How Do I Handle My Savings Account In My Budget?

When you’re setting up a budget and trying to get specific on your long-term financial goals, you might wonder how to treat your savings account in your budget.

Well lucky for you, it’s actually pretty simple to start saving. Here at YNAB, we think about things a little differently—especially how something like your bank account fits in with your budget.

We’ve got a proven method, and the reason that it works so well is because it helps change the way you think about your money, which leads to real behavior change.

The thing is, change can be hard sometimes!

And, one of the more confusing issues for new budgeters is how to handle savings. They worry about including their savings account(s) in their budget for fear that they’ll accidentally—or not so accidentally—spend it. But nothing could be further from the truth.

Let me tell you why and give you a tour of how to manage your saving account with a zero-based budget like YNAB:

Saving is Not The Same as Savings Account

If you asked the regular Joe what it means to save money, what would they say? Probably something like “Putting money into a savings account.”

YNAB’s method teaches you to give every dollar a job, and that includes your savings dollars—pretty much the opposite of letting your dollars lounge around in a cushy savings account without purpose. Right?

So, here’s a new definition of saving: “Deferring the use of your money for a later time, for a specific purpose.”

Your dollars just breathed a happy sigh of relief—nobody’s happy without a purpose.

Your Savings Account Doesn’t Matter … Much

With our new definition of saving, the question of location is moot. As far as your budget is concerned, it doesn’t matter if your dollars are in your primary checking account or a savings account. Confused? You’re not alone.

If you’ve never used a zero-based budget before, you’ve probably come to view a savings account as a safe space. Tuck your dollars away in savings, and they’ll be out of sight, out of mind (and still in your possession because you won’t accidentally spend them!). So, it’s no wonder that you’re nervous about including your savings in your budget.

The thing is, your budget is actually how you can protect, and even grow, your savings! Once you’re using a zero-based budget like YNAB, you’ll use your budget to inform your spending (not your bank balances, which can lead you the wrong way).

That big number, your bank balance, doesn’t tell you the full story. It can’t tell you how much cash you have to spend on groceries because it isn’t aware of your obligations and priorities. But your budget? That’s it’s job! Your budget can tell you, down to the cent, exactly how much money you can spend at the store. It knows, because you told it!

So, forget your bank balances, forget that balance on your savings account. Trust your budget. And, that brings us back to your savings account. It’s completely unnecessary to hold your dollars in a separate account because your budget will identify what each of your dollars is supposed to do, including being saved for some future purpose.

Keep in mind, too, that more accounts means more moving parts to keep track of. The more you use YNAB, the more you’ll see that having more accounts only adds unneeded complexity. For now, just remember that the location of your money doesn’t matter as much as the purpose you assign to your dollars.

So How Should I Save Money?

There’re a lot of folks out there (not me) who are natural savers. Even non-budgeters can be pretty good at saving money. But, often, they don’t save with a purpose. Non-budgeters typically save because they’ve been told they should. So they sock away money in a savings account because it feels like the right thing to do.

Putting money in a savings account makes them feel like they’re protecting those dollars. But that’s an illusion. When they see a shiny, exciting thing on Amazon, there’s nothing stopping them from taking that money and spending it. Why? Because that money didn’t have a purpose. It didn’t have a job.

So, give your savings dollars a real job, and be specific! Don’t just create a category called “Savings,” create a category group! And, under that group, set up categories with clearly-defined purposes like “Hawaiian Vacation,” “Laptop,” “Disney on Ice,” “New Couch” or whatever gets you excited.

Why be so specific, you might be asking?

Because it’s a lot harder, emotionally, to pull money out of your Hawaiian vacation fund than it is to take it from your savings account. You’ll think twice about if the purchase is really worth it to you. That’s why. You might choose to take the money out, but only after you’ve carefully weighed your decision and Hawaii, for whatever reason, didn’t take priority.

Every Category Is a Savings Category

And how’s this for mind-blowing: your budget is your savings account! Think about it, every category is a savings category. Referring back to our new definition of savings, each dollar in your budget is given a specific purpose for a future use.

…the only difference between your everyday dollars and your savings dollars is how long you plan to save them. For example, the electric bill’s due on Monday, and you plan to buy that new TV in six months. And, then there’s your emergency fund.

All of the dollars have a job, but some will hang around longer in your account. (In the case of your emergency fund, hopefully it will be a very long time!)

The bottom line is that you’re intentional with every dollar. Give them a purpose, keep them happy, and I think you’ll be a lot happier, too! (It’s hard not to be when you’ve got total control of your money.)

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