Overspending — it happens! What matters is what you do about it.
Fortunately, having a budget means you don't have to get everything right the first time. And it definitely doesn't mean you'll never overspend. So let that go and let's talk about what action to take when you do overspend!
Ideal: Cover it Now
Overspending happens whenever you spend more in a category than you had Available. If a category isn't grey or green, it needs your attention.
- If your overspending created a red category balance, that means you've overspent with cash. Not necessarily literal cash, but maybe with your checking or savings account.
- If it's yellow, your overspending happened on a credit card. (If you spent with both cash and credit cards in your overspent category, YNAB takes the cash out first for accounting purposes.)
The important thing? This is where a traditional budget says you've failed. It's where a YNAB budget says, " You're human. Adjust." We've all been there.
How to adjust? Roll with the punches and move money. You made a plan originally, but now you've got to change it. Look for categories that are green where you can cut back and move money to your overspent category. That's it. No guilt. Maybe a lesson learned, sure—but no guilt.
Can't Adjust Now?
Sometimes it happens. You overspend and you just can't adjust now. (see: Not Perfect above). Here's what happens:
When you overspend with cash, you're spending all the money in that category plus some money from your other categories, so there's a risk of over-drafting your actual bank account. Because of this, it is important that you hold your budget accountable. YNAB does this by subtracting any cash overspending from your Ready to Assign in the following month:
When you overspend with a credit card, you've racked up some additional debt—though no actual cash has left your budget or accounts. To reflect this, uncovered credit overspending becomes a part of your credit card balance at the end of the month. You'll see the category that you overspent goes to $0.00 in the following month—but you now have more debt to budget for in your credit card payment category.
Cash vs. Credit
Cash overspending is more urgent in the here-and-now, because you've got less money in hand to adjust and adapt. That's why it's red. But beware of credit overspending—don't let a little yellow, or the fact that you still have cash in hand, leave you piling up debt. Cover your overspending no matter what the color whenever you can!