Being Thrust Upon YNAB, Part Two

alex-smilingI’m going to present you with two words. Just a bunch of letters arranged on a page. Nothing inherently harmful in them. But because of the meaning we attach to them, they’re powerful enough to send an arrow of fear straight into most people’s hearts.

Foreclosure.

Bankruptcy.

Yeah. Scary stuff. These two words are what brought me back to YNAB in 2012 with a big old *snap*.

Foreclosure. The first time I heard the word from my credit counsellor’s mouth, I cried. It felt like the ultimate failure. I envisioned our furniture on the lawn and a red-lettered sign on our door for all the neighbourhood to see.

We had separated. We owned a four-bedroom house (well, the bank owned it), and even though it had a legal suite, the mortgage was enormous. Neither of us could manage it alone. Neither of us could manage the house’s upkeep. And neither of us had the heart to stay in what had until then been our family home.

But the Victoria market had softened in the four years since we’d bought. No matter what we did, the loss was going to be crippling.

We ended up foreclosing. It took us a long time to make the decision, but once it was made, I was surprised at the relief I felt. I still give thanks that we live in Canada, where you can swallow your pride, press a button marked RESET, and start all over again. There are no armed thugs waiting to exact full payment. Nobody’s going to shoot your family or sell your children for unpaid debts.

In the end, the loss was crippling. By the time the process was finished – post-inspection, post-cleaning, post-sale, post-legal fees – the shortfall on the house was $92,000.

By this time, I had bought myself version 4 of YNAB and was back on track, monitoring my income and expenditures and living on what I earned. It gave me a feeling of control during a time when so much was out of control.

I looked at that $92K, as well as the other debt (including a whole whack of federal tax – a result of the previously alluded to communication breakdown), and realized I was looking at packing around a lifetime of red ink.

As a newly single parent (and a freelance writer at that), it was a devastating load. Even if I could pay it all back over the course of fifteen or twenty years, I would be shorting my children as a result of my and my ex-spouse’s fiscal choices. Their entire upbringing would be a story of their mother being too broke to support school trips, camping, music or swimming lessons.

I agonized. Should I declare bankruptcy, file a consumer proposal, or slug it out? My ego was very much afraid: What would people think if I declared? And how would I feel about what people think?

There’s something so terminally scary about losing your credit. People speak of it in whispers. Had I not been living the YNAB way, I would likely have gone along with the pressure from my (traditional…and very much in debt) parents to do everything possible to avoid damaging my credit rating.

But my desire to provide for my kids trumped my need to look like I had it all together. I’m not a fan of sweeping it all under the rug to look like things are fine, just fine.

And, I reasoned, if I’m living the YNAB way, my credit rating shouldn’t have to be my number one concern because, well, I’m not supposed to be buying things on credit anyway.

And so I threw it in. Declared bankruptcy in mid-2012. YNAB supported me every step of the way. Even when the thumbscrews were down tight as I repaid a portion of the debt (and yes, even if you declare bankruptcy, you still pay some back), I knew how much I could spend in each and every category. I stretched every possible thing, à la Amy Dacyzyn’s Tightwad Gazette. Bars of soap down to slivers. Robes and slippers instead of heat. Noodles.

I was discharged in early 2013, and I haven’t looked back. I don’t eat out – even at Denny’s – and when I’m in the vicinity of Linens & Things I just keep driving. The new 4Runner was out-reasoned by a ten-year-old Escape (4cyl). And my entire apartment is a sunroom now, because it faces west. All one bedroom of it.

I got myself a Capital One MasterCard – it’s funny how fast they come knocking – and you bet I’m paying it in full every month. But I paid cash for my truck. For the kids’ bikes. For the Apple TV. For the dining room table. And when my poor old laptop wheezes her final stalling breath sometime this summer, I’ll have $1300 set aside in my MacBook Air category.

I love giving each dollar a job. Because damn, they work hard when a few of them get together. And I love YNAB. Because it makes this kind of little-by-little saving possible.

So now you know. I’m living proof. There is life after debt.

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.

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.

7 Steps to Getting Your Spouse On Board: Step 2

speech_bubbleIf you missed the two other posts, you can catch them here:

My very sneaky but very discerning husband must have the patience of Job. As I look at the steps that he took, I just think, ‘My gosh, am I some kind of kindergartener or something? I mean, get it together, Annie!’ (I have since then, thankfully.)

