Savings Account vs Budgeting in The Future? Are they the same thing?
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"?
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.)
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.
You're getting great advice from some YNAB community experts here. But I really want to emphasize the last part of your question:
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?
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.
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.
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.
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.
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.
Adding my strategy in hopes that it helps you further!
My husband and I combined make about $2000 over what we budget for each month. So we end up “having to” (in quotes because it’s a good thing) deal with what you’re asking about every month!
here is our basic strategy, using two months as an example. (Keep in mind that we already have 6 months of essential spending in savings - an external account and a budget category of “income replacement”, we have $32k of student loan debt left and $20k of auto loan debt)
1. All November paychecks go towards budgeting for December up until we reach a fully budgeted December.
2. At that point we look at money as it comes in (in November) and decide what job we want those dollars to have. Usually some goes into a long term funding category that we need to build up (health expenses, pet expenses, home maintenance/improvement, auto maintenance), but the vast majority of the “extra” goes into a category we call “Kill that debt”.
3. At the end of November we spend the money in the “kill that debt” category by paying off that much in student loans (highest interest first).
4. We meet on Dec 1 with our calendar (and a shared dessert) and budget our January by using target balances.
5. money made in December goes towards budgeting January until all categories are filled.
6. repeat step 2.... etc.
Once the debt is paid off we plan on making step 2 the same, except having that extra money go towards a bigger savings goal (such as cash for a new car, our kids college funds, vacations, beefing up our Roth IRAs, etc.) If we end up losing a job and having to dip into our 6 months of savings then the extra money after that would go towards building that back up to 6 months.
I hope this helps!