YNAB and credit cards for dummies
February 14, 2017 4:41 AM Subscribe
Do you use You Need A Budget? I have a question about how to deal with credit cards.
I started using YNAB on Jan 1. On Jan 8, my (only) credit card bill for 11/12/16 to 12/11/16 auto-deducted from my checking account. I don't carry a balance. It was for $3661.95, so I budgeted $3661.95 in the "credit card" portion of the budget.
Same thing for the next bill for cycle 12/12/16 to 1/11/17—it auto-deducted on Feb. 8th for $5785.99. I budgeted $5785.99 for credit card...but here's what I don't understand: Half those transactions (from 1/1-1/11) were budgeted for--rent, groceries, tuition, etc. So aren't I budgeting twice then, for the same transaction?
And now, mid-February, I'm totally baffled:
--On the left side (the greenish blue side) of the screen, it says I have $5744.71 available on my credit card. Is that what YNAB thinks I have available as credit? Because that's not what my credit card company says, though it's close. My last statement balance, as of Feb 11, is $3703.23.
--In the "budget" screen, under Credit Card Payments, it has $5785.99 in the "budgeted" column, $-10,910.71 in the "activity" column and $-1,410.78 in "available." I don't understand.
--I also don't understand the credit card screen, where it says "cleared balance" is $-3703.23, "uncleared" is $9447.94 and "working" balance is $5744.71.
--And finally, I don't understand how to categorize the actual credit card payment itself, both in the checking account and in the credit card transactions. In the Checking, I tried calling it a transfer to Credit Card, but then in Credit Card, it wants me to categorize the transfer and the autopay.
Can anyone shed some light? Any suggestions on how to fix this?
I started using YNAB on Jan 1. On Jan 8, my (only) credit card bill for 11/12/16 to 12/11/16 auto-deducted from my checking account. I don't carry a balance. It was for $3661.95, so I budgeted $3661.95 in the "credit card" portion of the budget.
Same thing for the next bill for cycle 12/12/16 to 1/11/17—it auto-deducted on Feb. 8th for $5785.99. I budgeted $5785.99 for credit card...but here's what I don't understand: Half those transactions (from 1/1-1/11) were budgeted for--rent, groceries, tuition, etc. So aren't I budgeting twice then, for the same transaction?
And now, mid-February, I'm totally baffled:
--On the left side (the greenish blue side) of the screen, it says I have $5744.71 available on my credit card. Is that what YNAB thinks I have available as credit? Because that's not what my credit card company says, though it's close. My last statement balance, as of Feb 11, is $3703.23.
--In the "budget" screen, under Credit Card Payments, it has $5785.99 in the "budgeted" column, $-10,910.71 in the "activity" column and $-1,410.78 in "available." I don't understand.
--I also don't understand the credit card screen, where it says "cleared balance" is $-3703.23, "uncleared" is $9447.94 and "working" balance is $5744.71.
--And finally, I don't understand how to categorize the actual credit card payment itself, both in the checking account and in the credit card transactions. In the Checking, I tried calling it a transfer to Credit Card, but then in Credit Card, it wants me to categorize the transfer and the autopay.
Can anyone shed some light? Any suggestions on how to fix this?
Yes, you're budgeting the same transaction twice (wrongly). Don't budget specifically for the credit card payment. If you have the credit card account marked as a credit card, YNAB knows it needs to automagically budget anything you spend on it for the card payment. Just categorise the payments as you would normally as you make them, according to your budget. What's 'available' in your credit card budget category is what YNAB has auto calculated based on all the transactions you made on your credit card (plus what you've budgeted, which you only need to do if you carry a balance and are trying to pay it down).
What happens in practice if you've stuck to your budget and you pay the full balance is that you have enough money sitting in your checking account to pay that full balance at any time.
My card autopayment is only there once in each account, as a transfer from my checking account to my credit card account. If another one is showing up you can delete it.
posted by corvine at 5:21 AM on February 14, 2017 [4 favorites]
What happens in practice if you've stuck to your budget and you pay the full balance is that you have enough money sitting in your checking account to pay that full balance at any time.
My card autopayment is only there once in each account, as a transfer from my checking account to my credit card account. If another one is showing up you can delete it.
posted by corvine at 5:21 AM on February 14, 2017 [4 favorites]
Personally I would record all of the transactions on a credit card the same as if they were in your current (chequing?) account, i.e. against the appropriate budget but they just happen to occur on your credit card, not current/chequing, and the auto pay as a transfer from my current/chequing account to the credit card. No need to set up a second transaction.