He seriously had to treat this whole “Operation: get my wife onboard with our finances” with kid-gloves. At any moment I could have spooked and started remodeling everything in sight.

So after he got overly-organized and had a plan in place, he began to implement Step 2 of the process. In his words:

The spouse owns a category.

“Hey honey, groceries is your category. How much do you need in it?”

What you are doing here is cleverly but deliberately teaching your spouse Rule 1 within his/her category.

When one spouse has all of the control over every single category, you’re just asking for conflict. Nay, begging for it. 

A YNAB relationship works best when each spouse owns certain categories and not others. But we’re doing baby-steps, right? So let’s just start with one.

And you, as responsible as you are, as organized and tidy with your finances as you are, can practice letting go of the reins just a little and give your spouse at least one category in which s/he has complete control.

“Hey, how’s your clothing budget? Have you been needing to go shopping lately?”

“Actually, yeah, I could use some new clothes.”

“Okay, let me know how much you need, and I’ll put that in your category.”

Next, bend over backwards to make it happen! Think long-term. This is an investment.

It’s not about having a perfect YNAB month. It’s about coming up with a workflow that works. Having your spouse onboard works

Okay, so how is this going to be tracked?

  • Cash in an envelope? That’s one idea (probably the safest bet). You could even tell them to take the amount out of the ATM so they don’t feel like their parent is giving them their allowance.
  • S/he vows to enter in the transactions at the moment of purchase into the smart phone? Maybe, but remember, they’re not into the habit yet, most likely.
  • S/he keeps the receipts and has the spouse enter them in? Maybe.
  • You watch the account like a hawk? That was my husband’s preferred method.

It doesn’t really matter at this point. I would let them decide. The tricky part is to avoid being the parent. The chance of your spouse going over in this category this month is very likely. And that’s okay!

The most powerful part of learning is a retrospective after a failure. 

“Okay, so I see we went over on this category. Should we have put more money in there? Do we need more in there next month or is this a one time thing to catch up on not having enough in there to begin with?”

See how non-threatening that is? You’re a team. You love him. You don’t want to control her. You want this to work, so you’ll lay aside the fact that you had to go without your lattes and happy hours this month so that your beloved could have some new clothes (that you’re most likely going to enjoy, too).

When my husband showed me that grace when I went over in my clothing category, it worked. I felt like his wife, not his child, like my opinion mattered, like my comfort mattered, like I had a choice and a say in how we spent our money.

It was a baby-step, and I pushed the envelope more times than I’m proud to admit, but he kept the faith.

Like my husband, you’re learning in this whole thing, too. So if this whole little experiment flames out in a blaze of glory, go easy on yourself. Pick up the pieces, and try again next month. It’s a long-term investment with big returns financially and relationally.

Budgeting Wisdom from a Dentist

Screen Shot 2014-04-02 at 10.19.15 AMThere’s a kid-focused dentist’s office in my town that has slick flat screens where Nemo and Dori swim across the ceilings and cheerily dressed hygienists offer all sorts of fun. The theme park atmosphere calms and entertains young patients while they rest in cushy recliners. It also serves as fair warning to adults that this little endeavor is going to cost a ton. Your kids won’t let you take them anywhere else from then on, so go ahead and take the Keurig coffee and apple scone–you’re definitely paying for them.

I would have loved those distractions when I was a kid. Cheeks stuffed with the typical fare, I was left in sterile silence except for the occasional one-sided conversation.

The only decoration I remember was a framed cross stitch on the wall. In block letters was the message: You don’t have to floss all your teeth. Only the ones you want to keep.

It didn’t make me floss more as a boy, but it certainly left an impression. Awkward memories aside, I have found myself adapting that logic to conversations regarding budgeting.

I was walking a friend through the process of starting his YNAB budget a while back. His voice was filled with angst when he talked about all the things he wouldn’t be able to do. “I just don’t want to feel guilty if I decide to have a cup of coffee, see a movie, or whatever.”

“No problem!” I told him. “You don’t have to keep track of all your money. Only the money you want to keep.”

“What?” he paused.

“Well, once you’ve covered the essentials, you have some money left over, right?”

“Yeah.”

“Then take some of that money and drop it into a category you don’t track. Decide how much money you want to blow and go have a blast!”

Ah, the freedom.

Your slush fund, fun money, cashola to burn, or whatever you call it, is essential to budgeting health. It’s liberating to take a chunk of money and blow it. Unashamedly. On whatever.

