Loaning money to a category

Hi all, I've been a YNAB user for years and it's amazing, but there are some nuances that cause me to use it in a less-than-ideal way that I am interested in discussing.  I should note up front that I never budget money into future months because I find the maintenance to be a nightmare and error prone.

One such scenario is that I occasionally want to "loan" money to a category. Two common examples of this:

1) I have reason to pay ahead on a category, such as recently there was a deal if I pre-paid Netflix for 6 months. So now my Netflix category is negative and will be replenished by the usual budgeting over the course of 6 months. 

2) My wife and I each have relatively fixed amounts we choose to spend on ourselves each month without having to justify it to each other. Recently she got a great deal on an iPad that was more than she had in her spending category. It's entirely reasonable for her to take a "loan" from the family money for such a purchase.

The major complaint most would make about this is that we are now misrepresenting how much money we have available because some categories are negative, but we have a large enough cash savings for emergencies and misc. future projects (thanks to YNAB keeping us on task!) that going negative by $100 in a category or two is nothing to be worried about.

I don't want to cover these negatives with money from another category because then I misrepresent how much can actually be spent in that category. And I want to keep these categories on track, because if I start covering overspending with savings then I will just be spending the savings all the time unintentionally. I'm all for rolling with the punches but too much of that and there's no accountability to the plan.

Now keeping things negative would not even be the worst thing except that each month the budget goes and resets itself, which drives me crazy. My financial picture doesn't shift with the calendar like that. I get paid twice a month and I can't imagine trying to stay on track with dining out funds on a month-to-month basis, I'd end up spending it all in the first half and being broke the second half.

I've probably left out some nuances of how I use my budget but I'm just interested in any thoughts out there about how to handle scenarios like this where you want to stay on track with your plan in the long term but not be too rigid with it in the short term.

Feel free to ask questions if anything is unclear!

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  • Gunner said:
    So now my Netflix category is negative and will be replenished by the usual budgeting over the course of 6 months. 

    I find it easier to look it it this way: there is no loan to the Netflix category. The only loan was from the CC to you, which is paid back by budgeting to increase the Payment category over time. Set a goal if you need help budgeting for that.

    (You might consider also continuing budgeting toward the Netflix category so you're ready for the next prepayment when this one runs out in 6 months.)

    Like 2
  • Hmm, maybe I'm not understanding what you mean, but as a person who pays off his credit cards each month, the credit card thing seems irrelevant to me. For the sake of argument assume I pay with a debit card and this is real money coming out of a real bank account. I'm certainly not pre-paying 6 months of netflix only to pay it back to the credit card in installments.

    The most true representation of that particular scenario would be to cover the charge with my savings category, adjust my budget to stop adding money to that category for 6 months, then in 6 months adjust it again.  Of course the Netflix thing was a one time deal. For areas where we're intentionally overspending our mad money and want to reduce further budgeting accordingly, which happens on occasion, I'm not really a fan of screwing with the budget plan over and over.

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    • With regard to Netflix on a debit card, I would simply recognize that if I could better predict the future, I would have put more money into Netflix to start with instead of somewhere else. I would reallocate from a lower priority category to deal with the fact my guess at the time for Netflix was $50 off and move on. When the dust settles, a lower priority category wasn't funded so that a higher priority category was. That's exactly how things should be!

      I mean, look at it the other way: assume you had put that extra $50 into Netflix originally, leaving some lower priority category short. Would you take it out of Netflix now just so you can hold it in that lower priority category??

      Like 4
    • Gunner FWIW, I don't see any appreciable difference paying the CC installments or yourself installments when no interest is involved. (I'm assuming you can float the roughly $50 for netflix without interest.)

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  • Gunner said:
    I don't want to cover these negatives with money from another category because then I misrepresent how much can actually be spent in that category

    Actually, leaving those categories at their original values is misrepresenting things because you implicitly gave some of their funds to Apple if you paid in cash/debit card or paid off the CC you used for the purchase.

    Gunner said:
    there's no accountability to the plan

    It's sheer folly to make a plan that is set in stone. You know more now than you did when you made the plan. I'm sure if you knew originally that this deal would come up, then you would have planned for it then. Reallocation is just the ability to plan with the benefit of hindsight.

    If you plan to have a picnic, do you insist on "sticking to the plan" when it rains? Of course not, and the budget is no different. Adapt the plan to changing events/knowledge -- that is the essence of Rule 3.

    The acceptable choices in my view are either reallocate from elsewhere (ideally not paying it back because of priorities) or budget to reduce the CC float over time.

    Like 5
  • Gunner said:
    adjust my budget to stop adding money to that category for 6 months

    Wouldn't you want to be ready to purchase the next block of 6 months when this one runs out?

