet so decided to keep the $20 bill and pay Friend B with an online pay service, which is linked to my checking account. So, I recorded the following series of transactions:
+$20 from Friend A to me, Account: Cash, Category: Reimbursement: Friends and Family
- $20 from me to Friend B, Account: Checking, Category: Reimbursement: Friends and Family.
Add $20 to budgeted amount for Cash in Wallet (because I now have an extra $20 in my wallet.)
But, oops! This has put me $20 in the negative on budgeting. I understand that this is because the $20 I paid out to Friend B got double-counted as reimbursement to friends and also as cash in wallet. But I can't figure out how to prevent that from happening. What am I doing wrong here? How do I fix it?
Green Nomad said:
How do I fix it?
Stop using categories as accounts and start putting your money in the categories you intend them to be spent on.
Have your "Wallet" or "Cash on hand" or "Purple73123" cash account, which accounts for all cash you have in your possession. Or would you like to separately account for your left pocket vs. your right pocket? How about that emergency $20 you keep in your coat pocket? Nah. Just account for all cash in one account.
When cash leaves your hands for any reason, put a transaction in the cash account and categorize it for the purpose it was used for.
Don't make things harder than they need to be.
Hi, Green Nomad
I also would encourage you to simplify by just using cash accounts rather than cash categories. I personally use 3 cash accounts: Wallet, CashStash, and LaundryCoin.
When I spend, I select whichever method of payment serves me best in the moment -- gift card, cash, credit card, debit, cheque -- and record the transaction in the correct account.
Another vote for an account per location.
The fact you can't recognize how to record this simple scenario suggests your current setup is unnecessarily complex. In fact, it has caused you to think there is a problem when there isn't.
I would also suggest you read the following article several times. Your desire to synchronize an account and category (e g., the emergency cash) is also causing confusion.
Personally, I don't bother with setting up a cash account in YNAB. I spend so little cash that it's not worth the overhead.
Instead, I simply record ATM withdrawals as outflows against an appropriate category. E.g. withdrawals at the farmers market are for "Groceries", and withdrawals at a festival are "Entertainment." If I don't have any clear purpose for the withdrawal (rare), it goes into a catch-all "Miscellaneous" category.
From the perspective of the budget, the money is spent the moment it's withdrawn. I need to budget for those withdrawals just like any other expense. I don't track what happens to the cash beyond that point. If I end up pocketing my farmer's market money and spending it on something else, then my budget is going to be inaccurate. In practice, I spend so little cash that it's a non-issue. YMMV.
To fix your problem based on your current way of budgeting, you need to transfer $20 from one of your budget categories into your ‘Cash in Wallet’ category.
Based on your budgeting method, in reality you have $20 more in Cash then you did yesterday, but you also have $20 less in your Savings accounts than you did yesterday (and hence right now you have too much money currently sitting in other categories which you dont have Savings to support).
This is a fix for your current method of budgeting. A lot of people are suggesting alternative ways of budgeting from your current method altogether, many of which I agree with but don’t directly answer the issue you are asking about.
What do the kids do when they need to make a payment for something that is neither cash nor debit card?
Ours has grasped the concept of reimbursement. We also run allowance and Amazon gift cards though there, so it resolves itself in short order. TBH, we typically owe the kid. 😋