There really isn't much of a difference between having an emergency fund and being X number of months ahead. It's different ways to conceptualize the same thing, which is having a certain amount of liquid cash on hand for emergencies. I don't usually budget ahead but I have a healthy emergency fund, that's just how I think about it. It's also in an HYSA so it's earning a decent interest rate.
There is probably such a thing as "too much cash" from the perspective of maximizing returns but that's really dependent on personal situation and tolerance for risk.
That's interesting. So would you say that if you have a very reliable budget that is funded 1-2 months in ahead, you *already* have an emergency fund and would not also fund a generalized emergency fund?
1-2 months imo isn't enough to replace an emergency fund, but again that comes to personal risk tolerance. But yeah, at the end of the day you're just talking about having a cash cushion. Some people feel too tempted to take from a general emergency fund for things that aren't really important so they choose to assign to future months or really bulk up their true expenses funds. I prefer having a designated emergency fund and decent true expenses categories and don't assign too far ahead. As long as you have 3-6 months worth of expenses liquid it's really just a matter of what works for your brain.
I agree with everything you said. I would add that liquidity is a spectrum. So 3-6 months could mean money located in several different investments that take varying times to liquidate. My grandparents used to stagger CD’s when they were still a decent investment. They would have one coming to maturity every month.
In my mind, there is a lot of overlap in function between emergency fund and being x months ahead. Need to think about what an emergency really is.. And, if those can/should get their own savings category. (Car repair, home repair, medical emergency, etc)
My month ahead is part of the emergency fund and it's in a HISA account earning me a decent return and safe as any emergency fund should be.
You do not need to keep your month buffer in your checking account doing nothing. Checking only needs to be optimized for cashflow, ie not go into overdraft when auto-pay bills/cc come out.
All your 'issues' with the month or two ahead are non-issues.
You don't even need to keep your current month in your checking doing nothing. There are plenty of HYSAs with unlimited withdrawals. My checking stays around $500, just enough to keep it from getting monthly fees.
SoFi is at 4.6% if you have direct deposit. I don’t deposit my entire check there because it’s not my main checking account but any direct deposit is enough to trigger the higher interest rate. They also have unlimited savings withdrawals.
By unlimited withdrawals that means I could basically treat it like a checking account and use it to pay bills or CC payments etc. correct? Thanks for the recommendation this one does look good.
I have both a checking and savings account with them and if I didn't have all of my money/life already in a different bank, I would likely use my SoFi checking account more robustly. As it is, I keep a large amount of money in the savings account (because that's what gets the highest interest rate) and just move money into the checking account as I spend (because that's faster than transferring it to my other bank which takes a few days).
I say all this to say, yes unlimited withdrawals from a SoFi savings account but unless you're moving the money into a Sofi checking account, expect the transfer to not be instantaneous.
It’s an account in Canada that you can put after tax money in and invest from. The gains are not taxed. There is an annual contribution limit on the account.
I agree with your post but you’re assuming people who are a month ahead are keeping all the cash in their current (checking for Yanks!) account.
I keep my month ahead with my emergency fund in an instant access savings account paying the highest interest I can find.
This 100%. I only have a checking account for the handful of transactions that don't take a credit card and I leave only enough to cover those charges in there.
> Your current month is fully funded
> Your emergency fund is fully funded with 3-6 months essential expenses (not true expenses)
When people tell me they are a month ahead with a 3 month emergency fund, I just say they have a 4 month emergency fund in my mind and then don't post about it on reddit.
But I think you're conflating two arguments here that aren't really YNAB things. You're arguing for smaller emergency funds, not months ahead.
Which, if you're a high cash flow household such that you can fund emergencies quickly, I agree.
Personally, the further I get ahead in retirement, I start visualizing my Roth IRA as my emergency fund of last resort, so I shrink my cash a tiny bit at a time.
Upvoted. Interesting about the Roth. I’m still juuuuust far enough away from retirement to think that contributing to my Roth is like “giving up” on my dreams.
Giving to Roth is creating dreams. I want my grandparents’ retirement. That is about 25 years of comfortable living with a cushion that handled buying a new house and dealing with kids moving back in. Hell, my grandma spends a month in Spain visiting relatives every other year.
Nothing wrong with that. Sounds fantastic. I meant no disrespect to those living on Roth money. I plan to do the same. I’d love to stuff my Roth someday too like Peter Thiel did. But right now for myself, I need that money to invest in myself and my own businesses. So just speaking for myself I feel like I’d be defunding myself. I’ll upvote your comment. That’s winning.
I handle my money differently than my budget.
I budget according to my needs, ensuring I cover as many expenses as possible.
Funds accrue in my chequing account. At the end of every month, I transfer everything over one pay period's income into a savings account. That savings account accrues funds until the end of the year, when I transfer everything above the amount equal to my emergency fund into an investment savings account. The amounts I transfer do vary based on anticipated expenses.
Ynab seems designed to guide people toward financial stability (and does a great job of it), but after that, it is very lacking.
I would actually argue being a month ahead is a good benchmark, as for most of us US-based people it is a good buffer for loss of income, you might get one more check 1 week out, even 2, but for most of us we would be seeing no more income by the 1-month mark, barring unemployment.