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  • Gunner said:
    1) I have reason to pay ahead on a category, such as recently there was a deal if I pre-paid Netflix for 6 months. So now my Netflix category is negative and will be replenished by the usual budgeting over the course of 6 months. 
    2) My wife and I each have relatively fixed amounts we choose to spend on ourselves each month without having to justify it to each other. Recently she got a great deal on an iPad that was more than she had in her spending category. It's entirely reasonable for her to take a "loan" from the family money for such a purchase.

     That's what I would do:

    Where did the money come from to pay for the item (iPad or Netflix)? Move it from there into your Netflix or wife category category and pay Netflix and buy iPad. Next month you budget normally your Netflix and wife category, let's say with $100 each, You take the money and move it back into the category where you 'borrowed' the money from in the first place. Do it for as many month as needed to 'pay' for the item. Option here is to leave it in the category (Netflix or wife) for the next couple of month till  it has the value of the iPad purchase and then you move it over.  

    Bottom line is you can't spend money you didn't budget for. If you do you need a buffer category named 'stuff I bought which I didn't plan for'. That's OK if that's how you want to do things. 

    I ran in a similar situation last week. I went to the barber and they sold pre-paid haircuts for $12 instead of $15. So I bought 12 of them ($144). My typical haircut is $20 and comes out of my personal spending category. Luckily that's $200 and I was able to pay it out of that but I'm done for the month with fun money. I would not buy an iPad spontaneously. That's plannable. Your wife should have saved up her money. I know it's easier said than done. I'm married too. 😁   

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      • Gunner
      • Gunner
      • 3 wk ago
      • Reported - view

      Navy Blue Stallion This is kind of my point. When living with a buffer of 3-6 months I don't have to be quite so constrained to a single month's money. In your situation I would not want to spend my entire $200 for a month on haircuts, I'd want to amortize that expense.  As for the iPad, it was like half off for a brief period and we have plenty of money saved, it just comes out of her next month's spending money.   Not something I recommend to someone living paycheck to paycheck, of course, but that's the beauty of having done YNAB right for years, I live with more financial freedom now than I did before.  I just wish YNAB would not make it difficult.  It's not like my wife can't control her spending, she's more frugal than I am. We discussed it and made a decision that will save us hundreds of dollars.

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    • Gunner I personally don't think YNAB makes it difficult. The premises of YNAB is that you can only spend money you have. Not everybody like this approach. The consequence is that you HAVE to pull the money from another category. Just move money from there and move every month the budgeted money from your wife's spending in the category you borrowed it from to replenish it. 

      It's like with real envelopes: you have an envelope with $3,000 for car repairs. Take $300 from that envelope and write "-$300 for iPad" on it. As you get new money every month pay back the loan in the car repair envelope.

      Like 2
  • We also are one month ahead and have an emergency fund. As such we are not "stressed" from month to month. With that said, we dont allow categories to go negative. To go negative is basically saying "i am stealing this from somewhere but refuse to say who it was" lol. My mind cant work that way. We had this happen several times this year. Over summer we bought an outdoor theater setup for movies, a cow (with 4 other families) for extra meat for the family, and a couple others. For each of these we didnt have the funds right away. 

    So we chose where to take the funds from (ex my fun money for projector). I then made a second temp wish farm category with a goal of paying it back to spread that hit out. Several of those goals matured this month. When they hit their goal, we trans the money back to the lending category. This weeks logic straight for us. Who did we steal from, how it is being paid back, and nothing goes neg (aka every dollar has name in the 0based budget).

    Like 5
      • Gunner
      • Gunner
      • 3 wk ago
      • Reported - view

      RIP_MSMoney Interesting way to handle it. I can see how that fits the intended use of YNAB better, so that nothing is negative, debts are covered by another category, and you're still tracking how much each category owes back to that other category.

      I'm not really worried about "stealing but refusing to say who from" because the loan is always from the generic "savings" category we have toward whatever big expense we're saving for (or in this year's case, just additional emergency funds)  If I've got $10k in that category and my mad money is -$50... that's not really a problem for me.

      The problem is when we do cover the negative with savings, that effectively slows down our savings because we're going to forget we were negative in a category and keep going forward. Worse, if it says $0 and we go oh well we can go a little negative, and then we cover that with savings, we never can see how much money we've stolen from the other category. At that rate we could think we were on track with all our budgeting and actually be depleting the savings each month.  

      A big part of the issue is that I'm less interested in using the software exactly as designed and more interested in the software facilitating our actual ways of thinking about money so we can easily stay on track.  For me, small occasional negative amounts do this much better than always covering everything.

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    • Gunner You might consider offsetting your categories in which you commonly go negative. This lets you track the deficit in that category but keeps the actual balance positive so you don't have to fight YNAB's corrections.

