Savings Account vs Budgeting in The Future? Are they the same thing?

Hello,

I LOVE YNAB but I'm a little confused.

When I switched to YNAB I jumped right in and stopped budgeting paycheck to paycheck. I used what we had in our savings to budget for the current month. We still had money left over after that. So I went ahead and budgeted for the next 1.5 months as well.  But now I'm confused. I technically have nothing saved minus being ahead in our budget a few months and a few savings categories we'd already been saving for prior to YNAB.  Do I treat the fact that I've budgeted about $7500 into the future as our savings? That doesn't seem to be the YNAB way though.

So how do you also save money AND budget for the future? I guess I don't really get it yet. Every time a paycheck comes in, I budget it for future use. Yes, we have some things we are saving for and I've created categories for those things but we were also trying to build up our savings for about 3-6 months of expenses. So should I budget to the point where we are 3-6 months out then start saving on top of that money? 

I guess my main confusion is on how to save while also budget for the future and "age our money"?

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  • Everything in YNAB is savings. Every. Single. Category. A "savings account" is simply a higher interest rate.

    I find it best to budget no further than next month's area. Grow an Income Replacement category for additional financial cushion.

    Don't try to "age your money". It will naturally happen as you 1) budget ahead and 2) grow True Expense categories (e.g., Income Replacement, Auto Repair, Auto Insurance Deductible, etc.)

    Reply Like 5
      • Drew
      • imthetalent
      • 12 days ago
      • Reported - view

      dakinemaui 

      I'm not sure I'm any closer to getting it. Let's say I've budgeted for December already, which I have, what do I do with the 4 paychecks that come in the rest of this month? And how do I know I'm growing our net worth/savings if I'm just continually budgeting into the future? 

      Initially I just budgeted for the current month and saved the rest under a category titled "Our Simple Path to Wealth" but then the next month came and I had to budget from that savings account. So I actually had 5k less in that account than it appeared at the end of the month. I'm not sure if I'm making sense. I am just trying to wrap my head around how you budget months ahead while also saving money or is that actually how you save money by budgeting months ahead?

      Reply Like
      • dakinemaui
      • dakinemaui
      • 12 days ago
      • 1
      • Reported - view

      Drew White I don't budget months ahead now, because I have income arriving between now and then. Since Dec is full already, budget the checks you receive into an Income Replacement category, or wherever else it's needed.

      Do you have various True Expense categories in order? Things like Auto Deductible, Auto Maintenance, Christmas, Auto Insurance, Home Maintenance, etc.?

      As you get checks in Dec, budget them in Jan. Better yet, temporarily stash then in a holding category as they arrive, and then release and budget the entire monthly amount at once.

      Reply Like 1
  • Drew White said:
    how do I know I'm growing our net worth

    The Net Worth graph is a good place to start.

    Reply Like 2
    • WordTenor
    • Arranged the menu, the venue, the seating.
    • WordTenor
    • 12 days ago
    • 3
    • Reported - view
    Drew said:
    I had to budget from that savings account.

     This may seem pedantic but it’s not: accounts aren’t categories and vice versa. Be sure to use and understand the terms correctly because they will help you do what you need to do. You are referring to a category, not an account here.

    Yes, you should hold paychecks from November in a category. Rather than making it a general “Our Path to Wealth” category, it should be one that is only for holding the checks from this month for next month. You're right that if you commingle those funds with more general saving, you’ll have a category which is overstated by the amount of the next month funds. In December, you’ll remove those funds and budget them to the other categories, and again use that category to save December’s pay for January.

    Reply Like 3
  • You're getting great advice from some YNAB community experts here. But I really want to emphasize the last part of your question:

    Drew said:
    I guess my main confusion is on how to save while also budget for the future

    Can you elaborate on that? Most people would say that "budgeting for the future" is saving. Why do you feel that it's not?

    It's true that some future budgeting is for mundane expenses like next month's food or bills. Maybe you don't feel like those things deserve to be called "savings" -- maybe you think that term only applies to large & long-term stuff like "retirement" or "new car" or "emergency fund." Does that describe your feelings?

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      • Drew
      • imthetalent
      • 11 days ago
      • Reported - view

      bret So that's kind of what I'm trying to understand. I might not be explaining myself very well though. Pre-YNAB, we just had a savings account of around $7,500. We were working on building it up after getting out of debt. Our goal was to start building up our savings and then use it to buy rental properties and/or our own home someday. We aren't close to those goals yet. Since joining YNAB, most of that money is now budgeted into the future. We were previously budgeting paycheck to paycheck & auto saving money from each check into that account. But with the YNAB way you're trying to break the paycheck to paycheck cycle. So I went ahead and budgeted with the money already in our savings account instead of our paychecks and discovered we are about 1.5 months ahead.

