How to handle negative "To be Budgeted" if I simply don't have the money to budget for it?
Good day,
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.
Michael
-
Don’t budget until you get the money. Let the category go negative if you must, but do not budget for it!
-
Yikes.
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.
-
Aquamarine Battery
I'm not trying to be insensitive or dismissive of the reality that many people rely on debt (credit cards) to make ends meet.
But in YNAB you can only budget with the money you actually have -- not with money you expect to earn in the future, nor with money you could (potentially) borrow from your creditor. YNAB is an allocation-style budgeting system, not a forecasting budgeting system. It's really important for newcomers to understand that.With that said, for someone in a permanent state of debt, dakinemaui has written an excellent guide for how you might setup a fake account in YNAB to represent borrowed money, so that you can actually make budgeting decisions with that money instead of just perpetually overspending. The target audience is for users of non-US overdraft accounts, but you could follow the same principles by treating a credit limit as the "overdraft reserve." (OFC, credit accounts often have significantly higher interest and fees, so you'd probably want to prioritize paying off that balance much faster than someone with an overdraft account.)
-
bret I don't know how to erase that comment. How do I erase that comment? I wasn't trying to sound rude or insensitive either. 🙂
-
Using income that arrives "just in time" to pay the CC bill (statement balance) means that user is between 1 and 2 months "behind". YNAB works without issue for someone only month (or less) behind, but can be applied to the 1-2 month scenario with a small workaround. I forget where the OP stands, but hopefully this response may help someone else as well.
I will say that things would also be VERY clear if someone wasn't trying to float such an extreme amount interest-free. One could look at the interest as the price of the simpler setup, which is obviously a personal call whether simple is worth that price. (18% APR costs $15 per month per $1k balance.) Switching back to riding the CC float once debt is reduced to the 1-month behind level would be a wise move. (Some would recommend using cash savings to accelerate getting to that point as well.)
While the UK overdraft approach bret mentioned certainly would work, it would require a substantial change to the account types in YNAB. (Ironically, a credit account type cannot be used since the debt is being explicitly managed.)
Instead, I'd suggest a slightly different approach to riding the float without the overdraft semantics. This approach uses the existing accounts and will naturally transition the user to paid-in-full status as they gradually get off the float.
-
-
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.
-
Orange Admiral (41125915e9da) don't feel like you have to get off the float immediately. Sometimes drastic changes are hard to stick with. But I would absolutely commit to chipping away at it month by month until you are off.
-
jenmas Thanks for the advice, greatly appreciated!
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?
-
Orange Admiral (41125915e9da) I'm going to have to defer to other users on this. Yes that's absolutely one method. But there are others that include cutting back on the spending so that the float gets incrementally smaller. Or make sure you cash in all your rewards points to lower balances.
I think there may be other ways, but I got off the float within 6 weeks of starting YNAB because it was at a time in my life where I was living in country where 85% of my expenditures had to be in cash so it was pretty easy to basically stop using my card for a few weeks and make some simple one-time adjustments in spending.
-
jenmas Gotcha, thanks!
-
-
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.
-
Technicolor Cheetah Seems like useful advice, thanks!
-
-
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.
-
Highly recommend reading (I got an audio book from the library) The 30 day money cleanse by Gerstley.
-
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!
-
If nothing else, I suspect that if you continue with YNAB (and don't forget to ask for the student year free trial, if you haven't already), YNAB may open your eyes as to where your money is going, if you have any of those kinda mindless money spending habits that many of us do. Myself, I hate going clothes shopping. Hate it. So I order clothes online and sometimes I just forget or don't want to deal with returning the clothes I don't want. How stupid is that?! It's really, really stupid, boot to the head. One hundred percent throwing money away right there.
I think that YNAB will encourage mindfulness consumption and the meaning of opportunity costs. Check your category balances every morning/before you go to the stores or open a retailer's website. If you're going out with friends, maybe only bring the amount of cash you want to spend. It's easy to get carried away in a social setting.
Sometimes it's the simple things, like don't go grocery shopping hungry.
You're early in your adult journey and already ahead of the game compared to many of us as you're actually thinking about this now. I assume you're in your 20s, you're looking to have a better relationship with money and making better financial choices. I'm a recent convert to YNAB, although I've always had decent habits and lived within my means. But I guarantee you that if I'd done what you're starting to do when I was your age, my spouse and I would be a heck of a lot richer or at least would have put a heck of a lot more into retirement when we were DINKs. I don't even know where we blew all our money.
