
Help setting up/configuring a (floating) Credit Card
Here be dragons; this is a loong post. It helped me a lot to organize my thoughts around how I'm using YNAB, and therefore I decided to keep it that way.
Context
I have 3 accounts: a Checking Account, a Local Currency Credit Card, and an international Credit Card (they are actually the same CC, but I get two different statements). Everything in the statement is correctly reconciled with YNAB.
The CC is billed from 20th to 20th and is due on 10th on the next month (22 Oct to 22 Nov is due on 10 Dec) . I know that I'm living on the CC float since I receive my check and a lot is going to pay the last month CC bill (I received my November payment on the 30th, I registered as inflow for December).
The grasshopper path
I started using YNAB on Jul (with the check I got from Jun work). I paid the CC (full) on Jul 8th moving the money from the Checking Account to CC:
AFAIK since all those expenses doesn't exist on YNAB, I should budget the expense in the corresponding category in the Budget view:
- Note 1: Those are CLP, not USD btw 🤣; that's why we use dot as thousand separator.
- Note 2: I did the same with the "international" currency part of the CC, for the sake of brevity I didn't included it.
Since the billing is for a fraction of the whole month, the "available payment" doesn't match the statement, for ie, the Jun-Jul statement is until Jul, 22th, the actual statement was $648.656 (due on Aug, 8th). Nevertheless, I got my check and before the due day I covered last month expenses, and since the expenses actually exists on YNAB are allocated, I didn't put any money in the budgeted column on the CC Payments:
I understand why I have less funds for Aug, since I overbudgeted the previous month I had to cover that first (I mean, I guess, at least in the app I don't see the calculation anywhere; which I find it particularly confusing).
So far so good. My interpretation is that big ugly red banner is a reminder that I'm living on float (and the amount I'm floating), and my objective should be finish the month with (at least) that number on zero.
Given all that information, I would like to ask give me some directions if I am actually grasping the YNAB-way:
- If I actually finish December with a positive balance, to make YNAB happy (and my future me). I should put the money on the Budgeted column and "overpay" the same amount on the CC?
- If I still can't cover all the red amount, but I can budget like 50.000 monthly. Should I add it budget it against it? (and in the real world, overpay the CC)
- Are "goals" in the CC worth it in this case? I was thinking using "Pay Off Balance by Date" and do it in 6 months.
- In my case, is the "available" payment something useful? or I can safely ignore it because YNAB billing cycle doesn't like that my CC have a different cycle? I understand that it's too complex to use a billing cycle from mid-mid month, and that there's no way YNAB is going to implement that.
- Is there any sensible advantage on using that feature, good enough that pays of changing the billing cycle or close/get a new CC with that cycle?
Please feel free to correct if my assumptions are wrong or if you think I should be handling this in a different way.
-
You have an extreme case of float since you are more than a month behind. You seen to be managing your cash-flow OK, so you might as well continue to ride the float. The "YNAB way" can only support being up to a month behind, so you're going to have to depart from the "by the book" advice.
Here is a link to a workflow that will keep things straight. The general idea is to carry the float in the CC Payment category and gradually budget to narrow the gap between it and paid-in-full status (Payment equal to the account balance as a positive number.)
https://support.youneedabudget.com/t/g9hh7px?r=83hh7wx
BTW, your To Be Budgeted should not be negative.
-
One thought based on past users... If you have any savings or emergency funds, you might consider using some of that to reduce the amount you're trying to float to the point where you're at most only one month behind. At this level, all categories remain backed by cash, which is how YNAB is designed to work.
Your choice whether to budget to restore that other category first or continue to reduce the float first.
-
You know, this is very confusing. Because I don't get it how is that I float more than a month. My monthly income is around $ 2 500 000 (every 4 months I get some bonus income, that leave it around $3 000 000). My Checking account is never negative either and I can pay at the beginning of the month the full statement. How come is that I'm more than one month behind? In fact when I started with YNAB in july, the starting balance on my CA was green.
I get that I should budget to reduce the float, that should be done into the CC payment category?
