Not clear how YNAB is managing the positive balance in my CC
Hello folks! I'm doing some testing to understand how YNAB manages the positive CCs balances. I have read other topics around that explain how it works, but I'm still seeing a strange behavior based on the scenario I'm testing. Below the details:
1. For accounts, I'm considering 1 Credit Card Account (CC) and 1 Checking Account (CH). Both are unlinked accounts and both starts on December 15, 2020 with the following balances:
- CC = 0
- CH = 10,000
2. For Budget I'm considering 2 categories (explained below) + the "Credit Card Payments" Category:
- Incomes/01: This category will be used to represent the job assigned to every money that arrives to the To Be Budgeted (TBB) Category. In a real scenario I have many Income sub-categories for every monthly bill I have to pay like Incomes/Tuition, Incomes/House Rent, Incomes/Car Payment, etc. In other words, I distribute all the TBB money on every Income subcategories, until TBB is equal to 0. This is the mechanism I use to give every money a job
- Outcomes/01: This category will be used to categorize every expense transaction of my CC and/or CH accounts. In a real scenario I have many sub-categories under Outcomes for the majority of the expenses I have during a month, like: Eating Out, Gas, Shopping, including a sub-category that matches any Income sub-category of my monthly bills.
3. The way the money flows around my budget categories, based on my logic, is as follows:
- When a transaction is done in a CC or Checking account, it falls under any of the Outcomes subcategories. And those subcategories will often go negative, and is ok, because I have the money reserved for it under Incomes. Later I move money from an Income sub-category to and Outcome sub-category to zero it. For example, when the Tuition payment arrives to my CC, I categorized that transaction to the Outcomes/Tuition sub-category. And later I cover that spent with the money I budgeted in the Incomes/Tuition sub-category.
Based on the previous explanation, I built the following scenario to understands CCs positive balances:
- Starting balance in the CH account of $10,000 for December 15, 2020.
- Starting balance in the CC account of $0 for December 15, 2020.
- Move money from TBB to Incomes/01 Category
- Enter a transaction in CC for $3,500 for December 20, 2020 and categorized in Outcomes/01.
- Transfer $3,500 from CH to CC in December 21, 2020. The previous will cause a positive balance in my CC, will add $500 to TBB and CC Payment column will show an overspent of $3,500 for the CC.
- Cover the Outcomes/01 category spending with money from Incomes/01 category. And move the $500 from TBB to the CC
- So far, everything looks good. My CC account shows the $500 positive balance, the CC Payment column is $0 and the Outcomes/01 has been covered.
- Next is when I don't understand how YBAB manages the positive balances. Add a transaction to the CC with category Outcomes/01 for $100 in December 22, 2020.
- According to other topics I found, when a CC has a positive balance, like this case that we have +$500 in the CC account, it acts like a checking account. My understanding is that any new transaction that arrives will not move money or have an effect on the CC Payment column because it has a positive balance and it should be showing $0 to pay. But what is happening is that the CC Payment columns shows the a -$100, meaning that I'm overspending and I have to cover that money, which I already did when I moved the $500 from TBB to the CC. If I cover the $100 spending in Outcomes/01 by moving money from Incomes/01 the CC Payment column will be $0 again, but this means I budget extra $100 that should be taken from the $500 that I budgeted directly to the CC from the TBB
Hope my explanation was clear. I appreciate any guidance and advice on what is happening here to understand correctly the way YNAB handles this scenario.
In a real scenario I have many sub-categories under Outcomes for the majority of the expenses I have during a month, like: Eating Out, Gas, Shopping, including a sub-category that matches any Income sub-category of my monthly bills.
Why? Have you taken any of the classes on the YNAB method and how the YNAB software works? They're free.
I'm not seeing a reason or benefit to your structure/workflow. I just see extra work and categories that don't inform spending decisions.
but this means I budget extra $100 that should be taken from the $500 that I budgeted directly to the CC from the TBB
No, that "extra" $500 that appeared in TBB needed to go to the CC payment category because you randomly decided to pay more than you had budgeted for the payment. It's not actually extra. It has to fund the CC payment.
You're seeing two things: a positive card as well as an unbudgeted (that then became budgeted, so again, not extra) payment.
Enter a transaction in CC for $3,500 for December 20, 2020 and categorized in Outcomes/01.
Transfer $3,500 from CH to CC in December 21, 2020. The previous will cause a positive balance in my CC, will add $500 to TBB
Nope. The CC account balance is -$3500 after the Dec 20 transaction. The transfer on Dec 21 makes the CC account balance $0. Nothing is added to TBB.
My understanding is that any new transaction that arrives will not move money or have an effect on the CC Payment column because it has a positive balance and it should be showing $0 to pay.
Sure, if you had money budgeted to your outflow category, like YNAB is intended to be used.
However, you're seeing YNAB notice that you overspent a category with both cash and credit, which then prioritizes the cash overspending in that generic outflow representation. This leaves your CC category short, which puts your CC payment overspent again.
Fix the credit overspending in the generic representational category, and the rest will fix itself.
Again, this is not a positive credit card issue. This is an unbudgeted/overspent category with mixed cash and credit spending that converted the type.
This will fix all your problems:
1. Inflow money to TBB.
2. Budget it to functional categories (Rules 1&2).
3. Spend from those same categories, ensuring activity is supported by available amounts by looking at categories as/before you spend.
4. When the plan changes, move money to support the unplanned activity (Rule 3).
Automate using scheduled transactions/goals/INM workflow.
I would only use your workflow for wish farm items and medical next year category types (fund next year's now so it's full and useable then, use this year's for transactions).
Move Light Sound Life said:
this is not a positive credit card issue. This is an unbudgeted/overspent category with mixed cash and credit spending
^^ This ^^. Cash spending is prioritized when there's a mix within a given category, and the money's gotta come from somewhere.
To answer your question, a positive CC is not managed at all. It's effectively just another checking account holding some of your cash. Consider a CC with $0 balance and $0 Payment Available in the following. Some bottom line facts:
1. When you make ANY payment to a CC, the CC Payment category is decreased.
2. The total money in the budget ALWAYS matches cash on hand.
3. Since your cash on hand has NOT changed with the transfer (positive CC IS cash, right?), that decrease of the Payment category MUST be balanced by an increase somewhere. That somewhere is TBB.
In practice, the decrease of the Payment category is usually enough to take it negative, turning red. Nothing related to a positive account going on with that. You sent more than was available!
Generally speaking, though, red categories should be corrected IMMEDIATELY. Conveniently when the account ALSO goes positive, there are funds in TBB to do that.
After doing that, the budget looks the same as if you had transferred that money to another checking or savings account; i.e., NO change.
If you remember a positive CC is just another cash account, you should be able to make sense of everything.
The reason of why not to budget directly the expenses into the incomes is because. By budgeting directly all those expenses, I will not be able to create a report based on expenses because the report will show activity only on the Incomes/PersonX/Fortnight category and that will not tell me how much it was spent in Food, Health, Misc & Transportation.
Why not budget directly into the expenses, though? There's not a report available for your income expenses, because you said you're going through TBB. They're literally just a holding category.
I mean, unless you're exporting the budgeted column data and creating a report in Excel?
Reports in YNAB are only based on transactions, not budgeted dollars.
Or, maybe you're actually inflowing to the income categories, and not using TBB?