When you reconcile your credit card statement with the YNAB version, they should be the same. If not, you've missed a payment somewhere. YNAB can add a correction amount to the reconciliation, but that's not great practice. Once you have reconciled, the uncleared will read zero
posted by fatfrank at 5:21 AM on February 14, 2017 [1 favorite]
When you reconcile your credit card statement with the YNAB version, they should be the same. If not, you've missed a payment somewhere. YNAB can add a correction amount to the reconciliation, but that's not great practice. Once you have reconciled, the uncleared will read zero
posted by fatfrank at 5:21 AM on February 14, 2017 [1 favorite]
Also you can kind of ignore your credit card statement balance. Just make sure the numbers match on any given day. I usually check my online statement and update my transactions daily or every other day, and when my monthly statement comes I pre-add the payment to my checking account transactions so I can see how much is going to go out, and then just mark it cleared when it does go out.
posted by corvine at 5:26 AM on February 14, 2017 [1 favorite]
posted by corvine at 5:26 AM on February 14, 2017 [1 favorite]
I highly recommend doing the free class on credit cards - your confusion is common, but seeing examples helped me a lot.
Here's my workflow, in case it helps:
- Buy a thing on the credit card.
- Put it into YNAB, noting that it was paid for by the appropriate card. (Some I do at point of purchase, but I do a check in to the accounts every 5 days or so to catch cyclical charges, etc.)
- At the end of the month (I pay my credit cards the last day of the month, give or take a day), double check that I've got everything, then pay the amount that YNAB says (I don't carry credit card debt anymore, so this is the amount I've charged that's already in my budget.)
- Put in an entry from my bank account to pay the card (which is a transfer).
- When that clears, mark it as cleared both in the bank account and in the credit card areas.
You would budget extra money to your credit card if you were paying down credit card debt. That amount would be extra towards the debt: charges that were already in your budget (food, etc) are already accounted for.
If I do cash back rewards/etc. then I put those in the credit card as income and it counts toward lowering the next month's payment on that card (leaving me with slightly more money to put elsewhere.)
posted by modernhypatia at 5:37 AM on February 14, 2017 [2 favorites]
Here's my workflow, in case it helps:
- Buy a thing on the credit card.
- Put it into YNAB, noting that it was paid for by the appropriate card. (Some I do at point of purchase, but I do a check in to the accounts every 5 days or so to catch cyclical charges, etc.)
- At the end of the month (I pay my credit cards the last day of the month, give or take a day), double check that I've got everything, then pay the amount that YNAB says (I don't carry credit card debt anymore, so this is the amount I've charged that's already in my budget.)
- Put in an entry from my bank account to pay the card (which is a transfer).
- When that clears, mark it as cleared both in the bank account and in the credit card areas.
You would budget extra money to your credit card if you were paying down credit card debt. That amount would be extra towards the debt: charges that were already in your budget (food, etc) are already accounted for.
If I do cash back rewards/etc. then I put those in the credit card as income and it counts toward lowering the next month's payment on that card (leaving me with slightly more money to put elsewhere.)
posted by modernhypatia at 5:37 AM on February 14, 2017 [2 favorites]
I assume you're using the newer web version? Definitely go through the classes/explanations YNAB offers, it'll help!
As has been said, you're double-budgeting. For the credit card, only budget the amount you're paying in excess of the amount you're putting on it. Say you have $300 left unpaid on that card. You spend $500 using the card--but that $500 has been budgeted as groceries, gas, etc. You want to pay $650--$500 for the amount you put on this month, and $150 towards your lingering debt. YNAB knows you spent $500 on the card in budget (that should show up in the "available" column). You tell YNAB you're adding $150 to your payment, so that goes in the budget column.
It's a bit hard to grasp at first, but this approach really helps destroy the "credit card float"!
For the transfer, I always import from my checking account last. So first, import from the credit card--it'll show a payment. Make sure it's a transfer from checkings. YNAB will add the transfer to your checking account screen. Last, import your checking account transactions. YNAB will recognize that the one it added and the outgoing payment it imported are the same, and will show a little link symbol.
posted by Baethan at 5:49 AM on February 14, 2017 [1 favorite]
As has been said, you're double-budgeting. For the credit card, only budget the amount you're paying in excess of the amount you're putting on it. Say you have $300 left unpaid on that card. You spend $500 using the card--but that $500 has been budgeted as groceries, gas, etc. You want to pay $650--$500 for the amount you put on this month, and $150 towards your lingering debt. YNAB knows you spent $500 on the card in budget (that should show up in the "available" column). You tell YNAB you're adding $150 to your payment, so that goes in the budget column.
It's a bit hard to grasp at first, but this approach really helps destroy the "credit card float"!
