Emergency and Sinking Funds

Hello,

I am trying to figure the best way to do this. I started using YNAB last year and have been using it in a pretty basic manner. Now I'm getting into areas I can't really find an answer for so maybe you all can come up with something I didn't think of.

I have a Checking account (Budget) and a High yield savings account (HYSC) (Tracked) at a different bank. I do all transactions out of the checking account and have my Emergency fund in my HYSC. I transfer $250 a month from checking to my HYSC.

Now I have started sinking funds for long term replacement Items, car, roof, appliances, etc. that I'll put money away for 10-30 years. I don't want to keep this money in my checking account, I want it in my HYSC and I want to be able to track the progress in my Budget. 

What would be the best way to set this up? Remember I want to track the progress in the budget.

I'm probably over thinking it so any help would be greatly appreciated. 

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  • Bring your savings account on-budget. (Create a new account and make a transfer of the balance from the old, categorized as TBB. Close the old account.)

    Create an EF category and budget the same amount of money to it.

    Moving forward, the categories tell you the amounts you have reserved for various purposes. Transfer as much as you like into the higher rate account. I look at scheduled transactions over the next few weeks to gauge how much to leave in checking.

    Read this:

    https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/

    Like 6
      • BradleyW
      • bradleyw
      • 1 yr ago
      • Reported - view

      dakinemaui thanks! This is what I'm doing. Though I'm trying to figure out how to appropriately Budget and Goal for EF. If I already have the money saved and just want to make sure it stays that way, should I create a recurring monthly goal to have that money in that category and then just let it roll over each month?

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    • BradleyW Once you put money into a category (i.e., budget it), it stays in the category. Only a single budget is needed to assign that money to an EF category. A monthly funding Goal would be appropriate if you wanted to GROW the EF by $X every month.

      I suggest you check out some of the getting started videos and articles. They should answer many of the questions you'll likely have next.

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      • BradleyW
      • bradleyw
      • 1 yr ago
      • 2
      • Reported - view

      dakinemaui Thanks I've looked at a lot of the getting started stuff already. I wasn't clear on how to ensure the EF rolled over every month. It sounds like I don't really need a goal for this if I'm not needing to build the fund. Just need to put it in each month's budget and let it roll over, yes?

      Like 2
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 1 yr ago
      • Reported - view

      BradleyW That’s it.  If your EF is say, 10K right now, you just budget $10K and leave it alone from then on. 

      Most experienced YNABers like to separate out the EF into its various purposes: income replacement, home maintenance, car replacement, vet emergency, etc. but that is a separate issue to the mechanics of budgeting the funds. 

      ETA sorry, didn't read that closely. Not each month's budget, as dakinemaui says below. You'll do it once and leave it be. 

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    • BradleyW Not each month's budget, just once. Think of categories as envelopes, with the Available/3rd column as the contents of the envelope.

      After you put money in (enter a value in the Budget/1st column), you can switch to next month's area to see it is still there.

      All categories work like this. You should create categories to define various intended purposes for your money -- in other words, a plan.

      Like 3
  • OK, got it working right, built an EF/Sinking Fund category and then put my different goals under that so I can keep track of what I'm putting in it. This category represents my high interest savings so I can keep it separate. The first transfer took place last night and I just assigned it as a transfer and it worked perfect. Now I have set up a set amount to be transferred each month to this account and will budget the money accordingly.  Thanks for the guidance dakinemaui everything worked as advertised.

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    • ChrisD any synchronization of that category group and the account will be on you. It's actually unnecessary to do so  (and additional effort). Read the following for more details:

      https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/

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      • ChrisD
      • MoneyMan
      • ChrisD
      • 1 yr ago
      • Reported - view

      dakinemaui, Understand, but I do need to move it from my checking account to my high interest savings account. Otherwise I will not get the interest.  I will budget into the categories and have set up an automatic transfer between the accounts for the full amount that needs to go over.  Then the only thing I have to do is insure that the Payee is the savings account, no category needed.

