Then you spend, letting the budget guide your spending decisions. It works like this: Money comes in, then you budget those dollars. We teach people to live on the money they made last month, so they’re a month ahead. Now, let’s step back for a second and talk about what YNAB recommends when it comes to cash flow. I may have possession, but that doesn’t give me ownership: there’s a difference.Ĭheck out Hannah’s explanation of the credit card float. Even if I plan to bring it back tomorrow, that doesn’t make it my book today. If I go to the library and borrow a book, they’ll say, “No problem, take the book! Just make sure you get it back to us in two weeks.” I have to return it. It’s debt from the second you charge on the card. Allocate cash to pay the credit card bill.Here’s the test to determine if you are trapped in the float: If you can’t pay the credit card in full right now AND meet your current obligations, you’ve got debt. How Do I Know if I’m Riding the Credit Card Float? They charge their expenses this month, then pay them off next month. Many people take advantage of this, and even feel good about doing so. As long as you pay the balance in full within that time frame, you are not charged interest. When you charge on a credit card, you’re given a grace period to pay things off. (Don’t worry, I’m only writing warnings there are no actual citations being issued. It’s not a fun role for me to play (okay, I don’t actually hate it), but it is an important concept to understand, so I’m going to take some time here to explain it. There they are, happily paying their bills (for the time being) when I roll up and point out the flaw in their plan, like some self-appointed Safety Patrol of Budgeting. Every time I explain the credit card float to people, I feel like the bearer of bad news.
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