Should this account be on or off budget?
So we've been using YNAB for two months, and while our discipline could be improved I'm pretty happy with our progress so far - especially considering we started just as the holiday season was getting underway.
When I set up YNAB I put our main "savings" account in as a tracking account. Technically it's a stock brokerage account where money from past windfalls ended up. We transfer money into and out of it, in when I get a yearly bonus and our tax refund, out for things like unexpected repairs or Christmas.
I put it in as a tracking account because we don't think of it as a checking account, more like an emergency "don't touch this" fund. However, since we are transferring to/from it, I feel like maybe it should be in the budget.
The reason is that we have a number of items in the lower part of our budget for things like home/car repairs, the kid's birthdays, emergency fund, etc. We've got money flowing into these categories to build up balances, but in reality if a car blew up we'd use the money we already have in the stock account.
But I'm concerned that having that money in the budget is going to make us feel far more rich than we really are. For example, if I set a kid's birthday account to be $y by April of 2018, then we know we have to put $x per month in to get there. If Y is too high, X will be too high, and we'll know we're not being realistic. But if the stock account is in the budget, then Y will be there without the need for X, and there won't be any signal to ensure we're a. not spending too much, and b. not setting a precedent we can't maintain.
Anyone have a similar experience/advice?
I've had a small brokerage acount in the past (currently a $0 balance I'm afraid, but that's another story) I would leave it as a tracking account if the value shifts more than just a little bit with the market. It's just a pain to keep track of how much is in which category when the amount in the account changes without there being a real transaction.
My firstsuggestion is to come up with a solid idea of what the money in this brokerage actually for. It sounds like you don't want it to be used for birthday parties, great. That's a job it DOESN'T have. It sounds like it might be a back-up emergency fund. Good, that's a job it does have. Possibly it's also part of your car replacement strategy? Whatever it's jobs are, figure out what they are and how much of the account is earmarked for what job.
YNAB isn't good at keeping track of brokerage accounts though, because of the fluctuating values without corresponding transactions. This is where a spreadsheet comes in handy. It doesn't need to be anything fancy, just Category, # of Shares in that category, and a total at the bottom to make sure that your total shares matches the total shares in the account. This is easiest if everything is in the same stock/mutual fund (mine were) if not, you have more slicing and dicing to do. Possibly you can do it by percentages of the total account? I never messed with that, because I only had one mutual fund.
Come to think of it, if everything is in one mutual fund, you could create a separate budget for it where the "currency" is the number of shares, but you'd be limited to two decimal places, which may or may not be good enough for your calculations.
We have a taxable investment account, but don't touch it. It's for our long-term savings plan for a home down payment. By long-term I mean 10+ years before we plan on buying. When we have "extra" money after awhile, we toss money into this account. This account is off-budget for net worth tracking purposes.
Our emergency fund is in a regular savings account on-budget that I should switch to a high yield savings somewhere, but just haven't done it yet. The value of this account is 6+ months of living expenses. The emergency fund is for major job loss/illness/travel related to extreme family emergencies (we live thousands of miles from our families). It should not be tied into the stock market because God forbid the market tanks and we lose our emergency cushion.
Our "rainy day funds" are things like birthdays, Christmas, car maintenance, vet care for our two dogs, clothing funds, etc. Those aren't emergencies. Those are known expenses that come up in day to day life. Those categories "live" in our checking account. We don't look at our checking account balance, we watch our category balances to make spending decisions. Our checking account can fluctuate from $3000-$6000 at any given time. But that money has a purpose.
If I were you, I would take some of the money from your brokerage account and put it into a money market account or high-interest savings account. I would imagine your brokerage firm has such accounts available. That resolves two issues - the first is that you can continue to keep the brokerage account as a tracked account, since that would be very long term, but have a money market account that is a budget account for emergencies, short-term goals, etc. The second issue is that it is not financially savvy to take money periodically from a stock account - as Heather pointed out, stocks can go up and down at will. And unless you keep a large cash account handy, having to sell stock for ready money can cost you in capital gains taxes.
Here's another reason you shouldn't invest your emergency fund: the market may be on a meteoric rise -- woohoo! -- and it will cause you to cringe to sell a winning investment prematurely to deal with a small emergency.
Build up some savings and financial liquidity so that you don't ever have to throw a monkey wrench into your investment momentum.
IMO, the brokerage account should be a tracking account, and the emergency funds should be siphoned off and put into a dull, sure, savings vehicle on-budget. Or, do what I did, and make building up a new liquid emergency fund (one you don't invest) as a number one priority. If you can do that before the next emergency, you won't have to touch the invested funds. I didn't accept the general wisdom of YNABers on the forum about this topic, and I kept investing my emergency funds, and then I had an emergency.......... lesson learned. My advice: keep your emergency funds and short-term savings for planned purchases (less than a 5-year horizon) completely liquid. And then get used to having bank account balances with commas and a few zeros in them. 🙂