Again a little confusement about credit cards
i have again a little confusion about credit cards. I played around with a test budget which started with zero funds and has a checking account and a credit card account. Today's month is january.
Let's say i did a payment with the credit card last month. So i go to the CC transaction list, and enter a payment with 10€ on a sample budget. As a result, the sample budget goes yellow and has 10€ overdraft. So far so good.
Now i have two cases.
The first case is i want to carry the overdraft to the next month, e.g. because the payment was for business travel expenses, and due to the processes at my company and christmas, it takes until january.
So i open the budget page for January. And: Poof, the 10€ overdraft are completely gone. Every category is green, so in January i am debt-free? I don't think so, since my CC company still gets 10€ from me.
Now i get a reimbursement from my company for the travel expenses. It is sent to my checkings account. So i enter an income of 10€ for the travel expenses budget. It stocks up the budget to 10€, and the budget is green. Once again the CC debt from last months is completely ignored.
Since my company reimbursed my checkings account, i want to transfer 10€ to my CC to clear it. As a result, the CC goes to 0€ on the left sidebar, and in my budget list i have +10€ remaining on the travel expenses budget and -10€ on the CC payment budget. Am i supposed to move the money between these budgets by hand? When i open the CC transaction view, i see the "Payment" amount in the top right. This is just another representation of the CC payment budget in the budget view, am i right? Why is it going up in green when i do a payment with the CC from a zero-funds budget?
However, after i have moved the money from the travel expenses budget to the CC payment budget, this transaction is completed, and i am debt free again, am i right?
What about situations when the CC payment budget has a positive amount, for whatever reason it could have. Can i safely move the positive amount of money to another budget, since apparently i have budgeted too much for CC payment?
Apparently not, which leads me to the second case.
Once again, a zero funds budget. I do a payment with a CC and book it on travel expenses. As a result the travel expenses budget goes to -10€ and is yellow. The payment amount in the CC transaction view is +10€ and green. Why is it green? I would think since i am 10€ in debt right now, it shouldn't be green.
I get a reimbursement the next day on my checkings account. I book it as an income to travel expenses. As a result, travel expenses budget is zero again, and CC payment category goes up to +10€. Also the payment amount in CC transaction view is green. I book a transfer from checkings to CC, and all budget is back to zero. OK.
Are my qustions valid? Is this the right way to do CC payments? How do i need to handle the CC Payments budget? Is it safe to move money from it to other budgets when it's green, and do i have to fill it up when it's red?
Why do i have to move money between budgets by hand if i decide to take the overdraft to the next month? What if i do not open my test budget but my real budget and scroll back in time really far, and see a yellow budget somewhere? Is my budget now completely broken from that time on? What does the payment amount in the CC transaction view represent?
I have to admit, i'm trying to wrap my head around CC payments in YNAB for over a year now, and i still do not understand it. It's very frustrating.
You have hit upon one of the biggest issues with the current version of YNAB. If you search the forums you'll find LOTS of arguments about whether or not the way the system does it is the best way...
I'll ignore that question and attempt to help answer your questions.
You are correct that the budget will not show your over spending from one month to the next. All categories that were over spent go back to zero at the beginning of a new month. However, yes, your debt still exists (you can see it on the left next to your credit card name under the accounts section). YNAB prefers to recommend that reimbursements be prefunded, but who actually does that when it comes to employer related stuff? Nobody I know. SO , to deal with reimbursements getting paid back in the next month, you'll need to do one of a few options:
- Firstly, just know how much the over spending was from the previous month, and apply the funds from the To Be Budgeted (TBB) directly to the credit card. This is the simplest option in my opinion (along with this is clearly making a category that is only used for things that will be reimbursed)
- Second option is to pre-fund a reimbursement category with a certain amount of money (whether that is actual funds that you have available or "fun money" that you make up in an account in order to keep the reimbursements from going negative... as long as you know what you're doing then you can keep it straight). Then you know that whenever you get your reimbursements back the account goes up to a positive number, like $500 or $1000, or whatever amount you determine that will keep the account from going into the negative routinely.
As for how CC payments work you don't need to budget directly to the CC unless you are making a payment to pay off debt (over spending for previous months/outstanding debt that you've been carrying). If you budget money into a category (ex: Travel) from TBB, when you enter a transaction to your credit card and apply it to that category, it will automatically move the money from that category up to the CC to be paid the next time you pay your bill.
The budget would look like this:
Travel: $10 budgeted (green)
After entering the transaction on the credit card it would move that money up to the CC:
CC: $10 (green)
I hope this helps!
Of the two standard reimbursement approaches, I think the Temporary Debt works the best for work scenarios. It does not budget to the Work Expenses category, which can be difficult for large amounts.
- Categorize outflow and inflow to the same category
- If the category ever turns green, move those funds to the CC Payment category
It's really that simple and handles all the "special" cases such as being paid in a later month, etc.
Some people combine the Temporary Debt approach with transfers to a Tracking account in order to see the pending reimbursement amount at a glance in the account balance. (Just put the transfer information in the Payee field, category is still Work Expenses.) In my experience, a quick search for the Work Expenses category gives the total, as does the expense report you filed at work, so I wouldn't use the tracking account. Your choice, of course. (The drawback is you have to put the real payee in the memo if you want it, so it's a little difficult to record transactions.)
Once again, a zero funds budget. I do a payment with a CC and book it on travel expenses. As a result the travel expenses budget goes to -10€ and is yellow. The payment amount in the CC transaction view is +10€ and green.
It won't be green. There's no money to move if the Travel Expenses was empty (and therefore went overspent). The CC Payment category would be unchanged, which was assumed to be 0€.
Continuing the example, the inflow is categorized as Travel Expenses, fixing that deficit, and 10€ flows to the CC Payment category, where it waits until you send it off to the CC company.
Why do i have to move money between budgets by hand if i decide to take the overdraft to the next month?
Because YNAB doesn't assume you will pay off any debt. It is agnostic for the most part about what you want to do with your money. It will try to help you out the rest of the month, but then it gives up and figures you'll get to it when you get to it.
If you don't want to move funds yourself, you'll need to use the other standard approach, that of an offset (or pre-funded) category. With that, all you do is record the transactions. The budget takes care of itself. Any category balance below the offset amount means you are owed money. It is the epitome of simplicity.
The drawback is you have to offset the category enough to keep it positive. For sizeable work expenses, that may be difficult. I would suggest you try to reallocate from an emergency fund if you have one with the understanding you could pull it back if you had a sufficiently large emergency. Until then, however, that money is more useful to facilitate these automatic bookkeeping steps.
- Temporary Debt approach -- don't have to budget up front but might have to manually move funds
- Offset Category approach -- budget manages itself but you have to come up with funds to enable that