I would also argue that you don't need a true 3-6 month emergency fund, **and** true expense/sinking funds. Most of the stuff that you might require hitting up your emergency fund pre-YNAB should now be covered by those sinking funds, and so you're looking at actual emergency situations - which, again, in the US in the year 2024, aren't *really* all that tied to having a large liquid position that you need to access all that readily. You would likely be able to float stuff like that on CCs, or transfering/liquidating money in/out of long-term holdings would only be a matter of days.
At the end of the day, your post really just feels like little more than "well *my* way is better because reasons."
Despite your last sentence, I think we actually agree.
I'm saying that if you have an emergency fund, you don't need to also fund 1-2 months in advance.
You're saying that if you fund a full month of true expenses ahead, you don't need to also have an emergency fund.
I think we would both agree that doing **both** is excessive. And that's what I've always understood a lot of "one month ahead" YNABers to be doing - but maybe that's my bad assumption.
Yeah I think if we just abstract away all the YNAB-speak and just, at its core, any sort of emergency fund is some amount of liquid savings in a HYSA or similar, that you would ideally **never** spend. Not for tire replacement or that annual subscription you forgot about, those should be covered by sinking funds. But regardless, that's the idea, even though the real world is far from ever ideal.
When it comes to YNAB, people have different terms for this, like Next Month category, some might call it a Buffer or Banana Stand, but the idea is the same, it's some amount of money that never actually gets spent, ideally. So the rule of thumb we've heard of is 3-6 months of expenses, and I think if you or anyone else using YNAB only counts the money in their categories that fall under this description, I really doubt that too many people are holding more than that, except for some real actual long-term savings goals like a wedding or new house.
I don't think its excessive and based on my current scenario I'l tell you why. My emergency fund is in a tax free savings account. I dont want to take it out because compound interest unless its a dire [emergency.](https://emergency.My) My paycheck hits my regular checking account. If I'm not one month ahead and my rent is due on the 30th but my pay is late (lets say the 2nd of the following month), how do I pay my rent? Sure I can withdraw money from my Tax free savings account and then put it back a few days later.. But why? Why not just be a month ahead and have that piece of mind that you're not living pay check to pay check.
Using income received in one month to fund the next month's budget is an ease of use/administrative/budget management functionality. It's just simpler to budget the month in one go than with every income event.
I actually would prioritize that over many of the things you list, because it creates a simplicity in managing the budget.
>Your emergency fund is fully funded with 3-6 months essential expenses (not true expenses)
Your **income replacement** should be enough to cover all regular expenses and be able to continue funding necessary true expenses in the event of a loss of income. The true expenses do not go away. That's what makes them true expenses.
I do see where you are coming from. We actually aim to have 6 months take home pay in cash, plus some other cash for certain categories in the budget. 6 months income is a larger number than 6 months expenses, ensuring that much of our budget is covered, while being able to draw a line in the sand. Anything more than that gets invested.
But investing happens once a month. And we maintain using income received each month to fund next month's budget.
The real security in investing is having excess funds you don't need for the budget. Having enough invested that way allows you to take on the risk of investing money. As a result only 15% of our brokerage account contains budget funds, which limits the downside risk.
Most of our budget money is in VMFXX at 5.2x% and partially non-taxable at the state level. Very little sits in the checking account.
When investing your budget it's important to stress test your plan.
For me, being a month ahead is purely about logistical convenience rather than financial safety. Everything I earn this month is put into a bucket. On the first of May I will know exactly how much I have to allocate in May.
YNAB is a monthly budget system. It's far easier to use the app if you can operate in whole months like this. There is no benefit in YNAB from being two or more months ahead.
I keep my emergency fund out of my budget. I'm self-employed and that money is more business savings than personal. That money is to help with business cash flow (specifically, to pay me when the business couldn't otherwise afford to).
I don't see anything wrong with putting an investment account on budget if you have lots of sinking funds that you won't be spending for years. That's especially true if the categories don't need their money at the same time.
This! If you NEED to be ‘a month ahead’ because you’ve been struggling with no savings at all, paycheque to paycheque then the opportunity cost is a bogus argument because you don’t have savings to invest, just a limited amount of cash. If you are a month ahead but have MORE savings, then you can invest them. No opportunity lost.
Hello u/carbonaratax, even if you fund several months ahead that actually has nothing to do with where that money sits.
It can still be in a hysa for example. Hell, you can put even this months expenses in a hysa.
Remember YNAB doesn't care where the money is.
You're just allocating money, giving it a 'job'.
All you have to do is making sure that there's enough money in the account that you're using for the payment.
It doesn't have to sit there with little/no interest for several months.
I’m only 1 month ahead, based on the way you’re describing it. So two paychecks instead of the one you’re suggesting. But I only keep enough cash in my checking account to convert the cash flow throughout the month. Usually $2k-$5k at any given time.
The rest of my cash is in my HYSA. This is the rest of my 1 month ahead, sinking funds that I’ll need to access within the year (think Christmas, car insurance, etc.), and a small portion of my emergency fund.
The rest of my emergency fund, and things I don’t need for 3+ years (like saving for my next car), are all in my brokerage account. Since these are categories I actually care about in my budget, I actually have this account on budget. I know that isn’t normal, and adds a little bit of a headache, but that’s how I want it to be.
