Yearly Archives: 2008

How Can You Apply the Banking Crisis to Your Personal Finances?

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Two lessons can be learned from the current banking crisis. And remember, the odds of you getting a personal bailout? Pretty slim.

Lesson One: Don’t be greedy

The banks became very greedy. They rode the housing boom all the way up, and all the way (are we all the way yet?) back down — and then some. They started lending money to people that couldn’t afford the loan. The banks just wanted a piece of the action.

The same thing can happen with us. We see “everyone else” around us doing something (freshening up the landscaping, buying a new big screen TV, driving around in a new car, investing in real estate, etc.) and we automatically thing we should be doing it as well regardless of our gut instinct, or our personal situation, goals…

It’s so HARD in the moment to be able to withstand the pressure though! Operating with a written budget helps mitigate that pressure by presenting you with a much needed reality check when unrealistic things start looking a bit too enticing. Trust your budget and your monthly budget meeting, where your true values and goals present themselves.

Lesson Two: Keep some cash on hand

Dave Ramsey said it best (though he was writing specifically about small businesses surviving):

When you have no cash, you freakin’ go broke. You must keep some cash on hand, no matter what kind of business you have. Give yourself some wiggle room where you can take a hit and still be standing.

In your personal finances this is key! Your one-month buffer is your first step, where you’re given both a psychological boost and a real cushion. Once your buffer is saved, begin attacking your debt so you can free up those required minimum payments and increase your monthly cash flow. With the debt gone, start socking away some money for your life’s emergencies.

Having some cushion will enable you to be in the right state of mind when disaster strikes — you’ll then be able to make the right decision, instead of one based on panic and sheep instincts.

I Really Have Stopped Budgeting (and it's not fun)

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A few weeks ago my MacBook lost its charge. I plugged in the adapter, and the green light didn’t come on telling me it was getting charged. I disconnected, reconnected, (no, I didn’t blow into the adapter — though that always worked for Duck Hunt) but didn’t have any success. Then one time I did actually get the light to come on and I left it for a few hours. When I came back, I tried to fire up the computer and

Nothing.

I disconnected the adapter and the green light was still glowing (?).

I didn’t buy Apple’s AppleCare or whatever you call it.

Anyway, so I took it into an Apple store and they ran a diagnostic. The motherboard failed. It’ll cost $850 + labor to have a new motherboard installed. I brought in an external hard drive and they said they backed up the entire hard drive. In the meantime, I bought a new Dell laptop for $700.

Our budget file, it’s called Mecham’s Budget.ynab, is on that external hard drive — I’m hoping. We were running Windows on the Mac with Parallels and I’m hoping against hope that they got everything off the hard drive and not just the Mac OS docs. Tonight I’ll plug in the hard drive and see exactly what we have left.

If they didn’t…if we lost our budget…that’d be said. I think we have data in there from 2005.

So we didn’t budget for September because of this whole computer issue. As a result, we’ve declared a moratorium on spending. Well, not really. But darn close. Things will be fine. Over the past five years the budget has trained us to not spend money unnecessarily (for the most part), so I’m not completely freaked out by the fact that we’re operating without a map, rudder, compass…PLAN.

Right now in our checking account there’s this pile of money. I’m staring at it and I’m wondering what it’s all supposed to do. I know we had some money set aside for furniture — a couple hundred dollars I think… I know we’ve been putting $25 per month in the furniture fund…I think $100 in the car repairs fund… but I have no idea on exact numbers. Tithing? Eh..we pay it monthly, but I really leaned on the budget to tell me what the exact amount was supposed to be. Did we already handle August? I can’t remember.

What is the point of that pile of money in the checking account? I feel lost.

If the budget is lost forever, then we’ll just have to do what everyone does when they first start. Take that pile of money and start deciding what it should be doing. We’ll just have to develop a fresh PLAN.

What about all of that historical data? It didn’t really serve much of a purpose except for the geek inside of me to be able to see what we had spent on groceries in July of 2006. The important stuff hasn’t happened yet. The important part of budgeting is what you will do, not what you have done.

When Disaster Strikes, but You've Been Budgeting…

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I suppose the key is to dig down into the details (license and registration, once per year at $115 a pop, so $9.58 in that category every month) with your finances. You think through things hard once per month, with everything in front of you, with your attention focused — you don’t multitask.

