Newbie with credit card confusion

Folks, I've been using YNAB for just a couple of days. Getting the hang of it, slowly. The part I'm finding most confusing right now is how the credit card allocation goes. I've watched the 20 minute lesson on credit cards and read another tutorial, but something is still eluding me. So, I'm going to provide specific information about my account, and I'm really hoping someone here can help me parse it.

I have a credit card account on  which I pay off the statement balance every month. (Yes, I'm one of these floater people. A note about that at the end.*)

The last statement was for the amount $1649.97, which I just paid yesterday and recorded in YNAB. 

The current balance on the card is -$1032.40, which is reconciled between YNAB and my actual credit card account.

But the Activity column in my budget shows a budget of -$1423.71.  I can't figure out where this is coming from.

I understand that every time I record a credit card transaction, money is taken out of the appropriate envelope -- e.g. Groceries -- and put into the line item for the credit card and that this is the Activity column. But how can the Activity column be more than the actual transactions currently on the card?

Also, I'm confused by the fact that I couldn't budget the amount that I actually paid on the card ($1649.97) which actually put me in the red -- but my bank balance isn't in the red, so why is the budget not reflecting what I actually paid and what's left over? Is that because I'm now essentially budgeting for the NEXT credit card payment? 

Thanks for any help on this.

--

*Incidentally, is it really a good idea to get out of the float by budgeting everything else and paying off the credit card over an extended period? On the rare occasions when I haven't paid off my statement balance, the interest starts rolling in like crazy and it's hard to catch up. Why isn't it a better idea to gradually allocate a bit more than the statement total to the credit card payment? That way there's no interest and you're still paying off the card.

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  • Click on the Activity value and a list of everything contributing to that value will be shown. Purchases will be positive activity to balance the negative activity in the spending category. The amount of cash you hold hasn't changed, so the net effect on the budget must be $0. Since spending is positive activity, payments must be negative activity. The fact the total activity is negative means you made a payment larger than the sum of your expenses.

    The Activity is not "more" than the actual transactions on the card. It's less -- by the amount of any payment at the very least, not to mention it's only this month's purchases. Activity and account balance have the opposite polarity on the sign of the number.

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    • dakinemaui Sorry, but I don't really understand much of what you are saying there. Could you rephrase it somehow? When I click on the Activity value it does display a drop down list, but the list scrolls off the bottom of my screen (wondering if that's a display bug) so I can't see the detail very well. I can see the summary, which says that I have

      -$433.04 in spending      +$226.26 in budgeted spending,

      +$4.36 in returns,              -$1649.97 in Payments and Returns (that seems poorly named, since actual returns are listed elsewhere and this just lists the payment).

      This doesn't clarify much for me. Why is there more in spending than in budgeted spending? I thought that YNAB automatically budgets for credit card spending by deducting money out of the appropriate spending categories? And how does the -$433.04 spent relate to the actual credit card balance or the amount in the Activity field?

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
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      • Reported - view

      Green Nomad Certainly that dialog could be better labeled/explained. 

      The left column in that Activity detail is strictly based on the transaction amounts without regard to the budget or categories. The right column is how those transactions impact the budget categories, and the sum of those two rows (right column) will equal the Activity column of the Payment category.

      Also, the "polarity" of the signs is opposite between the two columns; a $10 purchase against a category with at least $10 available (i.e., a budgeted purchase) shows up on the left as -10 and on the right as +10. Again, the left is updating the account balance (which is supposed to be negative) and the right is updating the category balance (which is supposed to be positive).

      The fact Spending is a larger magnitude than Budgeted Spending indicates that some purchases were not budgeted. There should be one or more categories with yellow/orange Available amounts signifying credit-based overspending. You're correct that YNAB will automatically move money for budgeted purchases, but if there wasn't enough money in a category to support the expense, YNAB can't move enough money to the Payment category to pay off that expense later.

      The -433.04 is the total of outflow transactions in the account this month. The sum of the two left column rows is the change in the account balance. It is a little odd that your payment doesn't seem to be showing on the left. You might check that your payment is recorded as a transfer and any return is categorized against the original spending category. It might be a side effect of the starting balance transaction (which should be categorized as Inflow:To Be Budgeted (in spite of the fact it's in the outflow column) if that was in this month.

