Credit Card Questions - But not the ones you think
Hi, I am brand new to YNAB and the whole concept makes sense to me, and is essentially what I used to do with my bank accounts. I had multiple checking accounts and multiple savings accounts. Every paycheck I would transfer $ to a checking account designated to pay monthly bills, a checking account designated to pay biannual bills, a savings account designated to pay annual bills, a savings account designated for goal oriented items, and an emergency fund account. So that's essentially what YNAB is all about, and I was pretty excited to see how aligned my mindset already is.
I understand the way credit works in YNAB, transaction reduces your category, increases your payment, now you know how much to pay. If you overspend, your CC payment won't increase until you cover the overspend in the category, got it.
I now have 2 options and would like everyone's opinions on what they do, and what they think would work best. My credit card is my primary payment vehicle. I will put living expenses (groceries, household, gas, dog food, etc) on this. I will also put some monthly bills on it, and I will put yearly subscriptions, and long term expenses that require savings goals on it, the best example of which is my biannual car insurance bill.
Say I maintain a separate checking account (for monthly and living expenses), and savings account (for long term items), YNAB will still lump all CC transactions into a single payment amount, and I will need to track separately which account (checking or savings) to pay which portions from. I will also have to make sure I'm logging into my bank portal and transferring between the multiple accounts to keep them funded per my budget
Alternatively, I could maintain only a single bank account, and that pays all CC transactions, whether long term (biannual car insurance) or short term (groceries, et al), and I won't need to worry about which account it comes from. If I do this, I'm missing out on higher APY interest from a savings account (pretend that interest rates aren't crap). This also would make more sense when I look at my bank portal instead of seeing a huge sum in my single account.
I considered having a category for Savings Account - CC Paid Items and a category for Checking Account - CC Paid Items, but the subcategories that would go under those would result in some illogical groupings for me, and I do not want to do that.
So, how do you personally do this? Multiple accounts to cover different types of expenses, transfer between them, and keep track of how much to pay from which? Or one single expense account and let YNAB track it?
A solution to maintain separate accounts that I could not figure out if YNAB allows, would be to split my CC Payment into categories. I picture one category called "CC - Pay from Checking" and another "CC - Pay from Savings" and I categorize each transaction into one or the other, and then I know exactly what dollar amount comes from which account. Is something like this possible?
Sorry for the long first post! Thank you in advance for all your insight!
Short answer: Single checking with scheduled transactions in YNAB's account register to maintain a threshold. Savings account that doesn't get spent from.
There are two ways to maintain a threshold:
1. At the start of the month, make sure your checking balance has the equivalent of your normal monthly expenses, plus any upcoming large expenses, plus a buffer (say $1000? $500?). Transfer accordingly to maximize interest/provide cash flow.
2. Look ahead at your running balance for the coming month and transfer so that the low point of the checking equals a certain amount (like the buffer of $1000 or $500).
Because most of my expenses are on a card as well, it's pretty easy to use #2. The large expenses on the card give me 3 weeks to make the transfer.
There are other posts on the forum about this issue, so check them out, too!
The thing that helped me most is to separate out the decisions about budgeting from cash management and not to try and make any categories in YNAB match any bank accounts. It makes the workflow much simpler and maximises the interest you can earn.
So all my income goes into YNAB and gets budgeted into appropriate categories. When I spend money I ask:
- Is there enough money in the category?
- If there isn't am I prepared to take money from another category i.e. have my priorities changed?
- Is there enough money in the account?
- If not, move money to enable the purchase to happen.
In reality, I also use CC for most purchases so I rarely have to do 3 and 4.
I have my CC payments and all regular transactions from my current account set up as scheduled transactions. My workflow is that once I've budgeted each month, I look at the running balance on each of the accounts and check that this doesn't go below my preferred minimum balance* during the month. Any excess money gets moved to other accounts that pay better interest whether that's a second current account or savings accounts.
ETA * my current minimum is £1k which is probably too high but interest rates are rubbish at the moment in the UK and it gives me some leeway.
If you feel your savings account gives you benefits your checking doesn't, you should keep them both. I would still try to keep as few as possible, though; having many checking or savings accounts in regular use might bring you diminishing returns.
What I do is I almost always use a single checking account to pay credits cards or conduct transactions. I only use my high-yield savings account to hold money for much later and accrue interest. If I need to use a certain amount soon, I transfer that amount from savings to checking. Perhaps I may have a second checking account for promotions/churning purposes, but I don't use it to buy stuff or pay credit cards.
You're way over-complicating it. You only need one checking account and one savings account in YNAB. The savings account for higher interest like you said. Let your categories do the work. You just keep enough in checking to cover your bills each month plus a buffer. The rest goes into savings. Scheduled transactions help you with cash flow questions as to how much to keep in checking.
Other than the multiple accounts, I operate the exact same way as you. Everything possible goes on credit cards. They are all paid in full (PIF).
Say I maintain a separate [...] savings account (for long term items
The thing to realize it's the savings account is not for long-term ITEMS. It is for DOLLARS that are not immediately needed. Things become simpler if you do not synchronize an account balance to a set of categories.
More background here:
As others have said, categories don't live in accounts; dollars live in accounts.
It's like water in a swimming pool that has a deep end and a shallow end. Suppose I have different purposes for my water, and suppose I put the water for watering plants in the shallow end, and I put the water for washing the car in the deep end, because I don't do that as often. Now, when I wash the car, do I need to make sure the hose is drawing from the deep end in order to get the right water?
You know about how much you actually spend a month. Keep a little more than that in checking. Once a week or so, look at the payments scheduled for the next couple of weeks and make sure they're covered. All the rest of it can stay in savings.