If you’re in a forest, and a disaster strikes, but you’ve been budgeting, did the disaster really happen?

What do YNAB and College Football Have in Common? More than You Think.

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I know a few games have already happened, but for me, college football begins today (4:00 PM MST to be exact). All of this football talk has me thinking of one thing of course: budgeting.

I just finished reading JD’s post over at the forums. He’s 1 1/2 years into using YNAB and he’s done some amazing things. He checked in to report that they’ve fully-funded their emergency fund (so if, heaven forbid, JD were to lose his job, he’d have six months to find a job he wanted, instead of just taking whatever he could get and closing the door to a better opportunity). JD was also amazed that they’re able to concurrently contribute 15% gross to retirement, fund college 529 plans, and pay down the principle on their mortgage fast enough to pay the sucker off 7+ years early.

While YNAB’s focus is purely on the budgeting (you decide what to do with all the extra cash you’ll find lying around), JD used YNAB in hand with Dave Ramsey’s Baby Steps. In short, JD found YNAB, then found Dave. I’m hoping eventually Dave finds YNAB of course.

The success of YNAB users has very, very little to do with the software. I know, the software’s fun, and with the most recent update, it’s become even more enjoyable, even invoking a few “SQEEE”s out of people. (I’m told the sound of a SQEE is similar to the sound a teenage girl makes when she sees her boy idol come out on stage).

But again, the software being what it is, the key to success is with the methodology. What it is about the methodology that breeds success such as JD’s? Why don’t we see people using Quicken, or MS Money touting the same amazing results? What is the big difference?

Let’s be brutally honest here, both Quicken and MS Money do mountains more when you compare them to YNAB on a feature by feature basis. Again, it can’t be the software. From a methodology standpoint, Quicken and MS Money both do very well in helping you track your spending, analyze spending habits, even set some budgets (heck, Quicken has a whole financial planner built in there!). Why aren’t people paying down mountains of debt and saving a ton of money when using these programs?

Or, phrased differently, what is it about YNAB that allows people to just go after this stuff and get the job done?

It’s the first Saturday of college football, and I want to share with you the similarities I see between good football (from the coaching perspective) and good budgeting.

(And, before I get into this, I should say as an aside that when we talk about good “budgeting” what we’re really talking about is good reaching-your-financial-goals-and-getting-the-job-done budgeting. Call it whatever you want — I LIKE the word BUDGET.)

Imagine a football coach who focuses solely on the progress of the ball. If he is on offense and it moves forward, he’s happy. If it moves backward, he’s mad and throws his clipboard. The team all huddles around the coach and he gives them their instruction:

“Move the ball forward.”

When they’re on defense, the instruction changes ever so slightly:

“Move the ball backward” or “Try and Grab the ball!”

The players would do their best with the instruction given and very little progress toward their vague goal would be made. The coach would be frustrated. The players would be frustrated. And the fans would boo. You would LOSE.

But that’s not how it works at all is it? That’s not how a successful team is run. Quite the opposite actually. (Disclaimer: I’m a football fan — college football specifically — not a coach.)

How many coaches are there on a typical football team? At a high level, there are a TON! You have the head coach, quarterback coach, offensive coordinator, defensive coordinator, special teams coach, kicking coach, linemen coach for defense, linebacker coach, safety coach, secondary coach, etc. Each of these coaches are giving very specific instructions to the players under their supervision. Each player knows his job and also knows all of the other players know their jobs. You have a lot of moving parts, moving in concert.

Block here, be strong on this side, fake a pass, hand it off, receivers become blockers further down field, etc. There’s a lot going on during each and every play. Every single player on the field has a specific and important purpose. If each purpose isn’t important, then there’s an inefficiency and the team won’t operate at its highest potential.

All of these moving parts, specific instructions, special exercises, training regimens, techniques, goals, statistics, KPIs… all there just to

“Move the ball forward,”

or

“move the ball backward.”

In other words, to WIN.

Your success with YNAB stems from the fact that you are acting like all of those different coaches. You’re getting down into the detail of the execution with your money and at that granular level (how granular? Food:Boneless/Skinless Chicken may be a bit overboard) is where you truly make things happen. You may not think it’s important that you’re sitting there thinking about a $50 bill that’s only due once per year ($4.17 per month set aside will get you there) or recording the fact that you just spent $.85 on tolls. You may think that type of detail isn’t necessary.