      The -433.04 has no direct bearing on the Activity value, because Activity is the net change in the category balance.

      Reply Like 2
    • dakinemaui 

      It is a little odd that your payment doesn't seem to be showing on the left. You might check that your payment is recorded as a transfer and any return is categorized against the original spending category. It might be a side effect of the starting balance transaction (which should be categorized as Inflow:To Be Budgeted (in spite of the fact it's in the outflow column) if that was in this month.

      My payment is entered as a "Payment: [Name of checking account]" with no category -- YNAB said I didn't need one and grayed that field out. And it's an inflow on the credit card side (an outflow on the checking account side).  I think the fact that the payment isn't showing up in the balances is a factor in creating confusion for me.

      One of the other things I don't understand about this situation is, for the money that's budgeted: if the credit card expenses are being transferred from other categories that have been budgeted for, why would I need to add a separate budget to the credit card line item?

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  • Green Nomad said:
    Also, I'm confused by the fact that I couldn't budget the amount that I actually paid on the card ($1649.97) which actually put me in the red -- but my bank balance isn't in the red, so why is the budget not reflecting what I actually paid and what's left over?

     What do you mean by "put me in the red"? If you mean the TBB is red, that means that you have assigned jobs to more dollars than you actually have. To simplify, say you have $500 and you plan to use that for Groceries, so you budget $500 to groceries, leaving TBB at $0. Then you want to plan to put $200 toward a CC payment (or electric or whatever), so you budget $200 to that category. TBB now shows red -$200 because you can't plan to spend $200 on the CC payment AND $500 on Groceries. You only have $500 total.

    This will frequently happen (so much so that they made a Rule about it, #3), and you need to decide which is less important and change the plan (budget) to lower the amount available to that category.

    Double-booking yourself is just as bad of an idea in finances as it is in social endeavors. Your spending plan is feasible only when there is no red showing (in TBB or categories).

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  • Green Nomad said:
    That way there's no interest and you're still paying off the card.

     Personally, I think not paying interest is the smarter approach. Three important facts to understand:

    1. YNAB will increase the payment category to cover budgeted purchases. (They should ALL be budgeted.)

    2. Anything that you budget to the CC Payment category reduces the float / debt reduction. That is the ONLY way off the float.

    3. You are done when the CC Payment category matches the entire account balance (as a positive number). That's the definition of "paid-in-full" status, because you obviously could then pay the account "in full" if you wanted to. (Usually PIF users only pay what's been billed, i.e., the statement balance, and earn interest on the remainder, but some pay the entire account to $0.)

    By definition, you cannot afford to pay the statement balance upon receipt because your payment category is lower than the account balance. (The statement balance is the account balance on the closing date.) However, you'll have almost 4 weeks of budgeted purchases before the due date -- which will hopefully sufficiently raise the CC Payment category to enable you to pay the statement balance and avoid interest. Thus, continued use of the card (budget purchases) is critical to riding the float.

    When trying to float more than your spending patterns support (or if spending drops off for some reason), you may not get the Payment category high enough by the due date. If you want to avoid interest, you must move funds from elsewhere to make up the difference. On the plus side, doing so is progress toward getting off the float. Failure to increase the Available amount and still paying the statement balance results in a red/overspent payment category -- signaling funds are double-booked (see my earlier post).

    In very extreme cases, people will use income that arrives after making the payment to clear that overspending. This is a bit delusional, and they would be wise to acknowledge that planning to use that money elsewhere (in other categories) is silly when they know they always send it to the CC company.

    Reply Like 1
  • Because you had a balance due on your card when you started using YNAB, you needed to budget for that payment. You do that by budgeting to the credit card line to reserve money to pay the card. You need to cover that overspending now by removing money from other categories....

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  • Let me try to give a much simpler example, using my other credit card account -- a store credit card on which I make only occasional purchases.

    The opening balance for this card (earlier this month) was $74.67.(entered under outflow).

    I made one purchase of supplements for $4.16.

    Then I paid the credit card statement balance, which was the same as the opening balance -- $74.64.

    These are all the transactions currently on this card.