For the transfer, I always import from my checking account last. So first, import from the credit card--it'll show a payment. Make sure it's a transfer from checkings. YNAB will add the transfer to your checking account screen. Last, import your checking account transactions. YNAB will recognize that the one it added and the outgoing payment it imported are the same, and will show a little link symbol.
posted by Baethan at 5:49 AM on February 14, 2017 [1 favorite]
Yes, you only needed to budget the portion of the credit card payment for transactions that happened before you started using YNAB. So if you don't carry a balance from month to month, that's something that you only have to do once. From then on, you budget for the spending categories only.
The payment should be categorized as "transfer from checking to credit card." Ideally, YNAB should recognize that this is what the autopay is and match them, but if not, delete one of the transactions.
posted by Kriesa at 6:25 AM on February 14, 2017 [1 favorite]
The payment should be categorized as "transfer from checking to credit card." Ideally, YNAB should recognize that this is what the autopay is and match them, but if not, delete one of the transactions.
posted by Kriesa at 6:25 AM on February 14, 2017 [1 favorite]
I also started using YNAB in January. I am assuming you are using the YNAB web app and not the older YNAB4 desktop software. If you pay off your credit card statement every month (ie, don't carry a balance), this is how you're supposed to start to make sure you aren't defeated by the credit card float.
(1) Add your checking/savings accounts with their starting balances
(2) Add your credit card account with its starting balance
(3) In the Budget screen, budget that whole starting balance from your To Be Budgeted to the automatically generated credit card line. This is prior debt that will have to be paid for when credit card statements come due.
Then, as you make transactions on your credit card, it will move money from the transaction category to your credit card, so that your credit card balance on the left side of the screen and your credit card "Available" total on the Budget screen match up. Whenever you make a credit card payment, that money will be Available to make the payment. Since credit cards aren't normally on a monthly cycle, your payment won't necessarily match up with anything in YNAB, and that's OK. Or you could pay off the total Available amount if you want to.
You can go back in time and correct your mistake (this will make your reports look nicer) by going back to January and changing the entry in your Credit Card Payments "budgeted' entry to match the starting balance from your transaction register, then deleting anything you put in that entry for February. See if this starts to straighten things out.
The number on the left side of the screen for Credit Card balance is calculated from the total of all your entered transactions, whether or not they have cleared your bank account yet. Your credit card may be reporting the cleared or uncleared balance. If the left-hand column doesn't match your credit card balance, you may need to Reconcile your transactions using the button in the top right-hand corner of the account screen.
When you make a credit card payment, you are essentially just moving money from your credit card to your checking account. This requires a matched transaction - one transfer transaction in your checking, one transfer transaction in your savings. This article in the help documents sounds like it might address the issue you are having with how credit card payments work.
Definitely take the credit card class if you can, since in a live class you can ask questions.
posted by muddgirl at 6:28 AM on February 14, 2017
(1) Add your checking/savings accounts with their starting balances
(2) Add your credit card account with its starting balance
(3) In the Budget screen, budget that whole starting balance from your To Be Budgeted to the automatically generated credit card line. This is prior debt that will have to be paid for when credit card statements come due.
Then, as you make transactions on your credit card, it will move money from the transaction category to your credit card, so that your credit card balance on the left side of the screen and your credit card "Available" total on the Budget screen match up. Whenever you make a credit card payment, that money will be Available to make the payment. Since credit cards aren't normally on a monthly cycle, your payment won't necessarily match up with anything in YNAB, and that's OK. Or you could pay off the total Available amount if you want to.
You can go back in time and correct your mistake (this will make your reports look nicer) by going back to January and changing the entry in your Credit Card Payments "budgeted' entry to match the starting balance from your transaction register, then deleting anything you put in that entry for February. See if this starts to straighten things out.
The number on the left side of the screen for Credit Card balance is calculated from the total of all your entered transactions, whether or not they have cleared your bank account yet. Your credit card may be reporting the cleared or uncleared balance. If the left-hand column doesn't match your credit card balance, you may need to Reconcile your transactions using the button in the top right-hand corner of the account screen.
When you make a credit card payment, you are essentially just moving money from your credit card to your checking account. This requires a matched transaction - one transfer transaction in your checking, one transfer transaction in your savings. This article in the help documents sounds like it might address the issue you are having with how credit card payments work.
Definitely take the credit card class if you can, since in a live class you can ask questions.
posted by muddgirl at 6:28 AM on February 14, 2017
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I do know that that is not how you are supposed to do it, though, and it does mean you have uncleared transactions sitting out there a long time. So hopefully other people can help you do it the official way. It sounds to me like you are allocating the same money twice which can't be right.
posted by possibilityleft at 5:00 AM on February 14, 2017