Storing "Savings" in a Line of Credit to save interest

I have a relatively large annual payment that I have set up in YNAB to help budget a little each month for. I have a goal set up and budget the target amount each month so that I'll have enough socked away when the time comes next September. That's easy enough. I also have a home equity line of credit (HELOC) account which carries a balance. I'd like to "store" these savings in that account to save that much interest throughout the year, and then withdraw from the HELOC when the time comes to pay the bill. However, I can't figure out how to get YNAB to understand that I'm "saving" for the bill goal since it sees the transfer to the HELOC as a "payment."
 

Let's say I save $250 per month for the bill, and normally would pay $150 each month on the HELOC. I'd like YNAB to understand that I've saved my $250 and keep up with my progress towards the goal, but when I go to pay $400 on the HELOC I have to move that money into the HELOC Payment category to not be over-spent, and then there's no progress towards my goal. 

Is there a tip or trick for this?

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  • Hi Ed !

    This is a bit tricky. The only way to have those funds stay in your budget and count towards your goal, is to include the HELOC in your budget. However, this would require budgeting the full account balance - so the portion of the HELOC that's sitting to save interest and the parts you're intending to take out at a later date. You can do this by creating an Offset account in your budget.

    It's talked a bit more in detail in this forum thread, if you'd like to see the feedback of other users, but there's also a Blog Post on that topic.

    Take a look there and let me know if you still have questions! :)

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    • Faness  The link for the Blog Post is broken.

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    • Slate Blue Wizard Sorry about that! I'm looking into where it might have gotten off to. In the meantime, Faness lays out how to set up an offset account in this thread.

      We're not financial advisors, but we're hesitant to recommend this method except in Australia and other places where it's an official product, because there's a non-trivial risk of having your HELOC called. (In other words, the bank tells you, "We're freezing this LOC at the current balance.")

      Budgeting money that you are probably able to borrow falls a bit outside the YNAB Method. I'm not arguing that the offset method doesn't have a higher expected return—it does—but that return comes with additional risk.

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  • Thanks  Faness, I'll look into those options. At first read, they seem a pretty clunky and cumbersome.  I do have my HELOC set up in my Budget as a Line of Credit type account.  It's even linked to the bank, so I can track all transactions to/from it. I can move funds back to Checking with just a few clicks on the bank's website, so it makes no sense for thousands of dollars to build up in Checking or Savings (at little to no positive interest), while thousands of dollars of debt sit on the HELOC with negative interest getting charged on them.

    A penny saved is a penny earned, after all. Put those dollars to work, even when they're just sitting there! 

    This seems like a useful concept to streamline in YNAB (since it saves on interest!). This could be done during Goal set-up - just specify which balance-carrying LOC account the user wants to "store" the savings in. Then when money is budgeted towards that goal category, it shows up in the budget line and also in the "Available" field of the LOC account. The "Available" field of the goal category would want to change to a different color to remind the user that they need to pull those funds from their LOC account before using them. 
    Adding information about interest rate to budget account set-ups would even let YNAB suggest the best place to put those savings when there are multiple LOC accounts, to save the most on interest (you could even give a rough estimate of the savings over the time-span of the Goal!). It would be up to the user to ultimately decide to do this or not, based on how easily they can pull funds back from the LOC when the goal is met and it's time to spend that money. 
    Heck, this could even apply to a credit card account that is carrying a balance. 

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      • QC
      • HaplessFinanceProfessional
      • Queenofcoin
      • 1 yr ago
      • 1
      • Reported - view

      Ed Although I don’t have a LOC account I think these features would be a great add on to YNAB. 

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  • There's actually a mortgage called Manulife One that is set up this way. Essentially you have all your money run through the One account and then you get the benefit of money waiting for its job reducing the interest on the overall account.  Its a dangerous game for people who don't track. We haven't done it because I don't trust ourselves yet.

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      • MXMOM
      • MXMOM
      • 1 yr ago
      • Reported - view

      MXMOM Also wanted to add, the danger is you are converting unsecured debt (credit cards etc) to secured debt (HELOC).

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