Impact of Future Budgeted Items on Current Balance

When you budget for something in the next month, why doesn't that lower your balance that's available in an account today? For example, I will owe rent at the beginning of next month before I'm paid again. So I put that in next months budget and then had to move some money from a savings account item to cover the rent. However, when I jump back to this month, that amount that I moved still shows as available in that savings account. 

 

Doesn't this make it easy for me to potentially overspend somewhere this month? Or do I also need to create a category like future rent somewhere and use that? 

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    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 3 yrs ago
    • 5
    • Best Answer
    • Reported - view

    Budgeting funds to a category does not show the funds as spent.  Only when they are actually spent, do they record as gone.  The funds are available for you to move around to any other category and eventually even spend on anything else.  How you avoid accidentally spending funds you need for something essential, like rent, is in using YNAB you learn to stop looking at your account balance for spending guidance, and you begin to rely on your categories in YNAB.  If I have zero in my spending money category, I can have $3,000 in my chequing account and still consider myself too broke to stop at the drive-thru. 😉 

    Like 5
      • jenmas
      • jenmas
      • 3 yrs ago
      • 6
      • Reported - view

      HappyDance Exactly! Between my various checking and savings accounts I have about 1 year's worth of take home pay. But I can't afford to buy 2 chairs from IKEA because right now I only have enough in my Furniture category to cover 70% of 1 (though on Wednesday night when I do my end of the month sweep of categories like fuel, groceries, and eating out on, I expect to have enough to buy them. but we'll see!).

      Like 6
    • jenmas quick tip: you can get much better return on that money by investing it, conservatively if you'd like to feel secure. Even in a conservative scenario you can get 2-3% return on your money after inflation. Right now you're losing money (assume inflation is 2% per year) by keeping that much cash in your checking account.

      In other words, you can totally afford those IKEA chairs. You only think you can't because you are keeping your money in a checking account.

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      • jenmas
      • jenmas
      • 3 yrs ago
      • 1
      • Reported - view

      Cyan Pegasus I think you are missing the point of an allocation budget. At the time I had not allocated funds to my furniture category therefore I could not afford to buy furniture because I had not prioritized the expenditure. If I had felt like it, I could have reallocated funds to the furniture category, but that's not what I chose to do with my money at that point in time.

      As far as investing my Income Replacement category, not gonna happen. What happens if the economy tanks causing my company to lay me off? I'll be stuck cashing out investments in a down market. Not for me. The people who suggest investing an emergency fund say just invest an extra 30% to cover you in a down market. Well at that point, I'm needlessly tying up thousands and thousands of dollars in an investment account that I could be spending on chairs. Don't get me wrong, in addition to maxing out my 401(k) and IRA, I send money to my taxable investments each and every month (including during 5 months of being unemployed in 2015/2016), but that's money that I categorize as Investments. Money can have only one job at a time.

      Like 1
    • jenmas Definitely not missing the point. Maybe this will help:

       

      About That Emergency Fund

      Beyond your monthly living expenses and discretionary money, the major portion of the cash reserves in your bank account should consist of your emergency fund. The money for that fund should come from the portion of your budget devoted to savings – whether it's from the 20% of 50/30/20 or from Ramsey's 10% to 15%.

      How much do you need? Everybody has a different opinion. Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000.

      Personal finance guru Suze Orman advises an eight-month emergency fund because that’s about how long it takes the average person to find a job. Other experts say three months, while some say none at all if you have little debt, already have a lot of money saved in liquid investments, and have quality insurance. 

      Should that fund really be in the bank? Some of those same experts will advise you to keep your five-figure emergency fund in an investment account with relatively safe allocations to earn more than the paltry interest you will receive in a savings account.

      The main issue is that the money be instantly accessible if you need it. (On the other side, remember that money in a bank account is FDIC insured.) For more advice, see Building an Emergency Fund.

      If you don’t have an emergency fund, you should probably create one before putting your financial goals/savings money toward retirement or other goals. Aim for building the fund to three months of expenses, then splitting your savings between a savings account and investments until you have six to eight months worth tucked away.

      After that, your savings should go into retirement and other goals – invested in something that earns more than a bank account.

       



      Read more: How Much Cash Should I Keep in the Bank? | Investopedia https://www.investopedia.com/articles/personal-finance/040915/how-much-cash-should-i-keep-bank.asp#ixzz5R8XPvNjF 
      Follow us: Investopedia on Facebook

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      • jenmas
      • jenmas
      • 3 yrs ago
      • 2
      • Reported - view

      Cyan Pegasus I'm good, thanks. I have a 6-8 month Income Replacement fund. It's distributed across savings accounts, checking accounts, and CDs. I have read the arguments for and against investing my Income Replacement fund and I am comfortable with my decision to keep it pretty liquid.

