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!

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    • 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.

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    • 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!

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    • 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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      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 wk 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? 

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    • 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).

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 3 wk 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
    • 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 3
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 3 wk ago
      • 3
      • Reported - view

      dakinemaui the village was put in quarantine.

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      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 wk 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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    • 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.

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    • 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
  • 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.

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    • 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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