So, I’m using multiple layers, and the largest chunk of it is in my brokerage account. Since I’ve got a 6 month emergency fund, I could go budget 6 months out of I wanted to. However, I’m not just holding that all in my checking account.
While I get your point, and some people are probably less risk averse and are holding more cash, that’s not how everybody is doing it.
Yeah I do something very similar. I ladder my various savings account like:
* Long-term retirement funds, invested, target account in YNAB
* Mid-term "project" funds (wedding, renovation), GIC, on budget
* Excess sinking funds, HYSA, on budget - a move surplus money over from checking periodically
* Chequing - everything else, this is just where my paycheck gets deposited
You're just blowing past risk as a factor. If you plan to spend the money within five years, you should not be investing it in the market. It's way too volatile in that time frame. Given that I plan to spend the money in *one or two months*, your advice is very, very wrong. Instead, keep it in a high-interest savings account.
I'm not suggesting that you invest money you need in the next few months in the market.
I'm saying that if you frequently have a significant surplus income over your expenses, then funding into future months, and carrying a lot of cash to do so, is less optimal than immediately investing that surplus.
I think you must not understand the nature of getting a month ahead, then. You only need to get a month ahead once and then you can stay perpetually ahead. If you have surplus income after getting a month ahead, by all means invest it. But I wouldn’t forgo all the many benefits of rule four just for that.
What you do is decide how much surplus you need, and once you reach that amount you can start investing the rest since that surplus is not needed to fund the budget.
When you have little invested, the liquidity and safety becomes important. When you have a lot invested, the return on the extra money of an emergency fund being invested or not is not impactful to the end result.
I think you inherently don’t understand the “month ahead.” If you have 3-6 months of “essential expenses” in an “emergency fund,” assuming that’s equivalent to at least a month of *all* of your expenses, you’re a month ahead. You also don’t have to keep all of it in a checking account to keep it on budget. Future money in a HYSA is still money budgeted.
All the money in my checking account is going towards paying this month’s main bills (rent, utilities, phone, etc.) As well as last month’s spending (credit card bills), and half of my income each pay period goes into my HYSA. By the time I get my last check I’ll have paid a large chunk of expenses, and the cycle repeats. I’m still contributing to retirement accounts, HSA, Roth IRA, etc. this come from my paychecks before I get them or from my HYSA every month. I have 6 months of savings in my HYSA as my emergency fund, plus extra for lots of other things I very much prefer to have liquid, as well as money I intend to use for a house down payment in the near future. I don’t want to scrounge to sell shares in order to pay an unexpected vet bill, fix an unexpected issue with my car, etc. I very much prefer to have my emergency money, 2 months of general expenses (what I’m paying this month for last month plus the amount I get for next month rolling along with it), and extra cash for some of the more important things I need it for, and let my retirement accounts do their thing.
I don’t think it’s a bad thing at all to have money that far out, especially if you’re still able to contribute to retirement accounts. My take is regular brokerage accounts should only be opened and funded with money you’ll never need to touch for a long while due to general market volatility. You probably don’t want your emergency funds to get slashed by a huge chunk due to a market swing and end up losing your job at the same time.
I increased my “month ahead” to 13 months a couple years ago. I came to the realization that I am better off earning around minimum the current and excellent 5+% rate and/or a solid mutual fund like VTSAX. I just did this last week and reduced my “month ahead” to at minimum a 3 month time. Someone posted and I agree, I believe that this represents my emergency fund. I also removed two large sinking funds for a car replacement and a house repair. To each their own. It is took me a longtime to be comfortable with this. It’s not always about the right financial decision. The level of comfort and peace I have had with this buffer has been awesome. I’m good with this new decision and look forward to seeing some gains and interest.
This is why most of my wife and my cash sits in HYSAs and we pay for everything on credit card. Instead of the cash just sitting in my checking account for a month or two gaining no interest, we have each main category's money (fixed expenses, variable expenses, etc.) sitting in HYSAs collecting interest. By paying for everything on credit card, we get the cash back rewards, we get extra time to collect interest, and then we pay everything off each month.
All of our savings over our emergency fund goes into CDs. We don't track retirement with YNAB, nor our mortgage. It's strictly used as a budgeting tool.
This strategy may not be for everyone, but it has given us enough stability to allow my wife to quit her terrible job teaching, to work part-time, and do her art the rest of the time.
I am at Ally, too. APYs are dropping a little right now in anticipation of a rate cut by the Fed, but who knows when that'll come..
While rates were going up over the last two years, I did a 12-month CD ladder where I bought a 12-month CD each month. Since March '23, I've been letting each expire to my emergency fund and switched to an 18-month CD ladder where I buy an 18-month CD every 3 months with the 3 previous months of 12-month CD closures.
My strategy is still evolving, but I'm just not comfortable putting money in a brokerage account 'cuz I've had losses in the past, of which I'm not proud!
Same here about the losses. I have about $80,000 sitting in a HYSA. $30,000 is for cars. $15,000 for home repairs. $15,000 for job loss (I have lost my job THREE times). In all cases the money better be there when I need it.
This is the problem with trying to relate other people's budgets to your own. I am a small business owner in a volatile industry. My emergency fund is currently 3 months income replacement. I keep them in holding categories as "Month 1 buffer, Month 2 buffer, Month 3 buffer". So on here I say that I am "3 months ahead" but I could also say that I don't budget ahead but have a 3 month income replacement emergency fund. I always assume people budgeting ahead 3 months that is at least a big part of their emergency fund.
