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?

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    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 1 yr ago
    • 5
    • Reported - view

    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 relationship between your categories and your accounts

    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 +
    • $1,000
    Like 5
    • HappyDance thanks for the article. That helps. I think my last question is, so let's say I budget $100 this month toward the car. Next month I want to budget another $200. Do I ever "spend" that money, or I just keep budgeting and ynab knows how much is earmarked for the car? Every month it's going to look like just $100, or am I looking at this wrong?

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    • Green Gazelle The money isn't spent until you enter/import a transaction on your account. It will accumulate until then. For example:

      On Feb 1 you budget $100 toward the category. Current category amount: $100

      On Mar 1 you budget another $200. Current amount: $300

      On Mar 15 you write a check for $50 and record it in that category. Current amount: $250

      On Apr 1 you budget $125 toward the category. Current amount: $375

       

      And so on...

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      • bret
      • bret
      • 1 yr ago
      • 3
      • Reported - view

      Green Gazelle 

      Any unspent dollars in a budget category will carryover into the next month.  I add a few hundred dollars to my "New Car" fund each month and the available balance on that category is in the tens-of-thousands right now.

      (And separate from that budgeting process, I periodically review my account balances and make sure that my primary checking account isn't "too fat" and move excess cash into high-interest yielding savings accounts.)  

      Like 3
    • bret thanks! :) I just went and entered a couple of sample amounts in this month and next month and it makes sense to me now. Appreciate your help. :)

      Like 1
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 1 yr ago
      • 1
      • Reported - view

      Green Gazelle

      The category balance will continue to build. That's the amount in the right column.

      I have been allocating a monthly $150 to my Next Car Purchase category every month for a couple of years now, ever since I finished paying off my last car loan (emphasis on last car loan as in never again).  The category balance continues to build. It is nearing $6,000.

      Like 1
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 1 yr ago
      • 4
      • Reported - view

      Green Gazelle 

      Green Gazelle said:
      I think my last question is, so let's say I budget $100 this month toward the car. Next month I want to budget another $200. Do I ever "spend" that money, or I just keep budgeting and ynab knows how much is earmarked for the car?

       You keep budgeting until you have enough for the car.  As an extreme example, in 2008 I realized my new (as of November 2007) car wouldn't last forever.  I made a plan to replace it in November 2017.  I don't need an expensive car, but there will be inflation.  I estimated I'd need to spend $18K by 2017 to get a new car, even though that looked like an awful lot for the kind of car I want in 2008.  So I planned to budget $150 per month, for 10 years, to accumulate $18,000.

      What happened:  I started out behind, not able to budget anything regularly to Car Replacement.  I threw money into that category as I found it until I caught up.  Eventually, I was able to budget $150 per month regularly to stay on track.

      In October 2017, my daughter's car died.  She had no funds to replace it, and she needed it to get to and from work.  I opened my mouth and said, "I could give you my car, but you don't drive a stick."  She said, "I'm willing to learn."  So I ended up replacing my 2007 car (which I thought had 2 or 3 years left in it) a month earlier than originally planned, and 2 to 3 years earlier than what I thought I'd need at the start of 2017.  I moved $150 from my Unexpected Expenses category to my Car Replacement category, and went car shopping with a hard limit on what I could spend.

      That turned out to make me a less bad negotiator than I would have otherwise been.  Five days after I made the decision, I had bought a new 2107 Honda Fit for a total of $17,975.50 including sales tax and dealer fees.  Of course, there wasn't enough in my checking account; so I just moved funds from savings to checking and wrote a check.  At the end of October 2017, my Car Replacement category had $24.50 in it, and I upped the monthly funding to $200 with the idea of spending $24K in October 2027.

      I would also note that the accumulation of money in the category is more important than the details of the program I used.  The car replacement budgeting/purchase happened across my use of YNAB Pro, YNAB 3, and YNAB 4.  I started using web-YNAB in January 2018, and the Car Replacement category simply rolled forward from what I had under YNAB 4.

      With luck, I might be able to make my current car last more than 10 years, and then have more than $24K to spend on the replacement.  But things happen.  Until a week before I replaced my last car, I thought I'd get 12 or 13 years out of it.  I actually got 9 years and 11 months; but it's performing quite nicely for my daughter now, and I'm happy with that.

      Like 4
    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 1 yr ago
    • Reported - view

    Patzer and nolesrule have both mentioned saving for their next car purchases in fairly recent posts, so I'm tagging them to ask how they treat the build up of funds in their budgets.  I move chunks of money intended for my next car into my tax free savings account into GICs.

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  • 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.

    Like 4
  • 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.

    Like 1
  • You can move it to any account you have in your budget. Just because a savings account is linked as overdraft protection should not be an issue as long as you are spending according to your categories. If you overdraft, it means you've spent the money.

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    • Patzer
    • Retired at age 60. Thank you, YNAB!
    • Patzer
    • 1 yr ago
    • 4
    • Reported - view

    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.

    Like 4
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