Don’t let the debt get you down

ostrichHi – jessiebird here again. The other day I came across an old debt payoff chart I had made. It listed all of our debts at the time, with balances, minimum payments, interest rates and a grand total. The five debts — including a credit card on which we owed over $10,000 —  came to a demoralizing $45,162.39.

The chart was dated Aug. 22, 2012.

That’s an important date. It’s not when we started with YNAB; that was July 2011. It was, instead, the first time I had been brave enough to write all of our debts down in one place — and that’s after we had already paid several off.

If you’re a natural-born number-cruncher who doesn’t feel like hiding under your desk every time you think about your staggering debt load, you might wonder how I could have waited so long. Well, when we first came to YNAB, I thought we’d never get out of debt. Seeing the total on paper would have confirmed what I already felt, that I was a complete financial failure. So I waited until we had paid down enough that I started to believe that maybe, just possibly, we could actually get a handle on the debt.

On the off chance there are few of you reading this who are where I was then, feeling hopeless under the weight of your own soul-crushing debt, I offer the following advice:

  1. Crawl out from under your desk; you can’t accomplish anything from there (and there might be spiders). As scary as it is, gather up all of your debts so you know what you’re dealing with. Compare the balances and interest rates to figure out the snowball payoff strategy that works for you.
  2. Focus on your whole budget, not just the debt. Do budget for the debts and pay them off as aggressively as possible, but don’t forget the importance of emergency savings, fully funded categories, a buffer, and even a little fun now and then. This is a budget, not a prison sentence.
  3. Stop letting your past mistakes define you. Yes, you’re in debt. Do the only thing you can do: Deal with it in your budget. And then stop feeling so bad about it. Seriously. It’s exhausting.

Obviously, I was a little late implementing step 1 myself. But I’m doing well with steps 2 and 3. Since I wrote up that debt chart 20 months ago, we’ve paid off around $27,000 (including all of the credit card debt). In total, I estimate we’ve paid off well over $40,000 in less than three years.

And here’s something I never thought I’d be able to say: We’ve only got $18,000 left to go.

(Granted, it would be even more exciting if I could say we were debt free. But at least I’m not hiding under my desk anymore.)

Learning to avoid avoidance

Screen Shot 2014-01-28 at 12.56.31 PMYesterday, I got a scary-looking letter from the IRS.

I could have tossed it, along with all of the other mail, onto my desk, making sure to hide it under a catalog or something so I wouldn’t have to look at it for a few weeks. That’s how I handled paperwork before YNAB.

Instead, I opened it.

I used to be so disorganized that I was always getting government letters or second notices from billers. I automatically assumed anything I didn’t recognize had to be bad news. And the only way to avoid bad news, as everyone knows, is not to open the mail.

Eventually, when the letters came by registered mail or the notices started showing up on pink paper or with return addresses from collection agencies (I’m ashamed to say that happened once or twice), I would reluctantly deal with them — and, often, the associated late fees — in a desperate and sometimes tearful fashion.

The amazing thing, which I only figured out a couple of years ago, was that this finely honed craft of avoidance never actually saved me any time, trouble or money. How could I have known?

In fact, I wasted a lot of energy avoiding the envelopes under the catalogs on my desk and lying awake in bed wondering just how bad things really were. I felt guilty knowing that I should be opening the mail. I lived under a constant cloud of low-level financial anxiety.

After I found YNAB, however, I determined that I couldn’t really move forward with a budget until I knew what my bills were. (Yes, this was a revelation for me. And yes, I swear I am in many other ways an intelligent person.)

It took several evenings, and several glasses of wine to brace me, but little by little I got through every piece of paper on my desk. I paid what I could pay, called or wrote to creditors and government agencies, and filed or recycled the rest. It was the first time I had seen my whole desktop in years and, more important, the first time in my entire adult life I didn’t have a single unopened envelope haunting me.