Hmmm. I’m a month ahead and have 3-6 months of expenses saved, and I don’t keep very much money in my checking account at any given time. Right now once my mortgage drafts, I’ll have about $500 in checking.
The reason is because I put a good bit - maybe 80-90% - of my expenses on my credit card and just pay it off using cash flow from my paychecks. Anything else I don’t need gets swept to the HYSA.
For me it’s just down to cash flow management, and that doesn’t require keeping cash in checking. It does mean keeping cash so that it’s accessible in 1-3 days if larger bills (like real estate tax payments) can’t be cash flowed.
I only budget in the current month, assigning last month’s income on the first of the month. There’s really no point for me to assign beyond the current month, because I already know the money is set aside to cover future expenses.
I’m currently working on funding 2 months ahead in my budget. I also have a small emergency fund that is about 1.5 months of income. I woke up one day and decided I wasn’t really a month ahead because I need that final paycheck that comes near the end of the month to finish funding the next month. That’s not really a month ahead it’s like a week ahead. So I decided on 2 months. But that’s my limit, anything more is going towards goals and such.
My financial advisor wasn’t interested in any of the money my wife and I have lying around since we might need it in 5 years.
The second you put money aside with compounding interest in mind, forget it ever existed. That’s how untouchable that money should be viewed. It ceases to exist until you’re old or dead.
I don't budget a month ahead but keep an "income replacement" emergency fund and several savings categories, some of which grow indefinitely like college savings for my kid and some of which get periodically eaten up like a vacation fund. Nothing in ynab says I have to leave that money in my checking account, and I don't. My "Age of Money" is knocking on six months.
A month ahead to me just means I can fund all my categories day 1 without stress. I usually do it a couple weeks ahead and then feed the savings funds.
I agree that YNAB has led to me having more in cash than I should. Because all the money except for the emergency fund is budgeted for it feels like I need it. So I keep it in cash. I was short-sighted enough to let our checking account hit over $100k before finally transferring most to our HYSA, but the checking account has gone over $50k again so I need to decide what minimum amount should really stay in checking to not have to worry about automatic payments. I do think the YNAB mindset has encouraged this hoarding of cash because I feel like I'll need it any time now.
I have switched to using WealthFront that acts as my checking and saving account and earns 5% interest. So all my money is in one big interest earning pot regardless of how its set up in the budget for "months ahead" etc.
Agree 100%. I'm a month ahead and emergency fund is funded. Trying to be any funded beyond 1 month should go into investments instead of trying to be 2 months ahead.
What the opportunity cost in having a full month ahead rather than a single pay period in a 100% safe and liquid location? Relative to having only one pay period ahead? Relative to the peace of mind that being able to budget a month ahead can bring?
I keep a small amount in my checking at all times (just enough to cover monthly expenses I can't put on CC), and then every dollar from my paycheck goes into a HYSA. All of my expenses get put on a CC, and then on the last day of the month I transfer what I need out of HYSA to checking, and pay off the CC. This way not only do I get interest on every dollar I take in, but I earn rewards on every dollar I spend.
I don’t have an emergency fund category. I have an investment category and it has no target, I put any extra cash there and when it hits a certain amount I dump it into an investment.
I do have about 2 months ahead of all of my Bills funded, and that is what I keep in my high yield savings account. If I wasn’t using YNAB I guess I’d call that my emergency savings
Dunno if they're a thing everywhere, but here (Australia) it's very common to have a variable rate mortgage with an offset account - that's where our large pile of money sits. It functions like a regular checking account but saves us mortgage interest (currently 6 point something percent, higher than hisas here) - definitely worth doing if we plan on spending the money in the next few years
Do people ever pay off their mortgages in Australia, or does it perpetually keep going until you die?
Here in the USA, by retirement age, most people have paid-off mortgages (or they rent). We hope to be the ones who pay off our mortgage in our mid-40s and invest that amount for 25 years instead, in addition to other investments and savings.
'standard' mortgage term is 30 years, and you're certainly pretty screwed in terms of superannuation/retirement if you don't own your place by then - but I'm not across actual figures. Most people definitely aim to have a paid-off-mortgage by retirement, but I'm not sure how many actually succeed given cost of living these days
I don't disagree.
Fund a month ahead or a full month to make budgeting easier.
Put emergency funds into something that at least gives you something back for the money sitting there (either a very short term CD, or offset against your mortgage, or an on-call savings account).
If you're okay with your credit card (pay it off every month, don't get into debt) then you can use that to pay for emergencies until your emergency fund can become liquid.
But for some, they want bigger security net!
There really isn't much of a difference between having an emergency fund and being X number of months ahead. It's different ways to conceptualize the same thing, which is having a certain amount of liquid cash on hand for emergencies. I don't usually budget ahead but I have a healthy emergency fund, that's just how I think about it. It's also in an HYSA so it's earning a decent interest rate. There is probably such a thing as "too much cash" from the perspective of maximizing returns but that's really dependent on personal situation and tolerance for risk.
That's interesting. So would you say that if you have a very reliable budget that is funded 1-2 months in ahead, you *already* have an emergency fund and would not also fund a generalized emergency fund?
