Tutorial for: YNAB and YNAB4 Suggested skill level: beginner and intermediate
Cash. Greenbacks. Dolla dolla bills.
There are two basic ways to handle cash in YNAB. Which method is best for you will depend on your 1) current cash habits and 2) desired changes and outcomes.
In this tutorial, I’ll explain both cash-handling methods, show you how to set them up, and provide detailed examples of cash transactions ranging from simple to complex. I’ll also discuss the merits of each method and help you decide which cash method you should use.
Handling Cash in YNAB
1. Two cash-handling methods in YNAB
There are two core methods of dealing with your cash usage: accounts or categories.
The main difference between these methods is the point to which you track your cash spending and, as a result, the degree of detail you log into YNAB.
Cash Accounts – This method provides the most detail because you track your cash all the way to the point-of-sale. In other words, you enter cash transactions as they happen — when the cash leaves your hands.
If you enter your YNAB transactions manually as you spend, your cash spending will fit right into your existing workflow. Importing is not an option for cash transactions. If you typically import your transactions, then the Cash Accounts method may challenge you a tad.
I use the Cash-as-Account method. It provides me an accurate picture of all of my spending. It’s also a bit of a pain-in-the-ass. And, if I’m not diligent, a pain in my budget.
Cash as a Category – This can be a simpler and more straightforward tracking method — except when it’s not.
The basic premise is your cash spending is a category in the same way your groceries or rent or Internet are categories. Tracking stops once cash enters your wallet, not when it exits it.
Cash-as-a-category is the tracking method we use for Fang’s cash.
Yes, Virginia, you can use both cash methods in the same budget.
2. Setting up Cash Accounts
To get started, use YNAB’s Add Account wizard to create a new unlinked account (screenshot #1).
Make sure to choose “cash” from the dropdown list in answer to the type of account you are adding (see screenshot #2).
As with any and all Accounts in YNAB, each cash account you create will represent a separate and distinct physical entity.
What does that mean?
Well, it means that for each separate place that you keep cash, you will create a separate, named Account in YNAB.
Let’s say, for example, that you have a wallet you carry around with you. You’ll need a Wallet account. If you also have a wall safe where you keep your Zombie Apocalypse stash, you’ll need a Wall Safe account. And if your weekend side hustle involves cash that gets tucked into an old gym sock or empty 10-gallon water bottle, you’ll need a Gym Sock or Side Hustle Water Bottle account as well.
How or what you name your account(s) isn’t important. What’s important is that each separate physical pile of money– or each cache of cash — whether it’s a checking account or an old coffee tin, is a separate account in your YNAB budget file (see screenshot #3, below).
3. Using Cash Accounts
If you’re using the Cash Accounts method, cash transactions are the same as any other transaction in YNAB.
Each time you spend cash you’ll create a new transaction in the correct (originating) cash account. Enter the Payee and choose the Category as you would any other transaction. Then enter the amount spent as Outflow (see screenshot #4, below).
Cash accounts, just as with all of your other YNAB accounts, need to be reconciled. My general “best practice” advice is that all Budget accounts should be reconciled at least once a month. If you use cash frequently, I’d recommend you reconcile your wallet at least weekly. To reconcile your wallet or other cash account, pull the cash out of your wallet (or safe or gym sock) and count the contents. Compare that number to your Cash Account’s Cleared Balance. If the balances don’t match, you’ll need to search your memory for a transaction you missed or create a reconciliation adjustment transaction to write off the difference.
One item of note: There is a programming difference in YNAB’s* cash accounts versus the checking or savings accounts. All cash account transactions are automatically cleared when entered. This feature saves you the extra step of having to go back and manually clear each cash transaction.
Also, cash transactions can be split between multiple categories. Check out the example transactions section for details on a variety ways that cash can be involved in complex split transactions.
*Applies only to the web-based subscription-model YNAB (aka nYNAB) only. [Kudos to YNAB for adding this function in nYNAB. If you’re still using YNAB4, you’ll still have to manually clear all cash transactions after entering them.]
4. Setting up Cash as a Category
Cash-as-a-category is really just that — spending cash is a budget category. This method is good if one or more family members get a cash allowance to do with as they wish.
To implement this method, simply create a budget category for Spending Cash. If more than one family member will receive a cash allowance, create additional categories — one per person.
5. Using cash as a category
The entire point of cash-as-a-category is the user doesn’t need to track individual cash transactions. Therefore, the act of moving money into your wallet is the same as spending — the “purchase” is categorized to cash spending and tracking is done. Where and when the cash is actually spent is not a matter for YNAB.
