Adjust Opening Balance of Check Account

When I started my budget I put "Available Balance" instead of my "Actual Balance"

 

I have an overdraft on this account and because I put the positive "Available Balance" YNAB does not know that I have an overdraft. I dont want to start all over again. How would I change the opening balance to be correct. I tried changing the balance on the account but it then says I am over budgeted. Hope someone can help because I would like to track and clear my overdraft.

Thanks

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  • If the amount was not correct you are overbugeted. You will have to correct the balance and figure out where to cut.  Youwill also need to put the overdraft fee in as an expense and figure out where to take it from. 

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  • Is this overdraft integrated into your main account that can go negative or is it a separate account that transfers funds to keep the main account positive?

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  • Hi Orange Battery !

    Here’s a short video walking through how to manage an overdraft in YNAB. Adjusting your Starting Balance to reflect the actual balance is the way to go.

    If your bank account is negative, you'll see that negative balance on the account in the sidebar, and you’ll have a red number at the top of the budget. There’s no money to budget. Not to worry, there’s a lot you can do. 🙂

    Get organized and lay out all your expenses by making sure there’s a category for each of them. Then, track your spending. You see exactly where your money is going, and that awareness will help you reign things in. 

    If you have 20 minutes to dig in deeper, I would recommend signing up for our Break the Paycheck to Paycheck Cycle workshop. You can learn all about how to increase the time between when you earn money and when you spend it and get to see the budget live in action!

    Helping new YNABers who are in overdraft is something we're actively working on, so please let us know if the resources were helpful, and if you have any follow-up questions. We can’t wait to help you as you turn things around!

    Reply Like
      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • 2
      • Reported - view

      Nicole at YNAB I'd say those resources aren't great because they don't discuss planning how to spend the overdraft cash or how to get out. (It's a foregone conclusion you're going to use overdraft money when your account is negative.) You're recommending a reactive approach, which is certainly of limited value and at odds with the entire premise of YNAB. In other words, I feel that having spending guidance from categories will cause me to spend less vs. the significantly less useful guidance of "overspend as little as possible".

      If you really are actively working on how best to help someone in this situation, I've written up a workflow that many have found invaluable that I'll post below. Feel free to incorporate it into a more proactive educational article.

      Reply Like 2
    • Hi dakinemaui ! Thank you for that write up and all the work you do to help users in the Support Forum. We do appreciate it!

      Our current documentation for Starting in Overdraft can be found here. It outlines the same steps mentioned in the video. I did forget the actual link to that Help Doc in my first response—so thanks for catching that!

      We recommend this method to hope that a user is able to work away from overdraft (and reduce spending where needed), instead of incorporating it. Offset accounts like you're describing are usually recommended by our team for Line of Credit accounts. We're working finalizing the documentation on that!

      I’ll make sure to send over your feedback & resources on handling overdraft, to see where we can make improvements!

      Reply Like
      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • Reported - view

      Nicole at YNAB In speaking to various overdraft users, many are often in continuous overdraft. Their account doesn't go positive, even after receiving their paycheck. Americans have turned to CC debt, but other countries have far better terms with their banks. (You no doubt have a general feeling how long it can take to clear CC debt -- overdraft is the exact same thing for these users.)

      Telling them they cannot budget for the next 2-4 years is unacceptable. I sincerely appreciate you forwarding things along.

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      • Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 8 mths ago
      • Reported - view

      dakinemaui Agree, been in the threads and if they can't budget for a year, then they are just tracking spending. Since it seems to be county specific, I'd recommend a county option when you register, then if you are in the UK or AUS, the software would work for you. It's like being in a big hole and needing help out, but the only way out is to add a little dirt at a time below your feed and stand on it. Eventually, you will get out, but how do you follow the 4 rules when your 1 yr+ behind the cycle? 