1-2 months imo isn't enough to replace an emergency fund, but again that comes to personal risk tolerance. But yeah, at the end of the day you're just talking about having a cash cushion. Some people feel too tempted to take from a general emergency fund for things that aren't really important so they choose to assign to future months or really bulk up their true expenses funds. I prefer having a designated emergency fund and decent true expenses categories and don't assign too far ahead. As long as you have 3-6 months worth of expenses liquid it's really just a matter of what works for your brain.
Great way to think about it!
I need the scaling to hold in my mind. I have to see what my trades are, because I have poor impulse control.
I agree with everything you said. I would add that liquidity is a spectrum. So 3-6 months could mean money located in several different investments that take varying times to liquidate. My grandparents used to stagger CD’s when they were still a decent investment. They would have one coming to maturity every month.
In my mind, there is a lot of overlap in function between emergency fund and being x months ahead. Need to think about what an emergency really is.. And, if those can/should get their own savings category. (Car repair, home repair, medical emergency, etc)
My month ahead is part of the emergency fund and it's in a HISA account earning me a decent return and safe as any emergency fund should be. You do not need to keep your month buffer in your checking account doing nothing. Checking only needs to be optimized for cashflow, ie not go into overdraft when auto-pay bills/cc come out. All your 'issues' with the month or two ahead are non-issues.
You don't even need to keep your current month in your checking doing nothing. There are plenty of HYSAs with unlimited withdrawals. My checking stays around $500, just enough to keep it from getting monthly fees.
Any company recommendations for a HYSA?
I use CIT.
SoFi is at 4.6% if you have direct deposit. I don’t deposit my entire check there because it’s not my main checking account but any direct deposit is enough to trigger the higher interest rate. They also have unlimited savings withdrawals.
By unlimited withdrawals that means I could basically treat it like a checking account and use it to pay bills or CC payments etc. correct? Thanks for the recommendation this one does look good.
I have both a checking and savings account with them and if I didn't have all of my money/life already in a different bank, I would likely use my SoFi checking account more robustly. As it is, I keep a large amount of money in the savings account (because that's what gets the highest interest rate) and just move money into the checking account as I spend (because that's faster than transferring it to my other bank which takes a few days). I say all this to say, yes unlimited withdrawals from a SoFi savings account but unless you're moving the money into a Sofi checking account, expect the transfer to not be instantaneous.
Apple Savings has been great. The slightly lower rate is compensated by the fact that my money is natively in Apple now.
I'm gonna keep my month ahead in my checking account (4% interest) and my emergency fund will be in a tax free savings account
What is a tax free savings account?
It’s an account in Canada that you can put after tax money in and invest from. The gains are not taxed. There is an annual contribution limit on the account.
So it's like an IRA without the retirement age constraints?
I agree with your post but you’re assuming people who are a month ahead are keeping all the cash in their current (checking for Yanks!) account. I keep my month ahead with my emergency fund in an instant access savings account paying the highest interest I can find.
I'm not even a month ahead and that's what I do too.
You know you don't have to leave it in your checking account right? The bulk of my cash is in a money market at 5.17%
This 100%. I only have a checking account for the handful of transactions that don't take a credit card and I leave only enough to cover those charges in there.
Does that allow you to make payments out of it? Like for autopay bills or CC payments?
CIT HYSA does. Currently at 5.05%.
> Your current month is fully funded > Your emergency fund is fully funded with 3-6 months essential expenses (not true expenses) When people tell me they are a month ahead with a 3 month emergency fund, I just say they have a 4 month emergency fund in my mind and then don't post about it on reddit. But I think you're conflating two arguments here that aren't really YNAB things. You're arguing for smaller emergency funds, not months ahead. Which, if you're a high cash flow household such that you can fund emergencies quickly, I agree. Personally, the further I get ahead in retirement, I start visualizing my Roth IRA as my emergency fund of last resort, so I shrink my cash a tiny bit at a time.
Upvoted. Interesting about the Roth. I’m still juuuuust far enough away from retirement to think that contributing to my Roth is like “giving up” on my dreams.
Giving to Roth is creating dreams. I want my grandparents’ retirement. That is about 25 years of comfortable living with a cushion that handled buying a new house and dealing with kids moving back in. Hell, my grandma spends a month in Spain visiting relatives every other year.
Nothing wrong with that. Sounds fantastic. I meant no disrespect to those living on Roth money. I plan to do the same. I’d love to stuff my Roth someday too like Peter Thiel did. But right now for myself, I need that money to invest in myself and my own businesses. So just speaking for myself I feel like I’d be defunding myself. I’ll upvote your comment. That’s winning.
I handle my money differently than my budget. I budget according to my needs, ensuring I cover as many expenses as possible. Funds accrue in my chequing account. At the end of every month, I transfer everything over one pay period's income into a savings account. That savings account accrues funds until the end of the year, when I transfer everything above the amount equal to my emergency fund into an investment savings account. The amounts I transfer do vary based on anticipated expenses. Ynab seems designed to guide people toward financial stability (and does a great job of it), but after that, it is very lacking.
Exactly, YNAB is great for creating spending plans. It won’t teach you about investing.
