First month setup with credit card
When first getting started, I'm not sure the best way to handle a credit card that I pay off every month. I assume this problem goes away after month 2.
The problem is that I have a credit card payment due this month, but it's for last month's spending where I didn't have a budget yet or transactions. So for this first month, do I still add a line item for what I know my credit card will be? The problem is that it looks like my budget for the current month is really high.
- October credit card spending: $3,000, due November 10th
- November budget: $5000 (of which around $3,000 will likely go on the same credit card to be paid December 10th)
If I leave off the CC payment it won't be budgeted for. If I put it in it looks like my November budget is $8,000.
Am I thinking about this correctly?
I came to YNAB with a bunch of established debt, so I do have to budget each month for paying down those credit cards. You'll have to do that as well for your first month, as you pay the debt that you brought into YNAB.
However going forward you should budget to the categories that you spend on the credit card. So, if you're using the CC to buy $3000 gas/groceries/etc, then split up that $3k into each category. $1k for gas, $1k groceries, and so on. Then, when the transactions hit the credit card you can apply the category that you budgeted for. That's when the YNAB magic happens and the money you have budgeted in those categories will automatically be applied to the credit card payment category. When the bill is due, you should already have the correct amount in the CC payment category - as long as you manually enter or direct import from your CC institution.
Clear as mud?!?
If you pay your card in full (you'll see this abbreviated as "PIF" 'round these parts) then your CC category should always be equal to the amount you have charged. So if your card balance is -$1234.56, your CC payment category should be $1234.56.
Many new YNABers discover that they can't afford to budget for the entire card and still budget for everything else. This is called being on the credit card float. If you can budget yourself off the float right away, great. If you can't, budget it down over time by adding money to your CC category every time you get paid. Eventually it will be equal to your card balance and you'll be off the float.
(There's a little extra weirdness if you find yourself in the situation where the payment you have to make is bigger than your category balance, but for the sake of keeping things simple I'm leaving that out for now.)
Hi Aquamarine Hail ! Great question! Tan Major and Pink Trombone are definitely pointing you in the right direction! :)
To summarize, if you're paying your statement balance rather than your current balance, then you're riding the credit card float (I wanted to be sure you had that resource for more clarification, if needed).
If you're a paid in full user - awesome! You'll budget the amount of your starting balance directly to the Credit Card Payment category, and all of your budgeted purchases will be added to that available amount as you move forward. Then, you'll have exactly what you need when the next payment comes due!
Same question here and after reading this info and the credit card float info, I'm still not sure I understand how to apply YNAB budgeting to my circumstances. I put everything I can on a credit card- everything.
Every gas station purchase, every grocery purchase, every restaurant purchase, Lowe's, etc.- For 2 reasons- 1. extra layer of protection (with the amount I put on the card in the course of the year, the card company is very likely to be very helpful in case of a dispute) and 2. I earn cash back. Why would I give up 1-5% of extra income and go through the hassle of carrying cash around?
I do have the cash on hand to pay the card at any given moment, so I am spending last month's paycheck. However, I don't think I understand how to make YNAB reflect what I'm doing accurately. Since I put everything on the card, my first month's budget makes it look like I'm planning to spend twice as much as I really am.... Shouldn't the credit card transactions be showing up as "Activity" instead of "Budgeted"?
I just linked the accounts today, can I expect the individual transactions to show up in YNAB in the near future?
Re the payment to the card change the downloaded bank entries payee to a transfer from current to CC account. You’ll probably also need to delete the credit entry on the CC side if it occurred on a different date - otherwise you’ll end up with a duplicate credit on the CC
Re the cash backs on the card there are two options - assign directly to budget categories (which can make the budget reporting more accurate if the credits actually relate to these budget areas), or to TBB and then budget as normal. Just remember to check that your CC payment is still the opposite of your CC account balance (assuming paid in full) - you may need to make some manual CC budget adjustments to bring it back in line.