      Reply Like
      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • 1
      • Reported - view

      Ben K. Using the approach I outlined, you can absolutely follow all 4 rules. Make a plan, including non-monthly expenses, adjust the plan as new information arrives, and increase net worth over time. Rules 1-4, no sweat. (That's not by coincidence, BTW. It was the lack of support for the Rules inherent in the YNAB-recommended approach that lead to the development of the workaround in the first place!)

      Look, one view holds the OD is debt, which of course it absolutely is, but that's not the only way to look at things. Another view is that you have a money plan comprised of £X (or euros or whatever), and you're periodically hit with a "maintenance fee" on your account -- a.k.a., interest on the overdraft.

      The fact that part (or even all) of £X is not in your account is quite immaterial to the mechanics of using YNAB. I mean, the bank goes out of its way to make spending with OD funds identical to spending with your own cash. Why would you want YNAB to not work the same way?

      Reply Like 1
  • YNAB's most current advice (which was ironically not actually given above) is to use a credit card account type to represent your checking account with overdraft capability. The problem with that (or the approach in the video linked above) is you cannot budget because you have no cash. Every transaction will result in overspending, with the goal being "overspend less" as time progresses. IMHO, you might as well use Mint if the budget section is going to be useless.

    Fortunately, you can work around this limited viewpoint. Since you're obviously going to spend with overdraft/credit, it would be wise to budget those overdraft funds so you can have realistic spending guidance. This requires that you add an auxiliary account to represent those funds within the budget. I also assume a non-US style overdraft account whose balance can go negative. Users with a US-style "overdraft protection" account that transfers money in as needed to maintain a positive balance would need to use a slightly different approach.

    The setup:

    • Make a checking account starting with the correct (negative) balance. (This may already be in place.)
    • Make a cash account with your full overdraft limit as the starting balance; you won't interact with this account again.
    • Make an Overdraft Reserve category, and set a goal in the amount of the overdraft limit.

    Budget what you need in various categories (i.e., make a spending plan). Keep in mind that every dollar of that TBB you budget is planned debt increase, so don't go overboard!  Budget whatever is left (what you don't need) to the Overdraft Reserve category.

    As you go on with life, try to budget a little each month to the Overdraft Reserve category to gradually dig yourself out of debt/overdraft. Occasionally, you may need additional credit and would have to take money out of the reserve category, but generally, you're trying to grow it. You are making progress if the Overdraft Reserve category Available is larger than it was last month.

    Lastly, once this is in place, ALL your spending should be budgeted. If you happen to overspend, you MUST cover it by reallocating from another category (converting it into budgeted spending after the fact). Don't be sloppy and ignore it! (Reallocate from the Overdraft Reserve category as a last resort).

    In summary, the above linked video states, "One of the fundamental concepts in YNAB is that you should only budget what you actually have." As it turns out, overdraft users actually have an agreement with their bank that allows them to spend $X of cash that's outside of their main account. It only makes sense to incorporate this into the plan for your cash (a.k.a., the budget).

    Reply Like 9
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 8 mths ago
      • 4
      • Reported - view

      dakinemaui 

      Every time I read one of your posts for someone struggling to get out of Cdn- or UK-style overdraft (where the LOC and chequing account co-exist in the same account), I wish you'd been around when I was labouring to get out of my mess.  Really, really sound advice and workable methodology.

      Reply Like 4
      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • 4
      • Reported - view

      HappyDance Thanks for the kind words, but I can't take all the credit. It's merely a recasting of the old YNAB4 approach to overdraft, but updated to work around the constraints imposed by the new YNAB. It was also greatly influenced by discussions regarding CC float with WordTenor .  I am quite pleased, though, when I hear back from people who have said it's exactly what they needed to let them continue using YNAB. Takes a village, right?

      Reply Like 4
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • 4
      • Reported - view

      dakinemaui the village was put in quarantine.

      Reply Like 4
      • Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 8 mths ago
      • Reported - view

      dakinemaui thank you.  I understand now. I don't like it because it reports positive when you're really negative. But I didn't find a better way. 