I, for example, now have throwing knives. Three of ‘em. I’m terrible, but my boys think I’m a ninja.

YNAB’s Rule #1 is to give every dollar a job. Make sure to tell some of your money to go have a good time.

Goodbye Quickbooks: You Need A Separate Business Budget

You Need a Separate Business Budget (YNASBB—nope, that doesn’t work. Let’s let it die here.)

YNAB will serve your small business well. It has mine. It gave me what I call, “pile-of-money clarity.” Several years ago, YNAB was profitable with a very small team, and I couldn’t have been happier. Then I moved YNAB from Quickbooks to YNAB. That move was a game-changer for me. I suddenly had clarity surrounding the business checking account balance. I no longer had to wonder if we could hire, because I could see that our category for payroll was doing just fine. I saw I could be more aggressive with advertising, because I saw that we had advertising dollars where they were supposed to be.

We went from a company with seven part/full-time team members, to a company with 27 over a two-year period.

All because I used YNAB, where it settled my stomach, and helped me conquer the natural risk aversion I had to hiring people, and growing the business.

Yes, I believe YNAB (the software) will serve your small business very well. It will help the risk-avoider take calculated, comfortable risks. It will help the risk-taker pull back a little bit, and be more calculated in his or her risks as well.

How to Create a Separate Business Budget

In order to do this right though, you need to set up a separate business budget. Unless you have the teeniest of tiny little side operations (where a separate master category for the entire business suffices), you need to set up a separate business budget.

Go to File -> Create a New Budget… and get started.

Keep your business budget separate. It will make everything easier (taxes, reconciliation, personal vs. business expenses, etc.)

 Wait a Minute, YNAB Won’t…

YNAB won’t send your invoices for you (though you can actually track them pretty well in YNAB). YNAB won’t track your time for you. YNAB won’t track your mileage for you. YNAB won’t handle your asset depreciation. It won’t print checks. It won’t integrate with your accountant’s tax software. YNAB won’t run your payroll for you. YNAB won’t track your inventory for you (it could, and maybe I’ll write about that later).

Well sheesh Jesse, what will YNAB do?

It will add value to your business by giving you the insights you need to clarify your priorities, cut wasteful spending, boost spending where profitable, and maybe even show you that you can take a steady salary. It will give you peace of mind, as it relates to your business’ cash flow. Besides finding great people to hire these past several years, the best business decision I made was to move YNAB to YNAB.

A P.S. Regarding YNAB’s “Won’ts”

YNAB, strange as it sounds, is a multi-million dollar company now. Here’s how a multi-million dollar company handles all of the things that YNAB won’t do. (Hint: an end-all-be-all software package can, many times, be harder to use than approaching your software needs a la carte.)

Bookkeeping. We do our books with YNAB. As a result, YNAB has a healthy buffer, keeps spending in check, and the entire team gets to spend a week in Costa Rica this year (Rule Two applied over an 18-month period!)

Invoicing. We don’t send many invoices, but when we do, we use Freshbooks.

Time-tracking. YNAB has just started tracking time on a new project, and we’re using Harvest (Adam, our CPO, likes them.)

Mileage tracking. I track mileage for the four months after taxes are due, and then give up. When I do track mileage, I use an app on my iPhone. Come tax time, had I faithfully recorded the year’s mileage, I would send my tax accountant the mileage report.

Depreciation. YNAB has a few assets that require depreciation. Our tax accountant tracks that for us each year. (Any accountant worth their salt will do that. As most of you probably know at this point, Casey Murdock handles YNAB’s taxes, and a bunch of the team’s personal taxes as well.)

Check-writing. We have a book of (free) checks, and when we need to write one, Chance (our COO) grabs a pen from his desk and fills out the check. I sign it, then enter the check in YNAB. If we need to send a lot of checks at once, we use the free business bill pay service of our bank.

Tax filing. YNAB doesn’t integrate with our tax accountant’s tax software, so do you know what we make him do? We send him a spreadsheet of all of our inflows/outflows of the year, and we make him do “accountant-y things” and build a pivot table to aggregate category spending and manually enter the numbers into his software. It takes him a few minutes, and he checks for accuracy along the way, instead of checking the accuracy of an import after the fact. (I re-read this and admit that I sound quite snarky here. It’s a pet peeve of mine, letting your accountant’s two hours of work for your taxes dictate your entire year’s financial workflow.)

