YNAB and Savings accounts

June 11, 2014 at 10:31 pm Leave a comment

How to Save with YNAB

I’ve been using YNAB for a little over a year.  During that time, I’ve used it with lots of accounts, but those accounts were mostly of the credit card or personal loan variety.  What has eluded me all this time is how to best handle Savings accounts.

You see, all of my income goes into my checking account.  Before YNAB, I used multiple ING accounts to split money into different categories… So, each goal would have its own savings account.  (ING makes that incredibly easy)

With YNAB, that’s not necessary, though.  You can put everything in a single account.  It doesn’t matter what your bank account balance is, all that matters is available money in the category.  There is, of course, one big drawback to the all-in-one account method, and that’s interest.  My checking pays a laughable 0.1%.  Other banks, especially on-line banks, offer much more interest.

This is where confusion set in for me…  I’ve seen various suggestions on how to handle savings with YNAB, but none of them seemed to make much sense, or they looked like a pain to track.  Like most people, I have multiple categories of money that I won’t need for months, but I need to keep the category balances separate.

The other night I came up with an idea to make this work with YNAB while still being simple to keep everything straight.

To Get Started

Organize

Make a super-category called Long Term Savings.  Move spending categories under Long Term Savings that contain money that you don’t expect to need for at least a month or two.  In my case, I moved these categories:  Emergency Fund, Christmas, Home Insurance, Property Tax, Car Replacement, Mom & Dad’s Anniversary, and School Fees (2015-16).  Look at the balance for the Long Term Savings super category.  That is the total of all those categories.  If you are anything like me, it’ll be at least a couple of thousand.  Dollars.  That have been wasting away earning 0.1% interest (or possibly even less).

Get a High Interest Account and Track it

Next, set up a new high-interest savings account with your favorite bank.  I was able to create one on right through Barclay’s website in about 15-20 minutes.  Create an on-budget account in YNAB to track your new account, we’ll call it High Savings.  It is important that it be on-budget, since you still want to keep the purpose of these dollars segmented.  As part of the new account creation process, you’ll probably be asked for your initial deposit.  Deposit the Long Term Savings super category balance into your new High Savings account.  Be sure to do a transfer in YNAB to your newly created on-budget account.  Don’t categorize this in any way.  You aren’t spending money, it’s just moving around, so a transfer is what you want.  At this point, your Long Term Savings super category balance should match your High Savings account balance.

That’s it!  You are saving!

Adding Money

After future paycheck cycles, place your money into categories as usual.  When done, take the new Long Term Savings super category balance and subtract the High Savings account balance.  That’s the amount to deposit into your high-interest savings account.  Once again, after this deposit, your super category balance and savings account balance should match to the penny.

Earning Interest

When interest is deposited into your savings account, add it to High Savings as income, and budget it into your choice of categories that are already part of the Long Term Savings super category.  Once again, it will balance out.

Spending your Savings

When the time comes to spend money out of these categories, use a credit card or write a check, being sure to attribute the spending to the proper category.  At this point, your High Savings account should show more money than the Long Term Savings super category balance.  As soon as practical, subtract your Long Term Savings balance from your High Savings balance and transfer that amount out of High Savings to cover your spending.

Anyhow, I am sure this won’t make me rich, but I do think it will earn me an extra $40-50 per year… Probably more, especially when interest rates creep upwards, as they will inevitably do.

 

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