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.

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!

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.

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? 

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?

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.

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?

dakinemaui the village was put in quarantine.

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. 

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.

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.

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

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.

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. 

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.

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!

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.

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?    

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.

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.

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?  

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.

dakinemaui Thank you for this! I've tried YNAB over and over but never understood how to deal with our perpetual overdraft. No matter what I did there was never a clear picture of my actual finances or how to get out of the hole we have found ourselves in. Finally I feel like I have a way to start digging myself out. Going to try YNAB again!

dakinemaui thank you so much for providing this workaround! I had not realised that bank accounts could work in such different ways - I've had UK and German ones, which are very similar, so I didn't know that YNAB was designed around a totally different system. No wonder I came unstuck and struggled to work it out.

I'm trying to get clear in my mind what that cash account is doing: do you put your available overdraft as a positive balance there, then the negative balance in your checking, leaving you with the difference between them to budget? In that case, provided the o/d facility remains in place, you could just keep that account there forever, right? It is after all a (usually low-cost) facility you could raid if you really, really had to, although of course you would always try to build up actual cash reserves.

Meanwhile I had played around with a "line of credit" account and unfortunately, the CC logic that YNAB applies just doesn't work very well for how the actual bank account operates. I will email YNAB this as feedback for non-US customers.

Rebecca D. said:
leaving you with the difference between them to budget? In that case, provided the o/d facility remains in place, you could just keep that account there forever, right?

That's it exactly, and yes, the Overdraft (cash) account can stay there forever. Once your plan no longer requires overdraft dollars (i.e., the full amount of overdraft is sequestered in the Reserve category) -- and that's been the case for "a while" and you don't expect to use it in the future -- then you can remove it if you wish. Record a single transaction (categorized to the Reserve category) in that Overdraft account to zero out the account, close it, and then HIDE the Reserve category. 

(If you ever do need the OD later, just "unclose" the account, delete that transaction, and unhide the Reserve category.)

dakinemaui thank you, that's great. I've meanwhile set it up exactly that way, and suddenly YNAB makes more sense! Revelatory!

I got so excited about the sheer accuracy that I set up two tracking accounts for (existing) intra-family loans as well, so now everything is actually IN my budget and makes sense and reflects reality. I can manage much better and work on getting out of my debt, rather than only tracking spending and getting depressed.

I'm sure I owe you a beer / other beverage, PM me if you'd like to collect on that ;-)

dakinemaui  THANK YOU 

My friend wants me to help them get set up on YNAB, which I am soooooo excited for, but they're starting an overdraft and I didn't and I wasnt sure what to do

dakinemaui Hi, thanks for this post its super helpful. I'm from the UK so have very flexible OD. Which is great when money is tight but a nightmare to get out of. I have set up the cash accounts as you have described, budgeted for my upcoming payments & overspend to the end of January then placed all remaining OD into the OD reserve. When I look into February it's showing that I have £0 to budget but in the OD reserve its showing the balance left of my OD amount in the available column, I will need to use this for February before I get paid at the end of the month.....What do I do? Hope this makes sense, thanks in advance :)

Lulamay17 In general, when TBB (To Be Budgeted) is $0 and you need money in some category, then you must move funds from a lower priority green category. 

In this case, I suspect maintaining the OD reserve is less important than funding those items before you get paid again. Therefore, reallocate from the Reserve if there are no other categories from which you can take.

Have you found the Move Money Tool yet? Click on the Available amount to access it.

dakinemaui Thanks for this, makes sense now!

dakinemaui 
I have a couple of questions:
1) I'm in the US. When you say, "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." Can you point me to that approach?
2) I can enter a negative balance (I'm using unlinked). Does this mean I can use your approach?
3) Can you explain bullet point three a little more? Is this the total amount of the overdraft protection or the amount I owe on it currently?

Thanks!

Cadet Blue Battery 

It's not explicitly written up. At the time, I had envisioned three accounts: checking (positive balance), overdraft (negative balance), and the overdraft ceiling. Essentially, adding a positive checking account to the UK writeup. Record transfers and fees as needed.

At this point, however, I'm not sure you would want to use those OD funds on a regular basis, and therefore wouldn't want to budget those overdraft funds. I'd recommend you simply record the transfers in categorized as TBB and budget those funds to whatever category went overspent. Use another category to budget for repayment. You could have the overdraft protection account as a tracking account (use categorized transfers) or not even in YNAB at all (just look at the bank website for balance info).