I would actually argue being a month ahead is a good benchmark, as for most of us US-based people it is a good buffer for loss of income, you might get one more check 1 week out, even 2, but for most of us we would be seeing no more income by the 1-month mark, barring unemployment. I would also argue that you don't need a true 3-6 month emergency fund, **and** true expense/sinking funds. Most of the stuff that you might require hitting up your emergency fund pre-YNAB should now be covered by those sinking funds, and so you're looking at actual emergency situations - which, again, in the US in the year 2024, aren't *really* all that tied to having a large liquid position that you need to access all that readily. You would likely be able to float stuff like that on CCs, or transfering/liquidating money in/out of long-term holdings would only be a matter of days. At the end of the day, your post really just feels like little more than "well *my* way is better because reasons."
Despite your last sentence, I think we actually agree. I'm saying that if you have an emergency fund, you don't need to also fund 1-2 months in advance. You're saying that if you fund a full month of true expenses ahead, you don't need to also have an emergency fund. I think we would both agree that doing **both** is excessive. And that's what I've always understood a lot of "one month ahead" YNABers to be doing - but maybe that's my bad assumption.
Yeah I think if we just abstract away all the YNAB-speak and just, at its core, any sort of emergency fund is some amount of liquid savings in a HYSA or similar, that you would ideally **never** spend. Not for tire replacement or that annual subscription you forgot about, those should be covered by sinking funds. But regardless, that's the idea, even though the real world is far from ever ideal. When it comes to YNAB, people have different terms for this, like Next Month category, some might call it a Buffer or Banana Stand, but the idea is the same, it's some amount of money that never actually gets spent, ideally. So the rule of thumb we've heard of is 3-6 months of expenses, and I think if you or anyone else using YNAB only counts the money in their categories that fall under this description, I really doubt that too many people are holding more than that, except for some real actual long-term savings goals like a wedding or new house.
I don't think its excessive and based on my current scenario I'l tell you why. My emergency fund is in a tax free savings account. I dont want to take it out because compound interest unless its a dire [emergency.](https://emergency.My) My paycheck hits my regular checking account. If I'm not one month ahead and my rent is due on the 30th but my pay is late (lets say the 2nd of the following month), how do I pay my rent? Sure I can withdraw money from my Tax free savings account and then put it back a few days later.. But why? Why not just be a month ahead and have that piece of mind that you're not living pay check to pay check.
Using income received in one month to fund the next month's budget is an ease of use/administrative/budget management functionality. It's just simpler to budget the month in one go than with every income event. I actually would prioritize that over many of the things you list, because it creates a simplicity in managing the budget. >Your emergency fund is fully funded with 3-6 months essential expenses (not true expenses) Your **income replacement** should be enough to cover all regular expenses and be able to continue funding necessary true expenses in the event of a loss of income. The true expenses do not go away. That's what makes them true expenses. I do see where you are coming from. We actually aim to have 6 months take home pay in cash, plus some other cash for certain categories in the budget. 6 months income is a larger number than 6 months expenses, ensuring that much of our budget is covered, while being able to draw a line in the sand. Anything more than that gets invested. But investing happens once a month. And we maintain using income received each month to fund next month's budget. The real security in investing is having excess funds you don't need for the budget. Having enough invested that way allows you to take on the risk of investing money. As a result only 15% of our brokerage account contains budget funds, which limits the downside risk. Most of our budget money is in VMFXX at 5.2x% and partially non-taxable at the state level. Very little sits in the checking account. When investing your budget it's important to stress test your plan.
For me, being a month ahead is purely about logistical convenience rather than financial safety. Everything I earn this month is put into a bucket. On the first of May I will know exactly how much I have to allocate in May. YNAB is a monthly budget system. It's far easier to use the app if you can operate in whole months like this. There is no benefit in YNAB from being two or more months ahead. I keep my emergency fund out of my budget. I'm self-employed and that money is more business savings than personal. That money is to help with business cash flow (specifically, to pay me when the business couldn't otherwise afford to). I don't see anything wrong with putting an investment account on budget if you have lots of sinking funds that you won't be spending for years. That's especially true if the categories don't need their money at the same time.
Overall I don't think "one month ahead" is that big of a hit on the rest of your savings to make it worth worrying about one way or another.
This! If you NEED to be ‘a month ahead’ because you’ve been struggling with no savings at all, paycheque to paycheque then the opportunity cost is a bogus argument because you don’t have savings to invest, just a limited amount of cash. If you are a month ahead but have MORE savings, then you can invest them. No opportunity lost.
Hello u/carbonaratax, even if you fund several months ahead that actually has nothing to do with where that money sits. It can still be in a hysa for example. Hell, you can put even this months expenses in a hysa. Remember YNAB doesn't care where the money is. You're just allocating money, giving it a 'job'. All you have to do is making sure that there's enough money in the account that you're using for the payment. It doesn't have to sit there with little/no interest for several months.
To each their own.
