Getting Out of Overdraft

One of YNAB's fundamental concepts is to budget using only the dollars that you have right now. If your bank account is negative, though, you don’t have any money to assign to your categories. 

So what do you do?

Rather than assign money you don't have, you're going to create a plan and track your spending. This will help you work your way out of overdraft. For good.

An important note: this plan is designed for overdraft accounts without a borrowing limit. If you have what we call a "permanent overdraft," where your balance is always negative, it's important to understand what limitations exist when it comes to using YNAB with that type of account. Reach out to our Support team so we can chat about the best set up!

    Already have a Budget? You're still going to follow the same steps – tighten up your plan, track your spending, and only assign once new money actually shows up in Ready to Assign. And if it seems like you need to some big shifting in your priorities, it may be a good time to Make a Fresh Start!
  • Create Your Plan
  • Track Your Spending
  • Assign New Money

Create Your Plan

The first thing you'll want to do is to create a plan by customizing your categories and setting up targets. Targets are how much you want to dedicate to a given expense. The more detailed you can get, the further you'll think ahead and the easier it will be to get on top of your spending. If you haven't fully thought through your categories and added targets to each one, do that now!

  1. Create a category and target for each of your expenses.
  2. Create a repeated scheduled transaction for each bill. This is helpful to do even when you've already set up targets, because you'll get some additional information about the scheduled transaction within the Budget category.
  3. Now it's time to consider how realistic your plan is. With no categories selected, look at the Underfunded amount in the Inspector. That's how much money you would need to fund every category. Based on your monthly take-home income, can you actually afford your plan? If not, that's okay! By identifying that your expected expenses are more than what you can realistically afford, you've already saved yourself some financial stress. From here, proactively adjust your categories and Targets until your Budget better matches your income and priorities.

At this point, your Budget should be full of useful information. Don't let the yellow worry you – it's there as a guide, and will help you move forward. You'll also see the balance of the overdrafted account at the top of your Budget.

Budget shows accounts on the left side, the negative balance of the overdraft account at the top of the budget

For now, ignore the button that says Fix This. After you're out of overdraft, you'll use that button to help ensure that you're only working with the money you currently have on hand.

Track Your Spending

Once you've got your plan laid out, you'll add your accounts and start recording your spending as it occurs. When you spend in your overdrafted account, you'll see red in the spending category's Available column which represents cash overspending. If you spend out of a Credit Card account, you'll see yellow which represents credit overspending.

Overspending in categories is shown as red for cash and yellow for credit in the Available column

If an expense comes up that you didn't anticipate in your original plan, don't fret! You're learning as you go. Add a new category that fits that expense, and then categorize the relevant transaction there. That way you'll be able to anticipate it in the future.

As you spend, your goal is to keep the negative figures in the Available column as low as possible. The less you spend now, the more you'll have left to assign the next time you receive income. If a new month begins before you're paid again, your Available amounts will reset to $0.00 in the new month, and last month's cash overspending will be summed and added to the outstanding balance at the top of your Budget.

Assign New Money

When income is deposited into your overdraft account, it will first go to covering the debt you owe plus any fees. You'll see the remaining funds at the top of your Budget in Ready to Assign, which means it's time to give those dollars jobs! You can use Auto-Assign, or you can assign money to each category yourself. If you're doing the assigning, follow these steps:

  1. Budget to cover any overspending first by assigning money to those overspent categories. That money is already gone (or is due to your Credit Card company), and we want that to be reflected in YNAB.
  2. Then, using the Targets you set up when creating your plan, ask yourself, "What does this money need to do for me before I get paid again?" Make sure to stop when Ready to Assign reaches $0.00.

Now you have a plan for the dollars you have on hand. Next time you're deciding whether or not to make a purchase, use your Budget to make that decision. If you find your priorities have changed, that's okay – roll with the punches by moving money and you'll be back on track.

If you end up going back into overdraft, lean back into tracking your spending and keeping the negative figures in the Available column as low as possible. Question your spending as you track and you'll find places to cut. It's important to only spend on your most critical expenses until the overdraft is gone. Seeing less red will let you know you're making progress!

Once you're paid again you'll repeat the process above. Eventually you will make it permanently out of overdraft, which is a huge accomplishment! What's next? We suggest you start getting ahead on your True Expenses.

Want some personalized help?

We know getting out of overdraft can be a challenge, and we're here to help. Send us a message any time and one of our support specialists will assist you with your Budget!

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