More thoughts later...

Cadet Blue Battery Bullet point 3 is the Overdraft Reserve *category*. It's purpose is to segregate some of the overdraft money away from the rest of the plan/budget. It is up to you how much is in the category. If the category is full, you are clearly not planning to use any of that overdraft money for a future expense. The budget is the plan for your *future* spending.

The negative account, OTOH, is the amount of overdraft money that you've already used/spent.

For the US-style overdraft protection, you would have 3 accounts: checking (positive balance), overdraft protection (negative balance), and overdraft limit/ceiling (positive balance). The balances of the first two match your bank accounts, with transfers between them as they happen.

dakinemaui 

Thank you. That makes sense. I'm still very new at YNAB so I appreciate the help.

dakinemaui  The process outlined was very helpful when I assisted my parent in getting a budget set up. I now have hit a dead end and need some guidance. They have a chequing account (TD) where they have accumulated some funds and have been budgeting these funds to an over draft reserve category in the budget, When the time came they moved that money to the chequing account (Scotia)  which was in an over draft position. Both accounts are on-budget accounts as they both have regular transactions. My problem is this... if we record this payment as a transfer it wont be applied against the reserve budget category where the funds were accumulated. The cash just moves from one account to the other. If we record it as a payment against the reserve account it leaves TD fine but shows up in Scotia as income with no applicable category and cant be approved. Its not TBB. Its paying down debt and reducing the negative balance.

Im sure the answer is obvious but after 3 days of trying to figure it out I figured it was time to ask. Any suggestions?

Navy Blue Wizard Record the movement as a transfer.

I think the piece you may be missing is the money accumulated in the TD account is not synonymous with the Overdraft Reserve category. Money is fungible, and categories "live" anywhere you like (given sufficient account balance). Change your mind and it's instantly "moved".

The Reserve category segregates the overdraft money that's not part of the normal spending plan. Paying off the overdraft account -- getting a positive balance -- will happen well before the Reserve category is full.

With this system, the "effective debt" or "potential debt" is independent from the overdraft (negative account) balance. That negative account balance is the real-world debt. Much like an offset mortgage, you can think of "parking" some of your categories in the negative account -- raising it's balance (decreasing real-world debt) -- without changing the "effective debt".

You don't budget to decrease the real-world debt. That debt is self adjusting as you move funds into (or out of) that negative account.

You change the effective debt solely by budgeting to the Reserve category. When it matches the Overdraft Limit account balance, the effective debt is $0. If you've set up that Goal on the Reserve category, it will tell you how much you have to go until the effective debt is gone.

Navy Blue Wizard said:
Im sure the answer is obvious but after 3 days of trying to figure it out I figured it was time to ask.

Don't feel bad. With the right mindset, it is obvious, but without that viewpoint, it will seem absolutely bonkers! When it clicks, you'll wonder what all the fuss was about.  🙂

Incidentally, the fact the "effective debt" can be different from the "real-world" debt is exactly how older versions of YNAB handled debt. As you might imagine, a number of people got into trouble and couldn't make sense of things. I'm certain this was one of the prime motivations for the new credit handling in nYNAB. The new system works great for "normal" cases, but it's just not flexible enough for an overdraft scenario.

Hopefully, thinking about the "parking" aspect helps. Park categories in the negative account to reduce the real-world debt, while keeping separate track of the effective debt.

dakinemaui 

dakinemaui said:
Incidentally, the fact the "effective debt" can be different from the "real-world" debt is exactly how older versions of YNAB handled debt.

 It's the overdraft version of the credit card float.

dakinemaui OK, making sense now... so the Overdraft Reserve category has a goal that equals the Scotia overdraft amount and they (Parents) accumulate funds in that category.  Once the reserve amount equals the overdraft amount the effective debt is $0. Question > this account would now show a significant balance in it that would continually roll over each month. Is there a way to clear it or do you just hide it? Or have I missed something? 

Navy Blue Wizard If they have no longer have a need to plan/use with overdraft funds, a single transaction in the Overdraft Limit account categorized to the Reserve category will "spend" those funds, taking them out of the budget. 

dakinemaui Bingo! Thanks very much. Makes perfect sense now. 

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.

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. 

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. 

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?

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.

dakinemaui ah ha! Got it, thank you!