Savings account on-budget or tracking?
I read in a thread somewhere here that YNAB staff advised someone to move his savings account to ON BUDGET, where he had had it as a tracking account. When I set up my structure, following that advice, I set up one of my savings accounts as on budget.
I couldn't understand why the inspector panel kept telling me I had a lot more $$ available to budget than I thought I did. I finally realized it was including the savings balance. I do not budget from savings: only from checking.
Is there a way to "turn off" the savings balance in an on-budget account, so those $$ don't show as available? I just moved that savings to a tracking account, so that misleading total available (in my case) is now correct, but I wonder why the advice given to someone else was to move the savings to on budget.
For me, doesn't it make sense to keep that account as a tracking (off-budget) account, since I don't want to include its balance in my available? What am I missing out by not having it be on budget?
Any on budget account is counted towards your budget.
What you are missing is the clarity that can come with assigning a job to every liquid dollar (ie that's why IRAs and 401(k)s are recommended to be tracking accounts because they aren't liquid and easily accessible). What is that money for? Is it your loss of income pot? Your medical emergency pot? Then assign those dollars to those categories. But don't tie yourself in knots making sure that the balance in your savings account equals the balance in a specific grouping of categories.
I have 3 savings accounts on budget and each and every dollar has a job. I certainly don't "spend" from my savings account. But I may move money out of it. For example - I'm replacing my HVAC. I've had the money saved up for months but don't plan to do the replacement until March. Now is all that money in my savings account? I honestly couldn't tell you. I have 3 checking accounts and 3 savings accounts. I will put 100% of the cost of the HVAC replacement on my credit card. And sometime after the statement closes, but before payment is due, I'll likely move some funds out of the savings account so that I can pay the credit card bill. But I doubt that 100% of the cost will come out of my savings account as I should be able to have most of it already in my checking account by not sending any money from my February paychecks to one of the savings accounts like I usually do. None of the individual balances on any of my accounts equal any set of categories because the location of my money has absolutely nothing to do with the purpose of my money. It's not like the $20 in my wallet has "2pm Diet Coke Emergency" written on it in Sharpie even though it is likely that's where some of it will go. But it could go on my credit card if I happen to do a CVS run tomorrow at lunch. Some time this week, I'll break that $20 and use $5 as a tip when I get a pedi I think, but can't guarantee. And the budget doesn't care!
You should budget your savings because Rule 1 is to give every follar a job, and Rule 2 is to Embrace your true Expenses. What Rule 2 means is to break down your non-immediate expenses, the money you wouldn't necessarily keep in a checking account, and budget the money into categories.
If you keep those accounts off-budget, then moving money to the savings account looks like spending in your budget. And then to actually spend it, you'll have to bring the money back into your budget when you transfer it to the checking account (another category) and then another category when you actually spend it. Moving the money back and forth becomes a budgeting/categorizing/reporting nightmare.
But when all of the accounts are on budget, the transfers between accounts have no categories. It's just like moving a $5 bill from your left pocket to your right pocket... it doesn't matter what you plan to do with the money.
You should read this:
If you 100% didn't want to budget the amount in your savings account, you should leave it in tracking. However, it was and is recommended that you put your savings account in the budget group because the method teaches giving dollars a job and PURPOSE. Saving is good. Saving with a purpose is better. It doesn't matter if the savings are for a new big purchase or if you don't intend to spend it, you should assign it a job.
If you don't know what it is you're saving for, then might I suggest giving that some thought? By the way, Buffer, Emergency Fund, and other rainy day funds ( as they used to be called ) are all examples of budgeting categories that you would assign dollars to that you didn't really spend out of frequently (hopefully!). So, it remains valid that they can be on budget and not meant to be spent.
Hope this helps! :)
Thanks, everyone, for the feedback. I'll transfer the account to on-budget for now, but seriously: How do I assign a job to dollars that have no job? What has become evident here is that I think of this savings account as an emergency fund -- DO NOT TOUCH THIS, JOE -- and having it out of the way, rather than still sitting in a visible account whose balance is lumped in with my available spending cash, is contrary to what I see as its "job."
I'll give it a try and see if it works for me. Reading some of your replies makes me realize my situation is much less complicated than yours. I have never tied myself in knots over this: it's been easier than what has been described.
Anyway, thanks again.
You will still need to create the transfer transactions in your accounts so the account balances match reality. That needs to happen regardless of whether the transfer has a category assigned or not. That goes back to my analogy of moving a $5 bill from your left pockt to your right pocket. What you plan to do with the money doesn't change, just where it's located
But the other reality is that the money has a reason for being in the savings account. Figure out what it's for.
I'm sorry to be so clueless about this and I appreciate you sticking with me.
Transfers aren't allowed to have categories (except between off-budget accounts.) When the automatic transfer from checking to an on-budget savings account occurs, when and how do I assign a category?
This is a really helpful thread. But I'm still trying to figure out the status of the $1,000 in my savings account right now. I put it there as my emergency fund and didn't think it was being factored into my budget. How do I reckon that $1000 as emergency fund within my budget now that I'm in the middle of a month and not starting out? Can I somehow set $1000 as the goal for that budget category and say that it has been filled? Or do I budget $1000 for it this month and then it'll just stay there forever until I use it?
I'm new, and this thread has been extremely clarifying. I understand now why savings are kept on-budget but I have one hang up.
If I move my Savings Account on-budget then I can no longer use the reports to see what percent of my budget is allocated to saving. It would be nice if there were a report that presented a pie chart of your budget and not only your spending. I know it isn't the recommended method, but by keeping my savings account off-budget, I can easily see what percent of my funds are diverted for savings and drill down to see which savings categories received the most funds. Even though it is not technically "spent", I appreciate the graphic analysis of savings.
