If I have a category that has $100 allocated per month and I spend $102 one month but only spend $98 the next month, will the deficit be back to $0 (I.e., back to normal as if nothing is wrong) in the third month?

No. You can't "punish" a category that you overspent in and have it go negative. If you spend 102 you need to cover it for transferring in 2 dollars from another category. The reason this is so important is because it reflects the reality of what happened. Since in reality you didn't magically go into negative dollars, you pulled it from somewhere else. This forces you to model your priorities according to reality. I would say this question is the heart as to why I recommend YNAB.

Thank you.

Anytime!

The $2 will roll over to month 3, though. It means you budget ahead instead of behind.

Ari do you mean the $2 deficit from the first month?

no, he is talking about the $2 extra in month two.

Ah yes. So what would happen to the original $2 deficit if it’s not covered?

month 1 will continue to look like it has an unresolved issue, but starting in month 2 it will be back to zero and show no issues at all. So if its currently month 3, you would need to rewind to month 1 to fix the fact that it doesn't reflect the reality of what happend (since you did somehow cover the overspending in that month)

Ok that’s clear. And what if I cover it in month 1 but in month 2 I temporarily change the target to be $98 just for the current month and then change it back to be $100 in month 3? Just to keep things balanced.

In the ideal situation, you would put 100$ into the category in month 2 without changing the target and put the 2$ back into the fund you stole it from in month 1. Don't play with the targets, will get too complicated.

Ah that’s a simple solution, Yasher Koach Nuch Amol

That's great feedback!

💯

I tend to over-budget on essentials, so it's always budgeted for, e.g. I fill up fuel 2-3 times a month, I budget for 3, in the best case it rolls over. For non-essentials, e.g. yom tov, vacation budget, I under-budget, so I'm not tempted to say 'lets spend a bit more, there's room in the budget' - I know I'll go over a bit, but there's always a bit of unexpected expense every month, The bulk is funded.