      Take $100 out of the "Savings" category and put it into Mad Money. Rename the Mad Money to "Mad Money Even At $100"

      You budget as normal to "Mad Money Even At $100", say $70, taking the balance to $170. You then spend $110 ($40 more than you should), taking the category to $60 (that is $40 less than the offset).

      Next month, you budget the normal $70, taking the category to $130, meaning that less the offset, you have $30 to actually spend (reflecting you were already $40 in the hole).

      Like 1
  • When I run into situations like this, I try to imagine that I'm using real paper envelopes. Assuming I don't want to use a credit card and go in debt, a real paper envelope can never have a negative balance, I must always move money from some other envelope if I want to spend more than I have in an existing envelope. Down the road, I can replenish the amount I borrowed from another envelope, but the money has to come from another envelope.

    Like 3
  • I keep three categories to borrow from. I have a "fifth week" category for months with 5 grocery buys instead of four. I have a reimbursements category to cover spending that will be reimbursed.  And I have a "because I am here" category: if I drive all the way into town I want to get not just the urgent item I came for, but go to the hardware store, or the chemist and get what I know I will soon need, even when there is not enough budget for it; I wam from this category into groceries, household stuff or whatever and spend from there. Next month I top the category back up, usually from the category that needed the advance.

    So basically I have some. categories specifically to cover short term borrowing.

    Like 1
  • I do various "tricks" to deal with upfront (over)spending in categories, but they all involve keeping everything positive throughout the month.  I used to be a red-arrow girl, but I saw the light pretty quickly when it went away in nYNAB. 

    Generally, I use annual spending goals for variable expenses.  If it's early in the cycle, or I just go over, the amount to budget is reduced in the next month, so that in a sense reflects having "borrowed" from the amount available.  I do, however, cover that overspending from another category in the current month, which is usually a Holding category which is money left over from last month's income after I've met all my current month's budgeting goals.  If you have a nice cushion, you should be able to come up with a smallish reserve category like that without tempting yourself to pull from a longer term category plan.

    Another interesting example is how I changed a spending goal for my required vitamins & supplements.  I'm usually able to keep it around $600-$700 a year with various subscription discounts and whatnot.  But a couple months ago I decided to buy a year's worth of a very pricey CoQ-10 thing, which I wasn't entirely sure would be worth it, but after researching I wanted to give it a shot with the huge discount offered.  This was going to waaay throw off my regular annual spending budget, but it has a 5 monthly installment plan.  The total for the bottle was $190 (🤯), so I I added that amount to my yearly spending goal, retroactive to the month I started it (it's an Aug-Jul spending cycle).  I adjusted my budgeted amounts to the goal amount going forward.  I did not want that one pricey purchase to throw off the budget for the absolutely required supplement spending I normally plan and budget for.  In making that goal adjustment the category has not gone negative since last August with consistent spending, but it surely would have if I didn't adjust it.

    But again, I never leave a negative amount.  If I absolutely MUST take some kind of one-off amount from a category and am insistent that I make up for it somehow, I write myself a note in the category.  If you still choose to do the negative thing, that's up to you, but you're wise enough to know that's just not what YNAB and its associated "reality" wants you to do.

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  • I never do the owing money to a category thing. My budget is not that tight. Of course I've had many years of YNABing to get to this point.

    Like 1
      • Katejo
      • katejo
      • 2 wk ago
      • 1
      • Reported - view

      Superbone Neither do I. If I get a slightly unplanned expenditure, I immediately transfer money from another category which is currently not in heavy use. I then top that category back up again slightly later. I have also had several years of Ynab to reach this point.

      Like 1
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 2 wk ago
      • Reported - view

      Katejo I have a category I call my Freedom Fund. It's bigger than all the rest now by far. It has no defined purpose other than to continue to grow and give me...freedom. I just move funds from there. It's up to me not to abuse it. As long as it continues to grow, year after year, I'm happy.

      One goal I do have is to grow it larger than my remaining mortgage and then reevaluate whether or not to pay off my mortgage. I think I'll probably have a hard time pulling the trigger on that being as it's under 3%. I'll more likely keep the funds in the stock market and continue to grow them. Especially, since this is not my forever home.

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      • Katejo
      • katejo
      • 2 wk ago
      • Reported - view

      Superbone  I am very close to paying off my mortgage. It will happen in 2021. I have been doing overpayments since 2009 when UK interest rates dropped significantly. Calling a category 'freedom fund' might be a good idea. I tend to label my categories for specific projects. This year I have had a new bathroom installed so now I am building my savings up again.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 2 wk ago
      • Reported - view

      Katejo Everything else does have specific categories. Everything else you can think of is covered. This is the cherry on top. And congrats on the mortgage payoff!

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