Prepaid or debit cards for accounts?
Hey guys, I'm just now diving into YNAB and getting smarter about my money/changing my habits. I've set a budget for 3 major categories: food, entertainment and transportation. I'd like to have separate accounts that I use for each of those so I can very easily track spending and see when I'm getting close to my budget. How do others do this? A separate checking account/debit card? Prepaid cards?
I feel like if I keep all the money for those 3 categories in 1 checking account then it makes it hard to track if I'm overspending on 1 category and won't have enough left for the others.
Would love to know how others handle this!
If you are using YNAB, the information is contained in your categories. If you have $300 in your checking account and you allocate $100 to food, $100 to transportation, and $100 to entertainment. Then you look at your category balance before you make any spending decision and you enter every transaction as you make it (direct importing is to double check your manual entry, not as a primary method of recording info in YNAB). If you see that only have $4 left in Transpo but you need $5 worth of gas to get to work for the rest of the week, you immediately reallocate $1 from some other category (this is not a "budget failure", this is re-prioritizing your funds). If you follow these steps, you will always know how much you have available for any given expenditure.
Using YNAB successfully requires that you actively interact with the details of your budget, keep the entry up to date either manually or by clearing the synced downloads, and that you can stop yourself from overspending when your category is out of funds.
I have personally used many different spending methods: cash in envelopes, budgeting by account, pre-paid gift cards for gas and groceries. Each method has its pros and cons, and I would be happy to go into more detail on my observances of the effectiveness of each.
What it will come down to, Purple Wildebeest (931c7bb4999b) is your spending style:
- Are you a fairly organized and disciplined person?
- Or are you more of a shoot-from-the-hip impulsive type?
I handle this by looking at my categories in YNAB. We actually consolidated our three checking accounts into one because tracking in YNAB is easiest. You can have separate accounts if that is your preference, but YNAB doesn't really care WHERE your money is -- it's all about the categories. I like to check my category before making a purchase so I know how much I can spend.
IMO, it doesn't matter AT ALL where the money lives with respect to spending. That is what the categories are for. You should be able to track the different category spending fairly easily. That said, in another way it DOES matter where your money lives if you need access to it immediately, and if you want it to grow. I am lucky to have a checking account that pays 2.5% interest up to $10,000 balance. So that's where most of my money lives... because it's 1) Available 2) insured 3) earning an advantageous rate. My monthly budget for food, entertainment and transportation is never more than $1200... and that's being generous, including my car insurance, future car registration goal category, etc.
In general, YNAB discourages using accounts as tracking mechanisms. The thinking is that it just creates confusion and silos your money, sometimes creating an artificial need for transfers. It's much simpler to keep the money in one account and use multiple categories.
One checking account would certainly make things simpler. Once you get in the habit of looking at your category balances before you spend it really isn't that daunting.
Here are two reasons why I would recommend using only one account:
1) If you need to adjust your budget, let's say you need to move $15 from transportation to food, do you want to make an account transfer every time that happens?
2) You only have one bank statement to reconcile at the end of the account cycle. Reconciling is pretty easy in YNAB but it is still two more accounts that you have to log in to and verify your ending balance.
I combined some accounts shortly after I started using YNAB and I have not regretted it for a minute.
I am one of the crazy holdouts who has multiple accounts, but for good reason, partly out of laziness. We get dividend checks 4 times a year and I fund out house payments for a year with one. The credit union that carries our mortgage closed the local branch and I didn't want to have to worry about it for a while, so I just dumped a bunch of money into the checking account we have at the same credit union. I have a local credit union (about a mile from my house) that houses our HSA. It's just easier. Our main bank does not have a branch in our town, but does in the next town over and the town our business is in, so DH drops his paychecks and the dividend checks into that bank. Then I have a Capital One, formerly ING, that I opened and currently houses my allowance money and our vacation money. Auto transfers happen. So yes more complicated than needed, but I don't trust myself, plus it happens automatically which is easiest for my sidetracked personality.