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      • jenmas
      • jenmas
      • 1 yr ago
      • Reported - view

      ChrisD certainly move excess money in your checking account into an account with a better interest rate. But don't think in your head that grocery money lives in my checking account, vacation money lives in my savings account etc. Location and purpose are 2 different things (look at the link dakinemaui posted). In my case I keep a maximum of $X in my checking account. Regardless of any of my category balances, anything over $X gets moved to a high yield savings account. I won't "accidentally" spend my Income Replacement fund on dinner and a movie because those expenses will be allocated to Restaurants and Entertainment categories respectively and I make my spending decisions based on category balance, not account balance. Now, let's say my credit card statement closes on September 27 and the bill is equal to $3X because I had a major expenditure that month. But if all my purchases were fully budgeted it's fine. The bill isn't due until October 20 and as long as I pay the full statement balance by then, there will be no interest charges so I have more than enough time to move money out of my savings account and back into checking in order for there to be enough money in the checking account on the day that it autopays the statement balance.

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    • ChrisD As you use YNAB, you'll find money accumulating in categories other than that EF group -- money that can also earn additional interest.

      Many experienced users base the movement to the higher rate account on cash flow: i.e., the estimated minimum account balance over the next month or so.  They keep enough to satisfy account minimums + a cushion for unexpected expenses not considered in their estimate, and the rest goes into savings. Their account balance therefore won't match the EF group, but that doesn't matter.

      Like 1
      • ChrisD
      • MoneyMan
      • ChrisD
      • 1 yr ago
      • Reported - view

      jenmas My bills are funded almost through Nov so figured I would add in my HIS account so that I can move some of my sinking funds that had been accumulating in my checking account which had been fully funded already. I just was not sure how to wrap my head around it.  Once I was able to read it I could visualize what needed to be done.  I'm not a compulsive spender and never have worried about money so for the past year of using YNAB it has been interesting seeing what has been going on.  So, I figured 3 months of bills in my checking account and any high ticket items from $500 to $40K (roof replacement) should go to a more efficient account.  Works great so far and works exactly like I visualized it.  Thanks for the help.

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      • ChrisD
      • MoneyMan
      • ChrisD
      • 1 yr ago
      • Reported - view

      dakinemaui Yes I have moved all high ticket items $500+ into my HIS now and have made a couple transfers to ensure I got it right, it is working exactly as advertised, love it.

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  • So below is how I set it up this is all the categories for my HIS and I set up an automatic payment from my checking to my HIS for $521.24.  Each category has what it needs to be funded next to it.  When the money is available in my checking account I immediately budget the money till all categories are funded and then when the transfer takes place from checking to HIS I just change the payee to "Transfer - Money Bank".  This works perfect.  Each catagory I made notes for how long the item lasts and average cost then calculated how much I would need to put in each month to replace the item after the time period, for example.

    Dishwasher ($6.25)

    10 Year Lifespan
    Total $750
    $ 6.25 per month
    $75 per year

     Once that item is fully funded I'll change the catagory to (FUNDED) and then subtract that from the monthly requirement and adjust the automatic transfer.  Hope this makes sense, it does to me.

     

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  • I also set up a "Goal Target Category Balance by Date".  Using the example above, went out 10 years with a goal of $750 which came out to $6.25 per month.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 1 yr ago
      • 3
      • Reported - view

      ChrisD If I may...there's a sliding scale between "one big emergency fund that in my imagination will cover everything I ever need even though it won't" and "so granular that I'm budgeting $6 a month for the dishwasher breaking." Most people budget somewhere in between. So if you find these small amounts make budgeting difficult, I would suggest bigger categories, perhaps "Auto maintenance" and "Home Maintenance" and "Medical." 

      Like 3
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 4
      • Reported - view

      It's easier to focus on maintaining the right amount of money in the checking account, and just keeping anything else in the savings account. Most of the time you'll end up with a larger savings account and more earned interest.

      Like 4
      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
      • 1
      • Reported - view

      ChrisD I could be misunderstanding, but it also sounds like you are trying to transfer those exact sinking amounts to your savings account every month.  That will get really confusing really fast, especially if you have a large bill that needs to be paid from your checking account.  Just do as nolesrule said, and keep an eye on your checking account, transfer extra to savings for the interest as appropriate, and let the budget categories do the rest of the work.

