Starting YNAB with savings
Hi, I am new to YNAB, but not new to budgeting.
I am very fortunate that I'm not living paycheck to paycheck, but there is still a hurdle I would like to overcome. When I have about 6 months of expenses in savings, I start "feeling rich" and I tell myself it's time to go ahead and spend on upgrades to my house or wardrobe, and before I know it, I only have 2 or 3 months of expenses in savings. This has happened a few times, and it's where I am now.
I want to push myself to maintain 6 months of expenses in savings. The purpose is to be an emergency fund, in case of major life plan changes, such as losing my job or becoming disabled or needed to care for an aging parent. I don't know if any of this will happen. I hope it doesn't. But that is why I can't give this money a job other than "be my emergency fund." I want to treat myself to upgrades only if I can do that and keep the 6 month buffer.
So I brought my checkings and savings balances into YNAB and gave every dollar a job today. YNAB is telling me I can fully fund 5 months of expenses, which yay, I don't want to sound ungrateful. My 2 months' expenses in checking and 3 months' expenses in savings are giving me all green lights in every category for the next 5 months. But also, that is close to my personal danger zone where I "feel rich," and it defeats the purpose.
Is YNAB maybe not right for me? How do I make this work? I saw some other posts about "off budget" accounts, but also some advice about "don't put savings off budget" and I don't understand it.
YNAB isn't magic. It requires a certain level of self discipline. I keep all of my checking, savings, and cash accounts on budget. I make my decisions based on category balances not account balances. I have a category called Loss of Income that should cover me for 6-8 months. I never take money out of that category. It's only job is to cover loss of income. If I have to fix my car, that's what the Vehicle Maintenance category is for. If the AC breaks, that's what the Home Maintenance category is for. I only buy things if there are funds in the category before I make the expenditure. Sometimes that means saying, no I'm not going out to dinner. Other times it means saying, yes, I want to go out to dinner and I am actively deciding that Clothing is less important to me so I will take money out of Clothing, put it in Restaurants and then go out to dinner.
Hi Orchid Cornet, I second satcook . This is exactly what I do. I have an Emergency Fund budget category. Just put that money into that category. Make other categories for things like House Upgrades or Wardrobe. As you go about budgeting every month, budget money to these categories for those things. I've actually gotten to the point that I completely ignore the money in my Emergency Fund category.
Hope that helps.
Thanks for the good advice.
I have an amount right now, as I start YNAB for the first time, that I have put in the Emergency Fund category in January, and it's worth about 3 months of expenses.
I can't afford to put 3 months of expenses into the emergency fund every month (obviously).
I guess I was assuming that I would set up YNAB to put the same amount in each category every month, but after receiving your advice, it looks like I can put a larger amount in January and a smaller amount in February.
It might make more sense to me after I have get through my first month of YNAB.
Renaming my emergency fund to what I really want to (not) use it on (“loss of income €15000”, I hope I won’t need it) helped me to just let it sit.
I used some of the former emergency fund to catch up with true expenses to the point where I contribute 1/12 of the annual amount each month. Having started 4 months ago, for example my car repair category needed more in the beginning to cover the big bill we always expect in january. So now I’m still rebuilding the loss of income category, while my savings, in het way I used to think about it, are higher than before.
It also makes the next step more natural; what would you like your money to do after that? It could be that upgrade on your house or wardrobe. They get their own category. Ynab really helps to not take it from a category you find important. The right name for a category helps a lot here; for me emergency fund apparently felt similar to rich, like you say. But I wouldn’t easily take from “loss of income”.
For me, once my wants have their own category, they’re so much easier to compare amongst each other as well! Do I really want to do that home improvement, or would I rather pay my sons higher education in 10 years....? Or fund each in a certain way.
I started from a similar situation as you describe, and 4-5 months in, I’m still surprised in how much it brings me. YNAB is just the right thing!
Ah, the danger zone – I’ve visited there many times; experienced a lot of indigestion… Prior to using YNAB, I had a money market account that was a catch-all for my “emergency funds”, and like you, I’d raid it for things that were definitely not an emergency once that balance got to a nice hefty sum.
You mentioned not fully understanding what Off-Budget means. Off-Budget means either that you set an account up as a “Tracking” account (which isn't included in your TBB), or you don’t have the account represented in YNAB at all.
I can only speak from my personal experience, but I agree with having Savings (the liquid kind of account; not retirement or investments) On-Budget rather than as Tracking accounts, or not having them represented in YNAB at all. Having my Checking and Savings accounts On-Budget in YNAB keeps me accountable for all of my dollars. And it means I get to assign those savings dollars jobs, too – unemployment is no longer tolerated in any of my bank accounts!
YNAB works best when our spending decisions come from looking at the available column in the budget categories, not the available bank account balance.
You listed some possible situations that would constitute an emergency that you want to have money for, but, if I’m understanding correctly, you’ve lumped them all in one budget category called “emergency fund” and all that money is also in one bank account.
Would seeing your emergency dollars “employed” for specific budget purposes (not lumped together) prevent the temptation to spend that money on something other than was its budgeted for? For example, if you have $3000 in your savings account right now, and you created a category for each of these, how much would you want to set aside to each to get started?
- Loss of Income - $1500?
- Disability - $500?
- Care for Aging Parents - $1000?
Would having these defined as there own categories help you clarify whether or not it was worth pulling money from one (or more) to pay for something that you didn’t budget for elsewhere? If you wanted to splurge on something for $500, would taking it from Disability be worth it? Or would raiding Loss of Income be OK this time? Would having these also encourage you to keep building them up each month, rather than dip into them?
These are the kinds of questions our YNAB budget categories help us ponder.
The key to keeping my grubby mitts off long-term (On-Budget) Savings is by being very specific with the jobs I assign them to. These are my “Reserved Funds” subcategories, and while the money for them is in one high-yield savings account (location), they’re not lumped into one “emergency funds” budget category.
- Loss of Income (building up to 6-months’ worth of expenses)
- Unpaid Days Off (my employer doesn’t pay for holidays, so this supplements any lost income if needed)
- Car Replacement (my car is 17 this year!)
This specificity forces me to think long and hard before raiding these categories; that money is reserved until I need it for the defined purpose. Defining my categories allows me to fund all of them without stressing about whether I’m being responsible with my (meager) income. For me this means keeping myself accountable by being honest with myself about the “why” and “what” of my spending habits and savings goals.
- “Why do I need this right now?”
- “Why can’t it wait until later (a day, week, month, year, longer)?”
- “What does this do to my other budget categories/goals that I’ll have to raid to pay for it?”
Answering these questions give me a needed “pause” before mindlessly spending/splurging. (Now my splurging is like $10 at Target instead of $300! :)).
YNAB doesn’t expect, or even want us, to set up a rigid, unchangeable budget. Your budget should be flexible because life isn’t static. It should reflect your current priorities and values so you can decide what works best for you. But priorities and values will change – sometimes a little, sometimes drastically.
I’m still fine-tuning my budget as I consider purchases, and make adjustments to categories and goals along the way. YNAB is the tool that helps me put the big picture (financial independence) into perspective.