      Like 2
      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 3 yrs ago
      • 2
      • Reported - view

      Cyan Pegasus That copy/paste job seems to counter your own argument. Not sure where you think you can get a safe 2-3% above inflation return... risk-free being the key here. An emergency fund, or rather an income replacement fund,  is insurance, not an investment. Principal protection is the primary concern, not making money. Investments are for money you don't need in the next 10 or more years (maybe 5 years if you are aggressive, rather than moderate). You don't get to choose time-frame when you'll need to draw on Income Replacement money.

      I love when people get overconfident and blow off investment risk due to an overlong bull. It usually means a bear's around the corner, and the people who leveraged themselves are worse off.

      Like 2
    • nolesrule I wasn't going to respond to jenmas  because it's not my place to push people to places that are uncomfortable for them. Also it's clear my suggestion to diversify and protect against inflation is already something she/he does! I jumped the gun and made assumptions that I shouldn't have!

      Your comment, however, is just flat wrong. There is no such thing as risk free. A checking account has many points of failure: the bank, the currency, the FDIC, etc...

      If you are truly looking for an emergency fund (not just an unemployment fund), it's pretty basic advice to spread your risk around (multiple banks/institutions/currencies/physical commodities). You don't have to get nuts about it (thinking of preppers like Alex Jones), but five or six different banks/ETFs/commodities is about right for $100k. This is ESPECIALLY true if the rest of your money is tied up in a single managed retirement fund; I can think of many situations in which it could take months if not years to get back money stuck in a 403b managed by one organization.

      It is a myth that "investments" are riskier than holding cash. Poorly diversified investments are VASTLY riskier than cash, to be sure. But a combination of cash held in savings and money market accounts, and well diversified and highly liquid investments, is by far the best way to protect yourself in an emergency.

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 3 yrs ago
      • 2
      • Reported - view

      Cyan Pegasus Yes, you are right they aren't risk free, but US Treasuries and FDIC-insured accounts are as close as you will get to them, though they do not eliminate inflation risk (other than I bonds). But that's a minor one in the grand scheme of things.

      If bank, currency, FDIC, or anything backed by the full faith and credit of the United States fails, we have bigger problems that having money in other investments won't solve. That is exactly the doomsday scenario that preppers are talking about, so I'm not sure why you aren't a prepper. (By the way, you lose all semblance of credibility once you name-drop Alex Jones.)  ETFs (why ETFs specifically and not mutual funds?) , commodities won't do you a damn bit of good (they are supply and demand speculation at its finest). Neither will a safe of cash. At that point you're better off with a basement full of MREs and gold bullion. Even keeping wads of cash under the mattress won't help you.

      But let's get to more practical scenarios.  You can't properly manage an allocation budget when your budget is based on volatile account values. It's just not possible. Keep money liquid in cash and cash-like instruments that  you need so as to not be subject to volatility, allowing you to pay for what you need to pay for when you want to pay for it, regardless of income loss.

      Then invest the rest according to your overall asset allocation. Be conservative with the money you need and take risk with the money you don't need in a short timeframe. How soon people forget about 2008, where there was a confluence of unemployment, market crashes and home crashes.

      I'm in good shape. If I take my 6-figures in cash into account, particularly in a rising rate environment, my portfolio is a reasonably moderate 60/40. My taxable investment accounts make up 1/3 of the money not in retirement accounts (or HSA), and the taxable investment accounts are 10% of our overall cash and securities assets. I'm married with 2 kids that are about to have lifecycle events in the next couple of years, my wife drives a 13 year old car that will need to be replaced in the next year or two or three. We are homeowners in a 15 year old house that until recently still had all of the original appliances.  You can see from my signature that I love in a HCOL state. So there's a reason we have as much in cash as we do.

      My income replacement money is less than 1/3 of my entire cash position, because we have plans for all that cash. But I was also laid off in 2013 and 2015, because when the company you work for sucks at acquiring new business, the high earners are the first to go... and I'm a high earner because I'm good at what I do. but as a result, I do not consider my employment all that stable.

      But really, this website isn't for debating the pros and cons of investing your emergency fund. Rather it is a place where people are learning to budget and to make sure they have money to spend when they need to spend it and start establishing the emergency fund. The vast majority aren't in a position to even think about investing beyond an IRA and getting the company match in their workplace retirement accounts.

      But even an extra 3% on most people's entire cash position isn't going to be a game changer at the levels of cash that most people have.

      Like 2
  • Hi Cornflower Blue Wildebeest !

