YNAB Podcast Episode 56: How to protect yourself from identity theft.

Hello YNABers. My name is Jesse Mecham and this is podcast number 56 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Last week was significant because the United States found out that we’re keeping our President for another four years – and that’s pretty much all I have to say about that. But it was a big week. And man, I’ve got to be honest, I’m kind of glad that we’re going to hear different news for at least a little while – it has nothing to do with today’s podcast.

But I am excited, VERY excited to have an expert in identity theft on as a guest today. His name is Robert Siciliano and he knows his stuff. He is the author of ’99 Things That You Wish You Knew Before Your Identity Was Stolen’; he is – how do you say this company’s name? – McAfee… Will someone please give me the pronunciation on that? McAfee. That company has been around for so long, I still don’t know how to say that name. Anyway, he consults for them. They’re big into security – computer security, viruses and all that. Over the last 29 years Robert has studied white collar crime, cyber crime, identity theft, martial arts and self-defense. So you’ll hear more of his back story when I give you the interview, but his goal is to educate and empower audiences, and help us stay smart and keep our families safe from potential physical or virtual attacks in today’s world. And it just doesn’t seem like… I don’t know, it just happens all the time.

I had a lot of questions going into this interview and I honestly felt a little bit powerless, and Robert provided info that made me feel pretty darn good. He’s appeared on Anderson Cooper, the Today Show, CNN, MSNBC, CNBC, Fox News and Inside Edition, and just a ton of others that I won’t list. But without further ado, let’s learn a little bit about how we can outsmart the thieves and protect our identities from being stolen. You will be happy to know that it is not NEARLY as hard as you think. Here we go…

J: Alright, I’m on the phone with Robert Siciliano of robertsiciliano.com. Robert, thanks for helping on the podcast today.

RS: Thanks so much.

J: This is… I’m pretty excited to discuss this, because this is a topic that’s near and dear to my heart. I have never been a victim of identity theft, but it’s just becoming more rampant; and since I’m in the financial arena I felt like we had a lot of people that would do well to hear what you have to say. So, just really quick, just kind of tell me how you got into speaking on this and… you’re an expert on it, so I’m just kind of curious about your back story a little bit.

RS: Sure. I’ve been involved in issues revolving around personal security since I was a kid; and personal security essentially is securing the person from violence and theft. And back in the day – ’80s and ’90s – my focus was on preventing predators from hurting you – robbing your home, mugging you, and then sexual assault, things like that. As I grew older and as technology became a significant part of my life and everybody else’s life, personal security evolved into the virtual world as well. So now I speak to all things violence and theft prevention, both online and on the ground.

J: I see. Every day it seems I hear some news story about credit card numbers being stolen and some server being accessed, some company saying, “Hey, we’re going to do this without,” or pay for identity theft for all these people whose names were exposed – it’s just growing crazy fast. It’s insane.

RS: And it’s one of those problems that unfortunately isn’t going to get any better anytime soon. It’s going to continue to get worse. And we just saw – just last week or a couple of weeks ago – in South Carolina there were 350,000 or so Social Security numbers that had been leaked. This is the situation we’re in. We live in a data-based society, and that means that our information isn’t just in one database, it’s in hundreds if not thousands of different databases and filing cabinets; and everybody that has access to those databases has access to our personal information. And then, of course, those same databases are becoming huge targets by criminal hackers looking to cash in on our personal information.

J: Yes. I remember… I became more aware of this, I read a book a while ago – you may even be aware of it – called ‘How to be Invisible’ by a guy named J.J. Luna – well, that’s his pseudonym – but it kind of clued me in on just privacy and just being more aware. And I was trying to practice that, and I was surprised at the resistance that I got from people on the other side of a transaction. So I’m out… one incident I was at some department store and they asked me for my phone number, and I pushed back and said, “Well, why do you need my phone number?” And then were upset with me for enquiring about why they were enquiring. Have you seen that? I mean, what do you tell people in those regards? Is that something that’s pretty common?

RS: Yes, and the funny thing is is that clerk or whoever it was you were speaking to, he doesn’t even/she doesn’t even know why they need the phone number. They have that set up in their system – it’s part of their sales and marketing process, it’s part of the way in which they identify you and the products and services that you buy and so forth – and that clerk essentially is told by his or her superiors that they need that information. And by you not giving it to them, it just makes their job that much harder. But in the end, it doesn’t serve you any better to give up that information because it’s just one more way that sales and marketers can get to you, and they know that much more about you. In the end, what kind of harm can that do, by giving out your phone number? Probably not much. If anything, it will cause annoyances for you down the road.

But I’m a firm believer that – and some… and many will disagree with this – that privacy essentially is an illusion; that it’s not privacy that you should fight for today so much that it is your security that you should fight for. It’s more so not that they have the data, it’s what they can do with it that can hurt you in regard to your financial life: essentially new account fraud – bad guys opening up a new account under your name; or account takeover – taking over existing accounts that you own and basically draining those accounts. So those are my two big concerns, really, from a security perspective. Privacy certainly is a problem, but really security is the ultimate issue.

J: That’s a great way to put it, because honestly, when I read about protecting your information I feel like it’s impossible. And so it leaves me overwhelmed and then I take no action. Where you’re kind of coming at this and saying, “What can they do with this information that they will get, and how can you protect yourself from that?” I like that – that’s more empowering, to be honest.

RS: You know, the data that they get that can ultimately hurt you financially is your Social Security number. And when your Social is compromised, and when they get it and they use it against you, essentially they’re opening up new financial accounts under your name – they’re getting a new loan, they’re getting a new credit card, they’re using that Social to get credit in your name with a mobile phone. And when they do get that credit, they go for a period of time without paying the bill and eventually that goes on your credit report, and that soils your good name. It soils your credit standing in society, and today we judge a person based on their credit. If you have bad credit, you are irresponsible in the eyes of society – and that’s a problem.

So, getting your Social can hurt you through opening up new accounts. And then of course they get your account information, like a credit card number, a bank account number and so forth, user names and passwords; and then they can take over your existing accounts. Your credit card in your wallet – they get that number, they take it over, they make unauthorized charges. If you’re not paying close attention to your statements, which many people don’t – you know, it’s amazing how many people don’t actually reconcile their statements and let charges go through and they pay the bill – that can hurt you financially as well. So it’s those two things – new account fraud and account takeover – that we mostly have to be concerned about, and there’s ways to deal with and respond to both in different ways.

J: So what’s the most… that is the most critical piece of information that we safeguard? is that the Social Security number?

RS: Yes, without a doubt. It is our primary identifier; it’s the key to the kingdom; it’s your national ID. And the thing about a Social Security number is that it was never meant to have as much responsibility as it does today.

J: Absolutely.

RS: It carries a tremendous amount of weight. Back in the day – late ’30s – when they developed the Social Security administration, the Social Security number was for just that one purpose: to pay your Social Security benefits. So you paid into that account over the course of your life, and it wasn’t until really the ’70s and ’80s – more so the ’80s – that banks and creditors and the IRS and everybody else started to use your Social Security number as that de facto ID. It wasn’t until the late ’90s that babies actually started to get Socials at birth – so that’s a new thing. It’s only been the past 15 to 25 years that we’ve really heavily, heavily relied on the SSN, and it was never meant to be this private number that you protect and you don’t give out and you keep secret. But now, you know, you have to kind of shield it; you have to keep it below board. But you can’t because every time you give it out to an insurance agent, to a doctor’s office, to whoever, it’s one more opportunity for the bad guy to do something with it.

J: Absolutely. And I think a lot of times people make the mistake – I know I have… Another experience I had in trying to be more diligent with my information is I was booking a room to do a speaking thing, and the lady – I’m sitting across from her, face to face – and she says, “Can I get a card and we can reserve it?” And I said, “Absolutely,” I thought that was fine. I thought she’d have a machine that she was going to swipe the card through, but she just pulled out a form and started… you know, was going to write down my credit card number on this piece of paper; and I really had to push back. And it got a little awkward, but I just told her, “Hey, I’m really not comfortable with this. Can we do it any other way?” And so we figured it out, but she felt like I wasn’t trusting her. But what I was really doing was I don’t trust… I don’t know who I can or cannot trust, and she may be perfectly honest but the guy in the office next door knows exactly where those papers are filed and they never shred them and all that stuff. So it’s just one more leaky place to stick an important number.

RS: True. And here’s the thing about credit cards. So, I use my credit cards often, probably at least two or three times a week if not more. I don’t generally use cash if I don’t have to.

J: I’m the same way.

RS: And I just pay my credit card bill every single month and then I reconcile my charges nice and easily. So, here’s the thing about credit cards. I tell people when they ask me, “How do I protect my credit cards?” and I say, “Listen, don’t worry about protecting your credit cards.” I say, “Any time anybody wants that number for whatever purpose, whatever reason, for you to make a purchase in any way, shape or form, give them the number and don’t worry about it. Just swipe the card, write it down, give it out over the internet, give it to them over email, whatever you want to do – give out that credit card number.” And here’s the thing, because you can’t protect it; no matter what you do you can’t protect it. You hand it to waiter/waitress/gas station attendant, they’re going to be able to get the numbers off the credit card, whether they write it down or whether they skim it. It doesn’t matter because the numbers are printed on the card, right? Anybody can see it.

And so what your real responsibility is is not to protect the card, but really just to pay attention to your statements. Every single month, or really every couple of weeks, you really should look at your credit card statements online, making sure that you authorized each and every charge. And as long as you’re doing that and paying attention to your statements, in the event that there’s an unauthorized charge you just refute that charge and they will take it off the bill. That’s generally all you can do anyways, but as long as you’re paying close attention you’ll be fine.

J: Okay, it’s much more manageable. On the Social Security side and the new account fraud, are we just talking about freezing… is it a credit freeze? Is that the phrase?

RS: You know, I’ve been doing this now for over a decade and I’ve probably done 1,000 radio shows and spoken to hundreds and hundreds of journalists, and I’d say maybe two or three of them mentioned to me about getting a credit freeze. So, congratulations on that! It’s one of the things where… it’s one of those tools where everybody should have but nobody wants you to know about it. The credit bureaus don’t want you to know about it, the creditors don’t want you to know about it, the banks don’t want you to know about it. Anybody that’s in the business of granting credit does not want you to know about a credit freeze, because essentially when you have a credit freeze it takes you out of the business of getting credit. It takes you out of the credit-driven society that we have, at least temporarily. With a credit freeze you cannot get instant credit because… you can’t walk into Best Buy and just get that $5,000 plasma on instant credit because your credit’s frozen.

J: Got you.

RS: So it takes a little more planning when you have a credit freeze to make big purchases. So my mum, for example; she buys or leases a vehicle every three to five years, and every three to five years she rings me up and says, “Oh, Robert, I need to get a car again and you need to do that credit thing you do,” and so I have to thaw her credit temporarily, and then within a week or so it automatically freezes back up and she’s fine. And that’s it. I don’t have to worry about my mother’s identity getting stolen because her credit is frozen. Same thing with me, same thing with my wife and my kids and everything else. Credit’s frozen across the board. That’s what you want. You want to have a frozen credit so the bad guys can’t open up new accounts under your name.

