Cash on hand for deductible or roll with the punches?

Hey YNABers! 

 

I'm curious how you look at deductibles, such as for car insurance. Is that something that you keep budgeted all the time, like having $1000 for if you get into an accident. Or...do you just put that money into future months and then roll with the punches if you need it to pay a deductible? I'm not sure that it makes sense to have the cash on hand to cover every deductible I have, but maybe enough to cover one? 

For context, the last time I needed it, it was easy enough enough to just move money from future months that had already been funded...but now I'm wondering if I should just have a category for deductibles?

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  • I have an Unexpected Expenses category, which I expect to sit there unused forever.  In reality, unexpected things happen.  Like the 2008 episode where my daughter drove my car with the $1000 deductible collision insurance into the door frame of my garage with the $1000 deductible homeowner's insurance.  I cover stuff like that from Unexpected Expense, then rebuilding the Unexpected Expenses category becomes a budget priority

    Reply Like 2
  • I do not budget out multiple months.  I receive a predictable monthly income, and I just budget one month at a time, just before the month begins, with money earned in the previous month.   Until I'm ready to budget August, I just keep all the income received in July in a holding category.

    My car care and repair category has $3,200:   $1K deductible, $2K for bigger repairs/maintenance, and $200 for the small regular annual maintenance (which I replenish as I spend).

    I drive a 10-year-old car, so I like seeing that I'm prepared for some bigger repair/maintenance.   I group that category with all my other emergency-type categories, and the group total for all of those is what I consider my emergency fund (equal to 7 months of income).

    Reply Like 4
    • Khaki Storm
    • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
    • Khaki_Storm.1
    • 4 mths ago
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    • Reported - view

    It's a good idea to look at the out of pocket possiblities, your own history, your income steadiness and then determine the level of funds you feel need. For example if you income fluctuates (seasonal work, pure sales commission, or uncertainty in current job), then you might want to keep more ready for these true expenses. If you're on a steady pension or a long term contact at work, then maybe keep less. 

    For example, you may know what your medical costs run and there's been no change in your health. Then, that's your budget target and you ignore the deductible. However, you may not know what your health care is going  to cost due to a change in health or added dependants, but the annual deductible is known, kinda like a maximum out if pocket (overcoming urge and putting down soapbox). Then divide up the annual deductible into monthly amounts. Maybe you use it, and maybe you don't. Try is for a few months if it fits into your budget and re-evaluate and adjust. 

    I've got an unfunded category in my seed farm for a funeral. It's not really a deductible, but similar ideas apply. How much will it cost, what's the value of having to the money sitting there vs doing other things, when am I going to need it, etc. I've heard of some buying funeral insurance. Is that better or worse, not sure. 

    Reply Like 1
  • Why are you budgeting multiple months in the future? One month ahead is sufficient to create a behavioral change. The rest you keep stashed in categories like Emergency Fund or Income Replacement.

    As you can see by your question, you would need to pull money back from multiple months, and that's just creating more work for yourself, which is true any time you plan to make budget changes, whether by your choice or not.

    Reply Like 3
      • zellie
      • zellie
      • 4 mths ago
      • Reported - view

      nolesrule My goal is to be budgeting my money several months ahead. I do have some steady income, but I want to have a buffer so I can feel more comfortable taking risks like investing into my business or other long term goals. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
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      zellie Keep it in a single category with several months worth of funds (like an Income Replacement fund or an Emergency Fund), not by budgeting out several months ahead. You are just creating more work for yourself as the needs of your budget change (and they will) to accomplish the same thing.

      Reply Like 3
      • WordTenor
      • Arranged the menu, the venue, the seating.
      • WordTenor
      • 4 mths ago
      • 3
      • Reported - view

      zellie  Limiting your extra funds to one category will also better achieve your goal of identifying extra money. You will need groceries seven months from now, so that is something you can always budget for. So at what point is it really extra? The truth is, the groceries you’ll buy next February will probably be nicely covered by the salary you’ll earn in January. So if instead of budgeting for them now, you have a single category that holds those “in case of emergency break glass” funds, it will be much easier to see when that fund is as large as you want it to be and therefore, how much is available for funneling into your business. 

