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.
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!
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.
- 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).
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.
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.
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.
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?