Budgeting Living Off an LOC as a Student
I am about to go back to school, which I am going to have to (unfortunately) fund through a large line of credit. My question is how I budget during the next four years. In an ideal world, I would like to take the minimum amount of money out of the LOC every month so that it does not start to accrue interest, but that is not really compatible with the YNAB cash in hand budgeting system.
One thing I've found really helpful with YNAB is taking away the guilt of spending money by allowing me to easily see that I have saved it up over time. Now I know that none of the money I will be using while at school will be actually real saved money, but here's a hypothetical:
I tell myself I can spend $2000 per month on all my needs, to maintain quality of life while I'm in school. I have $50 of eating out money allowed per month out of that $2000. I cut back on eating out and don't spend $25 of that, so that I can save up to go on vacation while still remaining within my $2000 goal. Previously I've done this with my income by moving that $25 from eating out to vacation at the start of the next month, and refilling my eating out category with my new income. However, in this case I will want my bank account to always be at $2000 or less so that I know I am accruing the minimum amount of interest, so if I don't spend that $25 no new money will come in to build on it, it will just be $25 less I have to take out next month.
My question is, how do I keep track of money I've saved by cutting back on expenses, so that I can treat myself later, when that money will not be cash in hand and so I can't assign it. It seems like the whole ethos of YNAB is to not use money you don't have and not make assumptions about money that is not physically in your bank account, but I'm going to have to do that until I'm out of school.
Please let me know if this makes sense, and if there is any way to accomplish this in YNAB!
I have never used a LOC so I could be off base here, but doesn't the money need put somewhere after you take it out? Or do you spend directly from the LOC? Assuming you put it somewhere, or it's possible to put somewhere, I'd include the LOC as a tracking account, and transfer money to the place you put it when you use it, like a reverse credit card payment.
Create "to spend monthly" goals that add up to $2k or less. Take out the amount underfunded (or $2k) as a transfer at the beginning of the month, assign the dollars, spend less than you assign, and continue as usual. At the end of the month, zero out your categories, go to the next month, and reassign these extra dollars (or use all "to spend" targets, but they don't reset until the first of the month [assuming this hasn't changed with the update] so you can't get an accurate look until then). Look at the underfunded. That's what you need to take out that month.
Would that work for you?
I love that you're budgeting the money you're borrowing - so often borrowing money can feel like a blank check. 😅If your question is specific to those two categories: eating out and vacation, you could:
- search All Accounts for all Eating Out transactions for a certain time period
- Check the selected total
- Compare that selected total to the larger amount of 50 * x months
- Withdraw the difference and budget to your vacation category when you're ready to spend that.
Does that do the trick?
Here is what I would do. The total amount of the LOC is available to you if you choose to. You don't, obviously but you could. To reflect that, I would add on budget an account with the total available from the LOC. Then budget it all to a "LOC money" category.
Now, every month, you transfer X from the LOC to your checking account so that your checking balance is $2000. But on the budget side, you then assign -2000 from the "LOC money" category to release it to Ready to Assign. Then you assign this money to your categories.
This way your example works the exact same way as what you used to do. The difference between the LOC on budget account and the "LOC money" category available is the amount of money you "saved" from previous months and is still in your LOC but has been given a job (e.g. vacation).