Should I transfer money that I'm saving into a savings account or can I let it accumulate in checking?
I'm saving to buy a car and I have a savings account but it's linked to my other checking account and acts as an overdraft account. I don't want to move the money I'm saving into there and have it disappear (I know, if I budget correctly it won't go anywhere but that's not the point of this question LOL). Can I let the money sit in the checking account and just have it as a budget item and it will accumulate month-to-month? Or do I have to move it out of there into another account so that it's not in the checking account appearing as money to be spent?
You can let it accumulate in any account of your choosing, and relying on your categories to make spending decisions is what ensures you don’t blow it on impulse spends.
The linked article helped me understand that there is a different way to thinking about accounts: the YNAB way. Reading the article more than once (until it all sunk in) helped me break out of budgeting by account.
I transfer to savings whenever my chequing account exceeds a certain formula:
- my average monthly spend +
- any big annual or irregular expenses due in the next 4 to 6 weeks +
Some account types offer better interest rates. Some require that you maintain a minimum balance. I distribute my money between accounts so that I can maximize interest and avoid penalties.
That stuff has no bearing on my budget. YNAB doesn't care how I've distributed my money across my accounts -- it treats all my money as if it were in one bucket.
I have a "New Car" category in my budget. I also have a "Home Improvements" category. I don't plan on buying a new car or doing any home improvements this month. The money I've assigned to those categories (and others like it) is deposited in a savings account where it can earn some interest. But I don't actively try to "synchronize" my savings account balance with those category balances. That'd be a lot of work and wouldn't provide much benefit.
Definatly budgeted to a category either way to indicate the purpose of that money no matter where it lives. My personal rule of thumb is if I plan on needing the funds within the next 6-12 or less I'll just keep it in my checking account, any longer and I'll move it to my high yield savings account i got at an online bank which has better interest than my checking does.
Mostly because moving the money takes several business days between the two banks so if it's short term I'll just keep it in checking and for less than a year the difference in interest is insignificant.
Whether the money is budgeted to a category like "Car Replacement" and whether it is moved to a savings account are two separate decisions. Putting money in a Car Replacement category is assigning it the job of sitting until it's time to replace a car (or until priorities change and it must be reallocated to a different category.) Putting the money in a savings account is typically done to get a better yield than checking, with the expectation that the money won't need to be spent immediately.
I have several long term categories in my budget, including Car Replacement and Home Improvements. I have various longer term savings vehicles included in my budget, such as a savings account; T Bills; and series I savings bonds. At one time, I had a certificate of deposit; I don't right now because that didn't look as attractive as other things when the last one matured.
The thing is, my collection of savings vehicles does not tie to any particular budget category or selection of budget categories. That's okay. The point of the savings vehicles is to earn more on funds that are going to sit a while. The point of categories is to quantify money by purpose. Two different tracking structures, filling two different needs that are only tangentially related.
Technically, the answer to your question is no, you don't *have* to move the money to a savings account. The larger issue is, accounts and categories do different things with the same money, and you might *want* to move some of your budget money to a savings account regardless of the status of your Car Replacement category.