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.
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.
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).
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.
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?
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?
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.