J: Okay. Now, I used to… no, I do still. I subscribe to LifeLock and I know there’s been some controversy on… you know, I haven’t followed it too much, I just kind of set it up and honestly forgot about it. Is that… Are they essentially just having me pay for them to do the freeze on my behalf?

RS: No. So, identity theft protection services today, the majority of them do pretty much the exact same thing. They all pretty much have an engine working in the background that does this. So, for example, you supply the identity theft protection service with your Social Security number, and they plug that into their system; and the back engine of their identity theft protection monitors your Social. So, any time that you or anyone else uses your Social to open up a new line of credit somewhere, that identity theft protection service probably will be notified of it. Through their system, they would get some type of a hit, some kind of a notification that so-and-so’s Social Security number is being used to open up a new American Express card in Albuquerque, New Mexico. And so at that time, as a subscriber to that identity theft protection service, you might get an email, you might get a text message, you might get something in the mail saying, “At this given point in time your Social is being used to open up an American Express card in Albuquerque, New Mexico. If you did not actually process this application yourself, give us a buzz, let us know so we can shut that down before it becomes a problem.”

So, there’s a technology out there that basically has… it’s in the process of every new account application for mobile phone companies, for utilities, for most of the major creditors, and before that application I fully completed, that Social is checked against your name, your address, your credit report, your age. So there’s a number of factors that are tied into your Social that this technology looks at and recognizes, and it scores that application and that transaction based on the information provided in that application on whether or not there’s potential fraud there.

J: I see. So the credit freeze is prevention of even having a notification created, it sounds like.

RS: You got it. That’s it, exactly, right. A credit freeze basically stops it all at the beginning. They can’t even use that Social to even access your credit because your credit is frozen; it’s done, it’s locked down. So identity theft protection without a credit freeze, identity theft protection allows the fluid process of you being able to access new lines of credit at any given point in time that you want. That’s what that’s for. In addition to that, identity theft protection services offer restoration in the event your identity is compromised, and generally that means in the event that their service fails.

So, you really have to pay attention to the fine print on that as well. But for $100 a year/$150 a year, it’s generally worth it, especially for kids, because children under the age of 18 can’t really freeze their credit, and identity theft protection really is the next best thing for them.

J: I see. So what’s the process for freezing my credit? How do I do that?

RS: So, the best thing to do is to do a search online for “state security freeze laws” – four words – “state security freeze laws”. And generally, at the top of search you’re going to find consumersunion.org – and if it’s not consumersunion.org it might be listed under financialprivacynow.org. It’s basically the same website. It’s not for profit, and when you click on that link there will be a website that you’ll… a web page you’ll access that will have a map of the United States, and you just click on your state and you’ll download a PDF file that essentially is the laws regarding a credit freeze for your state. In addition to that, you’ll see a download for a PDF that will have an affidavit and everything that you need to fill out, documents to send in to Experian [?? 0:20:03] and [?? 0:20:04] on getting a credit freeze. So, everything that you need via doing a search for “state security freeze laws” via consumersunion.org is right there. And you just fill it all out, send it all in. You need to send a copy of your Social Security number, which is fine – give it to them; give them a copy of a utility bill or two to verify your address; and they’re going to want to check.

So a credit freeze, depending on your state, is free if you’re a victim of identity theft; up to as much as $15 per credit bureau. So, the max you’re going to pay is $45 to freeze your credit and you’re done – and I think that’s a pretty good deal. And if you want to thaw off your credit, if you want to open it up and get a new line of credit, when you freeze your credit they send you a document in the mail within a couple of weeks with a username and a password and a website that you visit to thaw your credit when you want to get credit. So, it’s just… it takes a little bit of planning. So you want to go lease that car – you thaw your credit and then you go to the dealership a day later and your credit will be thawed. And then for a week or so it will be open and then it will automatically freeze a week later.

J: Wow. This does sound pretty easy.

RS: Yes, it is. Yes. I did it years and years and years ago when it first came out in 2008, and it was a little bit more cumbersome. They made a lot of mistakes, they didn’t have the paperwork or technology in order, and I had to redo it a couple of times. But today it’s much easier, it’s much more fluid, they have it together, and I recommend that everybody freeze their credit across the board.

J: I like that. So regarding your… I mean, that’s kind of the action that everyone listening to this podcast is… I’m hoping they’ll take. They’ll say, “Okay, I can do that,” and $45 is well worth it unless you’re leasing a new car every month it might be a bit of a hassle.

RS: And here’s the thing. I’m 44 years old. I’m in the house I’m going to be in for quite some time, I’m in the vehicles I’m going to be in for quite some time, I have my Visa, I have my American Express; I don’t need new lines of credit. And in the unlikely event that I do – which happens every one or two years, you might go to refinance your home or whatever – you just thaw it. It’s a once every one to two to three year process, and the older you are the less credit you need. And the younger you are, the more vulnerable you are. So I just think that everybody should freeze their credit.

J: Awesome. So, tell me, I mean, what do you… I know you go around and you speak, you’ve been on all sorts of news stuff, but can anyone… I mean, your website – robertsiciliano.com – they can check out for more info; and I saw you had a book on… Was it on Amazon that you have a book?

RS: Yes, it’s called ‘The 99 Things You Wish You Knew Before Your Identity Was Stolen’. So if you just go to my website – robertsiciliano.com – you’ll see “new book”, you’ll see stuff right on the home page, everything that you need to access that book.

J: Cool. Yes, it says $11 on Amazon, so the amount of info that… I mean, identity theft, I’ve never been a victim but you hear stories, and so it seems like the value proposition of spending a few bucks and a little time to freeze your credit, maybe looking at the ID protection services for your kids, sounds like it’s well worth the little bit of investment to save yourself mountains of headache.

RS: Yes, and read my book! Because it goes beyond just identity theft protection. In today’s day and age we rely on technology every day for something. I don’t know anybody at this point that doesn’t have a Smartphone, an iPhone or an Android or a Blackberry. That right there is a little computer, and that has a lot of your personal information in it. And then think about all the information that’s on your desktop or your laptop or your Mac. There’s enough data there generally to steal your identity. And in my book that’s what I talk about – all the different ways in which the bad guy can get access to your information, and all the different things you need to do to secure your digital technology; the difference between spyware and malware and ransomware, and what typosquatting is and cybersquatting is; and all these different terms and all these different scams that you need to be aware of. And the more… Knowledge, of course, is power, especially in your financial life. Right? And the same thing in your security life. If you up your security intelligence, the better off you’re going to be, the better chance you’re going to have of fighting off the bad guy.

J: What’s the number one mistake people make with their information?

RS: They think that nobody wants it. “Why would a bad guy want to come after me?” And that really is just denial and being lazy – that’s what that boils down to. They think that, “It can’t happen to me,” and so they don’t really do anything about it. They don’t invest in any antivirus, anti-spyware, anti-phishing and firewall. They don’t update that license when it says, “Hey, there’s a pop-up here that says it’s time for you to renew your license for your antivirus.” They don’t invest in a credit freeze. They don’t think about these things, and they don’t educate themselves – and you have to do that today. You know, tell your kids not to talk to strangers and then here they are on social media and they’re talking to these people all over the world. I work with McAfee. We just did a study and the recent study showed that more than one in ten kids are actually communicating with complete strangers online and then meeting them in the physical world.

J: Oh my gosh.

RS: So there’s a lot to know about our digital lives today, and the less you know the more vulnerable you are. And it’s one of those things, like you HAVE to do this. You don’t really have an option of not knowing what’s going on out there today. You can’t just throw your hands up in the air and say, “Okay, I’m overwhelmed. I’m just going to do nothing.” Inaction is not an option.

J: I like it. I love action and I love that it boils down to basically some really simple things you can do to kind of halt the criminals in their tracks. So, awesome. Man, this is good info. It was an overwhelming topic for me because I was thinking of trying to plug holes, but what you’re saying is, “No, just stop them at the final spot.” I like it – you’ve put me at ease.

RS: Good. And you know, a lot of things that you hear, don’t worry about. Like don’t worry about the privacy stuff. DO limit the information you put on social media; like DO limit… you don’t want to speak too much about your personal life on social media and here’s why – and this is what I mean when I say that. Think about password resets for certain accounts. So when you answer those questions, “Where did you grow up?” and “Where did you honeymoon?” and your mother’s maiden name and your kids’ names and your pets’ names and your birthplace and all that stuff; if those are the answers to the qualifying questions or the password reset questions and you post all that stuff on social media, that’s a problem. So, I try to keep that stuff more business; especially being somewhat of a public figure and so forth, you want to keep that stuff a little somewhat innocuous, not giving out too much information – for everybody, for that matter. And so just keep that in mind. Just be aware of what you’re posting and think of, “How could a bad guy use this against me?” Otherwise, you want to just talk about how you just ran a 10k, great; but just be cognizant, “What can a bad guy do when I’m posting right now?”

And then, you know, as far as giving out your phone number and stuff like that, just be careful who you give it to and when you give it out. Maybe get one of those Go phones, or you have a throwaway phone number, get a Google Voice number as a number that you might give out for certain accounts rather than just giving out your home phone or your mobile phone. Just be aware of that stuff and determine what your options are.

J: This is cool. I was just thinking about the maiden name and all that stuff – “What’s your mother’s maiden name?” – and I was just thinking on Facebook it’s really customary for you to put… for women to put their maiden name and then they’re… so you can find people. Like high school, some girl in high school, you don’t know her new name now; and I was just thinking, “Well, yes, you just find out what the person… who the person’s mum is on Facebook and she may list her maiden name,” and then you’ve got your first answer to that question.

RS: That’s how Sarah Palin’s Yahoo account was hacked by… The bad guy hit the password reset and just basically answered all the questions to reset the account by searching social media and the web.

J: You know, just last night I woke… well, it was this morning, it was about four in the morning; I reached for my phone on my bedside table – I’m trying to see what time it is – and I can’t find my phone. And I don’t know if I was sleepwalking or something, but my phone was nowhere to be found. I thought maybe I’d knocked it off; I couldn’t find it anywhere. So I pull out my iPad, I login and use the Find My iPhone App, and I find out that it is in my house somewhere. And then I do the little… you have an option to push this button and it will beep and send this to your phone so it starts making a noise, and it was buried in the sheets of my bed. I don’t know what happened, but anyway, I find the phone right next to me. My wife’s sitting there – I’d woken her up as well crawling around – and she’s like, “That’s kind of freaky.” And I’m like, “Yes, that’s kind of freaky,” you know. It’s just… You know, with convenience, I get there is a cost to convenience and we just have to be aware of what we’re paying, I suppose.

RS: That’s it. There is a cost to convenience and that’s what this all boils down to. All these technologies that we enjoy today are conveniences, and that’s what conveniences are – the tools of technology. And we rely on them to such a degree that it’s become a security and privacy issue, and so you do need to know how that… how signing up for that new site might affect you and what that new tool/technology is and how it works and how it might affect your life. Just don’t go blindly into these things.

J: Awesome. Well, man, I really appreciate you coming on and giving everyone a lot of good info. This is going to be… this is great. And I loved all the other points… Because I get asked this, you know, being in the financial realm. I was very uneducated here, and so I’ll be able to refer them over to your site, point them to this podcast, get people good info – so I appreciate that. That’s good stuff.