But that is where you win. When you become the coach that works with a quarterback for days on their foot position, or the coach that implements a flexibility regimen for the punter, or the team physical trainer that makes sure the team’s rotator cuffs are healthy, etc.

Will foot position win a game? Will rotator cuffs win a game? Absolutely not. But in concert, with all of those details worked out and focused toward a common goal…that will win the game. And that’s how YNAB helps you win the money game. You get focused on the execution of the details and the big picture all comes together:

“We have gone from aimlessly living paycheck to paycheck up to our necks in debt to properly managing money and now planning for our family’s future. If I had a five year goal when I first started out [one and a half years ago] this is where I would have hoped to be.” – JD

What Will Your Budgeting Look Like 64 Months From Now?

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This is written to those people that are getting discouraged and wanting to throw in the towel.

Julie and I have been budgeting with the YNAB Methodology since April of 2003. We were married in February of 2003. For that two-month gap, we were following Rule Two (budgeting all of our income) and Rule Three (saving for a rainy day) but we weren’t following Rule One (stop living paycheck to paycheck) or Rule Four (roll with the punches). Rules One and Four came about as a result of my seeing problems with the budgeting.

So as of today, it’s been 64 months. We’ve done 64 budget meetings. We’ve probably overspent in 200 categories. I don’t even want to guess how much spending has been tracked through there, thousands and thousands of dollars–I’ll just leave it at a lot.

How Has Budgeting Helped Us?

We’ve bought four cars with YNAB (four cars in 64 months sound like a lot to you? Me too. Neither of us owned a car before we married (1) and then when we were moving to Texas it was totaled, so we bought a van (2) and a Civic (3) once we arrived — though the plan had been just to buy the Civic — then about three weeks later the van was totaled and we purchased another van (4). We’ve never purchased a car with less than 89,000 miles on it, the average has been more like 98,000). We just bought a house. We’ve had three kids (still have ‘em all). We haven’t gone into debt (except for the home). That’s because of the budgeting!

What Budgeting Looks like After 64 Months

Julie does most of the updating with the budget. She likes to go off the receipts. Every two weeks or so I’ll import our transactions, match them up with what she’s entered, and make sure the accounts balance with what the bank says. I’m opening a budget to do betatesting, demo it, etc. but how often do I open our actual budget? Probably twice per month.

There are two reasons why it’s very comfortable for me to not look at the budget more than twice per month:

  1. I don’t spend nearly as much of our money. It’s not because Julie spends a lot. It’s just because she handles most of the check writing, envelope stuffing, stamp-adhering things. I handle bills that one can put on autopayment :)
  2. I already know how we’re doing.

We’re done with the days of guessing how much money we’re going to make in a given month. I have a set draw and it’s taken out twice per month (14th and 28th).

Also, I’m done with the days of knowing everything that’s being spent. When we were in crunch mode, stress mode, fight-for-every-dollar mode, we would discuss literally every single purchase. Grocery shopping was exhausting. I’ve now been spending the past few months convincing Julie not to tell me about every single purchase:

“Porter needs some new clothes because his shirts are all 3T and they’ll need to be short-sleeved for next year, but they’ll have to be 4T — oh, wait — maybe even 5T. Gosh, he’s getting so big. He’ll be in school next year, can you believe it? So the 5Ts for summer will definitely go on sale when it starts getting colder and I’m thinking of buying a bunch. Remember to take out the trash. I may buy some 4Ts as well just in case and if he doesn’t use them, I’m sure we could put them in the basement and Harrison could wear them in a few years. Of course Harrison’s a bit thicker than Porter was at his age, so maybe he won’t need those at all.”

Did you make it through all of that? I rarely do. And is it any wonder I forgot to take out the trash?

No, the fact of the matter is that after 64 months of budgeting, I’m very comfortable with the spending. I don’t see that changing any time soon. If it started to change, we’d both notice.

The beauty of budgeting over a long period of time? Everything seems to be clicking. Communication between husband and wife over money issues is as close to perfect as you’ll get it. Goals are being reached and progress is being made.