So, yesterday’s IRS letter? It was a notice for my husband’s business saying that, while I had paid all the payroll taxes for the first quarter of 2013, I had failed to file the associated report. I made a copy of the report (which I swear I had filed, but let’s face it, I’m still not perfect) and mailed it out, saving myself weeks of needless worry and guilt.

The late filing may carry a small fine. If so, that notice will come later.

And I will open it the day it arrives.

Budgeting: We’re only human

piggy bankI got a private message this morning from a fellow YNABer. It was a confession of sorts; this person had dutifully put a nice chunk of money into savings and then, almost immediately, had depleted it to cover various unbudgeted expenses. Some of them, like a car repair, were unavoidable, but one item — draining nearly a third of the savings — could only be called a splurge. The message ended with this: “Every attempt I make to budget and save I find a way to fail.”

I responded with the idea that maybe the problem wasn’t that the budgeter had failed to save but that the budget hadn’t allowed for the expenses (and the splurge) in the first place.

I think many of us come to budgeting with the understanding that if we aren’t suffering, we’re not doing it right. To succeed, we believe, we must do without all the things that make us happy. We vow never to eat out, buy a video game, get a massage or, essentially, do anything that brighten our lives until all of our other financial goals are met, in 10 to 20 years.

This would certainly be effective. If we could stick to it.

The budgeter who wrote to me was doing the “responsible” thing: putting every extra dollar into savings. But that plan left no funds for discretionary spending or unexpected needs.  (On a side note: “savings” is a very broad name for a category. Dollars seem to be more loyal when they have very specific job titles. But that’s a post for another day.)

Had a third of the savings money gone into in a “fun money” category and some into care repairs to begin with, the splurge and the repairs would have been budgeted for. No guilt. No failure. The overall spending would have been exactly the same, but the psychological effect would have been completely different.

I am not advocating reckless spending over careful budgeting. I’m saying that while our budgets should reflect our long-term financial goals, they also must be realistic about our actual spending patterns.

It’s admirable to create a budget that holds us to high standards; it gives us something to strive for. However, a budget that pretends the car will never break down or that we will never be too tired to cook dinner — or even be in the mood to just treat ourselves now and then — is almost certainly doomed to failure.

We are, after all, only human.

“I am awful with money.”

exclamation copy_thumbI just saw that headline in the YNAB forums. “No, you aren’t,” I thought to myself (before clicking in to read the poster’s comments).

Be careful with what you say you are; it impacts how you feel – which impacts what you do.

You aren’t “awful with money” – you’ve made financial decisions that increased your stress and limited your options.

When you say “I’m awful,” you’re applying the verb “to be” incorrectly. “To be” describes a permanent (or near-permanent) characteristic. “I’m American.”

Managing money is something you do, not something you are. Maybe you’ve done it poorly. I managed money poorly from ages 21 to 33, producing debt, stress, and conflict. But I was a good person* the whole time I was managing money badly.

Budgeting with YNAB gave me better information about my finances and allowed me to understand my true expenses. I used my new understanding to improve my decisions. Better decisions have reduced the stress and conflict in my life and given me more options. It is that simple.

Money stirs up some serious emotions in all of us (including me). As you transition from a poorly-informed money manager to a fine-tuned budgeting machine, go easy on yourself. You’re a good person who’s learning to use better information to make better decisions.

By the way, “better decisions” doesn’t mean “and then I never stepped foot in a restaurant again.” It means “I use my money to my real benefit a much higher percentage of the time.” :)

*Forgive the unrelated aside, but here’s an interesting social experiment: Approach friends and family and ask them one question: “Are you a good person?” Then, watch them squirm. This is entertaining, but tragic. A person who sincerely tries to do right by himself and those around him has no reason to reply with anything but a calm “Yes.” And yet, the squirming. To take this experiment to another level, stand in the mirror and say “I am a good person.” Listen to your own mental response (squirming). Interesting, right? 

Understanding how inertia impacts your finances.

ID-100230477Newton’s inertia seems to apply to finances as much as apples. This is simultaneously great and terrible news.