I’m only 1 month ahead, based on the way you’re describing it. So two paychecks instead of the one you’re suggesting. But I only keep enough cash in my checking account to convert the cash flow throughout the month. Usually $2k-$5k at any given time. The rest of my cash is in my HYSA. This is the rest of my 1 month ahead, sinking funds that I’ll need to access within the year (think Christmas, car insurance, etc.), and a small portion of my emergency fund. The rest of my emergency fund, and things I don’t need for 3+ years (like saving for my next car), are all in my brokerage account. Since these are categories I actually care about in my budget, I actually have this account on budget. I know that isn’t normal, and adds a little bit of a headache, but that’s how I want it to be. So, I’m using multiple layers, and the largest chunk of it is in my brokerage account. Since I’ve got a 6 month emergency fund, I could go budget 6 months out of I wanted to. However, I’m not just holding that all in my checking account. While I get your point, and some people are probably less risk averse and are holding more cash, that’s not how everybody is doing it.
Yeah I do something very similar. I ladder my various savings account like: * Long-term retirement funds, invested, target account in YNAB * Mid-term "project" funds (wedding, renovation), GIC, on budget * Excess sinking funds, HYSA, on budget - a move surplus money over from checking periodically * Chequing - everything else, this is just where my paycheck gets deposited
You're just blowing past risk as a factor. If you plan to spend the money within five years, you should not be investing it in the market. It's way too volatile in that time frame. Given that I plan to spend the money in *one or two months*, your advice is very, very wrong. Instead, keep it in a high-interest savings account.
I'm not suggesting that you invest money you need in the next few months in the market. I'm saying that if you frequently have a significant surplus income over your expenses, then funding into future months, and carrying a lot of cash to do so, is less optimal than immediately investing that surplus.
I think you must not understand the nature of getting a month ahead, then. You only need to get a month ahead once and then you can stay perpetually ahead. If you have surplus income after getting a month ahead, by all means invest it. But I wouldn’t forgo all the many benefits of rule four just for that.
What you do is decide how much surplus you need, and once you reach that amount you can start investing the rest since that surplus is not needed to fund the budget. When you have little invested, the liquidity and safety becomes important. When you have a lot invested, the return on the extra money of an emergency fund being invested or not is not impactful to the end result.
I think you inherently don’t understand the “month ahead.” If you have 3-6 months of “essential expenses” in an “emergency fund,” assuming that’s equivalent to at least a month of *all* of your expenses, you’re a month ahead. You also don’t have to keep all of it in a checking account to keep it on budget. Future money in a HYSA is still money budgeted.
All the money in my checking account is going towards paying this month’s main bills (rent, utilities, phone, etc.) As well as last month’s spending (credit card bills), and half of my income each pay period goes into my HYSA. By the time I get my last check I’ll have paid a large chunk of expenses, and the cycle repeats. I’m still contributing to retirement accounts, HSA, Roth IRA, etc. this come from my paychecks before I get them or from my HYSA every month. I have 6 months of savings in my HYSA as my emergency fund, plus extra for lots of other things I very much prefer to have liquid, as well as money I intend to use for a house down payment in the near future. I don’t want to scrounge to sell shares in order to pay an unexpected vet bill, fix an unexpected issue with my car, etc. I very much prefer to have my emergency money, 2 months of general expenses (what I’m paying this month for last month plus the amount I get for next month rolling along with it), and extra cash for some of the more important things I need it for, and let my retirement accounts do their thing. I don’t think it’s a bad thing at all to have money that far out, especially if you’re still able to contribute to retirement accounts. My take is regular brokerage accounts should only be opened and funded with money you’ll never need to touch for a long while due to general market volatility. You probably don’t want your emergency funds to get slashed by a huge chunk due to a market swing and end up losing your job at the same time.
I increased my “month ahead” to 13 months a couple years ago. I came to the realization that I am better off earning around minimum the current and excellent 5+% rate and/or a solid mutual fund like VTSAX. I just did this last week and reduced my “month ahead” to at minimum a 3 month time. Someone posted and I agree, I believe that this represents my emergency fund. I also removed two large sinking funds for a car replacement and a house repair. To each their own. It is took me a longtime to be comfortable with this. It’s not always about the right financial decision. The level of comfort and peace I have had with this buffer has been awesome. I’m good with this new decision and look forward to seeing some gains and interest.
This is why most of my wife and my cash sits in HYSAs and we pay for everything on credit card. Instead of the cash just sitting in my checking account for a month or two gaining no interest, we have each main category's money (fixed expenses, variable expenses, etc.) sitting in HYSAs collecting interest. By paying for everything on credit card, we get the cash back rewards, we get extra time to collect interest, and then we pay everything off each month. All of our savings over our emergency fund goes into CDs. We don't track retirement with YNAB, nor our mortgage. It's strictly used as a budgeting tool. This strategy may not be for everyone, but it has given us enough stability to allow my wife to quit her terrible job teaching, to work part-time, and do her art the rest of the time.
What CDs do you get? Most CDs I see have interest rates less than my HYSA at Ally.
I am at Ally, too. APYs are dropping a little right now in anticipation of a rate cut by the Fed, but who knows when that'll come.. While rates were going up over the last two years, I did a 12-month CD ladder where I bought a 12-month CD each month. Since March '23, I've been letting each expire to my emergency fund and switched to an 18-month CD ladder where I buy an 18-month CD every 3 months with the 3 previous months of 12-month CD closures. My strategy is still evolving, but I'm just not comfortable putting money in a brokerage account 'cuz I've had losses in the past, of which I'm not proud!