Payroll. We run our payroll through Paychex. I pull up the monthly payroll report and enter the outflows into YNAB. It takes me a few minutes. I like hand-entering all of our team’s pay, because it makes me happy they’re on the team.

Inventory. We don’t have any inventory to track, but if we did, I’d buy a separate piece of software to track inventory (if it was a lot), or I’d use YNAB to do it (if it was just a small bit of inventory tracking). Cash outlays for inventory would be entered in YNAB, obviously, because YNAB handles your cash.

I’m sick and tired of my grocery bill.

groceries

I’m spending too much money at the grocery store. I know I am, not only is the budget telling me that, but I can feel it. I think since I’m not struggling financially like I was when I started YNAB, I’ve let myself get too comfortable letting that part of my budget grow unnoticed. So I end up wasting food.  I buy stuff, forget what’s in, buy something again unnecessarily, and some food dies a painful death in the back of the refrigerator.

I became really horrified back in January when I spent $575.86 that month on groceries. It makes me cry a little just to type that. I am feeding one person – me. What was that even for? I have no idea. I’m just not paying attention.

Now, to be fair that does include some pet costs (and I have a collection of them) and non food items, but it’s still too much. So I made a goal to get it under $400. In February, it was $403.75 and in March it was $375.85. Better. I did that just by paying closer attention to the category balance when shopping. There’s a lot of power in that.

But recently I came across Budget Bytes, a fantastic cooking blog my good friend Dave steered me to. She analyzes her grocery budget by calculating cost per meal. But more importantly, her recipes are fantastic and it’s made me realize that I can and should be cooking more at home, because it’s healthier and cheaper.

So how low can I get my grocery bill and still eat well? How many dollars can I free up for other jobs – like paying down my mortgage. I’ve decided to put my grocery budget under the microscope for a month or two and find out.  I thought I’d share the journey and plan to update as I go along.

In the past, anything I purchased at the grocery store, I just assigned to groceries. And by the way, if you’re a newbie, we strongly recommend that.  The type of minutiae I’m about to explain is an advanced technique.  If you’re just starting out, keep things simple and just get good at entering all your spending.

So, today I made a master category called “Grocery Project” and broke out some smaller categories:

Screen Shot 2014-03-31 at 10.31.43 AM.png

The MAX is the amount I’ve been budgeting for groceries, and for now I’m going to keep that at $400. This will help me keep track and make sure I don’t spend more than that. So when I started April, it looked like this:

Screen Shot 2014-03-31 at 10.37.19 AM.png

I just want to track during April to see where specifically the grocery dollars are going. Then I can take the information and set some goals for May.

Yesterday, I went grocery shopping (yes, it was March and I cheated the transaction date to April 1st. Don’t judge me.) After splitting everything out, it looked like this:

Screen Shot 2014-03-31 at 10.39.23 AM.png

So now I need to move money from the MAX category to cover the overspending in the other categories. First I’ll just budget for the other categories:

Screen Shot 2014-03-31 at 10.40.35 AM.png

Now the total for the grocery project master category is up to $558.39 because I added $158.39 to those other categories. But that’s not really accurate. So I lowered the MAX category by that amount.

 $400.00

-$158.39

_________

=$241.61

Now the total for the grocery project is back at $400:

Screen Shot 2014-03-31 at 10.57.34 AM.png

$241.61 is what I have left for groceries this month. The next time I make a trip, I’ll go through the same process.

So on first glance, veggies looks low, but I have a ton of veggies in the freezer, so that’s fine. I plan to do some cooking and freezing of meals, so I bought some supplies for that (Ziploc baggies and containers). You might notice I don’t have a bread category. I make my own bread, so that’s essentially under cooking ingredients.

If I subtract out the non food items, so far I’ve spent $138.04 on food. I’d like to get my total grocery bill for food and non food items down to $250. Possible? I don’t know. This will help me see where the dollars are going and I’ll have to decide what’s worth it and what’s non-negotiable.  For instance, good fresh fruit is really important to me, so while I might shop for better prices, I won’t sacrifice quality.

I think a lot of us struggle with the almighty grocery bill, so I thought I’d share my process as I work to get this part of my budget under control.

Stay tuned!

 Quick Update: I don’t plan to maintain this level of focus forever.  I’m hoping after a few months I’ll have learned some things and implemented some sustainable change.  By summer, I’m sure I’ll have moved back to a much simpler structure.

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.