Is my understanding correct, or is there another way to view the breakdown I've described with the savings on-budget? See screenshots for reference.
Good question. The suggested report surfaces the impact of my spending on my savings. I'd find it motivating to see the savings section of my report shrink because of overspending. I'd also be motivated to continue saving overtime. I could reach my initial target balance by routinely savings and grow complacent, but if I'm accustomed to looking at a report and feeling proud that 40% of my income goes to savings goals then I'll adjust my goal and continue so that I don't have a month where my savings plummet down to 15% because I hit my target goal. I see it as a moving target rather than an achievement.
Ivory Stallion said:
If I move $100 from the available balance of the rainy day fund to cover overspending elsewhere, then the Allocation chart for the month should continue to show 0, not -100.
This math does not make sense to me. The -$100 needs to at least be shown somewhere (the moon pie, in my example) as a change in priority. Even denoting it as previously saved money that had a change of priority seems really complex. Otherwise, the numbers will be unbalanced. And if you budgeted $100 to the Forgotten Stuff category on the 1st, but moved $20 to another category to support the thing that forgotten, would you want $80 or $100 to show in that report?
I have always wanted a pie chart of my current budget allocations and available. Now that I've learned the method, I don't think something that represents that information as it is on the budget page is contrary to the method, and could be helpful to see the current state of affairs. Although, I might find that looking at big pie slices slated for Loss of Income/Medical reduced the feeling of scarcity that I get currently for monthly/daily spending decisions. I might find that I want to filter those categories out...
Ivory Stallion said:
feeling proud that 40% of my income goes to savings goals
I suppose the success of YNAB comes from being prepared for dollar amounts in specific jobs, not percentages of income in specific jobs. The electric company doesn't care whether their bill is 3% or 30% of my paycheck, but I have to be prepared to pay it.
Likewise, if I have to replace my tires, the tire company isn't going to charge me based on my income.
YNAB is built to allow you to maximize handling real expenses, and that's why it's recommended that you create specific savings categories with specific goals (implied or in the software) that will support your needs.
Working towards a normalized budget will help you feel like you can confidently fund those categories sufficiently. If you find you're not able to maintain that because other things keep popping up, maybe those other things need to be included in your normal plan as well.
I think I have convinced myself that a Savings/Budgeted report is not good. We'll see if I change my mind.
It sounds like you would be interested in a "Budgeted/Available Over Time" type of report, which seems rather complicated, but could be interesting.
Bottom line is that the current reports are all based on spending, and if you try to game the system by putting savings off-budget to include them in the spending reports, not only are you creating a lot of extra work for you, but those same reports still won't quite be accurate and will get messed up when it's time to use the money.
Best practice is described above: budget savings, use savings accounts on budget, and separate categories from accounts.
Move Light Sound Life said:
The -$100 needs to at least be shown somewhere (the moon pie, in my example) as a change in priority.
It would be, as an increase in the spending category that you moved funds to compensate for - let's say Groceries. The report should compare what the user budgeted with what they truly did as a snapshot in time. I really like your idea of having a chart for Budgeted and Available. Another way to represent that could be using a two-layer pie chart, where one ring shows budgeted proportions, while the other compares shows spending activity and available savings.
Assuming the Forgotten Stuff category is flagged as a savings category, $80 would show on the report because $80 is the amount available in savings. The report reflects spending activity and available savings.
Move Light Sound Life said:
I suppose the success of YNAB comes from being prepared for dollar amounts in specific jobs, not percentages of income in specific jobs.
I agree; although, I don't think the idea is contrary to the YNAB methodology either since the Spending report already reflects your category groups are percentages. You're 100% correct that your bills don't care what percentage of your budget they are, but I'd argue seeing a Just for Fun category that totally dwarfs and Savings provide guidance.
Coming clean, I've only been using YNAB <1 month so my views could change. I appreciate your feedback.
As soon as you realize that ALL categories are savings, this ceases to be a problem (or a need).
Fair point. If I could rephrase the goal of the suggested report, it would be to have a report that reflects my saving priorities.
Move Light Sound Life said, "Working towards a normalized budget will help you feel like you can confidently fund those categories sufficiently."
I think the report I've mentioned would help users get to a normalized budget. Again, I'm still less than a month in so we have different perspectives here. As someone just getting started with YNAB, it is useful so to see what priorities are articulated by my budget versus my actions. I can see how using YNAB over time can lead to normalization, where very little shifts. Early on, I would find it useful to contrast my expressed priorities with my habits so that I can better align my budget to reflect reality or align my habits with my priorities.
It's possible that what I'm looking for would be better incorporated as a Toolkit Report. :)
Ivory Stallion said:
Early on, I would find it useful to contrast my expressed priorities with my habits so that I can better align my budget to reflect reality or my habits to align them with my priorities.
This happens naturally when reallocating (ala Rule 3). Especially if you reallocate before spending. Identifying a lower priority category category with funds to take (or recognizing there's not one) really cements an understanding of one's inner/true priorities.
Ivory Stallion said:
If I could rephrase the goal of the suggested report, it would be to have a report that reflects my saving priorities
Isn't the budget itself that very report? I mean the budget entries completely reflect your priorities and (eventual) outflow and timeline.
EDIT: as for whether Rent (or Entertainment or Transportation or whatever) is X% of your income, what does that matter? It costs what it costs, and lower priority demands on your money have to compete for the remainder of your income excluding that amount.