The specific steps are:
- Budget/allocate an amount from your available To Be Budgeted [TBB] balance.
- When the cash is withdrawn from an account (an ATM withdrawal is made, a check written and cashed, cash is removed from your wall safe or gym sock, etc.), the transaction is entered and the withdrawal (outflow) is categorized to the appropriate spending cash category.
- For all intents and purposes, once the funds are converted to cash or moved to your wallet/pocket from a Cash Account, the entire amount is spent. Even if it sits in your wallet for weeks, in your budget the money is spent.
This method really only pertains to wallet or pocket cash, not large stashes of cash in wall safes or old gym socks for the Zombie Apocalypse. Cash-as-a-category is a convenient way to remove cash from the budget that is on its way to be spent. Cash that is being held as an asset for medium- or long-term use is best held in a Cash Account. Those account balances are included in your YNAB To Be Budgeted [TBB] total and should be assigned to a job (category) in your budget.
6. Which cash method is best?
Well, it depends.
As I mentioned, I use one method while I have Fang set up using the other method — both in the same budget. Which method is best depends on each person’s preferences, habits, and your overall financial/budgeting goals.
The Cash Account method works best for me because:
- I rarely use cash
- I spend more easily and loosely if I’m paying with cash
- When I do use cash, I’m usually spending a sizable chunk o’ change
- I feel crappy about myself after spending money without accountability
For me it all boils down to two main reasons I use YNAB in the first place:
- Intention: I strongly advocate using YNAB to clarify, articulate, and stay on-track with intention. Categories are created with intention. Money is allocated to categories with intention.
- Accountability: The other half of intention is accountability. Entering a transaction creates a record of my action. That record is an effective way to measure my actions against my original, stated intentions.
But then what about Fang and his cash-as-a-category method?
This is why the right answer to “how should I handle cash in YNAB” is it depends. Fang’s use of cash is different than mine. And his feelings about money and budgeting are different, too.
The Category method works well for Fang because:
- Almost all of his cash spending is on small incidentals for himself
- He’s not prone to impulse spending
- He sees no value in tracking his personal spending
So a blend of cash methods is what works best for us.
My cash spending is infrequent. I don’t have a specific “allowance” category and my cash spending is rarely on personal incidentals anyway — I might pay cash for my annual haircut or to a handyman for something around the house. Fang, on the other hand, kinda dribbles cash here and there. He might stop at the post office for a stamp to Canada, pick up a burger at Wendy’s, then stop at the cleaners for his laundry on the way home — paying for each with cash. He doesn’t ask for receipts and I wouldn’t want to enter them if he did. So his incidental spending is all done in his Spending Cash budget category and my incidental spending is all done on credit cards and is categorized more descriptively as Clothing, Household Consumables, Arts & Entertainment, Doohickies & Widgets, etc.
7. What about loose change?
My advice: ignore it.
If you’re tracking cash, deal with whole dollars only. Trying to track cash to the penny is a losing proposition.
When entering a cash transaction, count the bills you hand over less bills handed back as the amount spent. For example, your purchase total is $13.78. Here’s how to handle that transaction depending on how you pay and the change you receive:
- You pay with a $20. Cashier hands you a $5, a $1, and $0.22 in change. You enter the transaction as a $14 Outflow.
- You pay with a $10 and four $1’s and get $0.22 in change. You enter the transaction as a $14 Outflow.
- You pay with a $10 and three $1’s from your wallet and count out $0.78 in change from your pocket. You enter the transaction as a $13 Outflow.
- You pay with three $5’s and receive four quarters, two dimes, and two pennies in change. You enter the transaction as a $15 Outflow.
Coins, or loose change, enters back into your budget if and when it is converted back into paper money. Or is deposited into a bank account. Some people have a bowl or jar or some other place they collect their loose change when they empty their pockets. After a while, enough coins are collected and those coins are counted and converted into bills, or as Fang calls it, “folding money.” If you were to take a big bag of coins (not currently represented anywhere in your YNAB budget) and convert it into bills, you’d create a new transaction to bring that money into the budget and give each of those brand new (to you) dollar bills a job to do.
8. Show me the money (transaction examples)
Screenshots can be worth 10,000 words. Below are examples of transactions beginning with relatively simple and moving to more complex scenarios.
These first five examples illustrate basic transactions you might encounter for both Cash Accounts and cash-as-category situations.
Example 1: A series of simple, single-category transactions made from a cash account
Example 2: A simple cash-as-a-category transaction
Example 3: A cash-as-category bank transaction split between His and Hers cash spending categories.