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      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • 1
      • Reported - view
      Ben K. said:
      I don't like it because it reports positive when you're really negative

      Perhaps there is still a bit of misunderstanding. The chequing account balance is the same as that in the real world (typically negative). If you're talking about net worth, simply filter out that OD account.

      Reply Like 1
    • dakinemaui In Australia, and these type of 'overdrafts' are often referred to as Mortgage Equity Accounts or similar name. They are basically an Interest Only Mortgage that acts like a  checking account. The interest rate is generally just a bit above mortgage rates. Basically you are spending the difference between your mortgage  and the  value of your home. These accounts are usually never paid until the house is sold. 

      In fact many highly geared people have Interest Only (rather than Principal & Interest) mortgages. When house values fall, the **** hits the fan.

       Yes it is debt, but at mortgage rates (which are around 5%) and much less than Credit Card rates of 10 to 15% or even higher.

      In Oz, overdrafts on checking accounts effectively act in the same way.

      So it *is* money you can budget. But it creates debt you should be aiming to reduce. All perfectly within the sacred Four Rules. The fact that YNAB doesn't have an Account Type to support this is (we all agree) a deep flaw.

      Reply Like 1
    • dakinemaui  thanks for this work around.  We have just changed to an offset sort of account for part of our mortgage.  If my limit on the account is -1500 and have a balance of -5000 does the limit go in the cash account as a positive or negative amount?   Thanks

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

      Navy Blue Orca Positive balance so you can plan/budget with those funds. Done forget to gradually move money to that reserve category to remove them from your spending plans.

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    • dakinemaui I'm confused by your statement regarding overdraft account types. 

      ...I also assume a non-US style overdraft account whose balance can go negative. Users with a US-style "overdraftprotection" account that transfers money in as needed to maintain a positive balance would need to use aslightly different approach.....

      I currently bank with Wells Fargo and the overdraft protection is optional. I do not have overdraft protection turned on but even if I did, I assume an overdraft transfer would just be a normal transfer between accounts. The TBB is still overspent, but the checking account is not overdraft in that case because the user has spent money that was not accounted for by the budget and was actually more than he had available. 

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    • Slate Blue Pilot (2903ac015cdb) 

      Slate Blue Pilot (2903ac015cdb) said:
      I assume an overdraft transfer would just be a normal transfer between accounts

      Correct, that's how it works in the US.

      In most other countries, however, the checking account is allowed to go negative by some account. (There is no secondary overdraft account or transfers.) They also don't get hit with exorbitant fees and interest, so it's quite common. (Just as common as CC debt is in the US.)

      The workflow I outlined would require a slight adjustment to work with the US "overdraft protection" style system. Given the typical overdraft fees, though, it's probably better to increase CC debt instead.

      Reply Like
    • dakinemaui  thanks for your work arounds!  I love YNAB for what I consider its simplicity and efficiency so I understand that doing work arounds can be very complicated.  However, that said, I am following up on another post regarding a "paycheck parking" strategy to which you linked this post.    

      The basics involve parking all income in the HELOC, paying most bills using a credit card (to allow the “parked money” to keep the daily interest in the HELOC down), then paying off the credit card each month such as not to incur interest charges on the credit card.  Most HELOCs cannot be used as direct checking accounts so money must be transferred back to the working checking account to pay bills.  

       

      The problem I am encountering (I have not started using this strategy yet, I am still in the research phase) is that my understanding of basic budgeting makes tracking this strategy very difficult and cumbersome. 

       

      For example.  With  (You Need A Budget), an envelope system is employed such that as my income comes in, it is assigned to various categories so that it “has a job” as the developers describe it.  As I pay bills, each envelope is lowered or depleted so I am quickly able to see where I might have extra or where I might need to move money from one envelope to another. That's great for now. But if I "park" my income in the HELOC, I lose budgeting capability.   

