Starting YNAB with overdraft but budget that matches salary

SoulSoul Posts: 51Member
edited March 2012 in Desktop
I'm just started using the trial of YNAB and having read the help that comes with it I'm very keen to get my head around the rules and get in control of our finances.

We already budget monthly based on categories, and we're good at only spending up to what we earn each month. However we're starting off from a position in large overdraft.

We get paid towards the end of the month and I was planning to use YNAB as follows:

- Put in my budget figures for next month based on our current budget plans
- Add in some budget categories to start chipping away at the overdraft
- Add our salary payments this month as 'income available next month' as this is pretty much how we already treat them

I'm assuming that this way we'll start reducing the overdraft while sticking to the budget etc. My concern is that doing this seems to imply in the software that we have a buffer, which in reality I guess we dont?

Thanks!

Justin
Post edited by Unknown User on

Comments

  • jessiebirdjessiebird Posts: 3,932Member, Beta Tester
    Hi, and welcome to YNAB.

    If you are not spending more than what you have in your categories, how is is that you have a large overdraft? Is it that you have entered next month's budget but have not yet received the income?

    Make sure when you start budgeting, you don't exceed the "available to budget" amount shown in the budget window. If you do, then you have overbudgeted, which means budgeting with money you haven't received yet, and you're going to see a lot of red numbers. The YNAB methodology asks you to wait until you have the money before you budget it.
  • SoulSoul Posts: 51Member
    The large overdraft built up over time. It's interest-free (currently) and we've got ourselves to the position where we can live each month without it getting worse. So if the overdraft just vanished we'd not go back in, if that makes sense.

    I want to use YNAB to pay it off (almost treating as a loan), so I'm using the pre-YNAB debt thing, and I can see how to use YNAB to pay that off slowly. My only question really is whether to put our salary in as 'this month' or 'next month'. Next month seems to make sense given I use that money for next month's expenditure, despite the overdraft.

    Does that sound sensible?
  • jessiebirdjessiebird Posts: 3,932Member, Beta Tester
    OK, I think I misunderstood. Someone else might know how to handle this; I think it sounds like pre-YNAB debt, so it would show up as a red number. But I currently haven't dared bring my debts onto YNAB that way so I shouldn't even attempt to give you any advice on it!

    Are all your regular living expenses "in the black"? Any money you earn this month that goes toward bills that are due next month would be classified as "available next month." If you need to get paid this month before you can pay this month's bills, then that income is "available this month."
  • MalisaMalisa Posts: 6,140Member, Moderator, YNAB Team, Beta Tester
    Sounds great. Sounds like you've got it worked out. I do just as you suggested. We get the majority of our income near the end of the month and I enter it as Income Available Next Month. I consider myself to have 'a full buffer' because I can budget for the entire month at the beginning of the month. Others will argue (and I think there may be something by Jesse to this effect) that because at the end of the month, I'm spending down to zero, that I don't have a buffer. But, while it was true when I first started that my accounts would get pretty low before our major paychecks hit, that's not the case anymore because we've got rainy day funds etc. built up, so our balances always stay flush enough to me. I don't see a reason to find some artificial way to have a whole'nother month of pay sitting around to be called my buffer. If I was worried about my accounts dipping too low and wanted that financial cushion, I'd put more into an emergency fund or unexpected expenses category. I believe the main purpose of the buffer is to enable me to budget all at once for the month (and I do) and the secondary benefit is making sure your accounts don't dip close to zero. Since I've got the secondary thing covered another way, I'm good. YMMV.
  • SoulSoul Posts: 51Member
    Thanks guys. That's how I'm reading it - that because my whole paycheck will cover the whole of next month's budget, I can use 'Income Available Next Month' and budget it all. I'll then add items in the budget to save towards clearing the overdraft, and to cover big payments coming up in the next few months. That last one is the one thing I wasn't doing before and kept hitting me.

    I'm looking forward to getting this all under control! :)
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