Example 4: Depositing a paper check with a “less cash” cash withdrawal for spending cash.
A simple split transaction showing the full amount of the check as To Be Budgeted with the “less cash” portion categorized directly to spending cash. The transaction’s net total is equal to what the bank’s records will show for this deposit.
Example 5: Depositing a paper check with a “less cash” cash withdrawal, cash placed in Cash Account (wallet) for further tracking.
A slightly more complex split transaction than the one above. In this case, the cash will be tracked as it is spent. The first part of the split is the same as above: the full amount of the check credited to To Be Budgeted. But then the second part of the split is an Outflow transfer to the Wallet cash account…
…which, when you look at the Wallet register, appears as an Inflow, increasing the balance of the Wallet account.
Example 6: Stealing from Fang’s Spending Cash stash to replenish my Wallet (cash account).
Rather than go to the bank to replenish my wallet, I go to Fang. But his cash has already been categorized against his spending allowance. If I take his cash he has to take more out of the bank for himself. This makes it look like he’s spending more cash than he is and leaves me with no good way to explain to YNAB the source of my own cash spending. This is corrected one of two ways.
Either find and edit the most recent transaction with a Spending Money category entry (see below)
or create a $0 sum split transaction crediting the Spending Money category and transferring an equal amount to the Cash Account (screenshots below).
Example 7: Transactions with mixed-source payments (part credit card or check, part cash).
This example illustrates two common mixed-payment scenarios. In the first case, dinner was charged on a credit card and Fang paid cash for the tip. Rather than have that cash tip be considered part of his Spending Money, the tip gets added to the Dining Out category and his Spending Money envelope gets credited that same amount.
In this second case, I charged the cost of a haircut to a credit card and gave the hairdresser a cash tip from my wallet. The credit card charge will match my credit card statement and my Wallet will reconcile because the account balance will be reduced accordingly. In the meantime, my “Personal Care” category will accurately reflect the full cost of the haircut (fee + tip).
Example 8: The “remaining cash balance” method for calculating costs.
In some cases, the best way to calculate and attribute cash spending is by taking a before inventory and an after inventory and expensing the difference. This is the method I use when traveling because my cash habits are quite different when traveling and I don’t want to track all the incidentals. This method can be used for any cash-fueled one-off event — anything from a holiday fair at your kids’s school to a weekend trip to Vegas.
Start with an accurate initial balance (I recommend reconciling before you go). When the fun is done, count the leftover cash. The difference between the two numbers is what you spent. Create a transaction expensing that number to the most appropriate category.
Example 9: Fronting a big expense on a credit card (or check) and being reimbursed with cash.
Sometimes it just can’t be avoided. You do something with a bunch of friends or family members and rather than making the server keep five separate tabs, you run one tab, someone pays the whole thing, and everyone reimburses their share. This can happen with nights out on the town, vacation rental deposits, or big gift purchases, etc.
If you’re the one fronting the money or paying the bill, you might put the charge on a credit card (bonus rewards, anyone!?) with the agreement that your friends or family members will each reimburse their share.
The example below shows how to handle a mix of cash and check reimbursements — depositing checks in the bank and putting the cash into your wallet (Wallet Account) while crediting everything properly in your budget.
Or maybe you don’t track your cash spending but want to keep the cash reimbursements rather than deposit it and then make a separate cash withdrawal. The screenshot below shows how to properly enter this split transaction so everything looks right in your YNAB budget.
Example 10: Fixing a Cash Account that doesn’t reconcile.
This final example covers how to reconcile. Because, invariably, cash disappears. Poof!
I sit down to reconcile. My Wallet register says I should have $41 left but I only have $13 in my wallet.
The missing money must be accounted for.
You can use YNAB’s Reconcile Account function and allow the program to enter a correcting transaction for you. The problem with this method is that YNAB applies the Outflow to your To Be Budgeted [TBB] balance effectively saying that the money never existed to begin with.
And if your TBB was $0 this correcting transaction will cause it to be negative. You’ll need to adjust your budget allocations to cover money that YNAB “disappeared.”
My solution is to create a manually create a transaction. This way I get to choose a spending category that makes sense. I know I had the money. I either lost it (in which case I categorize to Stupid Tax), or I forgot to enter an expense (in which case I wrack my brain for where I likely spent it).
This second method is more accurate — it is tracking money that left my hands rather than reducing the amount of money I had to begin with.
Addendum: Check out my answer to a reader’s question about a how to enter a complex transaction — they “bought” cash from their kid, paid for the cash with a transfer from on-budget checking to kid’s off-budget savings and added the cash to their wallet. YNAB puzzlers for the win!