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.