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 馃ぃ; 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:

  1. 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?
  2. 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)
  3. 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.
  4. 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.
  5. 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.

40replies Oldest first
  • Oldest first
  • Newest first
  • Active threads
  • Popular
  • 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.

    Like 1
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 2
      • Reported - view

      Also, the billing cycle has nothing to do with anything. The difficulty is YNAB wants the plan (aka the budget) to be based on the cash you hold. You, on the other hand, want to plan with a mix of cash and future-extended credit.

      I want to call particular attention to the fact that you should either avoid or cover all overspending (other than the CC Payment category, of course). Make a realistic plan and use categories for spending guidance. Part of the plan is also budgeting to reduce the float.

      I suspect any Payoff goal will be thrown off by the negative budget entries and category balances that may be present. It's easy enough to do the math yourself. If the account balance is -1500 and the CC Payment Available is -1000 (red), you need to add 2500 in total with budget entries to be able to pay the account in full. If you want to do that in 6 months, budget 417 per month (=2500 / 6).

      Like 2
  • 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.

    Like 3
  • 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.

    Like
  • 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.

    Like
  • 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.

    Like
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      dakinemaui but I'm not having a negative TBB (I corrected it), I'm not overspending either. As you can see I end with a green 0 every month. I understand that the money in my CA it's not "real" since it's has been already spent. Right now I have around 85% of the statement, so I believe on Jan I'll be able to pay the full statement (for the first time).

      Like
  • 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.

    Like 1
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      dakinemaui oh, okay I won't take that into account. About using the CC, I like to use it because of the rewards, so I don't plan to stop using it (obviously I don't want to be living on the float of course).

      Like
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 1
      • Reported - view

      pablox I wasn't suggesting that you stop using the card. I was only saying that IF you did stop using it after paying the entire account balance but didn't have enough cash to live on, then you cannot afford to be paid in full at this time and therefore are floating. (This in reference to your wondering if you might not be floating after all.)

      Continued use of the card is required in order to float, so your rewards are in no danger of going away. 馃檪

      Like 1
  • Pablo Olmos de Aguilera said:
    maybe I'm not living on the CC float at all

    One 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.

    Like 2
  • 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?

    Like
  • pablox said:
    the payments goes up every time a record a transaction on YNAB, so it's okay to have "0" budgeted there

    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.

    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.

    Like 1
  • 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.

    Like
  • 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").

    Like
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 2
      • Reported - view

      pablox Either you've misunderstood that documentation or I've misunderstood what you're saying. Paid-in-full status means you have enough money reserved -- in the payment category -- to pay the entire account balance. if the account balance is -1000, paid in full status means you have 1000 in the Payment category. You don't have to actually pay the account to 0 since they have only billed you for part of the total balance. Indeed, there are several advantages to NOT paying more than is billed.

      If you only have 600 Available in the category, then you are floating 400 (=1000-600). Budgeted purchases raise both the category and account, so the float is unchanged. Overspending raises only the account, which increases the float. The only way to decrease the float is to raise the category but not the account. That requires a budget entry. 

      You should not have money left in TBB. That is the amount of money that does not have a purpose (category) defined. You should make a plan for all of it by putting it in categories. When you get more, make plans for all of that, too.

      Like 2
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      dakinemaui I'll put an example since I'm getting the statement today:

      Billed: 1 000 000

      TBB: 375 000 (I already planned the whole month)

      CA: ~ 900 000

      My next pacycheck: 3 000 000

      I understand that I'm floating because I should be able to pay the 1 000 000 today. To reduce the float I should:

      1. Payment for 250 000 CA -> CC
      2. Budget the same amount on the budget view (substracted from TBB)
      3. I get my paycheck, and make another payment for the remnant
      4. The same as before I should substract the amount from the TBB allocating it on the Budgeted
      5. Repeat the cycle every month until I can pay the full billed amount, hopefully on Jan 22th, I could pay more (like 500 000; for ie) and it will mean I'm getting close to my monthly bill (that is always around 1 000 000).