The budget has ingrained in us some habits that are extremely hard to break. We decided we needed to go on weekly dates (we’ve decided that a half dozen times in our marriage) and I told Julie we could get a babysitter. It’s worth it. I had to really put my foot down with Julie and tell her we could afford the babysitter every weekend. She started having some idea that we’d go on a date at home after the kids were asleep. What would that date have turned into? Probably cleaning.

You can see now why I put my foot down.

Another habit that’s been tough for us to break is not buying furniture. We’re in our beautiful new home and it has an echo. As of this writing, I’m sitting in one of two pieces of furniture that allow sitting.

It’s not so much the habit of not buying furniture as it is the fact that we don’t have a problem putting off purchases until we’re really ready for them. This is a function of the budget meeting. Every month we sit down and decide what priorities our money is going to have. Furniture has just not been that high of a priority.

Budgeting long-term has meant better communication and more control (with higher satisfaction!) over our money. Don’t give up!

It's the little things

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The big things:

For the past few weeks, we’ve been working on YNAB Pro version 2.5. Our beta testers have been diligently hammering on it, and now we think we’re less than two weeks away from a public release.  I’m excited about this release for two reasons.  The first reason is that we’ve added some cool new features:

  • You can add notes to categories and budget cells on the budget screen.  Now when you need to remember why you had to budget an extra $50 this month in the gifts category, you can make a note that it was for your spouse’s birthday.
  • You can transfer money from one account to another really easily.
  • You can bulk-categorize transactions.  (This is especially helpful when you import transactions)
  • When you download a file to be imported from your bank’s website, YNAB Pro will automatically start and initiate the importation process.  (No more hunting around for the file)
  • And a few more…

The little things:

In addition to the features however, I’m probably more excited about the “little things” that we’ve changed.  When you think of a program or a web page that you really like to use – one that just seems to “get it,” – chances are that program acts the way you expect it to.  I don’t just mean that it has the features you expect.  I mean that when you click on something, or hit a key, or hover over a certain part of the screen, it does exactly what you expect.  In fact, it probably does so many things that you expect, you don’t even think about it.  To prove my point it might be easier to think about the last web page or software you used that you didn’t like.  Chances are it almost never did what you expected.  It doesn’t take many mouse clicks in software like this before you’re ready to give up and you might not even be sure why!  All you know is that you feel frustrated.

When we developed YNAB Pro originally, we tried to pay attention to a lot of “little” things because we know they add up!  Every time we asked the question, “What should the software do there?”, we tried to answer by saying, “Well, what would I want and expect it to do?”  I think we did a pretty good job with this, and consequently, I think YNAB Pro is pretty enjoyable to use.  That belief is reinforced by our fans, but after spending every workday with the software for the past few weeks, I started noticing some little things that we didn’t do right or that we missed:

  • “Wait, that took too many clicks.”
  • “Why is that taking so long?”
  • “Ugh – that feels sluggish!”
  • “Wait, that’s not what I expected”
  • And a few more…

Now that I’m full time, I’ve got time to really dig in and investigate when I see YNAB Pro do something I don’t expect, even if it seems like a “little thing”.  There are over 100 features, fixes, and changes in this next release, and a lot of them fall in the “little thing” category.  My guess is that you won’t even consciously notice most of them.  Hopefully you’ll just think, “Wow, I really like this new version,” even if you can’t say why.  But let me give you a hint:

  • It’s much faster and more responsive – Loading is faster, clicking around is faster, renaming categories is faster…you get the idea
  • There are fewer mouseclicks required to begin editing a cell in the register once the transaction is selected
  • You can reorder the account tabs just by dragging them around
  • Payee entry is not case-sensitive anymore (Typing “yn” and hitting tab will select “YNAB” instead of changing it to say “ynAB”)
  • All of the right-click menus just disable items that are invalid instead of hiding them.  This makes the menu much more predictable and discoverable
  • And trust me, the list does go on…

You can expect to get your hands on this release very soon, and we can’t wait to hear what your favorite “little” change is.  Many of these changes were a direct result of people telling us about them on our forums, so if we left something out, and YNAB Pro isn’t doing what you want or expect, let us know!