       

      To employ the money parking strategy, I need to be able to
      1) track moving my income from my checking to my HELOC account

      2) track paying bills using the credit card (YNAB will not let me track my budget once the income has been moved to the HELOC because as you've noted above, there is no cash to give a "job")

      3) track paying bills that the credit card won’t cover (like my mortgage or car payments)

      4) track paying the credit card off each month using the HELOC funds

      5) keep all of this integrated so I have a system of checks and balances and reconciliation ability

       

      With YNAB, if I pay with a credit card out of a filled budget envelope, the software keeps track, moves that money out of the category (clothing for example) and into the credit card payments category so I’ll know to pay that amount on the credit card

       

      However, if I move all of my income to the HELOC account, that credit card/envelope functioning no longer works because the credit card is linked to the checking account where the budget categories are created. 

       

      If the HELOC were actually a checking account (there are actually products called All In One HELOC loans that handle this but they aren’t available in Texas where I live), then I would attach the credit card to that account and have a budget for that HELOC account and I don’t think there would be a problem. 

       

      But with separate accounts (one checking, one HELOC) that cannot share a budget (as it is), there are some major gaps in being able to efficiently track this system. 

      Would it be possible for you to address your workaround regarding the "overdraft" account, but use the terms for this "paycheck parking" strategy so we can see how it might actually be applied?    

       

      I know this is complicated but if it works, this could be very effective for a ton of people who are attempting to employ this strategy.  

       

      Thanks in advance!

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
      • 1
      • Reported - view

      Slate Gray Screwdiver It works the same way as the non-US stle overdraft, and the same way as offset accounts.

      That said, money parking is a risky strategy with a HELOC. Lines of credit can be closed, reduced or called at any time, particularly when you need the money most.

      Reply Like 1
    • nolesrule thanks, though as I noted below to another poster, I've read about the various risks and negative reviews and am still in the research process.   Let's just say that I have NOT done any of this yet and may not proceed with it but would like to know HOW it could work using YNAB.   I'd like to have a simulator, if you will, in place before I'd ever actually engage in real money use.  But this type of stuff is not my strong suit which is why I am asking for specific examples.  I need to be able to play with it first.  And I am finding this to be a bit like a complicated puzzle that I'd like to solve (albeit, with others' help!)  

      I'm not familiar with non-US style overdraft or what you called "offset accounts"  What does this look like from  US style perspective?    

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
      • 1
      • Reported - view

      Slate Gray Screwdiver Set it up as described here:

      https://support.youneedabudget.com/r/y7wfxg

      I would do more research. You have to keep a lot more money in the HELOC just to be able to offset the higher interest rate. A 100k balance in a regular mortgage at 4% would require a 80k balance at 5% for the interest to be the same... before you even start saving any money over a regular mortgage using paycheck parking.

      Reply Like 1
    • Slate Gray Screwdiver In the short term, substitute HELOC wherever you see "overdraft".

      Record transfers as they happen between checking and the HELOC accounts.

      You will have to arrange for money to be in the right place (account). (Anyone using YNAB in a multi account scenario must do this. It's not specific to parking.) See this article for more details: (substitute HELOC for "savings")

      https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/

      The Toolkit Extension adds a running balance. This is useful to see when a scheduled outflow in checking might necessitate a transfer from the HELOC.

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    • dakinemaui ok, starting to make more sense (I think).  In my case, would the HELOC account be set up in YNAB as a checking account (or savings account) with a positive balance or negative balance?  I tried setting it up as a "line of credit" (seemed appropriate at the time) but then it's treated like a credit card and money transferred ends up in the "credit card payments" section as a negative amount.   How do you add the Toolkit Extension?  

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    • Slate Gray Screwdiver Yes, the HELOC account is a checking account with a negative balance. The HELOC Reserve account is a cash account with a positive balance.

      Google YNAB Toolkit Extension, it's installed into your browser. Chrome and Firefox are supported.

