I finally (FINALLY) have a real buffer. Now... how do I safeguard it?
I've been using YNAB for years, from the spreadsheet days. A couple of times, we just edged into buffer territory, but both times we managed it, a small crisis or a bad day at the office knocked us back out again. Then more small things would chip away at the buffer and before I knew it we were back to paycheck-to-paycheck.
However, a job change, decent pay rise and a really nice bonus means we are solidly buffered, with room to spare, for the first time.
I get paid on the 20th of each month, so tomorrow morning we will have fully funded categories to the end of April, AND to the end of May AND to the end of June. My May pay check (20th of May) will fund our expenses in July.
I'm still worried though. For those of you who are buffered in this way, with one or two months of expenses budgeted out, how do you avoid, for want of a better word, money 'leakage'?
What do I need to consider that's different from the 'watch-it-like-a-hawk' approach that is necessary when you are budgeting month-to-month? I'm a very conscientious budgeter these days and the aggregation of lots of small gains got us to where we are now, but I'm also wary of the opposite effect - death of a thousand cuts as the new security we've gained causes a loss of focus.
How do you safeguard your buffered budget?
My wife and I have "allowance" accounts. The only card we carry daily is our own allowance debit card. When it's gone, it's gone until the next time it is allowed to be filled. We don't track it, we use it as "mad money" for things like Starbucks, lunches out (while at work), catalog buying, etc. If there is something we really want and it is more than our monthly allowance then we have a choice to make: do without or save until our allowance account has enough to get it. The main account everything is paid from - that card is in a secure place at home. It requires a conversation before anything "extra" is paid on that - including vacations.
We also use nYNAB so don't have a buffer account per se. We do have an Emergency Funds category. Right now we have maybe a weeks worth of money in there. (No income for 45+ days depleted everything we had.) So, in our debt snowball plan we added our EF as a "debt". We then prioritized it between the small debts (collections, line of credit, etc) and the big debts (car loans).
We also have a Money Market account that bears better interest than anything else we have available. Our extra cash goes there so it is not in the main budgeting account. It is a Tracking account but not a Budgeting account. When we get enough we make a transfer which drops the available in our EF category. It is still available but no longer shows in our budget. It is tracked as an "expense".
Just some ideas to think about.
There's a great TED Talk by Tim Ferriss (https://www.ted.com/talks/tim_ferriss_why_you_should_define_your_fears_instead_of_your_goals) where he talks about defining your biggest fears (i.e. losing your job, failing at a project, medical emergency, etc.) and then thinking through what you would actually do if that happened.
Similarly, you could try specifically defining what steps you will take, in what order, if you overspend. What categories would you draw from? How would you reduce expenses to balance?
You could also set up a mini-buffer within your budget, a category that exclusively exists to cover overspending. You fund it up to a certain amount, and only fund it further when you've taken money out.
I ran Into a similar problem with my success in budgeting. I have never had much in my checking account so when my balance reached an amount that seemed huge to me I would find things I "needed" that weren't budgeted. That was not good.
Today, I pull some out of my checking accounts monthly. I put some into a high yield savings account, mostly for my longer term goals, what I call my "annual expenses," "true expenses," and "long term goals." which I keep on budget. I also put some into a brokerage account, which I call my "safety net." I pull this money off budget and forget about it. After all it's invested and could be worth a million dollars tomorrow, or nothing.
The main thing is to spend according to your category balances. If you are putting something away for the future, your bank balance will continue to grow. It's up to you to find a way to be comfortable with this. Hope you find something that works for you. After all, you will retire someday and need lots of money for that. You will also need to replace things in your life, like your vehicle, computer or phone. You need money saved up to replace them without going into debt.
One of the best lines I read on the old forum was posted by @iJuggle in January, 2015.
You Know You're a YNABer when... and @iJuggle wrote:
you have $12,000 in the bank and can't afford to hit the McDonald's drive-thru.
It cracked us up, and it touched on a foundational core of truth. You don't fudge your categories, you don't overspend, you don't borrow from next month's spending for frivolous spending. You hold yourself to the self-imposed limits of your categories and your monthly allotment. You just keep looking to your categories to tell you what you can spend in the moment, and sometimes that means driving past McDonald's even though there are thousands in your account. And when you do drive past McDonald's because you can't think of any other category worth sacrificing for fast food, that is how you will safeguard your buffer, one decision at a time.
I am not aware of any official YNAB guidance on how to deal with success. Here are a few things that I've settled into over the past decade of using YNAB Pro, YNAB 3, YNAB 4, and now nYNAB:
1. I don't think about spending from accounts, I think about spending from categories.
2. I put money into discretionary categories before I spend from those categories. I don't have a target date to fund the Vacation category; I just don't let myself go on a vacation that isn't pre-funded.
3. I realized almost a decade ago that it was straightforward to deal with categories that need more money, but it requires a bit more discipline to deal with categories that have more money than they need. So, every month when I do my monthly budget I salvage funds from categories that have more than they need. Then I allocate those funds to whatever nice-to-have categories are highest priority. When all the nice-to-have categories have enough, any excess funds get kicked out of the budget to the investment portfolio. While working, this was done by budgeting to categories like "Roth Contributions" or "Brokerage" then spending those categories by sending the funds to off-budget investment accounts. In retirement, the salvaged funds serve to reduce the draw I take from investment accounts to fund my budget.
4. I refuse to budget piecemeal as is official guidance for nYNAB. It would be less time efficient and, more to the point, it would mess up my monthly routine of salvaging excess funds. I use workarounds to put a month's worth of TBB into the correct month and create walled months in nYNAB, so if something happens during the month I can adjust the budget with no fear of stealing from the future.
5. My most important tactic to avoid stealing from the future is, I don't budget future months more than a day before the month starts. I can't tell how much money I will be able to salvage from Groceries or Dining next month till I've done all my spending in those categories this month, and it would be common for one or both of those categories to have an expenditure on the last day of the month. Because I don't know how much I need to allocate to monthly spending categories before the previous month is over, budgeting further ahead would just create re-work. It's not worth it.
Take all this for what it's worth. It works for me, but probably isn't a strategy for everyone. If you can use some parts of this but not others, just ignore the parts that don't work for you. One size does not fit all.
FWIW, my savings accounts are not on YNAB at all. I import my debit/checking, HELOC (because that's what I'm working furiously to pay down atm) and consumer credit card (some regular expenses are paid out of it) directly, and each month my "discretionary saving" (it's under True Expenses-- retirement, college funds for the kids, emergency fund) goes out and I don't touch it. Anything that's left goes to pay off the HELOC. (We had an emergency fund, until we had two emergencies right next to each other in May. It's why I started YNAB, because we had been comfortable but suddenly we weren't and I want us to get back to comfortable.)
So while any "extra" goes to the HELOC, that's *after* I fund our long term savings goals and emergency savings account.