Well, have a great… Where are you located? I didn’t know if I asked you that.

RS: Boston, Massachusetts, born and bred.

J: I thought it might be Boston, but I didn’t want to be presumptuous. Well, yes, I appreciate it, Robert. You have a great week and maybe we’ll have to have you on again when they come up with another 50 ways to get at our identities. It’s always evolving – I’m sure you’ll have new things to talk about for years to come.

RS: Any time. I’m at robertsiciliano.com. Love to hear from you guys again.

J: Alright, thanks, Robert. You have a great week.

RS: Alright, bye bye.

J: Bye bye.

And that is a wrap. Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 57: When debt is an addiction.

Hello YNABers. My name is Jesse Mecham and this is podcast number 57 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today we are going to be interviewing a participant in an awesome program, proven program, to help people that have a debt addiction, and that is Debtors Anonymous. I found it terribly interesting to interview Linda and to find out how the program worked; and she is an excited YNABer and she spreads the YNAB word among her Debtors Anonymous aficionados. So, it’s a great program.

Without further ado, here is the interview:

J: Okay, this is Jesse and I’m here with Linda I – that is not her real name, but she’s a member of Debtors Anonymous, and I just wanted to have Linda speak with us about the program and how YNAB helps in that, but also maybe how people would know if they should look into it. So, Linda, let’s just dive right in. Well, first, let me thank you for being on the program.

L: Thank you, Jesse.

J: This will be a lot of fun. I wanted to basically dive right in and just ask you if there’s a point where someone should be concerned that they really… I mean, we know debt is a problem for many, many people, but when someone should be concerned that they REALLY have a debt problem; like what kind of signs to be aware of.

L: Well actually, the organization Debtors Anonymous has 15 questions to ask yourself that can give you a clue if you’re really in trouble, such as, “Do your debts cause you to think less of yourself? Have you given false information in order to obtain credit? Do you make unrealistic promises to your creditors?” So if you read those, they say if you answer yes to at least 8 of the 15 you really should look at yourself and consider it that possibly you’re a compulsive debtor. There’s also signs of compulsive debting. The Debtors Anonymous site is debtorsanonymous.org, and it just talks about compulsive shopping and describes a lot of different signs that you can tell if… You know, so if you’re borrowing money off one credit card to pay another credit card, or if you just don’t pay your bills, even if you have the money you just can’t find the bills so you accrue late fees – all those things are signs that there’s something wrong and your life is unmanageable because your debt is just becoming crushing. If you look at it and you’re just constantly using credit cards or you can’t stop shopping even though you want to… You know, I know people who have plenty of money but they are out of control with their spending, even though they have the money. So it’s not necessarily that you don’t have any more money or you just have a lot of debt; and they say a compulsive spender is just a debtor who hasn’t run out of money yet.

J: Okay. So there’s obvious financial strain there with compulsive spending. Someone that maybe recognizes that they have a problem, they want to stop, how does that compulsive spending affect the person’s life outside of the obvious financial… direct financial consequences?

L: Well, I found just from my years now of being in recovery compared to being out there, it destroys relationships. I mean, I think – you might know this – there’s a huge number of divorces that occur over finances. You know, when one of the partners is a compulsive spender and one of the people is responsible, it can just wreak havoc because the person who’s out of control is spending money that maybe is needed for the mortgage or for food. Another thing, it can affect your relationship even with children. Let’s say you have small children but you’re compulsively on the computer with the home shopping network, not paying attention to your children. It can affect your time; they talk about time debting where you just… you fritter away and waste time with compulsive spending and compulsively thinking about spending.

J: Absolutely. So it’s interesting, when they were… I remember speaking with someone and I said, “Well, how do you know when you’re addicted to anything?” and they said, “Well, as soon as it starts to affect other aspects of your life – your job, your relationships, your health, things like that – then you know that you’re addicted,” and that goes for alcohol or gambling or any other number of vices, so to speak.

L: Right. This is not a play illness, you know; this is a very, very serious thing and people, they kill themselves over this. I mean, it destroys lives. It’s not a joke. And I think anybody who’s experienced the weight of crushing debt or not being able to stop spending money and worrying about using money that should be used for something else but they just can’t help themselves can understand that this is devastating.

J: Tell me about the structure of the Debtors Anonymous program – how it works, what the benefits are for those that are seeking help through the program, and maybe the difference of them going the Debtors Anonymous route versus tackling it on their own.

L: Well, the Debtors Anonymous route talks about… First of all, you aren’t alone – that’s one of the wonderful things, is that somebody who also has that problem can really help somebody else who has the same problem, right, because you can identify it. There are meetings; there’s many, many meetings on phone, so people all over the world – it’s just amazing – can get on the phone and all talk about the problem and the solution. And they say the solution is a spiritual solution, but that doesn’t mean religious because it is a big difference. But it’s if we could have stopped on our own, I think people who really have a problem with being out of control with money and debt would do it. I couldn’t do it on my own.

So, the program is based on Alcoholics Anonymous, and there are 12 steps and those are kind of instructions. There are books that you read and… So people go to meetings, and there are face-to-face meetings but they do it on the phone as well. One of the key things is a spending plan, which is where YNAB comes in, because without… They don’t call it a budget, even though you call yours a budget – that’s sort of a “no-no” word in Debtors Anonymous because budgets can imply deprivation, like being on a starvation diet; whereas Debtors Anonymous is helping you create a spending plan which is showing you how to use money to live your life appropriately. As opposed to gobbling a whole cake, you know, eating it in proper bites. So, in Debtors Anonymous, by having a spending plan – which YNAB is THE perfect tool… In the older days people did what was called the envelope system where they literally kept cash in envelopes that were labeled Groceries and Hair-cut; and YNAB is a virtual envelope system. It’s just… it is THE most perfect tool, because it helps you accrue in your different categories so you save up for things monthly. And one of the best ways to do that spending plan is to take what you have to pay and you divide it up by, let’s say every month you owe your car payment, so you put that much away, or if there’s an annual… something you pay annually you divide it by 12 and for each month. I mean, I know this is all the stuff you teach as well! And you also get someone called a sponsor, who is another member who can help you on the phone.

Now, I do something called the HOW Program – Honesty, Open-minded and Willing. It’s a little more structured with the tools. So, I make a phone call every day to a sponsor; I tell the sponsor what I planned to spend yesterday to the penny, what I actually spent to the penny, what I plan to spend today; and I actually don’t spend one cent without calling somebody or texting somebody to let them know, and it is the most freeing thing in the world. So I no longer compulsively just go have a spending binge. And I also do some writing and reading every day – not excessive, just something that kind of helps me to think about the healing part of this. And we also call each other in between to get support. And one last thing, we do something called Pressure Relief Groups. That’s where two other members get together, say with me, and I do it on the phone, and they help me with any financial pressures, to work through my spending plan, to create the spending plan, to tweak it to if I need to save for something or if a crisis comes up. It’s just, it’s a wonderful way to support each other and to gain the strength together with others to do what we couldn’t do by ourselves. So that’s pretty much it.

J: So you combine… I sometimes wish that I could have YNAB sponsors; with everyone that purchases the software, I wish they could call someone and say, “Okay, tell me how this works.” We try and do that with our online classes to a degree, but I’ve always wanted that sponsor program. It’s always been so fascinating to me because it just seems so effective. You know, someone that has some empathy for that person’s situation, having been there and kind of walked that same path.

L: Well, that’s why I just created a website called gettingoutfromgoingunder.wordpress.com, and that’s the purpose. I wanted to talk about… That’s why I’m doing it anonymously because in the program you can’t reveal your name, etc. But I wanted a place where people who were maybe exploring this program, or even not, to understand how to use YNAB in context of the program. So for instance, today I just wrote a posting about split transactions and how to do them, and with some philosophical ideas around it. And I have some posts on setting up the spending plan within the context of the whole DA ideology.

J: This is great. So, for people that maybe… you know, maybe they’re not compulsive spenders, maybe they aren’t a prime candidate for Debtors Anonymous, but what are some good habits that people can maintain to make sure that their debting never becomes a serious issue?

L: Well, actually, something that shockingly my own son is doing on his own – he’s in college and he called me, he was all excited – he’s using a tool to write down every single thing he spends. And so he said, “Do you know, I spend most of my money on pizza!” You know, it was kind of funny! And I think the most… to me, the key thing is being… having clarity about what you’re spending your money on. I think everybody should use YNAB – I do, whether you have this problem or not – because you get… there is no more clarity than with your program. And I mean, you’re not paying me to say this! I’ve used your program for almost three years now, and it has just changed my life. I was an expert Excel… I could do Excel spreadsheets and all kinds of stuff, and before YNAB I just couldn’t get it right; I just kept, “No, but I need this and I need this and I need this.” And then when I got YNAB, you actually had everything that I felt that I needed.

So to me, the willingness to live by the categories, to reconcile with your bank account; I’m surprised at how many people don’t know how to do that. I just did a post because a couple of people were telling me they’d never done it before, and I was shocked. These are adults! You know, these are not just kids. So I think, I really think that being willing to live within your means is crucial, especially in these days. My husband is not a compulsive spender or debtor, and I’ve watched… he’s amazing. He, of his own volition, writes down every single thing he spends; he’s never had credit, other than he’s had a mortgage or a car payment; but if he uses a credit card he pays the entire thing at the beginning of the month. He’s never been in debt. And I think that’s the most important thing that people can do, is live within their means. I mean, just as a person. And that’s separate from the 12 steps, which is what somebody with higher power and power that’s greater than you in your life – that’s a little bit different.

J: That sounds… It really comes down to what we talk about a lot when we talk about Rule One, and just one word to sum up the idea of giving every dollar a job; and the idea is just to be aware. You know, just to have awareness; just to know where the money’s going and making sure that it’s doing things that you really care about.

L: Right. And you might find that, you know, if you’re short at the end of the month and you say, “Oh my God, I go to restaurants so much!” how much clarity that gives you. And you can change that behavior. And the other thing is… you call it the buffer, I call it living in the next month. That absolutely is the most amazing thing, and it’s not so easy to get to. But the idea of “what I earn this month I spend next month” is SO freeing, because on October 1st I don’t have to worry about that in the middle of the month… I know I’m getting a check on the 17th but today I’m almost out of money, I know on the 1st exactly what I have to spend for the whole month. It’s just the most fabulous thing, especially… well, for anybody who gets maybe two pay checks a month. Right? So on the 1st they have their pay check, but their spending plan is for the whole month; however they’re not going to maybe have enough on the 14th if that check hasn’t come, the second check.

J: It’s just a lot of stress there. That timing of those bills to pay checks is just lots of stress. Absolutely.

L: Yes. They should teach this in school!

J: They absolutely should. You know, the only problem with that is that the kids don’t have any pain yet. That’s what I always tell people. I say, “Well, if the kids had bills to pay then they’d start to feel that pain; but they don’t so they don’t perk up because they don’t have a pain to talk about.” But it is something that we… I mean, as parents, you know, you basically teach your kids by example, and it’s kind of like you do things so loudly I can’t hear what you’re saying, is kind of the phrase. And so I always hope that I can LIVE in a way that my kids can just see, “Oh yes, dad checks his budget before he spends money, and then he plans,” and things like that. So that’s probably the biggest thing. But that means we have an awful lot of adults to educate in the meantime.