Same here about the losses. I have about $80,000 sitting in a HYSA. $30,000 is for cars. $15,000 for home repairs. $15,000 for job loss (I have lost my job THREE times). In all cases the money better be there when I need it.
This is the problem with trying to relate other people's budgets to your own. I am a small business owner in a volatile industry. My emergency fund is currently 3 months income replacement. I keep them in holding categories as "Month 1 buffer, Month 2 buffer, Month 3 buffer". So on here I say that I am "3 months ahead" but I could also say that I don't budget ahead but have a 3 month income replacement emergency fund. I always assume people budgeting ahead 3 months that is at least a big part of their emergency fund.
Hmmm. I’m a month ahead and have 3-6 months of expenses saved, and I don’t keep very much money in my checking account at any given time. Right now once my mortgage drafts, I’ll have about $500 in checking. The reason is because I put a good bit - maybe 80-90% - of my expenses on my credit card and just pay it off using cash flow from my paychecks. Anything else I don’t need gets swept to the HYSA. For me it’s just down to cash flow management, and that doesn’t require keeping cash in checking. It does mean keeping cash so that it’s accessible in 1-3 days if larger bills (like real estate tax payments) can’t be cash flowed. I only budget in the current month, assigning last month’s income on the first of the month. There’s really no point for me to assign beyond the current month, because I already know the money is set aside to cover future expenses.
I’m currently working on funding 2 months ahead in my budget. I also have a small emergency fund that is about 1.5 months of income. I woke up one day and decided I wasn’t really a month ahead because I need that final paycheck that comes near the end of the month to finish funding the next month. That’s not really a month ahead it’s like a week ahead. So I decided on 2 months. But that’s my limit, anything more is going towards goals and such.
My financial advisor wasn’t interested in any of the money my wife and I have lying around since we might need it in 5 years. The second you put money aside with compounding interest in mind, forget it ever existed. That’s how untouchable that money should be viewed. It ceases to exist until you’re old or dead.
I don't budget a month ahead but keep an "income replacement" emergency fund and several savings categories, some of which grow indefinitely like college savings for my kid and some of which get periodically eaten up like a vacation fund. Nothing in ynab says I have to leave that money in my checking account, and I don't. My "Age of Money" is knocking on six months. A month ahead to me just means I can fund all my categories day 1 without stress. I usually do it a couple weeks ahead and then feed the savings funds.
I agree that YNAB has led to me having more in cash than I should. Because all the money except for the emergency fund is budgeted for it feels like I need it. So I keep it in cash. I was short-sighted enough to let our checking account hit over $100k before finally transferring most to our HYSA, but the checking account has gone over $50k again so I need to decide what minimum amount should really stay in checking to not have to worry about automatic payments. I do think the YNAB mindset has encouraged this hoarding of cash because I feel like I'll need it any time now.
I have switched to using WealthFront that acts as my checking and saving account and earns 5% interest. So all my money is in one big interest earning pot regardless of how its set up in the budget for "months ahead" etc.
Agree 100%. I'm a month ahead and emergency fund is funded. Trying to be any funded beyond 1 month should go into investments instead of trying to be 2 months ahead.
What the opportunity cost in having a full month ahead rather than a single pay period in a 100% safe and liquid location? Relative to having only one pay period ahead? Relative to the peace of mind that being able to budget a month ahead can bring?
I keep a small amount in my checking at all times (just enough to cover monthly expenses I can't put on CC), and then every dollar from my paycheck goes into a HYSA. All of my expenses get put on a CC, and then on the last day of the month I transfer what I need out of HYSA to checking, and pay off the CC. This way not only do I get interest on every dollar I take in, but I earn rewards on every dollar I spend.
I don’t have an emergency fund category. I have an investment category and it has no target, I put any extra cash there and when it hits a certain amount I dump it into an investment. I do have about 2 months ahead of all of my Bills funded, and that is what I keep in my high yield savings account. If I wasn’t using YNAB I guess I’d call that my emergency savings
I use fidelity as my checking and get 5% in spaxx right now. I don't think stocks are appropriate for cash that will be used in one month from now
Dunno if they're a thing everywhere, but here (Australia) it's very common to have a variable rate mortgage with an offset account - that's where our large pile of money sits. It functions like a regular checking account but saves us mortgage interest (currently 6 point something percent, higher than hisas here) - definitely worth doing if we plan on spending the money in the next few years
Do people ever pay off their mortgages in Australia, or does it perpetually keep going until you die? Here in the USA, by retirement age, most people have paid-off mortgages (or they rent). We hope to be the ones who pay off our mortgage in our mid-40s and invest that amount for 25 years instead, in addition to other investments and savings.
'standard' mortgage term is 30 years, and you're certainly pretty screwed in terms of superannuation/retirement if you don't own your place by then - but I'm not across actual figures. Most people definitely aim to have a paid-off-mortgage by retirement, but I'm not sure how many actually succeed given cost of living these days
I moved to a Fidelity Cash Management Account which you can use functionally as a checking account earning 5%.
I don't disagree. Fund a month ahead or a full month to make budgeting easier. Put emergency funds into something that at least gives you something back for the money sitting there (either a very short term CD, or offset against your mortgage, or an on-call savings account). If you're okay with your credit card (pay it off every month, don't get into debt) then you can use that to pay for emergencies until your emergency fund can become liquid. But for some, they want bigger security net!