In Part 4, we’ll learn how to record purchases and what happens when we use credit cards. If you haven’t read the earlier posts, you can find them here:
Now that you’ve read our other financial posts, you know that we use a program called You Need A Budget. That’s an affiliate link, by the way. If you click on it and sign up, we both a get a free month. If you love it as much as we do, you can continue for either $11.99 a month or $84 annually (pricing current as of 3/3/2020).
If you haven’t signed up for your free trial yet, click the link! Today, we’re adding accounts and giving our money some very specific jobs. Trying anything new can be intimidating so I’m going to break it down into simple steps with lots of pictures.
Are you ready to get started?
Our first purchase is going to be an easy one. Let’s pay our car insurance with our checking account. We need to record that purchase so we don’t think that we have more money than we actually do, right? We have $200 in our budget and our bill was $200. Perfect! We KNOW that we have $200 available for this payment because the money in our auto insurance row is highlighted in green.
Let’s go to our checking account and record the payment. Click on your checking account on the left hand side of your screen.
After you click on the account, it should take you to your checking account register.
Do you see that button that says Add Transaction? Good. That’s exactly what we’re going to do. Go ahead and click on it. It will give you a new line that looks like this:
From left to right, we’re going to enter the date of the transaction, the payee (who we paid), the category (in this case auto insurance), an optional memo (good for confirmation numbers), and the outflow or inflow. Since we’re paying a bill, it’s going to be outflow. It should look like this when you’re done:
Now click Save and you’re done! A few tips for this section.
Use the date of purchase for your transaction. The system allots money by the date so you want to make sure that you are recording things accurately.
Payees are remembered by the system, and as you type future transactions, the system will make suggestions based on the letters you type.
Categories pull from the categories that you previously set up for your budget. You can not add categories from this screen–only from the budget screen.
If you hit Enter, it will automatically Save and Add Another blank transaction screen for you to fill out.
You’ll notice at the top that your numbers have changed. The first number is the last cleared amount. That means that this is the last number that you and your bank agreed on. Remember how I said that I want you to sign up for direct import but only as a back up feature? This is what I meant. So in a day or two your bank will finish processing this payment and import it to your budget. If it matches up it will chain them together, clearing the payment. If you did not sign up for direct import but would rather manually clear items, you can do that by clicking the C on the right and turning it green. We’ll talk more about reconciliation later.
Until that happens (manually or automatically through import) you’ll have two different amounts on top. The Cleared Balance is important for reconciliation with your bank. The Working Balance is actually more important, in my opinion, because this number shows you how much money you actually have.
Now if you go back to your budget you’ll see that you have no more money available for car insurance payments because you spent it all.
All transactions get recorded in this same exact way. Just make sure that you choose the correct account to subtract the payment from. The only difference between a transaction made from your checking account and a transaction made with a credit card is what happens to the money after you record the transaction.
This is where YNAB really shines. Credit Cards. Let’s look at the Credit Card section in our Budget just to refresh ourselves.
The last time we were here, we assigned minimum payment amounts that needed to be paid to our credit cards. It isn’t quite time to pay them yet though so we want to use one of them to buy groceries. Let’s use Credit Card 1. Watch the green payment amount. Right now it is $100.
The first thing we have to do before spending money is see how much money we have allotted for a specific category. Don’t worry. We can change these numbers through a process called WAMMING if we really need to, but for the example today we’re going to be responsible adults and stay within our limits. Besides, we only want to grab something quick to eat so we’re not going to blow the entire budget.
Look at that! We have $400! Don’t get excited. We still have to go grocery shopping later, but right now we are STARVING. Let’s grab a quick bite and record our transaction. Go to your Credit Card 1 account on the left hand side of the screen and Add Transaction.
I went ahead and saved our transaction for us. Did you remember how to do it? Date, Payee, Category, Outflow, Save. Easy!
But hang on a minute. The numbers at the top are super weird on this one. My working balance increased!
Yep. Because credit cards are a type of debt, every purchase is going to reflect as an increase in that debt. Depressing, I know. That’s okay though because if you look a little further to the right you’ll see a payment box. It should be green because we have also been feeding that payment with each purchase.
Now instead of just the $100 that we initially set aside, we also have the $20 from burgers! The system does this automatically and makes it super easy to pay off all of your transactions each month as long as you stay within the limits you gave yourself when you set up your budget. Paying off those transactions means not paying interest on them.
You can also see this reflected by going back to your main budget screen by hitting Budget on the left hand side of your screen.
Here you can see the $100 you initially allotted, the $20 moved over by the system, and the total amount available for payment in green.
You can also see where the $20 was removed from the grocery budget.
Key Note: This does not pay your credit card for you. You still have to manually pay your credit card just like you have to manually pay any other bill. This program is strictly for recording and knowledge purposes. What this does do, is shows you exactly how much you spent and how much you have available to pay things off rather than you trying to remember how much you spent or how much you can afford to pay toward your credit card each month.
Now you try! Record some transactions of your own. Watch carefully as your money moves around when you use credit cards. This can be an especially confusing concept at first. Just remember, when you use your credit cards, you’re not actually spending any money, but you do need to have money set aside to pay them off when they come due. That’s the beauty of the system moving them to your payment category for you.
Are you still excited? Come back for Part 5 because it’s pay day!!! I’m going to show you how to record your paycheck as well as how to distribute it to start building your real emergency fund.
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