L: That’s true. And I just want to make sure, because I think I just [?? 0:15:14] this off, but it’s really important to know that the 12 step programs – all of them – really have a basis in a spiritual kind of recovery and believing that you are not the power of everything; you’re not in control of everything, that you’re powerless and that there is a bigger power. So it’s not religious, but that is the crucial concept where it works. And we do help each other, but the biggest concept is that there’s something outside of us that can help us.

J: And it’s proven to be effective for how many… I mean, how many people have gone through it, any of those 12 step programs?

L: Oh, just millions and millions. And right now I have over three years of continuous abstinence, meaning that I have not debted, not incurred any new debt. My debt was at $33,000 and now it’s down to about $14,000 in this time; and I’ve been able to save money. So it’s really miraculous.

J: That is awesome. Well, Linda, thanks so, so much for coming on and sharing with us. I’m confident that there are people listening to the podcast that this applies to, and that they know people to whom this also applies, and so I love that you can get the word out. So your website – gettingoutfromgoingunder.wordpress.com – where people can read a lot more of what you’re writing, and probably find out a lot more about your story and things like that, and how you’re using YNAB as well.

L: Yes. But the Debtors Anonymous site, which is the real… My site is just my own; it’s not approved by them or anything; that’s not conference-approved. That website for Debtors Anonymous is debtorsanonymous.org.

J: Okay, awesome. Well, everyone knows where to go to get more information. Thanks so much, and you have a great rest of the week. And yes, good luck in your continued budgeting efforts.

L: Okay, take care.

J: Bye bye, Linda.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 58: I can list all the clothes I own. You?

This episode aired on November 26, 2012.

Hello YNABers. My name is Jesse Mecham and this is podcast number 58 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I’m going to tell you about a massive accomplishment that I have under my belt now. I’ve been thinking a lot about retirement – not that I’m going to… not in that way. I’m thinking about retirement in general. I’m not totally sold on the idea from the outset, honestly. I think I’d like to stay busy and sane. But in thinking about planning for your retirement, or maybe just when you downshift a little bit, the number one killer to your nest egg, number one that you can control is your expenses. And so I’ve been thinking a lot about that – the expenses.

And then I read a book recommended by a friend, by a lady – the book was called ‘Seven’, it’s a Christian book if you’re interested – and I quite enjoyed it. This lady takes a stand on seven different issues over seven months. The first month she eats seven foods – that’s it. The second month she only wears seven items of clothing, not including underwear. There was one month where she did some serious cutting down on waste, recycled a ton – that was cool. I liked what she had to say about taking care of… you know, taking care of your food, like growing your own food and all of that, so they started to garden. Anyway, there was a lot of cool stuff there. It was excellent if you like… if you’re along the lines of the Christian genre. That was… I honestly read more non-fiction, like ‘how to’, so this was a little bit of a break from the pack, so to speak. But she inspired me. And I think her name is… I can’t remember the author’s name now, darn it. I think it’s Jen… Jen something. The book’s called ‘Seven’.

I was in line voting and this lady asked me what I was reading. The line was two and a half hours long to vote, and the lady says, “What are you reading?” I was kind of worried. I had to put my phone in airplane mode because I only had 7% left and I wanted to be able to read the entire time I was in line, I was reading this book. So I told this old lady next to me – by old I mean like 80 – she says, “What are you reading?” I say, “Well, I’m reading this book called ‘Seven’.” She says, “Oh, that book is excellent. I really loved it. I didn’t really like the movie – I didn’t think it was that good,” and she was talking about the movie Seven with Brad Pitt, that I’ve never seen and probably will never see because that is not my thing. But I thought it was funny that this 80 year old woman HAD seen it, based on what I’ve heard of it. Anyway… And Morgan Freeman was in it as well – which makes me kind of… kind of sad that Morgan Freeman’s gone, but… Shawshank Redemption, my favorite with him; or Robin Hood: Prince of Thieves with Kevin Costner – that was Kevin Costner. Okay, I’m getting off track!

So, I’m reading ‘Seven’, I get inspired by this clothes thing and how much excess clothes this lady had that she got rid of, so I say, “I’m going to do the same thing.” So, this last weekend I got up a little earlier than normal and I went through my closet, and I just made a MASSIVE pile. And then just this morning I drove down to DI, which is like our Goodwill, and I unloaded it. I feel great. I left the pile in my room for five days to see, just in case, if I might need one of those things that I was going to throw away – I did not. I threw away eight ties… Threw away – I didn’t throw them away, I gave them away. Hopefully someone else will be able to use them. I just threw… got rid of eight ties, two suits… one suit that I bought just a year ago and Julie just never liked it. That was kind of hard for me because I thought, “Well, I’ve bought it – it’s a waste of money if I don’t use it.” But I wasn’t using it, so it was a waste of money anyway. Someone else can get a suit that’s been worn six times and get a good deal on it.

I made a list here of all the clothes I own now. I’m going to brag a little bit – I’m telling you, I feel good. Two dress shoes – black and brown; two casual shoes; two work-out pairs of shoes; a pair of slippers which you could call my work shoes, honestly; a pair of snow boots and a pair of work boots; eight pairs of socks – we’ll see how that goes; two work-out shorts; one work-out pants; six work-out shirts; one suit; two slacks – dark and light; one jacket; one pullover; two sweatshirts – one for working out, one not; one coat; three dress shirts – one blue, two white; two collared short-sleeve shirts; one collared long-sleeve shirt; six t-shirts; two pairs of jeans; one work shirt. That is it. That is all. And my closet, the hang-up section of my closet is maybe 18 inches, maybe two feet across, and it’s awesome. And I think it’s a good exercise to do right as we approach the holiday season.

So, my challenge to you… Well, I should say this to you; let me finish this thought. As I got rid of a lot of stuff that I never used, it empowered me to not purchase other things. Now, think about that for just a moment. We are talking about being able to live on less, live with less, consume less because you have less. And I’m going to suggest that when you have more, you also consume more; that the amount of stuff you have acts like a magnet for more, so pretty soon you’ve got more and more and more – until you get rid of, I think, eight trash bags of clothes. Not all of it was mine, but a good bit of it was, and I never used it. How many shirts can you wear simultaneously? So how many do you need?

It was interesting because my mother-in-law was here visiting as I was doing this, and she and I are opposites in about every way. And she could not stand that I was getting rid of that stuff. But I went off of that interview that I had a while ago with Jill, the organization expert that helps you de-clutter, and I started from “What do I need?” Do I need three suits? How many can I wear at one time? Just one. So I will keep one suit. And I tried to work in the laundry cycle and all that to make sure I wasn’t having to do laundry every day.

But I just want to leave you with that. We’re coming up here on the holidays now. Thanksgiving is over. Hopefully you did not participate in Black Friday – no, I’m… Today’s Cyber Monday. Oh dear. That’s something I may actually participate in because, you know, I get to sit and… I don’t know, just click on things and purchase. It’s so much better than not getting trampled. As we come up on the holiday season, look around at everything you have, think hard about what really matters, and let that guide your gifting decisions. And tell people that maybe give you gifts; tell them what you really want is not more stuff. I’m going to be letting my family know that I really don’t want clothes, and yes, just see how it goes.

But I can only tell you from my own short – very short – experience that it feels good, and that I feel more aware of my purchases, of my consumption and of my resistance to it. I feel like I’m empowered, I feel a little more clarity. It feels good. I’ll leave you with that.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 59 – What will your holidays look like?

This episode aired December 4, 2012.

Hello YNABers. My name is Jesse Mecham and this is podcast number 59 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

And yes, I’m aware of the fact that there is no intro music and my voice does not sound nearly as pleasant without that little jingle going. For that, I apologize. My main work machine is out of commission for a few days and it has set me back in a serious way. Anyway, we can move on, plow ahead and ignore the setbacks.

I wanted to ask you what you would be doing the day after Christmas, and I wanted to maybe let you recognize the fact that the day after Christmas – or maybe even the evening of Christmas – when things quiet down and all the festivities come to a halt that it’s a good time to evaluate what just happened with your holiday season.

You could look at it and say, “Did we give the gifts we wanted to give? Did we go overboard? Did we do too little?” That actually happened to us last year. I could tell you a sad story about a four-year-old girl that was crying because of Mom and Dad’s MASSIVE oversight – but that’s for another day. So, you can evaluate that; evaluate the staying power of those gifts. Were they meaningful? Did you have a budget for them? Did you stay in budget? And look and see where your thoughts were, where your focus was, and maybe where your stress levels were at during the holiday season. And then with that fodder that came from pondering, just write down a few goals for the holidays of 2013, a year from now.

One of the main goals should be… and I would hope that as you’re acutely aware of the gift situation, that… you know, just after this holiday season, as you’re acutely aware of that you’ll be able to set some very well-informed goals for the coming year, saying, “I want to do this differently. I want to do this. I want to be able to think of gifts throughout the year,” maybe, or, “I want to stick to a budget this year.” And whatever you decide regarding the gifts – and all of your Christmas celebration, not just gifts, but travel, extra food that you maybe purchase for parties or what not – as you evaluate that, do a total. Find out what the holidays will cost you next year, and then divide that total by 12, and you will have your monthly Christmas budget.

And I ran a program this year called ‘Cash for the Holidays’, had about 400 people join. I kept it very small because I was responding personally to every email. And we just kind of stayed motivated with each other to pay cash for the holidays. Each month I’d check in and people would report back how it was going. It was quite effective and I think we’ll do it again this next year, so look for an email from me somewhere after the Christmas season dies down.

But that’s my challenge to you. It’s a short podcast. I had something else slated but the recording of the interview was sitting on my other machine, so I’ll get that another week. I apologize that this podcast is a day late, but oh well. And I hope that you can take this and run with it. Just use the day or two after Christmas to evaluate, do a little post-mortem analysis; set some goals for the next holiday season, one of which is how much you will spend; divide it by 12 and get your monthly Christmas bill – and then you just run with it. It is a great way to celebrate the holidays – everything set aside upfront with purpose, and there’s really no other merry way to do it.

I will talk to you guys again, but I wish you a Merry Christmas, no doubt, anyway, and we hope to catch you next time.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 60: No More Harvard Debt! How One Guy Paid of $90k of Debt in Seven Months

Hello YNABers. My name is Jesse Mecham and this is podcast number 60 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I will be interviewing Joe Mihalic. He is the author of ‘No More Harvard Debt’, and I am just pleased to have him on. He basically saw that he had $90,000 in student loan debt and decided to tackle it, beat it in seven months. He was intense, insanely intense about it. He basically passed on everything, sold a lot of stuff, and we kind of get into the philosophical around consumption and your wants and happiness, things like that. He has a great book on Amazon – it’s $2.99 – and it’s called ‘Destroy Student Debt: A Combat Guide to Freedom’, and I recommend it. It reviews well, and Joe – as you’ll see in the interview – is a smart guy with a lot of insights when it comes to psychology and debt pay-down.

So, without further ado, here is my interview with Joe:

J: Alright, I’m here on the phone with Joe Mihalic. Thanks, Joe, for coming on the podcast.