I have a couple more recommendations. Nick True on youtube has some excellent YNAB tutorials and a lot of very common sense financial advice videos. He and his wife run Mapped out Money, which honestly, I'm only just now starting to poke around in, but I've quite enjoyed the videos. If nothing else, it will make you think. They're really aimed at people who are living paycheck to paycheck, anyone looking to create good financial habits, and/or the 35 and under crowd. Give them a shot.
And again, if you haven't asked for the student free year, go ahead and email YNAB customer support and ask. If nothing else, it will give you a year to save up the annual fee. Or you could see if your credit card points can be used for iTunes gift cards/give you some time to keep looking out for discounted iTunes gift cards if you have an IOS device. iTune you can pay monthly for YNAB. I've seen $100 iTunes GCs go for $85, that's about 14 months of YNAB for the price of 12.
-
Mike The Coffee analogy is a very good one.
My favourite coffee shop recently put the price up again for the second time this year and I jokingly commented to the manager that I was not going to be able to afford it.
When I started budgeting with YNAB I worked out how much I'd need to budget for my daily frothy coffee and the result shocked me. On a daily basis I didn't notice a few £ leaving my account. When I had to budget for it, I was shocked that over a month I was spending £65!
That was the first casualty of YNAB. Now I only budget for 2 frothy coffees a week, and I'm even trying not to have those.
-
Technicolor Cheetah My reply is not going to be nearly as extensive as all your advice, but I can promise you I will look into all the references you gave and take your advice to heart! Thank you so much for all the effort put into your replies!
-
Turquoise Major My weakness is that I fall into a cycle very easily. I could go weeks/months without spending unnecessarily on some item (eg coffee/snack), and then one day I decide to do it once and then I fall into a cycle and end up buying that things every day for a month. YNAB at least tells me how much money I am throwing away, but I guess it takes more than just knowing, it also takes the self-control to not actually buy it, even if you know it will not bankrupt you, rather it will slowly but surely sip away your money. I guess like Technicolor Cheetah said, the first step is just thinking about these things and trying to be better. The ironic thing is that I have actually been using YNAB for around 2 years (I did get a year free trial (-:), and for the first year everything went great while I only had a checking account. A year ago I got a credit card and I guess over the past year I just slowly but surely crept onto that credit card float. Everything I learned from this post has however been very valuable and I am committed to making changes. Perhaps not as drastic as I would like since this could lead to perhaps unnecessary stress (as pointed out by some here), but drastic changes over the long term nonetheless.
-
Mike
I lack the ability to be concise, it's a personal failing. Sorry!
YNAB can make you think about your priorities, either before you spend or when you're madly WAMing to cover over-spent categories after the fact.
My family are foodies, eating well (not eating out) is a priority. Most months our food budget is probably $800-$900 , sometimes higher due to stockpile shopping or delicious summer fruit. I could spend half of that or maybe less. That drastic a change wouldn't be sustainable over the long term especially if it was a sudden change. I'd wittle the budget down by $50-100 each month but I probably wouldn't want to dip under $450 unless we really had to. But I'd cut also other places in the budget so we didn't have to cut out all the things we like to eat. I'd cut camp fees and kids' college funding first. And entertainment subscriptions. I could cut half of what I earmark for the kids.
Our friends have travel and outdoor fun as some of their priorities. They fly much more often than we do and enjoy sometimes expensive outdoor sports like skiing. They skimp in other places like their food budget and eat more simply than we.
-
-
Mike said:
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.-
NalaMama No, don’t do that.
The app manages your carried or floated debt just fine. If you are floating debt on a credit card, what will happen is that you won’t be able to pay the card in full and budget for your categories. So instead, you will budget for your spending, and ensure that you don’t make a payment to your card larger than what the budget says you can afford to make.
Making fake transactions in YNAB for any reason is always a mistake, whether it’s trying to create a split transaction, a wash transaction, an adjustment or what have you. YNAB needs to match reality. If the reality is you don’t have money, that’s the reality and the software will help you track that.
-
WordTenor Oh no. What will happen next month then? Doing that made my to be budgeted zero like I wanted. So what will happen next month? Yes if you're floating on your credit cards, won't it always be negative then?
-
WordTenor I wish I could talk to someone instead of typing.
-
NalaMama While we don't offer phone support, we do have a live chat option. I see you asked a question about the forum via email and one of my colleagues tagged me. So we can discuss further there! 🙂
-