      Like 1
      • ChrisD
      • MoneyMan
      • ChrisD
      • 1 yr ago
      • Reported - view

      WordTenor I might go that route in the future, unfortunately I am a detail type person so want to see it down at its lowest denominator before even thinking about combining them though that will make it infinitely easier to manage.

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      • ChrisD
      • MoneyMan
      • ChrisD
      • 1 yr ago
      • 1
      • Reported - view

      Annieland I know the set monthly amount and that will only change as a category gets fully funded, if I even change it, I will most likely dump that money into the EF and not change anything just increase the money going into the EF.  We have zero debt and bills are fully funded and budgeted into Nov as of yesterdays paycheck, so my checking account is holding 3 months worth of bills already and age of money hitting 94 days. I think that if any emergency came  up either my current EF or even what I already have in checking will handle it.  Maybe I am going about it wrong but I like learning and you all are giving me some ideas to further refine it, for that everyone has my thanks.

      Like 1
  • It works for me. And so far it will be easy peasy to maintain.  Once the EF hits a certain amount I'll invest 2/3rds in my taxed account with Vanguard and start building the EF again. TBH I could lessen the time and increase the amounts and that might be the next step just want to ensure I have it down pat and understand the process before going there. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 1
      • Reported - view

      ChrisD What's the point of building up the EF only to invest most of it and replenish? Time in market is the key, so if you want to invest your EF, take some of what you are putting toward the EF now and invest monthly or quarterly.

      Not that I'd recommend that. What I would recommend is getting your categories where you want them to be and keep them there. Then invest any money you don't need in your budget.

      Why don't I recommend investing the EF? Because you should not invest money you might need in less than 5 years (and preferably 10 years). An EF is what I like to call Schrödinger's Category". It has a time horizon that is both infinite and immediate at the same time, but you won't know which one until you need it. As such, one should err on the side of caution.

      Like 1
      • ChrisD
      • MoneyMan
      • ChrisD
      • 1 yr ago
      • Reported - view

      nolesrule, OK, my EF works like this and I've been doing It for quite a while now.  I keep a minimum of 3 months living expenses in an EF (High Yield Savings account, ~2.45%) And I usually build it up to 6 months living expenses over time, once it hits that mark I invest it in my taxable account, I wanted to change my thinking and get it up to 9 months this time around due to some work that needs to be done around the house.  My Roth IRA and 401k are already maxed each year.  I want my money to work for me and can access it at any time, the cash for immediate issues and the investment to add in for any larger issues. YNAB is a project for me because all my adult life I've never budgeted, maybe some spreadsheet tracking the bills but that's it. My CPA advised me that I needed to really start budgeting and suggested YNAB, I like it and want to understand it but unfortunately I have found I am so damn detail orientated it is painful to look at.  Everyone's advice is helping me along the path of simplifying my thinking and ultimately my budget.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • 1
      • Reported - view

      ChrisD I'm detail oriented too. The trick is too adjust where you keep the details. I use Google Sheets to keep calculations outside of YNAB.

      For example, I use the save 1% of the value of your home for home maintenance and repairs rule of thumb, since my last home was not all that old, and my current one is 8 days old. I actually save 1.2% of the value, since I budget 0.1% per month (keeps the math clean). However I also differentiate between home maintenance, require costs, and home improvement, which are wanted upgrades.

      When we sold the old house last month, I had 18 months worth of funds in home maintenance, even though we'd lived there for 5 years. Some of it gets spent monthly, some on capital costs. We had replace almost all of our appliances in the last 2 years because they had reached EOL.

      Like 1
    • ChrisD Folks are big fans of simplifying around here! 😉 We recommend keeping the structure simple, because it keeps your financial life simpler, and leaves more time for you to focus on your priorities. 

      Check out our Simplify Guide, for more on that. Detail can be great in certain places. Ultimately, you'll figure out what works best for your budget! And we're here to help talk through it. 

      Like 1
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