Many of us have applied significant, sustained force to our finances – in the wrong direction. We’ve spent carelessly, procrastinated saving, and borrowed to make it all “work.” This force in the wrong direction has created velocity on the path to more stress and fewer options in life. What a drag.

Reversing our course requires us to apply equal and opposite force to slow our negative financial momentum, eventually bringing us to a state of rest. In this restful state we’ve stopped borrowing and achieved awareness of our life’s true expenses.

After achieving “rest” we can finally build positive momentum in the right direction; this is when we experience fat checking accounts, buffers, and debt freedom. The good news is the positive momentum builds steadily as we employ the power of a functional budget and compounding interest.

Every day we sustain our positive financial momentum we’re that much further from a state of rest (“just getting by”) and heading in the wrong direction (borrowing).

Which is the most difficult phase? Having gone through it over the last eighteen months, I found it hardest to slow the negative momentum and achieve financial rest – that point where I’m not saving much, but not borrowing either.

What makes this phase so hard? The fact that my previous bad decisions and habits kept applying force in the wrong direction long after I’d resolved to go in the right direction. I had to maintain high focus, resolve, and optimism to overcome the negative momentum.

This post may have gone a little too abstract, but I know some of you are wondering why you can’t seem to build up your cash and move further from $0. Be patient. Use your budget to spend smart, work on your earning power, and hang in there. You’ll make it.


This could be the real reason you don’t keep your budget transactions current.

Joe Dominguez, Godfather of "No shame, no blame."

Joe Dominguez, Godfather of “No shame, no blame.”

You don’t want to look at them.

Opening my bank and credit card accounts online (at least) every couple of days requires me to review, categorize, and mentally own every one of my transactions.

And mental ownership isn’t fun (until you realize how powerful it is).

Taking mental ownership of your transactions means acknowledging that buying this meant giving up that, and not many of us enjoy reminders of the strict limits on our consumption.

Which is why I don’t really buy it when people tell me they’re too busy to maintain their budget. It takes me between one and three minutes to check my online accounts for any missed transactions, enter and categorize them, and ensure YNAB’s balances match the banks’ numbers.

I get it – taking ownership of your transactions feels restrictive. It’s easier, in the short run, to pay the credit card off at the end of the month (or not, in unfortunate cases) without having to acknowledge individual outflows.

Unfortunately, ignorance is not bliss. Every un-owned transaction is a mental open loop – an unanswered question: “Where did all my money go?”

The honest non-budgeter eventually admits the weight of all those open loops is a much bigger drag on today’s happiness than the “restriction” enforced by a budget.

All Together Now: “No Shame, no blame.”

Struggling to keep your budget current doesn’t mean you’re dumb, lazy, or “not a numbers person.” It just means you haven’t allowed yourself to experience the benefits of an up-to-date budget.

Try this simple mental re-frame to help you get past your budgeting block:

No shame; no blame. Vicki and Joe (who’s pictured above) have begged us (since the ’70s!) to separate our sense of self-worth from our spending. The amount we do or don’t spend has nothing to do with our value!

Embrace the truth: your spending impacts your mood and your options in life – not your worth.

Then, download a trial copy of YNAB and use it to take your money stress closer to zero than it’s ever been.

Use a budget to understand and improve your spending. Give yourself a chance to discover what you really need and want, then spend like crazy on those things.

Effective Budgeting is Gloriously Boring

wallet“When I first started YNAB I had $4 to my name,” says YNAB user ‘HolyMythos’ in a January 30th forum post. Check out the rest of the story:

“After five months I’ve finally reached my buffer! I put all the numbers into YNAB which will take effect on the 1st [of February]. All I have to do is wait until then to hit the transfer button on my bank account and it’ll all be in place. I’m looking over my budget now and… it’s boring. There are no moves left. Back when I first started YNAB I had $4 to my name. Every paycheck I had to create categories, split money, find places to take money from, look at the zero’s and try to find out how I was going to fill them with the next paycheck. Now I look at it and see all the money everywhere, covering every category with ease, and any financial moves I need to make I already have planned out. It’s somewhat like a game of chess. All of my opponent’s pieces are my bills. At the beginning I had a bunch of moves to make. Over the months I defeated all of their pieces and now I’m left with their king while I’m already three moves ahead of him.”