      Where I'm confused now is when the paychecks come in each month. Do I use part of each check for savings still like I was doing before? Then budget into the future with what's left? If I do it this way, yes the money in the future is considered savings, I would agree, but it no longer fills the purpose we had intended for it when we first started. And my savings category for future rentals and a home purchase is MUCH lower b/c I've now budgeted most of that money into the future. Or am I just looking at it wrong and should I consider all the money budgeted into the future as our true savings amount for those things?

      I feel like I'm being really unclear even after all that. I'm going to try an example...

      Let's say we have November and December fully budgeted and that each month requires $5000 to fully fund all categories. All categories are covered for both months before we've even received our paychecks. Then our paychecks come in for November, totaling $6500.....what do we do with that money? Do we cover January's budget with it? Do you save it into various savings categories then put the rest to January's budget? And if you don't put it towards January's budget, then where do the funds for January come from? December's paychecks?

      At what point is budgeting in the future enough? I'm guessing that last question just depends on the person. I get the Income Replacement account but it seems like it's basically just a pass through account for your future budgets.

      Reply Like
  • Drew said:
    At what point is budgeting in the future enough

    When next month is funded with this months checks, IMHO. At that point you can budget on a cycle aligned with your expenses, not your income arrival times.

    Of course, a good financial cushion is sound advice, so grow an Income Replacement category (among other things like Auto Repair, Phone Replacement, etc.) Don't forget the Buy Property category as well.

    Reply Like 1
  • Drew said:
    I get the Income Replacement account but it seems like it's basically just a pass through account for your future budgets.

    Only in the event you lose your job. Hopefully you never have to touch this money once it's in the category.

    If you do lose your income, though, move a month's worth of money from the IR to TBB and fill out your budget as normal. Or more typically, try to stretch it by making do with somewhat less. You've effectively paid yourself that month, so make a detailed plan for that money just like it was a real paycheck.

    Reply Like 2
  • I think your budgeting ahead is confusing the issue. Assuming you haven't received any checks this month (Nov), delete any budget entries in Dec. Budget all this money into non-monthly categories in Nov. Normal monthly things like Mortgage, groceries, etc. should already have money. Make TBB $0.

    When a paycheck arrives, you have 2 options:

    * Switch over to Dec and budget it there in various categories. It won't be enough to fill the month.

    * Budget it to a holding category called, say, Next Month's Income or something equally as creative.

    Repeat that each time you get a check this month.

    At the end of the month, get ready for next month. If you used the holding category, delete the current month budget entry (moving the entire month's worth of money to TBB), switch to Dec., and budget for the *entire month*.

    If you've set things up with goals and scheduled transactions, this should only take a couple clicks to fill out the entire month with your nominal budget values. Take care of anything left in TBB (e.g., variable interest) and you're done.

    Well, done at least until you have to deal with adjusting the Dec plan as needs change. Reallocate between normal categories as needed. Try very hard NOT to steal any of the Next Month Income, as that's obviously needed in Jan.

    Reply Like 2
  • I started Ynab properly mid september and had exactly the same confusion! Budgeted into the future as well, using our income-loss- savings, and lost track of which direction we were going.

    The advice you got, I got as well and it helped me immensely. Together with advise on buffering. I put most of the income-loss money back in that category, only used some to partly fill my yearly true expenses categories up to where they would have been if I’d have been using YNAB for over a year. 

    Even thought I think it sounds a bit silly: I’m actually looking forward to the end of the month to get some more practice in this routine. 

    Reply Like 1
  • YNAB used to have you work to get ahead one month. Then they removed the walls and said "budget into the future" with no real idea of when to stop. That's on you, I guess. Maybe two months feels good. Maybe 5. I'm content with one month.

    Right now, November was budgeted using October's paychecks, and November's paychecks are going into a category "Income for Next Month" when they come in.  At the end of the month I'll recategorize them "To Be Budgeted" and Budget November. I am perfectly comfortable with a one-month "future" cycle.

    That means every month I'm also setting money aside for savings goals and other expenses. So this month was a 3 paycheck month. That third paycheck was split into topping off my baby emergency fund, household maintenance, Christmas, medical deductible, a chunk to debt, and a tiny bit into a vacation fund. My savings goals all have definitions though - I know what the money is being saved for. Other than the baby emergency fund it's all defined.

    Reply Like 4
      • Moohouse
      • Software developer
      • Moohouse
      • 8 days ago
      • 5
      • Reported - view

      Tif_Ann I think you're doing the sensible thing. Actually budgeting in future months makes no sense at all to me, but funding next month with this month's income makes a lot of sense. Especially with multiple paychecks!

      The 4th rule is now called 'age your money', not 'budget into the future', for what it's worth. And the way of getting there is by not spending all the income as you go along, but storing some for the future. 🙂

      Reply Like 5
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