Oh, and about the overbudgeting, I get it's wrong, and I should make it go to 0 each month (which means I have been overspending).
I'll read the link meanwhile :) Thanks a lot again.
-
You know, I took another look and I just realized that in fact I started with a negative balance by mistake, and I wasn't taking into consideration that when opened YNAB I did have more money that actually I never spent. This confuses me, because it's sitting on my CA, but I never considered it (for myself) as an inflow. They did for YNAB of course.
The thing that is confusing me now that I have a positive balance on my CA, I can almost pay right now the next CC bill (and finish the month almost with no cash). I understand that I have no money left to budget because that money is already "spent", so maybe I'm actually getting out of the float, but I don't understand how YNAB would tell me that.
Please note that I actually budgeted a little extra on the payments category but I didn't really "paid" that extra for the CC. Age of money says 28 days (moving from 15 to 22) in december, so maybe I'm not living on the CC float at all.
-
Pablo Olmos de Aguilera said:
don't get it how is that I float more than a month.Consider that paid in full status has the entire credit card account balance reserved in the CC Payment category. Let's say you spend 1000 a month. That means you will be billed for 1000. However you won't actually pay for nearly another month. By then, you will have spent another 1000, raising the CC account and category to about 2000 before your payment. Your payment lowers the account and category to 1000.
If you were 1 month behind in this example, the payment would be 1000 short of the account balance. This would make it 1000 just before the payment or 0 after the payment. In other words, the roughly month's worth of budgeted purchases made after the statement closed were enough to enable the payment of the statement balance. No additional income needed to be budgeted.
Unfortunately, you are even further behind, as it would appear your payment category is close to $0. You show a payment of 1257, but you have 1045 of fake money because of the negative TBB.
Honestly, there are many new users who come to a similar realization, and it can be quite a shock. I'm sorry to be the bearer of bad news, but hopefully you can make changes now that you better understand the extent of the amount you're trying to float.
-
Pablo Olmos de Aguilera said:
I can almost pay right now the next CC bill (and finish the month almost with no cash)As a result, you MUST use the card to pay for things. That is definitely floating in excess of a month. I can't say for sure, but I suspect it's closer to 2 months.
Age of Money is misleadingly inflated when using credit cards because it counts the CC Payment instead of the actual spending on the card. You'll note there are about 45 days on average between them. I strongly urge you to forget about Age of Money.
-
Pablo Olmos de Aguilera said:
maybe I'm not living on the CC float at allOne intuitive way to tell if you're floating is if you can pay the statement balance IMMEDIATELY after getting the bill (not waiting the 3-4 weeks until the due date) and then have enough cash to live on without using the card.
-
AFAIK, the payments goes up every time a record a transaction on YNAB, so it's okay to have "0" budgeted there, that's why the payment goes up every month. Since the statement is on 22. I'll have more transactions after that day (and it won't considered those from after Nov 22th to Nov 30th). So, besides knowing that's an amount of money I should "set aside" (roughly). What's it's actual use? What should I see if I have a sane economy?
Today, I can pay around 75% of the statement balance (that's due on Jan 10th) which of course won't match. Besides making the payment and recording its corresponding transaction (CA -> CC) is there anything else I should do?
-
pablox said:
the payments goes up every time a record a transaction on YNAB, so it's okay to have "0" budgeted thereThat's true (as long as funds are available in the spending category), but that only keeps the float from increasing further. The ONLY way to reduce the float -- make progress -- is to budget to the CC Payment category.
pablox said:
Besides making the payment and recording its corresponding transaction (CA -> CC) is there anything else I should do?Yes, budget to the CC Payment category to increase the Available payment (over and above that automatically reserved by the recent budgeted purchases). You can stop when the category covers the entire account balance. That is paid-in-full status. You still need only pay the statement balance, which will leave funds in the category to pay off purchases not yet billed.
-
pablox said:
Today, I can pay around 75% of the statement balance (that's due on Jan 10th)The kicker is that you still must have enough money in the various other categories to support spending after the payment. Remember, that is what raises the Payment category for the following month's payment.
