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February Success Story – A Journey toward the YNAB Buffer

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Our success story this month focuses on building your YNAB Buffer. Mary A., from Washington State, started using YNAB Pro about three years ago and loved it as it was so easy to use.

I asked Mary how long it took her to save her Buffer. She said, “We just got it this summer so 2-3 years. I really didn’t even try to save for it until about three months before we got it together. It took me this long because we were in the process of paying off debt and wanted to finish that first. I also didn’t see the true benefit of having a buffer although I could see it would be nice to not be living paycheck to paycheck. We were already paying all our bills the first week of the month or as soon as they came in so I didn’t see a buffer would make that much difference in our financial lives.”

Mary went on to explain that life is very different now that she has her Buffer. She said, “For us it is more psychological. We had no problem paying the bills nor even paying them right away. But after we had the buffer, wow, I felt so much more secure, and more in control. And instead of paying even small amounts of finance charges we are earning interest as we have an interest bearing checking account. It was like I didn’t realize we needed it, but now I know we had needed it all along. It’s just very comforting to look at our budget and see that Buffer there. I feel like we can handle most anything that comes along now and do it without incurring any debt.

Finally I asked Mary to offer some advice to those who may not have their Buffer or may not see the benefits. “I’d say start throwing whatever you can into your Buffer category each month. Even saving a small amount will add up and as you see that happening you will want to put more into it. Cut back on any expenses you can…it’s only temporary and soon you will have your Buffer which will be so worth it. Knowing you are not living paycheck to paycheck anymore is very freeing!”

The big lesson here is to put something toward your Buffer each month. While you may feel your steps are small, they will add up, and eventually you will remove yourself from the paycheck to paycheck cycle.

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

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

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

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

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

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

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

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

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

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

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

“Move the ball forward.”

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

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

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

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

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

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

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

“Move the ball forward,”

or

“move the ball backward.”

In other words, to WIN.

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

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

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

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

YNAB for Lazy People

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I use the term lazy only for headline punch. You are all very hard-working individuals. :)

No, actually it’s because of this article: “Budgeting for Lazy People” written by Dayana Yochim over at the Fool.

Here are some tips if you’re just feeling lazy about YNAB (either starting or continuing).

Use Fewer Categories

I am on a quest to get our categories down to eight. Right now we’re somewhere around 35! I’ve been whittling almost every time we use the budget (which is now almost exclusively on Sunday evenings, unless of course I’m betatesting).

A few of my thoughts going forward. I’m going to get the biggest bang for my buck by consolidating all of our insurance into one category: Insurance. That’ll kill homeowners, car, life and health. I’ll drop from four to one.

I used to have the kids’ clothing categories all separate. I’m going to get those down to just Clothing. I may keep a separate category of clothing for Julie because she likes to know how much she’s spending specifically. I don’t buy clothes, so I don’t need a category.

Now, you may be wondering how I’ll be able to keep all of the insurance payments straight if they’re in one big category? A few things: 1) homeowners is monthly, car is monthly, health is monthly, life is annual (or monthly divided by 12). I’ll be dealing with the same total to be budgeted every month. 2) a new feature in the beta version makes this very nice, because I can write notes about specific categories, or specific Budgeted amounts.

I think I’m going to expand the reach of our Miscellaneous category and also consolidate Date, Family Night, and Recreation down to just one: Entertainment.

Why all the work getting to fewer categories? I don’t want to have to make as many decisions when recording transactions. Instead of having to think, “Okay, this shirt was for Porter…those shorts were for Harrison…now I need to split the transaction…” I just record it in Clothing and I’m done.

Fewer categories means you don’t need to split transactions as often. That means you’ve saved some time.

Import Your Transactions from the Bank

OFX, QFX, QIF…YNAB Pro imports them all from your bank. I just grab the same date range every week (First of the Month through Today) and import. It disregards transactions already imported and I categorize the new ones. I very rarely deal with matched transactions because I very rarely input spending except through importing.

This saves a bit of tedium and time.

Use the Batch System

Decide on a set time once or twice per week to enter all of your spending. Just cutting down on the frequency of the process will save you time.

I implemented a batch system for email several months ago and love it. (I was prompted by Tim Ferris’ excellent book, The Four-Hour Work Week). I do emails at four, noon, and four again. (Early to bed, early to rise, makes a man healthy, wealthy and wise…) The time savings has been measurable, and productivity has increased because I’m distracted far less.