      Reply Like 3
  • Khaki Storm said:
    It's a good idea to look at the out of pocket possiblities, your own history, your income steadiness and then determine the level of funds you feel need.

    Actually, I would say that looking backward when it comes to car maintenance and repairs is the wrong thing to do.  Sure, you need to change the oil repeatedly, and you can determine that cost by looking back.  But when it comes to maintenance, the cycle of car maintenance and repair is such a long cycle that most people feel blindsided by car repairs if they only consider what they've spent in the past. And that's what turns it into emergencies.  For cars you really need to look forward. And you don't want to base it on your income or a feeling about the category balance, but on an informed, researched estimate of actual cost to maintain/repair your car, especially if you rely on it to earn an income.

    When determining how much to keep in my car care and repair category I did two things:

    • I read the manufacturer's recommended schedule maintenance for my car make, model, year, and mileage  (Google it for your own car. They're all online.)
    • I booked a 15-min conversation with my independent mechanic (offered to pay for his time, but he did it for the coffee and baked treat I brought him) and based on the recommended schedule and his personal assessment of my car, he gave me his best timing estimates of what might/would be coming up in what time frame and a ballpark figure it would cost for each.

    In the last 4 years I spent $3,629.92 on car care, repair, and maintenance, $1,600 of which was for 2 sets of tires (summer and winter tires on separate rims) which I fully expect to outlast this car. My winter tires may fit my next car, or they can be sold if they don't, for a recoup of 50% to 75% of what I paid for them.  Subtract the tires, and my car maintenance average spend is $41/month.   But what I've had to pay for in the last four years is not likely to be the next upcoming expenses.  I anticipate needing a rear-end brake job this year or next -- and I'm ready for it -- and I've not had that one yet on this car.

    Reply Like 1
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 4 mths ago
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      HappyDance 

      HappyDance said:
      Subtract the tires, and my car maintenance average spend is $41/month. 

       [Note:  Implies $73/month including the tires.]

      Made me look.  I looked at January 2018 to June 2019, since I bought a new car in October 2017.  Total spending for service was $1524.05, or $84.67 per month.  I budget $200 per month, and cap the category at $2000.  I have an unlimited car wash service every month for $24.83 that comes from this category.

      The thing with Auto:Service is, it's lumpy and the lumps can be big.  Averages don't work well for me.  $1000 of that money was a deductible for a collision repair, and $2.38 for the part of the rental fee not covered by insurance; absent the accident, I would have spent an average of $29.04per month.  But that deductible is real, and while I'd rather not have been in an accident, the fact was that it happened.

      So, under $30 per month, with $24.83 of it being for car washes, is cheap.  But it won't last.  So what's a budget strategy?

      I know that $200 per month is more than my average spend.  It was more than my average spend on my former car, which I gave to my daughter when it was 9 years and 11 months old.  $2000 seems like a big enough number to absorb a major service with one thing going wrong in addition to the routine service, or to absorb one deductible.   The idea is to have the category funded for a major repair, given that I don't know when such a major repair will be required.  To get there, I want to re-build the category faster than my average spend after I have such a repair; but I cap it so the category won't grow to the sky when other categories need the money more.

      Nuanced stuff like this is how I budget. The meme of just budget by simple-minded goals drives me nuts, because a) There is no goal of Budget $X subject to Available capped at $Y at start of month; b) the goal nags are irrelevant to me; and c) I suspect the goal nags and meme of budgeting by colors detracts from the process of learning to think about what the budget really needs. I can see where budget by color could be a really cool idea, if only the goals were more flexible and nuanced. And if we still had the former Rule 4 (originally Rule 1): https://classic.youneedabudget.com/support/article/rule-four-live-on-last-months-income

      Reply Like 2
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
      • Reported - view

      Patzer In 5 years of YNAB, our average spending in aggregate has been $92/month for 2 cars. I budget $100/month. When I started in April 2014, I had a 2001 that I replaced in September 2015 with a new car. Mrs. nolesrule has had the same car the entire time, a 2006. I will have free oil changes at the dealership on my car till we move (so I'm planning to get one last oil change in next week). This includes replacing all 4 tires on my wife's car, as well as unexpectedly having to prematurely replace 3 tires over time on my car (frigging potholes). I still have one original tire left.