How Are Things? Well it's All Your Fault (and other productive thoughts)

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WARNING: This is a rant. I would say skip ahead a few paragraphs if you don’t want a rant, but you’d still be getting a rant. The whole darn thing is one big rant.

If you’re stuck in a job you hate, do three things today that will help you like your job. If you like your job, you’ll make more money. Find everything interesting and you’ll be happier. Whose fault is it really that you hate what you do? You want me to say it’s your boss. But it’s not. It’s someone else.

If you’re job-less, what are you going to do? Be down about it? Mope? Blame someone? Blame everyone?

When you’re done with that, let me know how things have improved. Be proactive, get out there, and sell yourself!

Your expenses are higher than your income. Whose fault is that? The slick marketers, copywriters, and salesman that prey on the psychologically weak? So are you just saying that you’re psychologically weak? Fair enough. That means it’s still your fault.

You’re stuck in a job you love but the income doesn’t meet your needs, so you’ve been managing the gap with credit cards and things have gotten out of control. I’m glad you love your job. Find a way to make more money though! This is all up to you! If you’re not making more money, it’s your fault.

Are you saying, “I can’t help it” way too often? (Even once is too much).

Stop blaming everyone but yourself! It’s the recession. It’s the economy. It’s the president. It’s the price of gas. It’s my spouse. It’s my crazy kid. It’s my neighbor. It’s my boss. It’s the stock market.

Why don’t you start saying IT’S ME every once in a while? Everyone around you would be happier if you did. And then you could actually start doing things instead of just complaining about them all the time.

This is directed to everyone but you. You’re the best. You never make mistakes. You’re infallible.

You’re also so full of yourself that you believed the garbage I just wrote in the prior paragraph.

Porter has discovered it works to his advantage to be agreeable. When I asked him why he did X (like break the window downstairs because he was golfing downstairs), what was his response? “Oh, Dad. Sorry. I didn’t know.”

I mean, seriously, I know he knew. I don’t know if he knows I know he knew. But he probably does. That statement, as insincere as it likely is (he’s learned the phrase prior to learning the actual meaning is my guess) puts me at ease a bit when I’m on the warpath. What a nice thing to say. Shoulder the blame and express some ignorance. (But do it sincerely).

I just don’t understand why people can’t admit that something’s their fault. Fess up! You’re not all-knowing! So you didn’t know your job would have a boss that drives you crazy. What can you productively do about? So you chose an occupation that isn’t quite bringing in the income you’d like…what can you do about it? So the economy is slow (is it though? Didn’t we just hear about it growing two percent?). What are you going to do about it?

We have all of these talking heads surrounding us, telling us how bad things are, how so-and-so has done X and Y which means Z for you. Seriously? Do other people have that much influence over me that I can’t think for myself and take some action? Am I such a sheep that I just BAAhaahaa when appropriate and follow the others?

How does complaining possibly help you — ever? You tell me one time (leave a comment) where you sat there complaining and wringing your hands and that made things better.

Tell me one time where blaming someone else made a situation improve.

I can’t think of one.

So, WHY DO WE ALWAYS COMPLAIN–BLAMING OTHER PEOPLE FOR OUR CIRCUMSTANCES?

I love YNABers that I run into on the forums because they aren’t complaining. They’re realizing that a situation is at hand and disaster is imminent unless they take ACTION. They’re DOING something and they’ll be rewarded for it. Some of them probably could feel justified pointing the finger of blame elsewhere, but what are they doing instead? They’re taking action. They’re recognizing that they have, as Dr. Covey puts it, a “circle of influence” and they’re operating within that circle.

The center of the circle of influence is you. So start there when you want change. It’s amazing how taking a bit of action, setting some goals, and being ferocious about it can change you. And then you’ve changed your world. Finally.

How Much Does that Cost? (Part 2 of 2)

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If it has been a little while since you have read part one, go back and review first. The reason is that I am not going to give any background or explanations. I am just going to pick up where I left off, as if you had just turned the page.

What’s a Dollar?

My previous focus and examples were about monthly expenses. If you decide to take on a monthly commitment to spend money you have to weigh the true cost in order to make a truly informed decision. But what about those one-time decisions? An extra buck or two here or there can’t really make a difference, can it?

