Friday, April 20, 2018

Handling Cash in YNAB

The Curse of Cash

One aspect of budgeting that I have always found so frustrating is the tedious nature of tracking my cash expenditures.  This article explains how I was able to break past my OCD and make peace with the paper & coins in my pocket.

I had two major problems with my cash spending, which has caused me to walk away from budgeting more times than I can remember:
  1. The vast majority of my cash purchases do not result in a receipt, making it almost impossible to accurately record my transactions unless I do it immediately after purchase.
  2. My borderline OCD tendencies make it impossible to walk away from a two cent error in my calculations

Pettiness as a Virtue

Normally I'd create a "Wallet" account and track how much money was coming out the ATM, split bills, and whatever I found behind the couch cushions when cleaning.  Every transaction in cash would be dutifully tracked, down the nickel I threw in the fountain to make a wish.  Inevitably I'd miss a day (or a week) and spend an hour wracking my brain on where the 37 cents missing from my Wallet account could have gone.  Nine times out of ten I'd just give up and mark it as "Misc".

Finally I said "Enough is enough" and made a hard compromise.  I realized that alongside the budget categories that represent the major trappings of Western civilization (mortgage, auto loan, petrol, student debt, credit cards, etc) the amount I was spending in actual cold, hard cash was irrelevant.  In effect, it was petty in the truest sense.

So, instead of tracking cash as an account, I created a "Petty Cash" category and toss all my cash in there.  The key is to treat it like any other category -- an outflow to Petty Cash (eg. an ATM withdrawal) is the end of the tracking.  As far as your budget is concerned, that money is gone, already spent, frittered away on nothing worth tracking.  Likewise, small income amounts (found money, deposit returns, etc) can just go in your pocket without any paperwork.

But What About...

I see you are already thinking of the hundred special cases where this doesn't work.  So there is a little trickery required to keep things straight.  The biggest obstacle here is when you use your petty cash to fund a tracked expense (eg. eating at a cash-only restaurant).   Here's my solution:
  1. Create a Bookkeeping on-budget account
  2. Record the amount in question as an inflow from Petty Cash.  
  3. Record the amount in question as an outflow to the relevant category.
What you've done here is create a net-zero transaction that brings money back into the budget (from the cash reserves in your pocket) and then immediately out of the budget to the proper category.  This works for any cash transaction, so long as you recognize that Petty Cash does not represent the amount of money in your wallet, but is a category like any other where you can magic budget money out of the ether when necessary.

The Fine Print

 There are a few considerations here:
  1. This only works if your cash expenditures are truly petty.  
    1. This can be accelerated by using credit cards whenever possible.
    2. Obviously that only works if you are a pay-off-your-balance-every-month sort of person.
  2. A hybrid approach is to have both a Wallet account and a Petty Cash category
    1. Budget some small amount to Petty Cash every month ($20)
    2. This gives lots of wiggle room for small purchases, found money, etc.
    3. If you are consistently overspending, this amount, reconsider your categories

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