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      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 4 mths ago
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      nolesrule 

      I rarely look at YNAB reports, but pulled up a Toolkit report for the spending numbers.  One thing jumped out at me as a glaring omission:  There is no report of how much I have historically budgeted per month by category.  That would be a clearer indication of where my priorities have been than the actual spending, because at any given time I will have several categories funded defensively for inevitable big purchases.  When the categories tend to stay at cap, it would be a decent surrogate for average spending.  More importantly, it would capture the net effect of various WAM operations because I wanted to do things that weren't yet fully funded.

      *shrug*  I remember the reports sucked in YNAB 3, and people were excited when they improved in YNAB 4.  I was not terribly impressed, and I remain not terribly impressed by the reports in nYNAB.  Yeah, they tell you certain things; but they don't display the stuff that I'd really like to see.

      Reply Like 1
      • Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 4 mths ago
      • Reported - view

      HappyDance I was replying specifically to the question on deductibles on car accidents and extending the answer to health care deductibles. In those cases, your history is important. Are you healthy? Are you a good driver? Is your neighborhood full of good drivers? (I had a car totaled once while I was a way and the car was parked on the street.)

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  • I think I'm going to make sure that my emergency fund has enough to cover deductibles (when I get there). Rather than carrying an extra thousand here and there. My rationale is that if I'm at the point where I'm making an insurance claim, then it's an emergency.

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  • Patzer said:
    I suspect the goal nags and meme of budgeting by colors detracts from the process of learning to think about what the budget really needs.

     Agree, especially with the bolded part of what I quoted from your post.  To bring this back to the OP's original question:  I prefer to leave my deductible in the category rather than assume I will be able to move funds from an all-encompassing emergency fund when I need them. I've actually experienced multiple simultaneous unrelated emergencies (so named because I didn't have the funds to deal with them all), so for me it's not just discussing vague budget theory on a lazy Saturday afternoon. This subject tends to make me wince at the memories and double-check my category balances.  Learning to assess my financial needs and plan for them has been one of the best phases of my life.  I've benefitted greatly from the excellent discussion on the matter in the various YNAB forums and on Reddit.  I have to say that using YNAB has made the planning process so much easier for me.

    Reply Like 1
  • I like having categories sitting there for my deductibles, especially since people keep hitting my car every few months and I have to pay the deductible and don't necessarily get the deductible back. So I have categories for Car Deductible and Rental Deductible just sitting there with $500 in each of them (car deductible would be higher but that is required by my car loan, and rental deductible is required by my lease agreement). I have a separate category for Car Maintenance which is car washes, oil changes, new wipers, tire rotation, and so on as well as less-frequent things like new tires, brake work, etc.  When I buy a house I'll change the Rental Deductible to be Homeowner's Deductible and add a Home Maintenance category.

    The most recent time I had to use my Car Deductible category I was unemployed, so my general emergency fund was on tap to be used for daily living expenses and I was very grateful to have the money specifically set aside for my car.

    Reply Like 1
    • QC
    • HaplessFinanceProfessional
    • Queenofcoin
    • 4 mths ago
    • 2
    • Reported - view

    I keep my deductibles in my Deductibles category.  The last time I needed a deductible it happened to be shortly after I was made redundant and had no income.   

    Since then I've increased the deductibles I need to pay to ensure the actual ongoing expense of insurance is reduced.  This means that while my deductibles category is large it complements my Emergency fund and I won't be merging them.

    Reply Like 2
      • Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 4 mths ago
      • Reported - view

      QC I've thought about doing just that, but haven't made that move yet.

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      • TechieM2
      • IT Professional and General Geek
      • techiem2
      • 4 mths ago
      • Reported - view

      QC That sounds like a good idea.  How are you handling the amount for that category - the largest deductible you have for a single category, the sum of all deductibles, somewhere in between?  

      I currently have a category I'd started funding for general Medical to help cover that deductible when it rolls around again next year, but I probably need a better system, especially since I hadn't even thought of car deductible...aaaagh.

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  • My auto deductibles are part of my Auto: Repairs & Maintenance category. Same for housing except in the Housing category. Simple.

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