      What I haven't been doing is to allocate money on the payment category, maybe that's why I'm so confused.

      Like
      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 5 mths ago
      • Reported - view

      pablox you鈥檙e missing the card category balance here, which is crucial to the math. If you provide hat, we can give even better advice. 
       

      Step 1 is, if there is 375 000 you don鈥檛 need for your other categories, that should be budgeted toward the card. 
      THEN you make a payment from CA to CC which is no more than the total in the card category. 
      By the time your bill is due, you want to have enough in the card category to pay the entire bill. This will still mean you鈥檙e floating! You still have more paying down to do. But if your card category is 0 or positive after you pay the bill, you are at least using the float and not sinking deeper into debt. 

      Like
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      WordTenor what do you mean by "card category balance"? The  working balance?

      By the time is due (Dec 10th), I have cash since I got my paycheck recently (in fact, I normally pay the card as soon as I get it.

      Like
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 1
      • Reported - view

      pablox You didn't say what is going on with the CC Payment category. Both the current balance and how much in budgeted purchases you think you'll put on that card between now and the due date. Those budgeted purchases also increase the Available payment.

      You don't need to make two payments. In fact, it makes it harder to see what's going on if you do.

      Also, in this example, why is TBB not 0? Can you use any of that to reduce the float? Hint: you don't know because you haven't made a plan for those funds. 

      Like 1
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      dakinemaui well actually because I managed to plan everything and what's left my plan was going to start getting ahead of my debt. Ok, I understand now, that if I move the TBB to budgeted, makes my payment higher, but it doesn't have to reflect on a payment.

      I have cash right now in my CA (~ 900 000), which is around 75% of the billed statement, but only 375 000 TBB, my next paycheck is around 2 500 000. What do you recommend I should do to stay on track? I can't seem to grok YNAB =(

      Like
      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 5 mths ago
      • 2
      • Reported - view

      pablox this number is the most important number in the whole equation. 
       

      Like 2
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 2
      • Reported - view

      pablox We know the statement is 1 000 000. Assuming your Dec Payment category is still about 776 000, you're floating 224 000 within the plan.

      IF, and I repeat IF you have all your other categories funded as well, then you're in pretty good shape. You have a few more weeks of budgeted purchases (since those categories are funded) which will hopefully raise the payment category sufficiently. (This would be less than a month behind.)

      However, if your other categories are not sufficiently funded, then you've got a problem. You would be more than a month behind and would need to decide which approach to use moving forward. Your actual "shortage" would really be the current float (224 000) PLUS the overspending that is imminent.

      Like 2
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      dakinemaui I got the statement today and its ~1 400 000. I have every other category correctly funded and I have left 230 000 on the TBB. CC Payment says ~ 617 000 (on green) and it's considering the payment I already did on dec 7th (bill from nov), so I dunno it has something to do with that.

      The detail shows everything is budgeted spending. I get that I am living on float and I should budget that to "rise" my payment and then when I get the paycheck pay the statement + what I budgeted extra. What confuses me is the meaning of that green value. Should I try to reach zero?

      Like
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      WordTenor right now is ~617M

      Like
      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 5 mths ago
      • 1
      • Reported - view

      pablox Then 617000 is what you can afford to pay of the 1.400.000 bill. 
      The category shows how much of your budget is set aside to pay the card. Just like 鈥済roceries鈥 shows how much you can pay for groceries, so does the card payment category show what you can pay for a card payment. Just like groceries, you can budget to the category to make more available. Unlike groceries, when you spend budgeted money using your card in other categories, the budget will automatically move the money to make it available there. 
      Each month, you need to ensure that you have the amount billed available in that category before you pay the bill. So now, you need more money there in order to pay the bill you鈥檝e been given. Some of that will come from spending you鈥檒l do between now and when the bill is due, but some will also probably need to come from you changing the budgets for your other categories to free up money to go toward the card. 

      Like 1
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • Reported - view

      WordTenor OP intend to use the forum method of riding the float.