    Just to echo the comments above, in YNAB you shouldn't focus on your account balance when deciding what to spend, you should look at your category balances instead. :)

    When you have a moment, read our How To Create a Budget Template blog post or take a look at the Create a Budget Template Workshop. Both will teach you how to use scheduled transactions and goals to outline priorities and plan for those expenses! :)
     

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  • Hi All - thanks for your replies.

    I think I may not have been as clear as I initially thought in my question. I'm not looking at the balance in my savings account, I'm referencing the budget category that holds that amount. In other words, a bunch of stuff is budgeted in various categories and the remainder is in a "Rainy Day Fund" budget item. So, when I jump ahead by a month and budget for rent, which will be due before I'm paid again, I moved money from the "Rainy Day Fund" to cover this amount. But, when I come back to the present month, "Rainy Day Fund" hasn't been reduced by the amount I moved.

     

    So if RDF has $5K in it today, next month I budget for rent and move $1500 from RDF to cover that amount. In March, RDF shows as $3.5K, but in February it still shows as $5K. If I don't mentally account for the rent next month, I could potentially overspend the RDF because it's not accounting for the incoming bill.

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    • Cornflower Blue Wildebeest Evening, I see what you are saying but if you moved the funds from the category RDF to RENT, the balance for RDF would no longer be $5K but rather the $3.5K. It is a matter of moving the money between categories rather on the moble app or desktop, then on March first when rent is paid the money is spent, but before hand it is allocated to RENT. 

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      • Vibrant
      • No more counting dollars, we'll be counting stars
      • vibrant
      • 3 yrs ago
      • Reported - view

      Ruff16965 (05bd62cee897) I'm not following what you're saying. What Cornflower Blue Wildebeest is discussing is classic risk of stealing from the future. 
      Let's say today is 2/10 and in my budget I have $5k in RDF.
      I flip forward to March and move $1K from RDF to Rent. In March, RDF now says $4K.
      I flip back to February and RDF still says $5K. I am at risk of forgetting that future me has rebudgeted some of that $5K. If my car dies on 2/15 and I have to go buy a new one, there's nothing stopping me or warning me not to spend my entire $5K RDF on a new car. Come March 1 when I go to pay my rent, I could be in for a nasty surprise.

      Like
      • Vibrant
      • No more counting dollars, we'll be counting stars
      • vibrant
      • 3 yrs ago
      • 2
      • Reported - view

      Cornflower Blue Wildebeest The answer, within the software right now, is probably to move that $1500 from RDF to Rent TODAY and let it roll over to next month. Or put a Note in the RDF category.

      Like 2
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 3 yrs ago
      • 2
      • Reported - view

       Cornflower Blue Wildebeest

      I agree with Vibrant on this one. Your best practice is to work in the current month. I would move funds around in February even if it was to deal with a March expenditure. IMO, you gain nothing by making the adjustments in a future month, and you risk error due to it being camouflaged from your current month. I also kind of like that I was so prepared, I adjusted and took care of this before it was needed.

      Like 2
    • Vibrant  Ahh I see, then it all boils down to control, something that we all have to deal with. As my Grandmother used to say, "don't let the money burn a hole in your pocket."

      Although how my ex-girlfriend dealt with this in her Excel spreadsheet is she would put something for that $1K in the register at the first of February to actually lower the RDF by that amount, so unless you look at the bank balance it is out of sight out of mind.

      Like
  • The reason February would still show $5k and it wouldn’t show $3,500 until March is because you moved the money around in March. Not February. 

    If you want to budget that $1500 to your rent in march and have the RDF show the budget value of $3500 in February, this is How i would do it. 

    In February, release $1500 from the RDF category to your TO BE BUDGETED category by basically moving $1500 from RDF to TBB. Then the RDF category will show $3500 in February and you will have $1500 in your TBB. Move to March then budget that $1500 in TBB to your rent category. That should take care of what you wanted. February showing only $3500 left in RDF and March rent fully budgeted for. 

    Like 1
      • Ceeses
      • Ceeses
      • 3 yrs ago
      • Reported - view

      Jeff Reetz Or if you have already paid your rent for February, you can safely budget your March rent in February. I don't think you run the risk of using the rent money on anything else! :) Then in March, you budget for the April rent etc. I believe a lot of people do it that way if their rent is due early in the month.  This way you avoid the potential risk of stealing from the future.

      Like
  • Cornflower Blue Wildebeest Hi there! It's been a few days so I'm going to go ahead and mark your topic as answered, but don't hesitate to tag any of us if you still have questions about this area! :) 

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  • if you are here to sell access to investment, please leave.

    some of us are just thrilled we have YNAB to help us gain more discipline over our spending.

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