JM: You bet, Jesse. I’m very glad to be here today.

J: Alright Joe, so you are an average Joe, right? But you did something pretty crazy back in 2010 or so.

JM: What’s that? When I took on a bunch of debt or…?

J: Well, yes. Just give us… give us just… These listeners probably don’t know you by name, so give them a little history on what your story is and, yes, just what kind of makes you not average, I guess, in this day and age.

JM: Okay, sure. I got my MBA from Harvard in 2009 and took on about $100k of debt to pay for it. And about two years later, after paying off roughly $21k of that debt, I still had $90,000 left to go because of all the interest that I had paid down. It only put really a $10k dent in the overall principal. So I decided in August, the end of August, to try and pay off $90k in ten months. And I didn’t really know how I would do that, but I just felt like there was a better use for the $1,067 I was paying every month on these loans. And I wasn’t really sure what I wanted to do with the money, but you know, it ranged from such noble things as saving up for my future kids’ college funds. I don’t even have a girlfriend, but I felt like that would be one good use of the money. But then more selfishly I was thinking, you know, I could go on more trips if I got rid of this $1,067 monthly payment. So I embarked on this mission to try to pay the loans down, and I was actually successful and I did it in seven months instead of ten.

J: Seven months, $90,000. So, how was… I mean, you looked back, you saw the debt, you saw that the interest was substantial. How did that affect your outlook? I mean, you had a job at the time, I would imagine; you’d been graduated for a little while.

JM: Yes. I had a job, a good paying job, and I had managed to buy a house, furnish the house, buy a couple of cars and a motorcycle and some other cool toys; and you know, I was living pretty well – travelling, going out on the town here and there. But then I sort of realized… I looked at my finances and I looked at where this $1,000 was going every month and I decided, you know, I’ve already got the education, so this debt is really unsecured. I already benefitted from it, so there’s got to be a better use for this $1,000. I felt sort of stuck with it, and I thought if I can just tighten the belt for ten months, cut back a little bit here and there and put a dent in it, then I’ll be better off for it. You know, maybe the monthly payment goes down. Maybe I don’t pay the entire thing off, but I put a dent in it and I can spend… put less money towards it every month, and free up some of that debt payment and use it for something different.

J: So, what did you… where did you cut? I mean, it sounds like you had… you know, you said you had a motorcycle and you bought a house and furnished it, so you obviously consumed quite a bit. But on the cutting side, what happened there?

JM: So, on the cutting side I just basically did a lot of repairs around the house by myself. So my car got a hole in the convertible because it’s an older car, so I put duct tape on it instead of buying a new $2,000 top. I actually took a flask out when I went out with my friends to the bars instead of paying for drinks at the bar – probably one of the more controversial things I did, based on the feedback I’ve got, but my friends thought it was brilliant. I didn’t go to lunch with my co-workers or friends whenever they invited me; I just ate at my desk. I basically ate spaghetti at my desk every day. I didn’t go on any dinner dates with anybody, and I didn’t go to the movies either as a date or with friends. When movies came out and friends wanted to go and see them, I would just say, “Thanks, but no thanks.” I didn’t buy any clothes for those seven months. At one point my favorite shoes got a hole in them, but I just… I lived with the hole and I just hoped people didn’t notice it.

I made things last longer; so for a while there I was basically hydroplaning all over the road because my tires were so bald and I refused to buy new ones – which, you know, I can’t recommend for anyone. But it did save me some money for a little while. And then I made my contacts last longer – they’re bi-weekly, I think I stretched them out to four to six weeks. I didn’t want to pay for contacts because it costs $200-$300. I didn’t go home for Christmas. I basically stayed in Austin, at home for Christmas. And then I didn’t go to a couple of bachelor parties or weddings during this time either to save some money.

J: So no travel, basically.

JM: Zero travel. I bought tickets to Ann Arbor before I started off this mission, and you know, the cancellation fee is pretty steep there. So I just bit the bullet, went to Ann Arbor, reunited with my friends. I’m glad I did it, but while I was there it was hand-to-mouth; I was living very, very frugally. No meals out or anything like that; protein bars and any food I could get from friends, basically.

J: I see. So what were… You know, you mentioned kind of your two-step plan that you cut costs… You obviously cut tremendously; you just basically weren’t doing anything. If someone hears, “Okay, yes, he didn’t fix his convertible,” they get one idea; but then when they hear, “Well, he also didn’t go home for Christmas,” then people start to get it. That’s some real sacrifice that a lot of people just wouldn’t be willing to make. Looking back, is there anything that you would have done differently in the whole seven months?

JM: That’s a great question and I actually haven’t gotten it before, so it made me think when you sent the questions over earlier. And you know, it started out as… So the short answer is yes, there is. I would have sold my car and my… I would have sold my second car and my motorcycle and my road bike and some other miscellaneous stuff earlier in the whole process. But also no, there’s not anything I would have done differently because when I went into it it was just… it was very simple. There was nothing really more meaningful or deep behind my mission; it was just to literally have an extra $1,000 in my pocket every month that I could spend or put towards something different than unsecured debt. So it took me… so I started cutting back in certain areas of my life–like taking the flask out or missing movies, missing dinners; and I started cutting back on those areas and I realized I didn’t really suffer because of that. I just looked for fun things elsewhere – hikes, for example, instead of the movies or dinner.

And so when I realized that I wasn’t really suffering by being frugal, and in fact was just as happy if not more happy in certain situations doing these frugal things, I took a look at the car and the motorcycle and the road bike which I had been swearing up and down that I would never get rid of because they meant a lot to me at the time; I took a look at them and I just, you know, tried to dare to think about what life would be like without them. And, you know, after living frugally in other areas of my life, it was pretty easy to think about what life would be like without those things; because I didn’t think I could miss dinners and movies and yet I did. I couldn’t imagine taking a flask downtown at the bar and filling it up, filling up a Sprite or a Coke with the flask in the bathroom, but I did. So I was like, “What the heck?! Let’s sell these off.”

So I sold them off and it took me a few months to sort of wrap my head around that and get used to that idea. But once I did it was fine. I had a car and I got around just fine with it. I didn’t need all of that other stuff. And so, you know, looking back it would be great if I’d just done that right off the bat; but I think that that would have been maybe a shock to the system, if you will, and that I needed to sort of take baby steps on my road to living below my means.

So now I’m several months out – I think five… actually probably seven/eight months out now – and I’ve got money in the bank, I’m investing money, I’m saving my money, and I could afford a second car and a motorcycle and a road bike. I could buy all that stuff back, but I’ve got absolutely no interest in doing it because I’ve learned how to become content with what I have and live below my means. And that actually feels a lot better than where I was a year and a half ago when I was living at my means.

J: Yes, absolutely. So, where do you… I mean, without the debt and with, I think, something even stronger than the $1,000 in the bank each month extra, what is your outlook? You know, your perspective has changed dramatically, so what does that mean for your life goals in comparison to what they were before? I mean, I’m just kind of curious if it changed your trajectory at all.

JM: Yes, good question. So, with my new model of… you know, my new model of living below my means I’m saving half of what I make and I’m spending half. But the thing is, I’m not even interested in spending the other half, so I’m saving more than half, just because I’m comfortable living below my means. And so what that’s allowed me to do… and so I’m projected to retire well before the age of 65, which is nice. You know, obviously there’s a lot of assumptions baked in there, so we’ll see; but that’s the trajectory right now. But what it’s allowed me to do is it’s actually allowed me to quit my old job and find a new one. Now, I’m still in the tech industry in Austin, but I’m in a completely different company in a completely new function – something I’ve never done before. So, I’m in supply chain. And I took the job and I knew there was a risk involved. Like, if I’m not good at this then I could get fired and then I don’t have an income. But because I was living below my means, because I had savings in the bank, I wasn’t as concerned. So I went out on a limb, I took the risk and it ends up, thankfully, I love the job. You know, I’m decent at it, my work is respected and I’m quite happy where I’m at – and it doesn’t look like I’m going to be terminated anytime soon. But it allowed me to take that risk, and it also allowed me to expand my skill set and experience another company. So, that’s one thing and that was shortly after I paid off the debt and had saved up some money and was able to take that risk.

J: It is interesting when people talk about luck or having opportunities to do this or that. It’s amazing what happens when you increase your flexibility by relieving yourself of that debt.

JM: Absolutely.

J: It’s pretty much… you know, you can’t really calculate it because a job is not just about maybe a bigger pay check, but it’s your life’s work. So it’s always kind of disheartening when you have someone say, “Well, I can’t leave this job. I’ve got to pay off this or that and make these payments,” and then you’re just thinking, “Man, that’s your LIFE,” you know.

JM: Absolutely.

J: It’s a life decision. So it’s cool. What was the… I mean, I guess I was expecting for you to say you had some epiphany, like I don’t know, some parting of the clouds; but you basically just saw what little progress you’d made over those past two years, I guess, and just decided.

JM: Yes, it was [?? 0:13:03]. I mean, I came out of it being sort of this… not anti-consumer, I wouldn’t call myself anti-consumer, but certainly I consume less these days. But really, it was… the auspice of it at the beginning of it was very… I mean, it was very… it was fairly superficial. I really just thought, “I don’t want to spend $1,000 on something I’ve already earned. Like I’ve already got the education, I’m sick of spending this money every month. There’s got to be a better use for it.” So I came out of it realizing that life’s not all about money and we don’t have to spend every single dollar that we make to be happy. But yes, there was no parting of the clouds.

And people ask me, you know, “What advice do you have for me?” And I used to say, “It’s not rocket science. Just spend less money than you make.” But really it’s actually more difficult than rocket science, spending less money than we make – at least in America, I think. Because number one, you’ve got an incredible amount of peer pressure. You’re with your group of friends – your comparison set, if you will – and you’re with people who are slightly better off than you; and you’re constantly comparing yourself to the people you’re surrounded by and the people you perceive as better than you. And so there’s this incredible amount of pressure to keep up with these people – keeping up with the Joneses, right? So in order to spend less than you make, number one, you have to say no to peer pressure, and that’s incredibly difficult. You just have to find ways to say no to peer pressure. Number two is you have to say no to yourself. So, everybody battles their own insecurities and I found that I was fairly insecure. And the way that manifested itself was in buying a lot of things because I thought that would make me happier or better – but it certainly didn’t.

So, you know, I think that it’s difficult, but on the flipside… It is a lot of saying no; it’s also a lot of saying yes – saying yes to what we have and saying yes to being happy with what we have in our lives already, and finding happiness in those things and just living a simpler life.

J: Yes. I like that you mentioned, you know, as part of the self-esteem, I think a lot of people that would say, “I don’t have a self-esteem issue, I’m confident…” I mean, you graduated from Harvard, you obviously… it’s no small feat to do that. So you would expect, and a lot of people I think believe, that these accomplished people – that most of these podcast listeners are – that they would be confident. But a lot of times I think we hide… some kind of questions of self-worth, we hide behind stuff to just avoid answering that.

