I’m hoping some budgeting expert out there can tell me the best way to record some relatively unusual events in YNAB. I don’t know how to simplify this without risking misunderstanding, so here’s the situation. Let me break it down:
BEFORE THE LEASE:
I had made purchases on behalf of a friend over several years, and just gave her her own budget category to look back at what she owed me and what she repaid. I could use Reports to add the transactions up and see a total.
Then, I took on responsibility for a substantial car loan on her behalf by signing for it, under the agreement that she’d be making the payments. I say substantial because it also contained the negative value of a car she still owed money on. It was underwater from the start by design. I used the nifty Loans feature to keep track of what I owed the lienholder, although I had no expectation of having to make any payments myself; this loan was for my friend to repay.
When it became clear to me that my friend wasn’t going to be making any payments on this loan, I felt pressure to get out from under it. I traded in assets, both the car the loan was for, and my own car, which I owned outright (and loved), to approach a zero-value starting point to lease a car for myself. It was the only solution I could come up with.
AFTER THE LEASE:
The operation was a success, and I am now making payments on a leased car for myself. Now my carless friend owes me—not the bank—the difference between the value of the loan and the value of the car it was for. That’s on top of her existing debt, which is preserved in the budget category I made for her.
I don’t know how to document this situation in YNAB, though. What do I do with the loan section? Is a lease a loan for budgeting purposes? Do I create an asset tracking account or keep using my friend’s budget category to keep track of this now-massive debt? Any thoughtful suggestions on handling this would be super helpful.
Hey I’m so sorry I’ve been a bit negligent of attending to the community needs as I’ve had a family situation to attend to.
What I will make clear is that you should only budget money you have IN HAND, and never budget money you’re owed and do not have. If you want to use YNAB to track the debt, I personally have a tracking account for money owed to me and make transfers into the category I paid it out of when the money is paid back. I utilize the memos here extensively to explain why the debt was incurred and so on and so forth.
The problem with keeping it in budget is that you shouldn’t have anything in your budget with a negative balance. Otherwise you can’t trust your budget. YNAB will yell at you if you do this. The money needs to be squared away somehow which is why I’m suggesting you use a tracking account.
Of course you don’t need YNAB and can just track it externally and then treat the debt payments received as income into your accounts on budget.
All of this being said, please don’t take on such a massive debt for a friend in the future. It’s a huge liability and can ruin friendships. I can see you’ve handled it appropriately but I can only hope it didn’t get messier than what you’ve already described.