By default, YNAB add red highlights to only one type of Available bubble: those with actual overspent balances.
In other situations, the category is highlighted with an orange bubble. This includes categories with scheduled transactions that lack the funding to cover the transaction total. Also highlighted with orange are categories with credit card spending that isn’t funded. [This not advisable but still allowed because sometimes there’s no other option but add debt to a credit card.]
The Highlight all Negative Category Balances Red setting changes this default behavior. Any category with overspending, no matter the funding source (cash, credit card, future), is highlighted red.
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