-
dakinemaui said:
That's true (as long as funds are available in the spending category), but that only keeps the float from increasing further. The ONLY way to reduce the float -- make progress -- is to budget to the CC Payment category.I understand, but in a sane economy, the mechanics would be the same? I get it that I need to budget it against it because I'm paying before my due.
dakinemaui said:
Yes, budget to the CC Payment category to increase the Available payment (over and above that automatically reserved by the recent budgeted purchases). You can stop when the category covers the entire account balance. That is paid-in-full status. You still need only pay the statement balance, which will leave funds in the category to pay off purchases not yet billed.I went to read this again: https://docs.youneedabudget.com/article/1525-when-you-pay-your-card-in-full. Honestly, I don't remember how did I configure that specific account, but I imagine it shouldn't change the things too much. According to that I should be budgeting until (or close to) get 0 in the payments category. If it's over it means I'm on the CC float.
dakinemaui said:
The kicker is that you still must have enough money in the various other categories to support spending after the payment. Remember, that is what raises the Payment category for the following month's payment.I'm not sure if I got this part right. I mean that I got money left because the TBB is still green and with money left to assign. That amount is still less of what I actually have on my CA because part of that it's has been already set aside ("fake money").
-
pablox said:
That amount [in TBB] is still less of what I actually have on my CA because part of that it's has been already set aside ("fake money").I don't know what you mean by fake money. Again, you should make TBB zero. Setting aside that money in categories doesn't make it fake. With a 0 TBB, the only source of fake money is any red categories. However, I believe you said your latest budget doesn't have any of that.
-
pablox said:
I have cash right now in my CA (~ 900 000), which is around 75% of the billed statement, but only 375 000 TBBThat cash isn't available for making a CC payment, though. Unless that's where you budgeted all of it. It's in all your categories that have a non zero/non negative available balance. So if you tried to spend all of the money in your CA on a CC payment, then you wouldn't have any money available for all your other categories that "think" they have available balance for purchasing something. The 2 things that make your available balance higher on the CC are 1.) making a purchase from a category that was budgeted (available on that category was enough to cover the cost of the item purchased) or 2.) Directly budgeting money toward the CC payment category.
-
pablox said:
What I haven't been doing is to allocate money on the payment category, maybe that's why I'm so confused.The official guidance from YNAB is to allocate money to the payment so it covers the intended payment (no overspending in the Payment category). (@bruce's reply is from this point of view.) The problem is this doesn't leave enough money to fill all your normal categories when floating more than a month, meaning there's no spending guidance and overspending in one or more categories (often a bunch of them, which is quite disheartening).
This lack of spending guidance has prompted some of us to define a better workflow that fixes that guidance problem. That is the link I gave you earlier. (It has a different problem in that categories are potentially not backed by cash. However, you've been managing your spending in the real world without running out of cash just fine. IF you can continue to do that, this problem isn't really a problem.)
With the linked approach, you prioritize your OTHER categories first (normal spending categories and true expenses). The idea is to make a realistic plan that will avoid overspending in the various categories -- it provides spending guidance. (This is exactly how things would work if you weren't floating.) The CC Payment category is primarily increased via normal purchases (rather than a huge budget entry to the Payment category). This is basically the opposite of the official method.
With the linked approach, you pay the statement balance regardless of what the Payment category says. If that Payment category turns red, your categories are not backed by cash. Conveniently, you're not planning to pay for those things with cash -- you're going to use your credit card for the most part. For the things that must be paid in cash (e.g., rent), you've demonstrated your ability to use what cash you do have for them (even without YNAB). Do you think you can continue to do that?
In summary:
- Official approach: budget for the payment first, using leftovers for normal categories (one or more of which go overspent if floating more than a month)
- Linked approach: budget for normal categories first, using leftovers for the payment category (which goes overspent if floating more than a month)
At this point, I can't tell which you're doing. So you need to decide which approach to use: the official guidance or the linked approach and run with it. They turn out to be identical if you are floating less than a month's worth of expenses.