      Reply Like
  • Thank you very much dakinemaui  and Nicole at YNAB  for the advice. I do not know if this would be the right place to comment on the issue, but what I would actually like to see YNAB doing as this is how I do understand the YNAB approach is the following:

    From the "Age your money" rule, it would be nice to have the possibility to add these European (or rather non-US ?) capabilities to checking accounts as an extension, e.g. interest compound frequency and rate and maximum granted overdraft. Then treat every €, ¥ or £ spent within these limits as that what it is – "future money," hence once I would tap my granted, my money's age would go negative. It would also be nice to have it automatically set an interest & fee category for this account as these can be computed long beforehand. The same should work with the interests on MMAs (or credit cards moonlighting as such).

    What I decided to do right now, is to just bear with the red mark on the TBB sign, as this is limited to just two accounts and easily trackable. If I feel this too uncomfortable, I will set this up as a separate LOC account and bear with the temporary overspending while my balance is positive (it usually is for 3 out of 4 weeks). I just prefer to have the history of the accounts as clean as possible.

    Reply Like 1
      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • Reported - view

      Cornflower Blue Commander No doubt that would be nice. Fingers crossed they will add such a capability to open it up to more people who need it.

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  • This is probably NOT the best way to do it, but I put my overdraft as a credit card that I'm actively making payments towards.  My checking account will be out of balance by the overdraft amount, but it's easier for me to keep track of with a calculator, and I know when the balance on the 'credit card' reaches 0, my checking account should match exactly again..  

     

    This is easier for me to deal with personally than with the negative balances.

     

    -James

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

      Gray Android If I understand what you've suggested correctly, a big drawback of that approach is that you cannot make a plan for any of those overdraft funds. 

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  • Slate Gray Screwdiver said:
    But with separate accounts (one checking, one HELOC) that cannot share a budget (as it is), there are some major gaps in being able to efficiently track this system. 

     Why can't they share a budget if they are both on budget accounts? dakinemaui explains up thread how to set up it up. Though again, pay attention to nolesrule 's comment about the risk of the bank abruptly close or lower your HELOC which I believe is not a risk in the non-US offset accounts that are the origins of this thread.

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    • jenmas thanks, I've read about the various risks and negative reviews and am still in the research process.   Let's just say that I have NOT done any of this yet and may not proceed with it but would like to know HOW it could work using YNAB.   I'd like to have a simulator, if you will, in place before I'd ever actually engage in real money use.  But this type of stuff is not my strong suit which is why I am asking for specific examples.  I need to be able to play with it first. 

      Reply Like
  • Thanks Orange Battery for raising this.

    And huge thank you to dakinemaui for helping out on this work-around.  I'm a YNAB4 migratee and have just made a fresh start.  Obviously, you used to be able to handle and overdraft in pre-YNAB debt, and that was great, but I struggled to work out how to do this in new YNAB.  Sadly, because I haven't kept up with my YNAB system, I'm not out of my overdraft yet. 

    With regards to paying the OD down (I'm UK-based), would you suggest wiping out the budget on the Overdraft line and deducting that balance from the Cash account (that you set up with the OD limit) at the end of each month? So I would budget £50, and then at the end of the month, I would reduce this to £0 and manually adjust my balance on the Cash Account by -£50.  My thinking is that this would slowly reduce the amount of "Available to Budget", and thus, pay off the Cash Account until you reach £0, and then you're budgeting with your own actual cash?

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    • Just looking at it, and tinkering with it, I'd actually create a payee called "Overdraft" and spend from the budget, taking the money from the Cash Account - that would reduce it appropriately and record a history.  Have I sussed it?

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      • dakinemaui
      • dakinemaui
      • 12 days ago
      • Reported - view

      Turquoise Song The idea is to budget your way toward using your own cash in the budget. No, you do not make transactions, just budget entries. The fact those OD funds are in the Reserve category means they are NOT in your regular categories.

      Once you are certain you don't need those funds, you can "spend" them to get them out of YNAB completely with a single transaction for the entire balance.

      Reply Like
    • dakinemaui ah ha! Got it, thank you! 

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