My Thoughts on the Fool Article

It’s funny, because the beginning of the article really caught my attention but then as I read it, I realized what the author was suggesting was actually quite a bit of work :) One aspect I really liked that they talked about: the absolute key being that you spend less than you earn (Rule Two certainly helps you in this regard) and, in the end, that’s it. That’s all you really need to worry about.

Yes, it may be nice to look back in 10 years and see how much you spent to bring your golf game from horrible to horrid (which is worse?), but in all honesty, you probably won’t ever look back and need to know that information. Bear that in mind when you’re debating about “going granular” or just wanting to make sure you’re staying on top of the Big Picture: Spend Less than You Earn.

Conclusion: To All Those Who are Out of Control

These don’t apply to you. You need to get with it. I would suggest almost the exact opposite from what this article suggests:

1) Plug leaks. If you’re spending a bunch of money on coffee then you need a coffee category. DVDs? You need a DVD category. Do you find yourself constantly purchasing books? You need a book category. As you isolate, you’ll evaluate and when you evaluate, you’ll mitigate (useless spending).

2) Record things manually. Force your spending to be something you really have to work for. Recording your spending manually will make you (dreadfully) aware of what is going on. Yes, it’s nice to have beautifully-designed aggregators of all of your spending data, but looking back at your spending nicely categorized doesn’t have near the psychological effect of sitting down with a receipt, recalling the moment of purchase, seeing the amount, t-y-p-i-n-g that amount in, deciding where to categorize it, and then feeling slightly sick to your stomach.

3) Increase frequency. You need to be recording your purchases every day. At least once per day. Frequency breeds awareness and that’s what we’re after.

As you develop the habit of budgeting, you’ll be able to adjust these three things accordingly.

A Four-Year Old, a Light Saber, and an Invaluable Lesson in Personal Finance

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Today is Porter’s 4th Birthday. For two years he’s asked me why I have to go to work. For two years I’ve told him the same thing:

To earn money, so we can buy food and have a place to live.

When he was really little he actually started to leave money out of the picture. I’d say I’m going to work and he’d respond, “to buy food?” And that, my friends, is how the world works. His first exposure to money and he just forgot about it. Food was the important part.

Last year for Christmas he was given a wallet with a five-dollar bill inside. I was amazed, but he actually kept that money in his wallet for the most part. A few times I found it among the toys in their toy box and I’d bring it to him and tell him how important it was that he keep track of his money (you can’t start ‘em too early). His aunt came and visited a few months ago and we headed off to Target because Porter had decided to assign those five dollars a job: buy a toy light saber.

Julie and I went off to do some other Target-errands while Porter and his aunt headed to the toy section. When it came time to checkout I was keenly aware of the entire process. This was his first transaction and I wanted it to hurt when he spent that five dollars. (The total was actually $7.50 and I made up the difference – a moment of weakness perhaps).

I made sure Porter handed the cashier the five dollars, and waited with baited breath to see his signs of hesitation, perhaps a furrowed brow and a longing look at his wilted piece of currency.

Nope. He handed it to her so fast and didn’t blink an eye. Money was a means to an end (end = light saber).

I used my new found knowledge a few weeks later when I came home from gathering food and was told that the basement apartment below us was now dealing with a broken window, compliments of Porter’s (awesome) ability to huck anything he can heft further than kids twice his age.

I didn’t so much care about the broken window, or even really about the money it would cost. I did want to teach Porter a lesson about what this loss would mean. I sat him down and told him that because it was going to cost money to replace the window, we wouldn’t be able to buy a Wii. His eyes got big and he got the lesson. The Mecham Pie is finite buddy, and you just ate a slice.

[We still haven't purchased a Wii even though I still really want one for, you know, Dad-Son bonding time and things like that. Porter still mentions the fact that we don't have a Wii because he broke the window. The lesson that just keeps on teaching!]

For Porter, the End was the Wii and we didn’t have the Means because he had broken a window.

As an adult with these little dependents running all around me, my Ends are different. Or at least they should be. And I suppose that is where the lesson lies.

This list is not exclusive, but as an adult, your Ends should include:

An Emergency Fund – Guys, give your wife a break and let her have a bit of breathing room! She’ll thank you for it.

Savings for Retirement – Don’t depend on anyone for your retirement except your own ingenuity, creativity, and sweat.

Minimal (or no) Debt Load – Pay off all of your debt as fast as you can and reclaim all of the time, sweat, thought, stress, and tears that create that precious income.

