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?

Thank you!

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  • 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. 

    Like 9
  • 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).

    Like 5
  • 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 :) 

    Like
      • Matt T
      • matt.1
      • 6 mths ago
      • 1
      • Reported - view

      anderso9 Thank you! This is exactly what I’ve been doing is to have a category dedicated to certain accounts (every account but my main checking) and then make sure the category and account balances are always in sync. But I want to break away from that habit because I need to get more granular with my categories and it’s very limiting to only have one category per account. My fear is I start budgeting to different categories which mixes in with cash from other accounts. The category just being a bucket doesn’t care where the cash came from but at transaction time I don’t want to have to think and worry about which account is best to use.

      Like 1
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 6 mths ago
      • Reported - view

      Matt T 

      Matt T said:
      I need to get more granular with my categories and it’s very limiting to only have one category per account.

       EXACTLY. Which is why to really embrace using running balance to manage your account balances, and then your categories to manage the spending. You’re almost there. 
       

      Sometimes I feel like I’m whats-his-name trying to convince Neo he can bend the spoon, but trust me: you can bend the spoon. 

      Like
      • dakinemaui
      • dakinemaui
      • 6 mths ago
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      • Reported - view

      When you realize you can change the location of a category by changing your mind, you'll have realized there is no spoon. 😎

      Like 6
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 6 mths ago
      • 1
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      MORPHEUS!!!

      God that was gonna bother me all day. Especially since I was just going “Lawrence Fishbourne...the character, what was the character...”

      Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 6 mths ago
      • Reported - view

      WordTenor IMDB is still a thing.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 6 mths ago
      • 1
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      nolesrule Indeed but sometimes you want to challenge your brain to work instead of just turning to Google. 😋 
       

      Like 1
  • 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.

    Like 2
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 6 mths ago
      • 1
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      dakinemaui This! Replying for emphasis. Scheduled transactions + running balance is the answer. I have one payment account and that's my checking account. I am able to look at my running balance at least a month into the future to see what my balance will be at any point in time. This will give you plenty of time to transfer from savings to checking for upcoming payments or from checking to savings if you have a consistent surplus. In fact, I just went and looked and I'm going to go and make a transfer out of checking right now! 🙂

      Like 1
      • Matt T
      • matt.1
      • 6 mths ago
      • Reported - view

      Superbone In YNAB, how are you able to look at your running balance one month into the future? I can see future transactions but it doesn’t seem to show me the future running balance.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 6 mths ago
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      Matt T Did you turn on the Running Balance feature in your account register?

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      • Matt T
      • matt.1
      • 6 mths ago
      • Reported - view

      nolesrule No, do you mean in my actual banking account I would enable that feature, not YNAB? Thanks!

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 6 mths ago
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      Matt T YNAB.

      Like 1
      • Matt T
      • matt.1
      • 6 mths ago
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      nolesrule Ah, great. I see that in the web interface. I was looking for this setting in the mobile app.

      Like 1
  • Matt T said:
    I don’t want to have to think and worry about which account is best to use

    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. 

    Like
      • Matt T
      • matt.1
      • 6 mths ago
      • 3
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      dakinemaui Got it, thanks! Yeah I think this is where I need to shift my thinking. I've been doing it so long one way and I am trying to break that habit now.

      Like 3
  • 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.

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  • 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).

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      • Bruce
      • Software Engineer
      • Bruce
      • 6 mths ago
      • Reported - view

      Richard Holland Just keep in mind that simply because  you have more money in savings than your current account, doesn't necessarily mean you don't have enough to cover your monthly expenses.  Unless all of your true expenses are kept in the savings account as well.  Because you (should) have money set aside for future months in true expenses that act as a buffer between that difference (what's in your savings account vs in your savings category group.)

      Like
    • Bruce Yes, that's what I was trying to get at. If my Savings Category Group Balance is £1000, and my Savings Account real balance is £1500, then there's £500 somewhere else in the budget that isn't backed by the money in my current account, and will require me to move some money out of savings to cover it.