Let me give you an example of what I am talking about. When I was a newlywed and in college my wife and I would go grocery shopping together. We didn’t like to spend any time apart that we didn’t have to (and we still don’t). What we didn’t realize was that it was also an opportunity to learn about each other, our spending habits, and to grow in our ability to come to a consensus on what is worth spending money on, and what is not.

I grew up in a home where we always bought brand name foods. She grew up in a home of buying things that were a great deal or were on sale. I remember wanting to buy Kraft American Cheese. She couldn’t see why I would pay an extra dollar to buy Kraft instead of saving a dollar and buying the store brand. I insisted that it was “worth” it. She was wise enough at the time to let it go. I have since come to my senses on my own.

Often now, when I hear my mind whispering “it’s only a dollar,” I have a different train of thoughts come through my head. The first thing that comes to mind is: Is it really only a dollar? Going back to the illustrations in Part 1 let’s see what one dollar is worth if it is invested instead of spent.

  8% 10% 12% 18% Actual $ spent
10 years $2 $3 $3 $5 $1
30 years $10 $17 $30 $143 $1
60 years $101 $304 $898 $20,555 $1

The Years Have Now Passed

It is interesting for me to be writing this now. My wife and I will be celebrating our 11th anniversary this week. So, ten years have now passed since we were having these grocery store conversations. Looking at the chart, if I had taken the extra dollar home and invested it instead of buying Kraft, I would likely have about $3 now. Doesn’t sound like much, but it is THREE TIMES as much as ten years ago. Two questions begin to scream inside my head.

First, would I have bought Kraft if it cost $6 and the store brand was $3? Would I have been willing to pay twice as much? No. My wife would have had a much easier time convincing me. But the reality is that I did pay twice as much. And twenty years from now I will have paid 17 times as much. Fifty years from now I will have paid 300 times as much. I will be paying for that decision, more and more, for as long as I live!

The Most Important Part

The most important part of this is that we don’t make just one isolated decision to spend an extra dollar. The reality is that we make these decisions often. I would guess that if you will take time to honestly assess your spending habits, you will find many times when such a decision is made. My guess is that most people make such a decision more than once a day. Even if there are only two times in a week that you spend/waste an extra dollar, that would be $100 dollars in a year. Now look at the numbers in the chart above and multiply them by 100. Then multiply them by years of such decisions. Scary. Mind-boggling.

I will end by saying that there are many $1 decisions that I still think were worth it. Most have to do with experiences with my children and memories that were made. However, I know that there are innumerable $1 decisions that I have made that were not worth their true cost, and I will have tens or hundreds of thousands of dollars less in retirement because of them. Now that is expensive cheese!

Your Key to Successful Dieting (and Money)

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Sunday evening Julie and I both committed to using FitDay–every day–to record everything we eat. My hope is that I can make this a habit, though I honestly didn’t do everything I needed to do to make it an instantaneous habit.

Is FitDay some magical solution that will make it so french fries aren’t so enticing? Am I going to be able to resist the irresistible [ ___________ ] (insert any pie, doughnut, cookie, milkshake, etc.) because FitDay has some great new features and a redesigned user interface (they do, it’s nice)?

I’m not sure. Though yesterday I found it quite easy to resist things I would have eaten without question just two days before… but for the moment I’m chalking that up to the excitement of starting a new thing. Wouldn’t want to quit on the first day, you know?

If using FitDay is anything like using YNAB (or even my original recording device, the handy 8×11 piece of paper) then I have a bit of a prediction to make. I predict that:

  • I will have an easier time choosing good foods to eat.
  • Have an easier time limiting the amount of food I eat.
  • My motivation will last longer, because I’ll have a record.

If you’re not seeing the parallels between FitDay and any type of software that lets you track your spending… :)

Recording what you spend will help you choose to spend your money on things you truly value — the good things. Recording your spending will help you limit your overall spending (this is where the ‘It feels like I got a raise!’ magic happens). Finally, when you’re recording what you spend you’re creating a record that will serve as motivation for you to keep plugging along.

So I’ll keep everyone posted on how it goes. My goal is to gain 11 pounds by the end of March 2009. So I’ll have to lose a bit of fat and gain a bit of muscle to make that happen. It feels nice to have a concrete goal, and I have a plan on how I’m going to get there. Just need to follow the plan by doing the every day types of things.