JM: For sure. I mean, a lot of people are so successful because they’re driven, but what are they driven by? I personally was driven by… I moved around – Colorado, Oregon, New Hampshire, Upstate New York, Michigan, Italy, back to Michigan – all before I was 13, and so I didn’t really have a very good support network growing up outside of my family. I didn’t have a lifetime friend or lifelong friends or anything like that; I never really felt like I belonged. And then I had a birthmark on my face that I got bullied for constantly. People would say, “Ah, you got beat up. Ah, you spilled Kool-Aid on your face,” you know, they’d throw chewed-up gum in my hair and they’d bully me a lot. And so I had those two issues. And then I got acne – like a super-bad case of acne – all over my back, my face, my ears. I had to get syringe injections for my back just so I could take a shower, otherwise it was too painful to take a shower.

And so, you know, I got bullied quite a bit. I was eating lunch in high school in the cafeteria and just had no friends, and my goal in high school was to literally just graduate high school graduate college and land a job with a $100,000 salary. That was literally my goal. And it was so superficial, but looking back I didn’t have a lot of friends so it made sense. It sort of made sense, you know, looking back that I would try to seek solace or seek friendship in material goods, material possessions and money. Thankfully the acne cleared up and the birthmark got lazered away, but those are scars that tend to stay with somebody – at least they did with me. So it took a lot of time to develop a healthy amount of self-esteem and a high degree of self-worth – as you pointed out. And so I think part of this process, again, it’s more difficult than rocket science because self-esteem is so organic; it’s not something that you can just learn. You can’t pick up a textbook, attend a lecture and learn how to love yourself.

J: Yes. It’s deep, you know. I mean, you’re mentioning things that happened when you were 13/14 in high school – that’s years ago. And I think a lot of times people are saying, they kind of beat up on themselves – “Why do I do this? Why are my finances this way?” – and there are some underlying behavioral issues that I think we can get to the heart of and give people some reasoning, and then say, “Okay, I can’t beat that. I understand this now, and this is what I’m going to do.” This is cool. I’m glad you came on, Joe, just because I know everyone would want to hear, “Okay, how did this guy do this in seven months?” but I think to talk about the deeper issue of it is what will really bring people more results in the end. So, you know, you’re finding your motivation, discovering a real motivation underneath what was initially just kind of a gut check – like, “Hey, this isn’t right” – and then yes, just… I mean, it changes your life. You know, different job and…

JM: Yes. And Jesse, I’d go so far as to say that without developing a healthy level of self-esteem I would never have been able to be successful. It wouldn’t even have occurred to me to pay off the debt and to start cutting back in areas of my life; I just wouldn’t have been able to. So I really do think that is absolutely fundamental to anyone who wants to… who is entertaining the idea of paying off their debt. I mean, clearly they already see the value in that and they probably are seeing just the fact that you don’t need a lot of things to be happy or to have a high level of self-esteem. So, you know, they’ve already started if they’re already thinking along those terms of wanting to live a debt-free life. It’s just getting to the bottom of the issue and then pushing forward.

J: Awesome. Well, I appreciate you coming on, Joe. This is great. I’m sure it will help a lot of the podcast listeners, so I really appreciate it and wish you a Happy Thanksgiving.

JM: Thank you, Jesse. I’m very glad that you had me on. I really appreciate the chance to talk to you and your listeners.

J: Hey, is there a website that everyone can check out, maybe read more of your story? I forgot to ask you that at the beginning.

JM: Sure. Swing on by nomoreharvarddebt.com and check out the blog. I’m not really updating the blog anymore, but it is chock-full of stories from my adventure between August when I started and March when I finished, and even has several more posts after that – some reflective posts – and other ways to cut back and live a fuller life without debt.

J: Awesome. Yes, nomoreharvarddebt.com – we’ll definitely make sure everyone checks that out. I appreciate it, Joe. You have a great rest of the day.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 61: Friction

This episode aired on December 17, 2012.

Hello YNABers. My name is Jesse Mecham and this is podcast number 61 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

I want to get back to the basics today and chat a little bit about the budget. We’ve had the opportunity, getting a lot of awesome applications for our Rails position – Ruby on Rails position – to basically build out some very cool stuff for YNAB in the coming months and years. And as I read the job applications, it’s fun to see people wanting a job not for the money but for other intangible benefits – you know, work/life balance, a challenge, wanting to learn something, wanting to make a difference, have an impact. You see all those things in these interviews with these great candidates, and it’s exciting.

I was thinking about that the job application is kind of a way to articulate what you want to do with your time. You’re saying, “I want to spend my time in this way. I want to spend it building something great that other people can use to improve their finances.” And you enter your contract with an employer and you say, “I am willing and ready and would love to spend my time, my life – a portion of your life – to do this work,” and then you’re compensated for it. And I love in these cover letters that I’m reading and different things, I love seeing that so clearly articulated; people caring about their life and their accomplishments and how they feel about their work. And I wonder often if we couldn’t look at the budget in the same way; if we couldn’t say that a budget is simply a clear articulation of what you want your money to do, with no judgment attached to it whatsoever. So when you REALLY, really want that thing, then that is perfectly appropriate.

What we find happens in our culture, where we’re just marketed to constantly, is that we end up having our money do things that we don’t really want. It’s kind of like being hired for a job where they told you, “Hey, this is what you’re going to be doing, it’s going to be great, you’re going to feel so fantastic,” and then you end up doing some monotonous, mind-numbing, brain-dead type of task for 40 hours a week – or worse, for 60 or 80. And you start to feel dissatisfied; you start to feel some friction. Like what you’re spending your time doing isn’t really bringing you fulfilment. That same friction that you feel in your life in a career that maybe isn’t quite the right fit – and I can relate to that, having been in that position myself and now having seen the flip-side, running this whole little YNAB thing – that friction you feel in life when you’re in a job that just isn’t quite doing it for you; that’s the same type of friction you feel as your money does things that you don’t really want it to do.

Julie and I are in the market to purchase a new van. We’re kind of aiming to purchase it right toward the end of the year so the dealers are really excited and anxious to hit their quota for the year, so kind of timing it that way. But as we’re looking at all these options for a sweet van, another van obviously, you can kind of look at it and see, “Do I really care about that? Do I REALLY, really care?” And we don’t care about a lot of things that we spend our money on – so just think about that.

Where there’s friction with your money, it’s usually just because your money’s a little bit out of alignment and it’s rubbing up against you in a way that’s bothering you. The budget is a great way to clearly articulate to yourself. Or if you are in a shared finances situation, even better because you are clearly articulating that to each other and combining forces to where there is no friction and you feel good as your money does things that you care about. No judging, no feeling bad, no guilt in any way; just money doing what you want. It’s a great place to be, a fantastic way to live. Just make that happen. Use your budget constantly to clearly articulate what you want your money to do – and you will love it.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 62 – Bought a car; broke both my rules.

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Hello YNABers. My name is Jesse Mecham and this is podcast number 62 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

I went into debt yesterday, and I’ll tell you more about that in just a second. I broke two of my rules that I thought I had in one day – two of my financial rules. They were never borrow money for a car; never buy a new car. I broke both of them yesterday. This is the car edition. This is the “Jesse broke both of his car buying rules” edition. Let me tell you how it went down.

It started five years ago – let me tell you a little bit of history. Julie and I bought a Chevy Prism a few months after we were married; before that we didn’t own a car. The Chevy Prism is one of the best kept secrets in used car-dom. It’s a Toyota Corolla built in the same factory as the Toyota Corolla, except it had Chevy on it so you didn’t have to pay for the Toyota symbol – and that car rocked. I mean, it was awesome. So we bought that. It was… Anyway, we bought that, it was a great car. Then on our way to Dallas when we were moving to work for that accounting firm, I ran over something and it totaled the car. So then we went to Dallas planning to buy two cars instead of just… Well, we were planning on buying one car, a family car, and then have the Prism for me to commute in, but that was totaled. So we bought two cars. We bought a Honda Civic and a Toyota Sienna – sweet van. And it was a white Toyota Sienna. I was with my friend, driving my Civic to work one day, and that thing was pulling so hard to the right and we realized that one of the tires was like grossly over-inflated – lucky it didn’t explode on me. The dealer that I bought it from probably wasn’t very reputable. Well, I know he wasn’t.

Anyway, that Civic we still have, although the Toyota Sienna we do not still have. A couple of weeks after the move and after having that van, Julie was on her way to the gym at five in the morning, she was turning left, there was a stop light at our apartment complex, she was turning left on her green light at a freeway, and this kid who had been drinking was also driving and hits her – luckily she was totally fine, luckily – and totals the van. So then we’re buying another… we’re buying our third car in like three weeks. And we buy this AWESOME Chrysler Town and Country limited edition from a friend’s parents. The friend that I worked with at this accounting firm, he said, “Hey, my parents are selling this van,” and he had a lot of fond memories of the van. I may contact him and ask him if he wants to buy it from us now. But anyway, I flew out to Huntsville, sight unseen, picked up the van and drove it back home. So, that was our van. It’s 12 years old; it’s served us very, very well. Unfortunately, lately it’s started having more problems than we care to put into it.

At about the same time we bought the van… maybe about a year later, for the past five years, we’ve been saving for a new van; and we have this category in our budget and it’s called “New Car”, and that’s what treated it for. So we would just pay ourselves; every month pay ourselves, pay ourselves, pay ourselves. Then when we paid off the house that freed up some money, so we actually were paying ourselves a lot more. Then we were getting to the point where we were setting aside enough money in this car category, I thought, “We could buy two cars” – not new cars, but two used new cars. And that seemed pretty good. We actually stopped making our car payment to ourselves because the amount was getting so high Julie was starting to talk about, “Hey, we could buy this type of car,” and it was some insanely, gaudy car, you know – it wasn’t a van, it was some kind of an SUV. So we stopped making contributions to our new car fund. I was actually using Betterment for it just recently, because I’m just a big fan of that one. So we were using Betterment, REALLY conservative allocation for the investment, and it was actually making pretty good money for us. Not to guarantee that you’re going to make money – I’m just saying that’s what happened with us. So we stop making payments there and then we have this money. Then we’re just sitting on the money but we’re thinking, “Man, how cool would it be if we just kept driving this gold Chrysler Town and Country limited edition?” But things kept going wrong with it. $150 a month for repairs is my standard fare with a ten year old Civic and a twelve year old Chrysler Town and Country limited edition; but that was starting to kind of catch up to us – the $150 was starting to not be sufficient. And so Julie and I kind of said, “Well, let’s go look at vans.”

So, we went to a Honda dealership, looked at the 2013 Honda Odyssey – which is just like the 2012 Honda Odyssey – and that thing looks like a car. I don’t know what to tell you guys. I think it’s really cool. I wish I was cool enough to say that vans are lame, but I’m not – I think they’re cool. I think it’s cool that all my kids fit in it really well and that it has a cooler in it where you can put cold drinks; and I think it’s cool that the doors open on their own. Who thought that? I know that’s been around for a lot of years, but not for us; not for the Mecham family. So, apparently in the last twelve years they’ve made some significant strides with car technology because we were looking at that van and thinking it was pretty sweet. Julie wasn’t sold, though; and of course, it’s her final call.