      Conversely, if my Savings Category Group balance is £1000, and my savings account has only £500 in it, then £500 of my savings is sitting in my current account (not being spent, but also not earning any interest).

      It all depends on how married the OP is to having category and account balances matching. Personally, I'm getting used to YNAB methodology now, and have enough of a buffer in my current account that I just periodically transfer some money into the saving account to ensure it at least matches the category group balance. For everything else I just rely on category balances and knowing that everything else in my budget is backed by the money in my single current account.

      Like 1
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 6 mths ago
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      Richard Holland 

      What you are saying makes perfect sense, but it only matters in a budget-by-account paradigm. Stopping your brain from continuously reverting to organizing your funds, and consequently your budget, by account is a difficult transition.  I realized that part of my problem was that I was continuing to keep my transactional account (or chequing account) far too lean.  In a budget-by-account world, we need to keep our transactional accounts on a strangle-hold because we use the account balance to guide our spending decisions. This is not the case in YNAB, where we use the budget categories to do that guiding.  Once I increased the minimum balance level in my transactional account (in my case from 0 to $1,000), I was finally able to stop obsessing on which funds where where in which of my accounts.

      Once a month (after my last inflow of the month) and before I budget the next month, I review what I will need for liquidity for upcoming expenses.  For me that it works out to a fairly reliable formula:

      1.  average monthly spend (from the income/expense reports) for my frequent categories
      2. + any large scheduled outflows for irregular or annual expenses in the next 4-6 weeks (includes large discretionary spending I may be in the mood to make).
      3. + $1,000 (my personal preference)

      Any amount above the total in my formula is usually transferred to savings. I rarely need to transfer back to chequing because I usually foresee what's coming and manage my account liquidity to handle it. If I impulsively decide to buy a Christmas gift in June or have an impromptu need to take my car to the mechanic, the extra liquidity in my account, along with regularly deposited salary, and timing of credit card statements is usually sufficient to not require a transfer from savings.

      Like 4
    • HappyDance Yep, that's exactly how I'm doing it too. (Well, not quite - all my day to day spending, groceries, london underground travel etc, goes on my Amex card as I get reward points which are equivalent to cash, and I pay the statement balance in full automatically by direct debit each month, so get charged no interest - effectively 1% cashback).

      I was explaining the possibility of using a Category Group after the OPs suggestion that a single account per category would become unmanageable. So a single account to Category Group would allow for more budget granularity while allowing that account mapping to continue to work.

      Like 1
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 6 mths ago
      • Reported - view

      Richard Holland 

      Most of my day-to-day spending is now on a credit card as well, but I still transfer to my cc account from my chequing account, so the liquidity amount I need for that can be determined by my average spending rate.

      Like
  • HappyDance said:
    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.

    Like 3
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 6 mths ago
      • 4
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      PhysicsGal 

      I remember being at the same threshold and being gently assisted by the members of the classic forum at the end of 2014, beginning of 2015. It was difficult for me.  I was motivated by glimpses of the fabled perfect worry-free, effort-free budget, like some fairy creature romping in the mist on the horizon, always just out of reach.

      I also remember being more than a little impatient with both myself and others, knowing there was something that I just couldn't quite grasp.  Part of being able to put something new into place is sometimes having to let go of the old, rather than coming up with hybrid old-new systems. That is very true with YNAB methodology:  you can't both hang onto budgeting by account (even for a few things) and thoroughly embrace the concept of it simply not mattering where the funds are located. It's like riding a bike with only one pedal.

      I think many have a tendency to worry about "but how will it work exactly",  and until we implement it and live with it, we simply can't imagine it in action.  I'm an experiential learner.  I need to see some things in action in order to fully understand not only how they work, but how that implementation affects everything else.

       

      Edited to add:  now the proud owner of a romping fairy creature of my own. 🙂

      Like 4
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 6 mths ago
      • 4
      • Reported - view

      HappyDance And we are so glad you have joined us beyond the mist on the horizon and are now able to frolic with us and the fairy creature in the valley of budgeting bliss. 😄

      Like 4
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