Credit Card Tracking
Hi All - Brand new to YNAB and am confused on a matter. I am paid once monthly on the 1st of the month. I use a credit card and pay it off in full every month when the statement closes on the 8th. For example, my pay on August 1 of this year will go to pay off the credit card transactions that occurred mostly in July (July 9- August 8). Does YNAB account for this as I enter credit card transactions in June? Or will my checking account balance in YNAB run negative for most of the month until I get paid on the 1st? Thanks in advance for any help/advice.
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I'm new to YNAB too, and perplexed by how to use credit cards. Thanks for your question, and look forward to (hopefully!) some helpful advice/education.
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Start here: https://www.youneedabudget.com/how-to-do-credit-cards-in-ynab/
and here: https://www.youtube.com/watch?v=2Ix0Jibc0Lw
In short: as long as you budget for the balance on the card when you first added it to YNAB, budgeted spending is handled automatically by moving money from the spending category to the card payment category. You still need to check and make sure that you have enough money in your checking account to pay the bill, but YNAB will make it clear if you're spending money you haven't budgeted. As long as you follow the method, the money to pay the card will always be ready and waiting in one of your accounts.
However, you're on the credit card float: you're using future money to pay for past spending. That's not good, but you're going to get off the float! https://www.youneedabudget.com/are-you-riding-the-credit-card-float/
Do watch the video! It's half an hour, but I think you'll feel confident after watching it. YNAB also has a free online class on credit cards; you can sign up on their website.
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Let's say you started today, 6/23 with a balance of $500 on your credit card (no pending charges, everything is cleared). If you are able to budget $500 to your credit card payment category right now and still meet all of your other financial obligations between now and the next time you get paid, including any additional charges you put on your card in that period of time, you are a paid in full credit card user. If you can't pay charges that are on your card today until you paid at some point in the future, you are riding the credit card float. This is not the end of the world, many people do it their entire lives and never pay a penny in interest, but at the same time, you are one minor disaster away from accruing credit card debt.
Anyway, the true YNAB way is that every single purchase you make (regardless of whether you use cash, credit card, or debit/check) is backed by either cash or funds in a checking or savings account. And that at any moment in time you could pay your credit card balance down to 0 (not that you would but you could) and still have enough in your accounts to pay all your financial obligations between now and when you next get paid.
Where it gets confusing for people is during the set up period because you are allocating the funds from your To Be Budgeted for things that you need to buy in the future - rent, groceries, gas, car insurance, etc, but there is also the one time situation of having to account for purchases made in the past (existing credit card balances).
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When you pay for things with your credit card YNAB will take the money from the category you budgeted it to, and move it to your 'available to pay off my credit card' budget. So it will all match up.
As long as you aren't creating debt you don't actually have the money to pay, nothing will be negative.
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Master of Disaster said:
Or will my checking account balance in YNAB run negative for most of the month until I get paid on the 1st?An account should only be negative in YNAB if it is negative in the real world. Is your checking account balance actually negative right now?
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Thank you all for the replies. The float concept makes sense but not sure that applies - my situation is I have a large emergency fund that can easily cover the credit card bill right now (and at any time). I did not add that account in YNAB - I guess thinking I was creating a zero-based budget. To confirm, if I continue with using the credit card I'll need to add that account in YNAB to keep the money to be budgeted from going negative? And my goal here is not to get the money to be budgeted from getting to zero, necessarily?
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Master of Disaster In order to be off the float, you need to have enough money in your budget at all times dedicated to paying off your credit card bill in full. That money can't also be your emergency fund, because in an emergency, your credit card will still come due, and then you're taking on debt. The point of the emergency fund is to avoid having a personal emergency automatically become a financial disaster!
This gets to the heart of how YNAB works. Every dollar can be given only one job. A dollar can't be spent on both groceries and car repair. The YNAB method would tell you to do this: put your emergency fund on-budget. Why is that important? Because now you can make an eyes-open analysis. If you budget that money to pay your credit card, what happens? Do you have enough of an emergency fund left? If not, what's your plan?
"Zero-based budgeting" just refers to giving every dollar a job so that there are zero jobless dollars left. In YNAB, you never budget more or less money than you have, so your To Be Budgeted should always be zero—except when you just got paid and haven't made it all the way through budgeting those new dollars yet!
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mamster said:
"Zero-based budgeting" just refers to giving every dollar a job so that there are zero jobless dollars left.Absolutely. And the mistake people frequently think is that budgeting the money means you have to spend it. But that's not the case. In YNAB, you save money by budgeting it to a category and then not spending it. Then next month it's still in the category, where you can leave it, add more to it, spend it, or move it to a category with a higher priority.
So bring your savings account on budget. Use some of that money to budget away the float. Put the rest in your Emergency Fund category, and then decide if you need to replenish it. Because as mamster pointed out, your Emergency Fund can't both be an emergency fund and also be used to pay last month's credit card bill.
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nolesrule I know I was guilty of this too when I started out. Not necessarily paying last month's charges with this month's money, but definitely trying to give the dollars in my savings multiple jobs. It's eye-opening just how much cash you have to have on hand to do the jobs of sitting and waiting that need doing! After over 3.5 years, I'm still trying to catch up.
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Also a newbee - when I allocate my savings to budget categories it appears to subtract the budgeted amount from my net worth. It also then shows my account balance incorrectly (which may not be fixable given the YNAB way.) Obviously I’m doing something wrong....but can’t figure what?
A second question - since that particular account is only an emergency fund and I no real desire to allocate it to specific goals, wouldn’t I just be better off making it a tracking account? I’d agree it is a cash account and I’d be fine budgeting it (creating a Goal category of Emergency Fund) except for the issues described above.
Thank y’all - yes, I have watched the videos and read the docs btw but am a slow learner, I guess.
Again, Thanks!
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Aquamarine Transistor Money in your Accounts = Money in your budget. Allocating money to a category in your budget does not change your net worth. Only removing money from an account will do that.
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I think I also posted the last response in the wrong thread. Sorry!