A kid gets bright-eyed with the prospect of spending $5 on a light saber. A guy gets bright-eyed with the prospect of spending $500 on a “modest” gas grill (the one that really caught my eye yesterday was over $900 though – yeah right!). Does the same guy get excited about throwing $500 toward unsecured debt? Or stashing $300 in his emergency fund?

At some point, the earlier the better, your Ends have to change. You’re no longer a kid. For Porter, Money equals things. For you, an adult, Money should equal Security and Peace.

How a video game programmer started writing software that is _really_ fun (Howdy ya'll)

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I’m new to the blog, but not new to YNAB. I’m proud to be the lead programmer behind YNAB Pro.

But let me start at the beginning. A couple of years ago, I was looking for a better budget program, and when I found YNAB I knew I’d found a good thing. Jesse and I started talking, and in short order we discovered that we were both excited about the idea of YNAB evolving into more than a spreadsheet. A few months later we released YNAB Pro (to great acclaim).

Since then, we’ve always been trying to improve YNAB Pro, and I’m proud of how far it’s come. Our forums are probably the most helpful place on the internet! If you haven’t before, I encourage you to read through them. There’s nary a question unanswered, and that even includes the ones that leave Jesse and I scratching our heads! I honestly don’t think you can find a friendlier group of folks anywhere. In addition to helping each other, our customers really help us too. When they share their ideas (and yes, even their frustrations), it helps Jesse and I to know what to focus on for our next release. Up until now, there’s only been one problem: time.

What some people might not know is that YNAB Pro has been a side-project for me for the past couple of years – not a full time gig. (For my day job I was a programmer for a big video game publisher.) I’m proud of what we’ve accomplished in this time, but I have always wanted to accomplish things faster. When you know it will just take a few minutes to add a feature that will save thousands of people hours of time managing their money, you want it done yesterday!

I’m excited to announce that as of a few days ago, I began working on YNAB Pro full time. I get to work with Jesse on budget software all day long, which means more frequent releases of YNAB Pro, which makes for a happy lead programmer and even happier budgeters.

I’ve already begun working on the next release. I’m fixing lots of little annoyances, like allowing you to easily change the order of the account tabs so that people don’t have to do silly things anymore, and making it easier to import bank transactions. I’m also going to be adding official transfer functionality. I’m excited about it. Have something you’d like to see get added to YNAB Pro soon? Please let us know!

P.S. For those of you scratching your head at the title of this post, that’s how we say “Hi” down here in Austin, Texas.

How You Never Get Anything Done (But Do it Perfectly!)

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Jonathan over at MyMoneyBlog had a great article about how the concept of Kaizen ties in to personal finance. According to Wikipedia:

a Japanese philosophy that focuses on continuous improvement throughout all aspects of life.

I couldn’t help but notice something Jonathan mentioned regarding spending habits:

If you want to start a budget, why not track your spending in just one category, like dining out?

Brilliant.

The idea of small, easily-surmountable (perhaps so small they’re barely noticeable) tasks is a recipe for long-term success.

Normally, when someone is truly struggling with the budgeting process (the struggle always happens at the start. I never have people come to me and say, “Hey, I’ve been doing this for a year now and now, all of a sudden, it’s just getting really hard to stick to.”) I recommend that they don’t worry about budgeting but simply .

Jonathan’s suggestion to start with maybe just writing down your ‘dining out’ spending is phenomenal because it breaks that task down even further.

And honestly, I see a lot of wisdom there. With some expenses, such as the mortgage, property taxes, insurance premiums, they’re not variable and their timing is known. The value of writing down those expenses is, incrementally, so much smaller than recording expenses for discretionary, variable expenses such as entertainment, dining out, hobbies, etc.

So why is this post’s title talking about never getting anything done?

It goes back to the principle of Kaizen, where you work with small tasks, small improvements (continuously) instead of trying to develop a new habit, skill, or process all at once. Each of us has a drive to be better, do better, in some areas of our lives. What keeps us from taking the first steps? The huge task we see looming in front of us. We want to do things right even perfectly and we have a difficult task ahead. This desire for perfection from the start keeps us from taking any action at all.

The result? We don’t get anything done.

When starting your quest to manage your money at a higher level, recognize that you may need to start smaller and make small, continuous improvements to ensure your long-term success. Anything can be done for a few weeks, even a few months. But we’re after the long-term here! We’re undoing years and years of possibly bad money management habits, and that’s no small task.

In this regard, in order to achieve something big, you really need to start thinking small.