      Like
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 2
      • Reported - view
      pablox said:
      when I get the paycheck pay the statement + what I budgeted extra. What confuses me is the meaning of that green value

      Not quite. You should only pay the statement balance. This will leave some money in the Payment category for the following month's payment. Your goal is to make the category equal to the account balance with a positive sign (green). Like any category, that is how much is reserved to pay the bill. That particular amount will allow you to pay the account in full, should you choose to. In practice, you don't need to pay more than the statement balance.

      In the short term, your payment of the statement balance may exceed what is in the category. The link discusses that in more detail.

      Like 2
      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 5 mths ago
      • Reported - view

      dakinemaui oh I understand that. But it鈥檚 clear they don鈥檛 understand the significance of the CC category, and without that understanding, riding the float won鈥檛 make sense either. They are 800M short of the statement balance right now.

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

      WordTenor True, but it's likely they will need to pay more than is available in the category (contrary to your explanation). I do appreciate you jumping in, though. I'm getting a bit burned out.

      Like
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      WordTenor 800M short is the difference between the statement and "available" right?

      dakinemaui you are awesome and you have been a great help understanding this. I get that me being a bit hard-headed makes hard to make me understand, it's not your fault though.

      Like
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • 1
      • Reported - view

      pablox No worries mate, just other stuff on my mind. Your recent posts indicate things may be starting to make sense for you. Practically speaking, the linked workflow is what you need to grasp. Read that a few more times and see what questions remain.

      As for your other question, yes the 800 difference was from the category to the statement balance. Getting the category to the statement balance by the due date via budgeted purchases is the "one month behind" boundary and things are less complicated.

      Lastly, I just wanted to remind you that budgeted purchases are crucial to floating successfully. You mentioned that mainly groceries go on the card, but the more budgeted purchases you can *consistently* make on the card the better (things you would normally buy).

      Like 1
      • pablox
      • PaBLoX
      • 5 mths ago
      • 1
      • Reported - view

      dakinemaui Thanks a lot for everything, and merry Christmas! I think I finally got it. I re-read the documentation again, and while being a long time YNAB user, I always have to come back to forums to understand things. YNAB it's easy to use if you have everything on track and use the app as intended, but my guess is that many people start to use it, because we are in debt. Anyway, thanks a lot again!

      Like 1
      • dakinemaui
      • dakinemaui
      • 5 mths ago
      • Reported - view

      pablox Best of luck in the New Year!

      Like
  • 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.

    Like 1
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      dakinemaui yep, all TBB are green and on zero :)

      Like
  • pablox said:
    I have cash right now in my CA (~ 900 000), which is around 75% of the billed statement, but only 375 000 TBB

     That 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.

    Like 2
      • pablox
      • PaBLoX
      • 5 mths ago
      • Reported - view

      Bruce I'm not sure, but maybe it's because my immediate obligations are all paid with actual cash (rent, bills, school). Groceries is the only "important" thing that I pay with the card so yes, at least half of the stuff the allocated money it's not on my account anymore. If I'm getting this right, maybe I should think that my available payment now (green ~ 617), is money I already spent (though my CA says ~ 970), and I have ~ 360 actually "free". That's roughly the money I already see on the the CA, so maybe I'm finally getting it?

      Like
  • 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.

    Like 1
      • pablox
      • PaBLoX
      • 5 mths ago
      • 1
      • Reported - view

      dakinemaui yes, I understand. I have been using YNAB intuitively in the linked approach. I manage important things with cash (that I pay them), and I cover last month CC statement with the rest. I always have little cash on my CA. I would like to be able to pay the CC full as soon as I get it, and stop living on the float. I guess I'll have to continue using the linked for a while (so I can actually plan) and progressively budget more for the payment until I can budget the whole statement at the beginning of the month (when i get the paycheck) and still be able to plan ("original approach").

      Like 1
Like1 Follow
  • Status Answered
  • 1 Likes
  • 5 mths agoLast active
  • 40Replies
  • 283Views
  • 4 Following