‘HolyMythos’ has climbed off the paycheck-to-paycheck roller coaster. It’s a good thing, too, because roller coasters – exciting as they are – go in circles.

But therein lies the problem: roller coasters are exciting, and so is living paycheck to paycheck.

Hear me out – I’m not saying living paycheck to paycheck is fun. I said exciting, as in turbulent. There’s always a bill to pay, a reason to scramble, a need for creative problem solving.

Climbing off the check to check roller coaster is great for your ability to sleep at night, but leaves you wondering what’s next.

That’s exactly what happened to HolyMythos. Two weeks after his buffer celebration, he was back in the forum asking, “I’m buffered – now what?”

I was glad to see him asking the question; it means he’s not using his buffer as an excuse to get complacent, to stagnate.

If you’ve always been check to check and in and out of debt (as I was), becoming buffered in the YNAB way feels like a major victory. The problem is it’s only a major victory, not the major victory. Getting buffered only qualifies you to tackle the real goal: financial independence.

Having extracted myself from the check to check mess, I’m in a position to stop wondering whether I can make it and start thinking hard about how to make it better.

Instead of fighting my way toward stability, I can focus my energy on acceleration.

That’s my advice to anyone who’s achieved Rule 4 status with YNAB: replace the stressful turbulence of breaking the check to check cycle with the positive, intense focus of achieving your real financial goals. Reaching “buffer land” took determination; don’t discard it just because you’ve left that particular problem behind.

The surprising life events that bring people to YNAB.

lightbulb blankOne morning last March I woke up, kicked my legs over the side of the bed, and declared (with the morning sun radiating off my determined face), “Today is the day…I budget.”

Okay, maybe not.

I’m sure my first day budgeting (March 17th, 2013 according to my YNAB file) started like any other: with my wife and me pretending to be asleep in hopes the other would get up to take our three year-old daughter to the bathroom. Glamorous stuff.

Actually, my decision to budget wasn’t random, and it wasn’t an epiphany. One specific event pushed me into budgeting:

I talked with Jesse about joining YNAB.

That’s right – I didn’t start budgeting because I was ready to be a savvy money manager, taking ownership of my financial present and future.

I started because the company was going to pay my bills, so I probably ought to be using the software.

I’d known about YNAB for years – owned it for years – but it took a significant life event to finally push me into the budgeting habit.

I know I’m not alone. A while back Jesse interviewed many of you to find out what led you to YNAB. He confirmed that basically no one has a dramatic, sun-radiating-off-determined-face budgeting epiphany.

For nearly all of us there was an event (or series of events) that guided us toward budgeting. The event finally made it clear that the pain of not controlling our money would be greater than the perceived* restriction of budgeting.

*Heavy emphasis on “perceived.”

I’m curious – what event led you to YNAB? I guarantee it’s not as simple as “a friend told me about it.” Dig further – what event helped you realize you need(ed) a budget?

Where should you be financially at age 40?

questionI dislike the word “should;” I’ve banned it from my house. “Where should I be financially at age 40 (or 30, or 50, or 60)?” is just like “Can I afford it?” – neither question has an answer without richer context.

Let’s work on context.

Step 1: Make a wish list.

(This isn’t my wish list – just throwing out a few things I’ve heard from coaching clients and blog readers. I’ll share mine in a bit.)

By age 40, I want:

  • to have no consumer debt.
  • a nicer, bigger home.
  • $50,000 for each of my kids in a college fund.
  • to be saving X% of my income for retirement.
  • to have spent a month in Europe.
  • to have my house paid off.

Make your own list; don’t worry about judging individual wants. Write down everything that comes to mind, then move on to step 2.

Step 2: Imagine failure.