    I've allocated enough money in my supplements budget to cover the other supplements I bought with a different credit card, and also the one for $4.16 on this card.

    The line item for this card in my budget shows 0 for budget, -$70.51 for activity and -$70.51 in the available column (which is red).

    I don't understand why my activity is so much since my actual outstanding balance after my payment is only $4.16. When I look at the summary for the activity it shows that the -$70.51 activity is made up of +$4.16 budgeted expense and -$74.67 payment. So, the payment is driving me deeper into the hole with the credit card?

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      • monkeyhanger
      • No animals were harmed
      • monkeyhanger.1
      • 3 mths ago
      • 3
      • Reported - view

      Green Nomad Did you budget for the opening balance of $74.67 in the credit card payment category? YNAB doesn't know about transactions that make up the starting balance so you need to budget for those directly.

      There are 2 main reasons why you would need to budget directly to the credit card payment category:

      1. To cover the starting balance
      2. To pay down any balance being carried on the card. This could be some of the starting balance if you couldn't cover it all in step 1. Or it could be that you needed to float some money on the credit card at any point e.g. you have credit overspending that was not covered in the month it occurred.

      As someone said higher up the thread. The available balances for the credit card category work in the same way as the other categories. If your groceries available column has $200 in it, then you know you can spend $200 on groceries without affecting the rest of your budget. Similarly, the credit card payment category shows how much you have available to pay the credit card. If the available column is red, you have paid more to the credit card than you had allocated in your budget and you ideally need to move money from other categories. 

      Reply Like 3
      • WordTenor
      • Arranged the menu, the venue, the seating.
      • WordTenor
      • 3 mths ago
      • 3
      • Reported - view

      Green Nomad It might be helpful to understand that the payment category only bears passing resemblance to the card balance.  It doesn’t actually tell you anything about what you owe; it only tells you how much of your total money on hand is set aside for the purpose of paying your card, just like “groceries” tells you how much money is set aside for groceries. 

      While YNAB automatically adjusts this category when you do budgeted spending, just like any other category, it can end up having more money than you need or less money than you need for the purpose. And just like any other category, if you make a transaction which uses more money than you’ve set aside for the category, it will show that you’ve overspent. 

      In this specific case, as monkeyhanger explained, you failed to budget for the money you spent before starting YNAB. Here’s how that happened:  In your head, you planned to pay off the card. So you had mentally comitted some of your total money to “pay off store card when the bill is due.” But in the budget, you have to make this plan explicit. by budgeting money to the card. 

      The rest of the time, if you are spending budgeted money, the category will track with your account. But just like any other category, it’s your responsibility to check it before you “spend” (in this case, make a payment) and ensure there’s enough money there. 

      Reply Like 3
    • WordTenor So, the total balance on the card -- actual balance -- isn't shown anywhere in the budget, line items? I don't understand how that's useful since that's the part that ultimately has to get paid off.

      I've spent hours trying to work out the "algorhythm" here. I may not be the brightest person out there as far as finance and budget goes, but I'm not the dumbest, that's for sure. And I am also a former technical writer. I'm coming to the conclusion that part of the problem is the poor and confusing labeling.

      Do I have this right?

      Budgeted = money directly put aside  to pay the credit card

      Activity =  money transferred from other envelopes plus payments. Activity seems to be a misleading title for this, since it doesn't actually reflect the credit card activity, but simply the payments that have been made that reduce the amount for which we have to budget directly.

      Available = Budgeted - Activity. Useful to see how much more we need to budget for the card payment or how much money we can transfer out. But is it actually useful, because meanwhile we can owe $20,000 on the card and where is that reflected?

      Then, in the Activity Detail:

      Spending = the total money spent (this month or ever?)

      Returns = total money for returned items or other credits (this month or ever?)

      Total spending = Spending - Returns

      Budgeted Spending = bad label! It's neither the Budgeted column in the main line item for the credit card, nor the Spending column in this spreadsheet. It's actually only the money that was funded by automatic transfers from other envelopes (other expense categories) assuming those envelopes have a positive or zero balance after the transaction.

      Payments and Returns = bad label! Not really anything about returns at all. This reflects the payments made to the card.