So we go back, I don’t know, Friday, and we test drive. And we’re there with all the kids, but the dealership here in Utah, where they’re selling vans… it’s like the number one Honda dealership in the country. I guarantee we sell more vans here than any other place in the country – guaranteed. So, we’re there, free popcorn, free soda, we’re watching Cars. I’m thinking, “This dealership, they really know how to handle all these kids,” because the kids were thinking, “How is this possible that there’s all this free stuff here?” Well, it’s not free, kids, but let’s pretend it is and enjoy ourselves. Julie goes on the test drive, she comes back. Test drives, apparently, basically seal the deal, because she came back and suddenly she’s… you know, she’s always so aloof on purchases, always ready to walk away on a whim, and she has the will of, I don’t know, just an iron will. I’m weak. I’m so soft. I’m just thinking, “Oh, I want that,” but not my wife. She is a rock. So when she comes back and just kind of gives me like this raised eyebrow look, I knew we were sold. So I just took it for a test drive, just as like a symbolic test drive at that point. Come back, I tell our salesman Ray, I said, “Ray, we’ll be back tomorrow.” He’s saying, “Hey, we’ll give you this deal.”

What we were doing, he’d called me earlier in the week and said, “I’ve got these 2012 Honda Odysseys, top of the line, everything under the sun loaded in them,” and the only thing I didn’t want personally was the DVD player. I like having my kids stare out the window on long car trips – I think it builds character. But that’s kind of built into that. So, he’s saying, “Hey, these are 2012s and we’re giving you seven grand off.” I looked, I’ve tried to do my research, I’m not a big car guy – I don’t want to spend like an equivalent full-time work week doing car research. But I did look at invoice pricing on Edmond’s and True Car or something from American Express; I called Costco, I got the membership dealer price there; and it was coming in under what everyone was quoting, like two grand underneath, or about $1,500 underneath invoice. So I thought, “This is pretty sweet, and we’re not paying a premium on the new one, but we are getting the new body style.” And I didn’t want in ten years to be selling this van and have it be the old body style; I wanted it to be the more recent body style, even if it was an old van. So I thought it would help the resale value. So, I’m saying, “Well, yes, we’re going to buy a new one – a year old, but still never been driven type of new vehicle.” So, strike one against my rules. Not the four rules – you can’t have strikes against those things; but you know, my car buying rules.

Second time now. We go in and we’re ready to basically ink it up, and we’ve got the money obviously – we’ve been saving forever for it. And Ray says, “I forgot to tell you…” Oh, I’ve got to tell you guys this one thing. This other dealer… you know, I contacted a couple of other dealers because I wanted to make sure we were actually getting a deal. He tells me what the price is, I tell him what these guys are pitching for the price, and he’s like, “Well, it must be a mistake,” and I said, “Well, yes, you probably say that to everybody.” And he’s like, “No, really, seriously, that’s a mistake. They must have told you wrong or missed a digit.” And I was like, “Well, I’m going back there today.” So we go in there and Ray says, “Guys, I forgot tell you…” he’s like, “Well, I didn’t forget to tell you, I just didn’t know. I apologize, but in order to get this seven grand off deal you have to finance it.” So immediately I’m thinking, “This is it. This is that sneaky part of the sales tactic where they get you.” And I thought, “Dang! I don’t want to walk away and I don’t want to borrow money.” So then I said, “Well, we’re not financing the vehicle. We just want to pay with cash. What’s the difference to pay with cash?” So he comes back with a cash price. He gives me the cash price and it’s good – you know, it’s what I would have gotten with the other dealer through a couple of membership programs, that’s the kind of deal. So I’m sure hard drivers can save another $800; I have no desire to spend a week of my time to save $800. But I’m looking at that and he’s like, “Yes, it’s basically…” it was like a $2,500 difference to finance it. And so I’m saying, “”What’s the rate?” He said 5%, which is insane, but… Hey, you know, you can buy a house now at, what 3%. And he said, “Well, here’s how you work it out. You make a big payment upfront and then three more payments of X to close up the balance.” So, to make four payments, meaning that we save $2,500.

I don’t know if the dealer was being sneaky or if they actually… I think he was being honest with me and that he just missed it; or he’s such a good salesman that he just appeared honest. I’m going to call it honesty. So, we did it. I now owe money on a car. And I’ll report back when it’s paid off. I don’t like the hassle factor of having write one more… pay one more bill and all that, but for four payments… I promised to do the first payment and Julie promised she would do the next three. I made her promise that. We should have it paid off, so… Money’s sitting there just waiting, and my calculation was we’d pay $80 in interest or something on it.

So, that’s how I broke two of my rules, purchasing a car. I bought it new – well, a year old model but never been driven before – and I financed that sucker. And I can’t wait to pay that sucker off. And I feel okay about it. I try and be fairly pragmatic in my approach, with my advice. I try not to be super-dogmatic in how I feel about things. You guys know I use a credit card for most of my transactions. I trust the budget. I trust where it’s gotten me so far; I trust that the money I have saved for that car is really money I’ve saved for that car; and I trust myself that I won’t blow it on something else. I haven’t for five years – I won’t now. So, the budget ends up giving you a lot of information about yourself and it teaches you that what you can do… I mean, basically it shows you what you can do with your money. It shows you your habits, it shows you your weaknesses, your strengths. And you can play certain games, I think, if you’ve been doing the budgeting game long enough and you’ve been doing it well. So you follow YNAB’s four rules and you learn that not everything is black and white. You can do certain things because they’re convenient or whatever, and you’re fine with it because the budget makes the decisions and the budget is kind of your guiding light.

Tomorrow is Christmas,* so Merry Christmas to everyone – best day of the year. I’m looking forward to it. I wish everyone also a Happy New Year. Although, no, I’ll be doing one more podcast, so I take that back; I rescind my Happy New Year – I’ll give it to you later. Use the break during this Christmas time to talk about, you know, what we did last time; just use it to kind of regroup a little bit and see where you got caught red-handed, so to speak, with some big bill this last year, see if you can’t ready yourself for it this next year. We’ll be doing our “Cash for the Holidays” program; in January we should start doing the sign-ups for that. I kept it fairly small this year, going to keep it small again next year. It’s where I kind of personally coach people in saving up cash for the holidays. There are about 400 people that all paid cash for their holidays this year, and they’re merrier, I’m sure, because of it.

Anyway, Merry Christmas to you all. Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

*This podcast originally aired December 24th, 2012.

YNAB Podcast Episode 63 – The Farmhand Who Slept Through Anything

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Hello YNABers. My name is Jesse Mecham and this is podcast number 63 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I wanted to share with you a parable that I ran across, twice actually in the last month or so, and saw it as a sign that I should share with you guys.

There once was a farmer looking for a young man to help out at the farm. There were several young men who interviewed for the job, and as far as the farmer could tell they were about equally well-qualified. He then went and asked them each one final question. “Tell me,” he would say, “why should I hire you above the others?”

Of all the applicants and their replies, there was one that was really different. One young man said, “Because I can sleep through anything.” At first the farmer thought it was just strange; then the more he thought, the more he was intrigued and mystified by the response. So he figured, “Well, I will give this young man a chance,” and he hired him.

Weeks went by and the farmer was pretty happy with the young man’s work. He still wondered sometimes what the young man had meant by his strange reply, but he never got around to it. Then one night he was awakened in the middle of the night and got a phone call from a neighbor. “There’s a big storm suddenly come in with lots of wind and maybe a tornado. Better get ready for it,” was the quick message.

Indeed, as the farmer went and looked out the door, he found that the wind was strong and rising, and rain had started. He quickly ran and tried to wake the young man up to start getting everything ready for the blow, but try as he might the young man couldn’t be stirred. Muttering to himself about what a stupid thing he had done in hiring a lazy boy who wouldn’t wake up when he really needed him, the farmer went out to the farm.

He went out to tie down the hay, but discovered that the hay was already tied down securely. Next he went to the barn and the corrals, and every time he looked everything had already been prepared. After a while of just wandering around the farm, of discovering that there was nothing that needed to be done at the last minute because it had all been done before, the farmer returned to the house. But instead of muttering, he actually found himself singing the praises of this young man. He had realized, to his great joy, that the reason that the young man could sleep through anything was because before he went to bed each and every night, he had already prepared for the very worst.

And so the farmer followed the example of the young man, since everything was already prepared. He undressed and was soon fast asleep with a huge smile of peace on his face.

I shared that on the blog a little bit ago, posted it on our Facebook page – facebook.com/iYNAB, if you haven’t caught us there yet. I like that. And at the turn of the year, which will happen tomorrow,* it’s a great time to basically look back at the prior year and say, “Okay, what caught us off-guard? Where was there a financial tornado, so to speak? What could we have secured down – the barn, the corral, the hay?” And then look ahead to 2013 and say, “Okay, what would we do different? Were we surprised by this or that? Could we prep for it better?” to where you really can sleep well at night.

So, be like that farmhand. Be ready for the worst so that you can have financial peace.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

*This podcast aired December 31, 2012.

YNAB Podcast Episode 64: My Financial Life

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Hello YNABers. My name is Jesse Mecham and this is podcast number 64 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I don’t really want to talk about budgeting, but maybe more the fruit of budgeting, so to speak. I want to talk about how I run my financial house; and I’m no expert – this is just what I do, right or wrong, optimal or sub-optimal. Anyway, so take from it what you will and disregard the rest.

Let’s start with something extremely basic and something that I’m lacking. Well, not totally lacking, but my father’s an attorney, he wrote me up a will a couple of years ago; and he’s an attorney in Arizona, so for two years now, I think, or three, I have not taken it to a Utah-based attorney to have it adapted to kind of the Utah legalese. So, I need to do that. I have reached out to my Facebook friends for referrals for a Utah-based attorney that’s done lots of wills and is not just your cousin. So, if you know anyone, write me at jesse@youneedabudget.com,* and I’d love to have them help me out with adapting this will to Utah. So, we do that.

*No need to email Jesse about this. He’s found an attorney and completed his will. 

Life insurance is pretty straightforward. I bought some term life insurance – 20 year term – probably when I was 23, and it’s a bargain, it’s a steal. So, yes, we do that. Let me figure out exactly what that is worth as far as income goes… I bought it before, when I wasn’t making as much money as I am now – thankfully. But yes, our policy is 12.5 times my income. So hopefully it keeps becoming a smaller and smaller multiple as I can earn more money; but [?? 0:02:26] Julie would be fairly set and we have YNAB as a going concern. And when they told me that phrase “going concern” in school, I always thought it sounded bad; but a going concern is good. I don’t know why, but you’re not concerned for it, so they call it a going concern when everything’s fine. So yes, that’s YNAB. And YNAB has some inherent or intrinsic value in it, so if I were to be removed from this earth – hopefully in a long, long time – but at any rate, I wouldn’t want Julie to run YNAB. She wouldn’t want to either. So we’ve worked out where that can be kind of handled. So that basically equates to more life insurance. So yes, that’s that as far as the life insurance goes.

Cars, car insurance – nothing with car insurance. We do high deductible stuff – we use our emergency fund to insure ourselves and then do high deductible, so we end up saving money. Speaking of cars, we own three now. Trying to sell a sweet Chrysler Town and Country limited edition from 2000. I haven’t listed it yet, but we’re trying to sell that. Just bought a new Honda Odyssey – we got a smoking deal on it if we financed it. If we hadn’t financed it it would have been a good deal but not a smoking deal; so I basically saved $2,500 more by financing it. I have the cash flow – we saved up for it for about six years, and I just sent them a check for 88% of the loan value, and we’ll pay off the rest over the next three months. It ended up costing us about $80 in interest, but we saved over $2,000 by doing that deal with them – they got some kind of kick back, so I talked about that already. Anyway, that’s the car situation.