For each of the wants on your list, create a failure statement using the age in question:

“If I have consumer debt when I’m 40, I will feel _____________ .”

“If I’m not in a nicer, bigger home by age 40, I will feel ____________ .”

“If I don’t have $50,000 in college funds for each of my kids by age 40, I will feel ______________ .”

The key here is to let each imagined failure roll around your head until it feels real. Work hard to mentally experience the loss of the wish list item, then fill in the blank.

What you’re hoping to discover is how much each wish actually means to you.

You might realize that having a bigger, nicer home is crucial to your happiness. Or you’ll admit the desire for a bigger home stems only from your need to “keep up.” Either could be true.

Work through each item on your wish list, estimating the gravity of the imagined failure. The heavier the imagined loss, the more important the goal.

Step 3: Dig into why failure would hurt so much (or not).

Of course, you’d want to take the exercise a step further and ask why each imagined loss feels significant (or not). Look for an authentic reason it would hurt so badly to (for example) be driving the same old clunker at age 40. If you can’t decipher a solid “why,” you’re probably overstating the pain of the imagined loss.

Once a want has survived the gauntlet of “how would I feel if I failed” and “why would I feel that way,” it either goes in the trash or goes onto the Official List of Goals to Be Accomplished by [insert age].

Having qualified for the Official List, each wish progresses to my favorite question:


Oh, and here’s my “by 40″ list (I’m a couple of months from 35):

By 40, I hope to still be doing work I enjoy within biking distance of my home. I want to be earning double my current income and saving (for retirement) at least 30 cents of every dollar I earn. I hope to have no debt other than my mortgage and several months’ worth of expenses as an emergency fund.

If all those came true, I’d be a very happy camper.


Question: When is a cash windfall not really a cash windfall?

questionAnswer: When you’ve already spent the money – several times – before it lands in your checking account.

Ian (the YNAB developer from “down unduh”*) pointed me at an especially insightful forum post from a YNABer who goes by “tmpst.”

“[I've changed] how I handle small windfalls (holiday pays, tax-returns etc.). Pre-YNAB it seemed like I always found a way to “spend” them in advance. Not only did I spend them, I probably spent them several times over.

“The insurance is due in December… No worries, I have my tax-returns coming up. I’ll have money.”

“Remember that we are taking that trip during the holidays and need money for gas? I’ll cover it with my tax-returns!”

“I want to buy <insert random item>. Now I can do it, because I’m getting free moniez as a tax-return.”

In the end, the windfall serves as an excuse NOT to save for known upcoming events, and ends up actually costing me money as I plan to cover more then the windfall is actually worth!”

What a great insight for non-budgeters:

Not only does your lack of budget keep you on the stressed-out, check-to-check roller coaster, it also eats up (and renders useless) any cash windfall that happens to come your way.

What a drag.

Luckily, there’s a better way: maintaining a budget that reflects your real expenses and your most important “wants.” More from tmpst:

“ up for the insurance. I…save up for the trip. I…won’t buy the ‘random item’ because I have no money left after saving up for the insurance and the trip.”

Having acknowledged his/her true expenses in the budget, tmpst enjoys the windfall for what it really ought to be: an accelerator!

“After I make up my normal budget there will just be an abnormal amount of money [left over]. Then I just invest all or almost all of it. It doesn’t feel difficult, because I didn’t have to make any sacrifices in my budget, as it is covered completely by my “normal” income.”

Thanks for the great insights, tmpst.

Many of us have tax refunds coming in the next couple of months. If a lack of effective budgeting has forced you to use the money to catch up, learn the lesson: build those expenses into your budget. If you happen to get a tax refund next year, it will be pure gravy.**

*Ian loves it when Americans refer to Australia as “Down Under.” In fact, Ian loves pretty much everything Americans do and say, and America in general. Right, Ian?

**If you always get a tax refund, you may be over-withholding. Because you’re a YNABer who knows how to give every dollar a job, you ought to talk to a tax expert about how to reduce your withholding and put that money to better use (ie savings, debt elimination) during the year.