      Total Activity = bad label! Not really total credit card activity at all, but just the money budgeted from other envelopes, minus the payments made on the card.

      Am I correct?

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 3 mths ago
      • 1
      • Reported - view

      Green Nomad 

      Green Nomad said:
      So, the total balance on the card -- actual balance -- isn't shown anywhere in the budget, line items?

       You have a list of accounts. The account balance of your credit card is the total balance. The line item in the budget tells you how much you can afford to pay, and there are reasons why it won't match up to the account balance. The two biggest reasons are that you didn't budget for your starting balance when you began using YNAB (you have to explicitly reserve this money since the balance is not the result of budgeted purchases) or you had overspending in a spending category in a previous month... YNAB will only transition budgeted money, so if you overspend without fixing it, only the budgeted portion of the spending will transition.

      And if a category is overspent with a mix of cash and spending and credit spending, it may be difficult to see why the amounts don't add up, because YNAB prioritizes covering the cash spending over covering the credit card spending.

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      • WordTenor
      • Arranged the menu, the venue, the seating.
      • WordTenor
      • 3 mths ago
      • 2
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      Green Nomad 

      Activity = money out, cancelled by money in. Just like every other category. 

      The detail is for this month. 

      Spending = spending. How much money you spent using the card. 

      Returns = returns or other money inflowed to the card. 

      Budgeted spending = exactly what it says on the can. How much of your spending was budgeted for in advance? 

      Payments and returns = payments and returns made this month. 

      The tl;dr here is that you’re sending more in payments than the budget says you can. Stop doing that. Even if you don’t totally understand why there’s not enough money there, you need to fix it before you make the payment.  For now, just trust us on that, and as you proceed, you’ll start to understand better how ghe numbers relate. 

      Reply Like 2
      • monkeyhanger
      • No animals were harmed
      • monkeyhanger.1
      • 3 mths ago
      • Reported - view

      Green Nomad Short answer, no. Longer answer, partly.

      The total balance on the card is shown in the accounts sidebar. It's always visible. You do need to manually compare the account balance to your available column to see how much debt you're carrying. In your example, you would see an account balance of $20k but an available balance of $1k and go, 'oh help!'.  

      Budgeted does equal the amount of money you have directly budgeted to pay the credit card. This is only for any debt from previous months (or your starting balance) that wasn't fully budgeted for.

      Activity literally is the activity on the credit card. If I click on it, I get the other headings you describe below plus a listing of all transactions to that card - spending, payments and returns.

      Available is how much you have available to pay the card. 

      In activity detail

      Spending 
       is the total amount spent on the card this month
      Returns  is any positive amounts (inflows) on the card this month other than the payment
      Budgeted spending is an accurate description. It's the portion of the spending that was budgeted for. This should be the same as the spending balance but if you've any credit overspending in any category it won't be.*
      Payments and Returns is the sum of payments and returns (i.e. inflows)

      Total activity  is the total activity on the card in the month and equals the Activity balance on the budget screen. If you go into the credit card account and filter the transactions for that month, the total balance will equal this number.

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    • WordTenor 

      Budgeted spending = exactly what it says on the can. How much of your spending was budgeted for in advance? 

      Well, no. I've experimented a bunch with this now. The number I enter in the Budgeted field in the credit card line item has NO impact on the Budgeted Spending category.

      Payments and returns = payments and returns made this month. 

      The returns are listed in the opposite column. The one that says Returns.

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • 1
      • Reported - view

      Green Nomad Your payment is not driving you deeper in the hole for debt. It is, however, reducing the amount available for your next payment (the Payment category balance).

      Reply Like 1
      • monkeyhanger
      • No animals were harmed
      • monkeyhanger.1
      • 3 mths ago
      • 1
      • Reported - view

      Green Nomad The number you enter into the budgeted field in the credit card payment category is not budgeted spending. This number refers to how much of the purchases on that credit card were budgeted for.

      I can't comment on the returns directly as I haven't had any. 

      Reply Like 1
      • monkeyhanger
      • No animals were harmed
      • monkeyhanger.1
      • 3 mths ago
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      • Reported - view

       ETA The rectify difference button on the inspector shows you the amount of debt you are planning to carry on the card ($19k in my example) so you don't have to do any manual calculations.