The Civic that I have needs replacing. It’s a 2002, it’s got 158,000 miles on it. I’m hoping to replace it in five years, and we’re paying car payments to ourselves for that. We also have started paying car payments for our next van or other family vehicle; just started this month, actually. So I kind of reevaluated what we would need – we hope to drive that van for ten years and figure it out if we wanted to spend… Who knows what cars will cost in ten years, but if we wanted to spend $40,000 on a really, really nice car, it ends up being $333 a month – and I think that’s about what we’re doing. So, that’s our car money. That’s a pretty normal car payment. The trick is to drive the car for a long time and not trade up in five years.

What’s really freaky is we did not give them a dime when we bought that car. This is a little tangent – we didn’t give them a dime when we bought that car, and that was freaky. They didn’t ask for a down-payment; they just said, “Okay, sign, sign, sign.” And then the monthly payment on that beast was $650, and that’s ONE car. And I asked the guy, “Do people really come in here and sign up for $650 a month?” He says, “Yes, all the time.” Couldn’t believe it. So can you imagine having a $650 single car payment then another car payment of $400, then a mortgage? Now you’re like $2,400 into obligations, and that’s just for shelter and driving around. Crazy. Crazy, crazy stuff. That’s our car situation.

Kids’ education – I used to contribute to a Utah 529 plan. It gives us a little bit of a State tax break; it’s actually a pretty good program, the Utah one is, all things considered. Invested in some kind of a… you know, it grows more conservative as they approach 18 years old. But a year and a half ago we pulled them out of… well, pulled Porter out of public school and put them in a private school, and so I stopped contributing to the 529 to help fund the private school. And we like that school. We liked the public school actually, quite a bit; but we like the private school even more. And my whole plan is you go to this private school, I pay for that, and you get scholarships – that’s my thought. And we just feel good about it, so we’re going to stick to it until those feelings change. So, that’s kind of the kids’ education.

I’m not doing big contributions, though, for college. I may change that in the future, but for right now the focus is on that schooling, giving them a good foundation and then going from there. Of course, I really hope Porter gets a Philmore scholarship. Just kidding – sort of!

Health insurance – we do high deductible plans there for the same reason. I found we almost always… And we have little kids too; we have five – I had to count them. I don’t do health insurance through YNAB, through the company; I don’t like employers making that decision for employees. I think having employees closer to their healthcare decisions helps a lot. So I don’t do that and I won’t as long as I’m allowed to not.

Let’s see. Other things health-related – we don’t do an HSA because Utah doesn’t allow you to do an HSA and have coverage for having children. When we stop having children we would do an HSA, and my plan would be to never touch the HSA funds until I’m in retirement. That is the best tax break you get – tax deductible and tax-free growth. It’s just awesome. So it’s the best thing for taxes, period. We can’t do it yet because we aren’t sure about the kid situation; so when we are, we’ll do that and then we will not pull those funds out. I would hope to be able to fund them out of pocket and keep that HSA growing as kind of a healthcare/retirement nest egg.

Speaking of retirement, I do 401K through YNAB, and YNAB puts in 3% – that’s immediately for everyone – and then I put in another 7% of that. I also put in another 5% of gross to my Betterment account. You guys know I do Betterment to do my other investing – it’s brainless, which I like. I also just started investing… started… I bought a rental property that I feel like I got for a good deal, and we’ll see how that goes. I’m not managing it; I made sure to bill in a property manager in my calculations. So, I’m trying that; so real estate a little bit. Also, our home is much bigger than we would need once we retired, so the plan would be probably to downsize once we retired and get a little bit of cash there. Not banking on that one, though – just might be kind of nice. And honestly, it would be nice to not care for a house that big or care for the yard and stuff like that. But I do like the gardening, so maybe it will just turn into a big garden and I would just garden full-time and camp full-time, raise Nigerian dwarf goats, you know, and chickens. I have a pastoral tendency that I think needs to be fulfilled in the next 20 years.

Also as far as retirement goes, YNAB is part of my retirement. So I don’t know exactly how that would all play out; who would even pretend to know if we were eventually sold or if I just kind of stepped away and let someone else fill in or whatever it is. I won’t even pretend to guess. Right now we have so much low-hanging fruit and so many prospects, the idea of selling to someone just gives me the heebie-jeebies. But YNAB is my retirement; you know, part of my retirement plan.

That is basically it. I think I covered most of the financial issues. I’m just kind of plugging along, but hopefully you gathered something from that – I don’t know. I don’t do anything crazy risky, I don’t invest in single stocks. I have in the past and actually made money, but that’s totally lucky. Yes, high deductible on insurance, life insurance is covered. We have some life insurance on jewelry – I actually don’t think that’s necessary. I think we should probably get rid of it. But it’s so cheap it’s kind of hard to get rid of; it’s like $90 a year – it’s some insanely tiny premium. So, got to get the will done. Again, I’m no expert – this is just our thing. And yes, maybe you guys got something out of that.

So, I don’t have big beliefs here, like hard-set things. You guys know I use a credit card for the business, I use a credit card personally; I let the budget dictate my spending decisions and it’s worked out well for us so far. So I don’t have kind of dogmatic beliefs in regard to a lot of this stuff, but I wanted to share what I’m doing, and a year from now maybe some of that will have changed. One thing that I noticed that I changed in the last four months was the retirement. I just noticed that we weren’t contributing enough to retirement. We were doing the 401K thing, but as a percentage of our pay check it wasn’t high enough. That’s where I started looking into it and looked at Betterment and liked that investing option. We have some Roth IRAs that we’ve built up over the past, and some traditional IRAs when we weren’t allowed to do the Roths, and things like that. So those are all invested in Target, like Vanguard Target Retirement Funds. I wish those were a little more like small cap value-based instead of being what they are, but they are good enough.

So, that’s that. Basically it. Hopefully that spurs you on to ask yourself some questions at the New Year and see if there’s not something you can tweak, something you can look at and maybe optimize a little bit. And just keep on living your life, recognizing that financial stuff tends to creep in every part of our life, but it’s nice when you can start to kind of set things on auto-pilot, get into a rhythm and then not have to be constantly thinking about it. That’s the real way to manage your money, I think.

So, until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

YNAB Podcast Episode 66: Big Goals, and Nothing Else Matters

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Hello YNABers. My name is Jesse Mecham and this is podcast number 66 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I want to talk about big goals, little goals, little annoyances, things that you should just ignore when you are a budgeting guru – such as yourself. Sometimes you can get caught up in the details. And I know half of YNABers are detail-oriented, OCD perfectionists and you love tweaking and just mixing things up with the budget, and moving little dimes and nickels around, so maybe this won’t speak so well to you. But there’s another bunch of you that can get lost in the minutiae and bring you to a screeching halt when it comes to progress, or just feeling positive about yourself, feeling positive about your efforts.

I’ve mentioned this a few times – I don’t know if it’s on the podcast or on a blog or whatever – but I long for the day when my budget is just a very few line items. I would have one line item for big expenses that would surprise me unless I explicitly called them out, like Christmas – although it shouldn’t surprise any of us it still does. Pay it off from 2012; start setting aside money for 2013. Christmas, car registration, car insurance, property taxes, life insurance, braces that you see coming down the pipeline with your eight year old.

Anyway, so I’d have a line item for that so I could have some… people would call it a little bit of clairvoyance – it’s like you’re divining the future, but really you’re just looking ahead to the extent that’s easily predictable. I’d have one line item for that. I’d have a line item for giving; I’d have a line item for retirement; I would have a line item for emergency stuff, like a fluctuation category where, “Hey, I didn’t see it coming, and it would have thrown me off except I have this flux category.” And any spending, I’d have a spending category; and I’d have a vacation or big savings type category, if I’m working on a vacation or saving up for some item or whatever. I think that would be it.

That was just off the cuff, but I think that would be it. And the reason I say that is because if you are focusing and hitting the big goals like getting out of debt, setting aside money for retirement… I was asked on Facebook, I asked what the podcast episode should be about on Facebook on Friday, and two people said investing; and everyone maybe knows I use Betterment for my investing – you can see that at ynab.com/go/betterment. It’s kind of like investing done for you, diversified and allocated appropriately according to your goals and timeline and risk profile and all that stuff; and it’s just drop dead easy to use – so I use that.

Anyway, when you’re hitting the big goals – you’re paying off debt, you’re putting money aside for retirement, another goal maybe for you is a vacation, another big goal is making sure your bills are all paid on time, and even the less frequent bills that we talked about – so you’re setting aside money for those. If you’re doing those things that are core to a healthy financial situation, you don’t need to sweat the small stuff. The small stuff, because it’s small, can be ignored. And when you’re taking care of those big, important goals, that small stuff just kind of nets out with itself – things cancel themselves out. For instance, you overspend a little bit in some little category and you have a surplus in some other little category, and they offset each other.

Steven Covey used to teach this – they probably still do in his seminars – talking about time management and making sure you get the important things done. Budgeting is the same thing, it’s just money management – making sure your money does the important things first. And he would have people with a jar, like a gallon glass jar, and then they have a container of sand and some large rocks; and the large rocks were the important items and the sand was all the minutiae – the tiny stuff, the unimportant things, or less important.

You pour the sand in first and then you try and cram in the large rocks, you don’t have a chance. What he would say is, “We’ll take care of those big things first, put those first in the jar.” Big things for him were time to yourself, your mission statement and your values – and if you think about your money having a mission statement, the parallels are just all over the place. If you have a mission statement with your money – “I’m going to get out of debt in 2013. I want to pay off my whatever, get rid of my student loan. I want to accelerate my debt paid out of my house. I want to up my retirement contribution by 3%. I want to get a raise” – whatever it is, when you do those things first, you put those big rocks into that jar, then when you pour the sand in, all the minutiae, you can still fit everything in where you couldn’t fit those big things in before.

So, think about that a little bit, and when you’ve overspent in specific categories and they’re small, don’t worry about it. Just, it’s okay. On Facebook there was a comment that kind of spurred this. It was from Mary Dixon, and she basically said she’s largely reactive. Let’s see. She wants to be changed from a largely reactive YNAB user to a true budgeting YNABer. “I’ve been using it for years. I always had good intentions but end up just tracking my spending. If I go to buy something and see there’s not enough in that category, I still buy and figure it out later. I need to beat myself at my own mental games.” I would say, Mary, make sure that you have your big goals taken care of, hopefully on auto-pilot. Right? If those big goals are taken care of and you find that you’re out and you want to buy something and you don’t have enough in the tiny category, you go ahead and say, “Oh, I’m going to buy it anyway, I’ll figure it out later,” you are not being reactive. You are still thinking ahead. You’re looking at the purchase and you’re saying, “Okay, yes, I think I can do this,” or maybe you can’t. But the way it’s going, at least the way you’ve described it here, you CAN handle it because you know you’ll take care of it later. So it sounds like it’s a small thing that you shouldn’t beat yourself up about.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.