Are categories are account-agnostic?
One thing I’ve struggled with in my first few years of using YNAB is accounts versus categories, specifically when budgeting money from multiple accounts into a single category, then not knowing which account to make transactions with.
A real world example; sorry if this is verbose but just typing it out helps clarify for me:
- Budget account A balance: $100
- Budget account B balance: $50
From the combined budget account balances, I’ve put it all into a single category:
- Category A: $150
As you can see, Category A is account-agnostic, meaning it doesn’t care what budget account the money comes from.
I now have to make a transaction for $125 from Category A. If I’m not careful I could accidentally charge it all to one account and cause an overdraft. Even if I do remember and request a split-charge, I would charge:
- Budget account A charge: $100
- Budget account B charge: $25
Now I’m left with:
- Budget account A balance: $0
- Budget account B balance: $25
- Category A: $25
Now, Budget account B is the only account that can be used for future Category A transactions. But again, I could forget that fact and accidentally charge a transaction to Budget account A simply because I see that Category A has $25, so who cares what account that came from?
It seems that categories aren’t really account-agnostic.
What am I doing wrong here, in regards to my thought process or usage?
If you have more than one account, The spending process involves two steps. Step one, is there enough money in the category. Step two is there enough money in the account I intend to use.
As long as both of those things are met, then you can make the purchase. If one of those is not met, you need to move money in order to enable the purchase. If the answer to the step one question is no, then it is as simple as moving some money around in your budget. If the answer to the step two question is no, then you need to hop on your bank’s website and move some money around. But note that this does not need to be a one to one move. If you look in your account and realize you need $25 more, you might move the entire $50 so that there’s even more cushion in account A. The budget is independent.
In practice the step two question gets answered at a much higher level. You have a credit card with a limit high enough for most of your spending, and once a month you check and make sure that anything that’s coming out of your checking account that month, including the credit card payment, is adequately backed. So then you don’t have to look for every single transaction, you know that you have enough room in your accounts to do the spending you need to do.
This is where having fewer accounts simplifies the whole thing. If you only have one cash-based account, it removes that worry.
I personally have 3 checking and 3 savings accounts for reasons having nothing to do with spending. However, I never spend on a debit card; it only comes out of my wallet to get cash from an ATM. The only direct debits on my checking account are mortgage, condo fee, HOA fee, and electric bill. I write physical checks to pay my house cleaner for tax purposes and to make donations to small charities to reduce the fees they have to pay. Everything else goes on credit cards or is paid by. I carry no credit card debt, and if I wanted to, based on my YNAB credit card payment categories, I could pay them all down to 0 at any moment, I just choose to only pay the statement balance in full on the due date. My credit card due dates are all clustered together. Therefore, I only have to worry once a month if there is enough money in the checking account that I pay bills out of (I pay bills out of that account because it has a better bill pay interface than the checking account where my pay check is deposited).
You are correct in them being not tied to a specific acccount, unless you want them to be.
For example, you could set up an account CATEGORY tied to the specific accounts, then have the individual accounts flow beneath them, then as long as the total for the Category matches the account balance, you are able to spend from that account with no worries.
As mentioned above, the less accounts the better, but I find that is most important if you do have accounts that are getting close to 0.00. If you have a healthy account balance then as long as one of the accounts isn't insanely larger than one of your accounts you should be safe :)
I find the running balance in conjunction with scheduled transactions to be invaluable for evaluating whether I should transfer between accounts. I tend to run my checking account lean, preferring to move most of my funds to savings.
It's rare, however, that I need to move back to checking. Typically, I just move less to savings when I have a larger outflow coming up.
The only approach that avoids this is to put everything in a checking account. You obviously lose out on interest (the price of not having to think).
Hopefully you realize with your synchronized approach you are thinking about which account is best as well. You're doing that at the time of every allocation AND doing the work to arrange transfers for every allocation.
At least with the recommended approach, you just glance at the running balance occasionally and maybe arrange a transfer. The larger the cushion kept in checking, the less of an issue it is.
Thanks for bringing up this question. I have recently had similar thoughts when I linked a savings CU account that I put money in pre-tax from my paycheck. I want to keep the money separate from my regular bank savings account but it feels more 'removed' and untouchable. But up till now I wasn't tracking it in my budget.
I linked the savings account and made an 'emergency fund' category for it. But then I also wanted to add more to that category from my bank savings account. But that would muddy things if it came to needing to remove money (like stated above). I want to keep all the money in that category but I may need something at some point and I really want to try and leave my CU account alone for as long as possible - even if I take a bit out from that category from what is sitting in my bank savings account.
I did a very unsophisticated fix of naming the category Emergency Fund (CU $000 + Savings). I can update the category name whenever there is a big change to my CU balance but I always know where the 'untouchable' line is.
There is a third way - if you want to keep some form of category to account mapping is to use Category Groups, and ensure that for a Savings category group, the group balance matches the account balance. That way you can have more finely grained categories, but still keeping some form of mapping.
Personally, I have a single current account (checking for our US friends), and an interest generating savings account, so I just try to make sure that my savings account balance matches the category group balance, moving funds into the savings account when necessary. I only need to worry if my savings account balance is higher than the category group balance, as it means my current account doesn't have all the cash that's been assigned to the non-savings category group(s).
Stopping your brain from continuously reverting to organizing your funds, and consequently your budget, by account is a difficult transition.
This is an important point. I remember a bunch of people on here (probably you also) trying to help me reach this point and I was not wanting to let it go yet. To be honest, I was probably ready financially for this transition awhile before I made it, because I was budgeting consistently from May through December of last year. But I'm also the gal who wouldn't let my dad take my training wheels off of my bike when I was a kid, even though I didn't need them anymore. He took them off without telling me and my whole family watched me ride my training-wheel free bike without even noticing they had been removed. I was pissed...even though it helped me progress.
The key to this transition is to trust your budget AND to trust yourself to follow your budget. Because if you're not consistent with it, then having those separate accounts will help if you fall off the wagon for awhile, but if you're a good budgeter, they just make maintaining your budget a ton of extra work. So I am telling people now that this is the most efficient way to do YNAB (account balances and category balances unrelated) if you're doing it consistently, but that it may take awhile to reach the point where you trust yourself and your budget enough to let go of the connection between the two.