      Reply Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 3 mths ago
      • 2
      • Reported - view

      Green Nomad What monkeyhanger said. Budgeted spending is the spending you do from your spending categories that is covered by funds in your budget and purchased using the credit card. Only this budgeted money contributes to your CC Payment category  Spending Activity.

      If you have $20 in groceries, and you spend $15 of that via credit card, your groceries category will go down by $15, and the CC payment Activity (and Payment Available) will increase by $15.

      If you have $20 in groceries and you spend $25 of that via that card, your grocery category will go down by $25 (you'll now be overspent by $5) and the CC payment Activity (and Payment Available) will increase by $20, because you only had $20 in the category to begin with. You would fix this by budgeting $5 more to groceries OR budgeting $5 to your CC payment category.

      Reply Like 2
    • dakinemaui Ah, okay, that makes sense.

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      • Green Nomad
      • Green_Nomad.7
      • 3 mths ago
      • 1
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      dakinemaui I meant this makes sense:

      Your payment is not driving you deeper in the hole for debt. It is, however, reducing the amount available for your next payment (the Payment category balance).

      Reply Like 1
    • monkeyhanger 

      The number you enter into the budgeted field in the credit card payment category is not budgeted spending. This number refers to how much of the purchases on that credit card were budgeted for.

      Yes, I got that. But it took me a while to figure this out because the labeling is misleading.

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • 1
      • Reported - view
      monkeyhanger said:
      The rectify difference button on the inspector shows you the amount of debt you are planning to carry on the card ($19k in my example) so you don't have to do any manual calculations.

      I believe that button is a Toolkit Extension feature enabled by the "Paid-in-full CC Assist" setting.

      This incredibly useful information (the post-payment debt) used to be in the stock product's Inspector, but YNAB removed it, citing user confusion.

      Reply Like 1
  • I've been using YNAB for about four years now and it took me ages to wrap my head around the way credit card balances and payments work in the current YNAB product.  But trust me when I say you'll have a lightbulb moment at some point and it will all make sense! 

    Here's how I see it ...

    When you first set up your credit card account consider this to be... "Stuff that I bought in the past and did not budget for"... ('cos you racked up debt in credit card form 😉). 

    You could consider the whole opening balance on your credit card as a single item of "OLD STUFF".  Which you now need to budget for.  Retrospectively.

    As well budgeting for any NEW STUFF as you buy it (or before you buy it - no more of this retrospective budgeting stuff, OK?).  That's where the term Budgeted Spending comes in.

    So YNAB will automatically allocate the money you've budgeted for the NEW STUFF you've bought on the credit card as payment funds.  That makes sense, yeah?

    But what about that OLD STUFF you bought? If you're paying in full the entire opening balance of OLD STUFF, you need to budget for that entire opening balance amount. Only in this way will YNAB consider you've covered the cost of OLD STUFF and NEW STUFF.

    Then when you make a transfer from your savings account to your credit card account (the total of OLD STUFF and NEW STUFF - aka Available Payment amount) will you see the balance in your credit card as zero, and the Available Payment zero.

    Hope this helps!

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  • Green Nomad said:
    if the credit card expenses are being transferred from other categories that have been budgeted for, why would I need to add a separate budget to the credit card line item?

    Not all CC expenses are being transferred (as evidenced by a difference in the top two rows of the Activity detail). If you don't correct that this month, you would need to budget toward the CC category to allow for a larger payment later.

    The most common reason is to budget directly to the CC category is to reserve money to pay off the starting balance. None of those purchases moved money because they were made before starting to use YNAB.

    There are other situations where you would need to adjust the category as well: purchase reward credit and some approaches to reimbursement are the most common.

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  • Green Nomad said:
    So, the total balance on the card -- actual balance -- isn't shown anywhere in the budget, line items?

    Correct. The entire budget is the plan for all of your CASH. It has nothing to do with the CC account balance directly. Now, some of that cash may be earmarked to send to the CC (the contents of the CC Payment category), but the amount is up to you to arrange/verify. Exactly as with any category.

    YNAB will only arrange for money to be there for budgeted purchases. You have to explicitly arrange (budget for) funds to pay off the opening balance or past month overspending.

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