How to handle negative "To be Budgeted" if I simply don't have the money to budget for it?
I am a grad student, and I basically live month-to-month. I thus always have the issue that my "To be Budgeted" is negative, since I use a credit card and I can only cover my credit card expenses when I get paid my stipend at the end of the month.
The problem is thus that I don't see my credit as credit, I rather see it as money that I have and I know I can pay off when I get paid later in the month, whereas YNAB obviously sees this as making credit and using money I don't actually have.
I hope I am explaining my dilemma clearly enough.
Thanks in advance for any advice.
Your "To Be Budgeted" (TBB) balance should never be negative number. Period. YNAB is an allocation budgeting system, and a negative number means you've allocated more money than you actually have (i.e. you've violated Rule-1.) The system simply doesn't work when you do that.
The problem is thus that I don't see my credit as credit, I rather see it as money that I have and I know I can pay off when I get paid later in the month
I'd encourage you to change your perspective on this. Not only will it make YNAB easier to use and understand, it might lead to better long-term financial health :)
Your credit limit isn't money you have -- it's money you can borrow. If you're relying on future income to payback that borrowed money then you're "riding the float." There's no shame in that -- it's a really common practice. But it's a precarious financial position: You have no margin to handle any unexpected expenses or income shortfalls. Rule-4 encourages you to "Age your Money", but when you're riding the float, it's as if you're Age of Money score is negative (it's already been spent before you've earned it!)
That said, you can use a credit card to spend more money than you've allocated in your budget. When you do that, YNAB will highlight the offending category in orange to indicate, "If you don't budget for this [with cash], it will cause your credit card debt to grow [when the month rolls over]."
If you get paid before the month rolls over, then you should go ahead and allocate that money toward the offending categories so they're not orange anymore. If you get paid in the next month, then you'd need to budget that money toward your credit card's "Payment" category -- to payoff the new debt that YNAB created.
There's much more to say about all of this. I'd encourage you to skim the user guides and/or sign up for some of the free online training.
You are riding the credit card float. It's a thing that happens. Some people are able to do it successfully their whole lives without ever paying a penny in interest. But it means that you are in a very precarious position - just one electronic glitch away from trouble - sometimes even with the best of intentions, direct deposit doesn't come through when it is supposed to. This may be the reality of your situation for the next little while, but I highly suggest you check out the link in my post to understand the float and spend some time with the YNAB training materials in order to understand how an allocation budget works.
Thanks everyone for your replies and advice.
I think I've known subconsciously that I've been 'riding the credit float', and I've known it's probably not a good thing, but it's good to get some solid advice and references on it. I will read the article linked in your post right away @jenmas!
Thanks again, everyone!
Update: Having read the article I realize that I am 100% riding the float, and I definitely have to make some drastic changes in my spending. Very glad I posted this question here to bring all this into the light.
If you don't have extra savings, you can try to budget more than what your bill is every month if you have any extra in your budget, make more money and send more in, or reduce spending and pay more every bill cycle. To get off the float you either need to stop charging and only pay cash or budget for every one of your bills and expenses moving forward and pay extra for the charges that came before.
From now on, try to budget for your more and more of your expenses before you swipe the card or send an electronic payment until you have cash in hand before expense before you need to pay for it.. Slowly you will get to the point where you will have in your available column for credit card payments dollars for every single thing that has been charged on your credit card up to today. Then you will be off the credit card float. PIF will mean that if tomorrow your credit card told you they were closing your account and you owed $363 you would have every penny ready in had to send to them without having to move money around.
I was only able to do so quickly because I had enough savings to do so safely. Otherwise it would have taken months. I had $4700 on my cards when I started YNAB because of Christmas and some other larger than average expenses. Previously I would have pulled from savings what I couldn't cashflow to pay in full according to the credit card companies so as not to be charged interest, then over time build up the savings again. Don't be discouraged if it takes a while.
All great advice here! The best way to get off the float is to make sure you're realistically budgeting in other categories (so you don't increase that debt) and then putting anything else you can to paying your credit card in full. Some times, that comes from an extra bonus or gift other times it's just slow chipping away. Good luck!
As a student, don't forget to take care of you, not just your bills. You may need to modify your habits some but super drastic cuts and changes to lifestyle often fail dramatically. Make sure you're taking care of your physical, mental, and emotional heath as best you can. Bike more, Uber less? One fancy coffee drink every week or 2 rather than 3 times a week? My babysitter rents her books. Encourage your friends to do less restaurant/alcohol socializing or do parties and meals at home. Picnic on the quad! BBQ hotdogs at the park - one person brings the charcoal, one person brings the dogs, one person brings the buns, someone else grabs the condiments, one person supplies paper plates and napkins. BYOB! Drink water!
Don't forget the true expenses - as a grad student, you'll probably be attending lots of wedding if you haven't been already, so budget for those. Car expenses. New glasses/dental work. Moving fund, first and last month's rent. Electronics replacement fund, be that cell phone/computer, whatever.
Thanks all for your great advice. I have certainly learned a lot through this post. Technicolor Cheetah I agree completely, it's all those small items that can add up so quickly. For example, buying a cup of coffee every morning, rather than just make it myself. It's just $2, but they add up! Ben Khaki Storm thanks for the book recommendation, I will definitely check it out!
I'm just wondering: if I don't somehow get off the float immediately, that would mean not paying off my credit card debt in full every month, correct? If so, do I simply accept the monthly interest and credit rating hit for a few months until I am off the float?
Yeah. That's how I got off my float. I just couldn't seem to implement the use-it-less-and-pay-no-interest plan. I would make significant headway for a while, then an impulse purchase would have me losing ground and falling back down to the bottom of my pit. I was just so tired of the effort, disgusted with myself, and cut up the card. This was also before I found YNAB, so I often wonder if I would have been able to make a better attempt with the clarity of YNAB. Maybe yes. Maybe no.
Any hits to your credit score will be short-lived, so don't worry about it. I made decisions that fit my goals with zero regard as to how it would affect the credit rating. It recovers. I can and do use credit again, and have no problems with discipline this time around. No floating.
Good luck. Whatever plan you choose, stick with it and get yourself out.
If you want to use this app to budget your money when in this position, at the beginning of the month after you allocated all the money you want to budget, whatever negative amount is in the “to be budgeted” create a fake account— my fake account is called “Adjustment” and make a fake deposit of that negative amount that’s in your “to be budgeted”. To make that fake deposit go to that account, click “add a transaction” for the payee put “inflow” category click on “to be budgeted” Then you’ll be at zero. Now you can really start using it next paycheck. Next paycheck it’ll be like using cash and whatever you have left over after you’ve allocated all your money, that’s how much you have available to make a payment to pay down your debt. Don’t touch that fake adjustment account that you created.
I know exactly what you’re saying because I’m in the same position. Basically you are living off your credit cards and trying to get out of debt. You pay everything with your credit cards, then when you get paid you pay off your credit cards and the cycle starts all over again. I do the same thing and am trying to get out of this myself. Yes it gets better every month but it’s a slow process. So you want to know how can you use this app to get out of debt while in this position.