A bit late because I had major technical difficulties :) Please leave a comment down below if you have any feedback or ideas for future Whiteboard Wednesday topics! Also, please share this with friends that need to learn a bit about budgeting!
A pretty funny forum thread popped up recently and I wanted to highlight it :) If you can think of another, add it to the thread!
the first thing you do when you get a receipt is say to yourself “ok which category will those go in or better yet, is this a split transaction!”
I can’t wait til the next pay day just so I can go put February’s budget categories in! (And because I get giddy, like you, over entering receipts!)
you antagonize over buying girl scout cookies because you can’t figure out if you should categorize it as groceries or charity.
you get a kick out of coming in under budget on groceries because that means you can throw that money into the car replacement category, even though you expect your current car to last another 8 years.
you find yourself looking longingly at the chocolate bar in the store that costs only 50c and thinking ‘mmmm, chocolate….’, but then realising you don’t have 50c left in your ’snacks/eating out’ category, and you’d have to take it from another category, and you really don’t want to do that because then you might not have enough left in that category, and besides, you really don’t need the extra calories anyway. So….the chocolate bar stays on your shelf, your money stays in your wallet, and you still fit into your favourite pair of jeans!!
your 8 year old comes home from school and tells you they are doing a “Save, Spend & Give” project at school. She raised her hand and told the teacher “we do that and my Daddy does his budget, You Need a Budget, on the computer”!!!
your decision whether or not to purchase light bulbs at the grocery store isn’t JUST a matter of weighing convenience and price…the fact that it will create a Split also factors into it.
the UPS guy is concerned because I have cut waaaay back on getting deliveries from Amazon!
you forget when payday is.
someone mentions the word money and you can’t help yourself and have to mention YNAB and tell them all about it whether they really want to hear or not.
you use the word buffer in daily conversation.
your thoughts switch to ‘Yikes, the balances in my accounts are only ‘$[insert a figure in the hundreds or thousands]‘ instead of ‘Yikes, the balances in my accounts aren’t enough to buy me dinner’.
you go to the bank to make some changes to your portfolio and you end up upselling YNAB to the Financial Planner behind the desk
you don’t notice your account balance is rising because you’re focused on budgeting instead of dwelling in transactions.
you look at a large deposit and smile thinking; ‘I’m glad that those money already have a job.’
You know you are the spouse of a YNABer when you don’t understand why you don’t have enough money to buy a $1.90 cup of coffee when your account balance says you have $ hundreds/thousands!
you immediately recognize a $1.90 purchase is a McDonalds ice tea because you have entered the transaction over and over again!
you no longer have a constant horrible feeling in your stomach.
you don’t feel frustrated when you receive non-monthly bills.
you don’t feel bad about purchasing something that you really want.
you don’t buy something just because it’s on sale.
you constantly have to tell your spouse that we can buy this, but will need to subtract it from another planned expense.
you are a straight guy but still strangely love a guy named Jesse that you have met on the Internet
you no longer stress about how you’re going to pay the next bill. (The money is waiting in the bank.)
You can’t wait until the last week of the month to do next month’s budget.
you take out $40.00 for gas, spend $37.65 and your first thoughts are “hmm…how do categorize the remaining $2.35!
instead of cleaning the house during your baby’s nap, you obsessively read the YNAB forums!
you tell complete strangers about YNAB while standing in the ATM line at the bank.
the end of the month brings excitement as you know you will be working on a new budget!
Hello good YNABers!
I’m pleased to announce the first installment of Whiteboard Wednesday. Today we talk about On/Off Budget Accounts. Forgive the beanie. My hair is atrociously long (by my standard), but I can’t cut it until I reach a goal that I set in October.
Enjoy..
Leave a comment below telling me what you’d like to see in future Whiteboard Wednesday episodes :)
For the next little while I’m going to be highlighting some key differences (read: improvements) between YNAB 3 and the now retired YNAB Pro. Today, we’re talking about the improvements we made to the workflow of imported transactions.
This first video shows the old method.
This second video shows the new method. The difference is simple, but saves keystrokes, and that’s what we’re all about.
0:00 – Why/How I started YNAB.
0:50 – Numbercrunching, realizing we would run out of money before I finished school.
1:30 – Julie says selling YNAB “won’t work” :)
2:00 – Stumbled onto the methodology.
2:40 – Monologue, tongue-in-cheek confession of a Budgeter.
7:35 – Definition of a Budget
7:56 – Diving into the Rules. Started with Rule Two.
9:00 – I want to buy a new putter. The process.
0:10 – Guilt attached to every single spending event (and why there shouldn’t be).
1:10 – Budgeting is a goal-setting session every single month.
1:50 – The importance of His and Her money.
3:30 – Rule Three: Saving for a Rainy Day.
4:00 – Christmas as a classic Rainy Day — “Every month is a little bit of Christmas”.
5:15 – The Cash Flow Dip, and how Rule Three eliminates it.
6:30 – Rule Three’s importance for people with highly variable income.
7:00 – Elimination of “crises” in your household.
8:00 – Decision quality with Rule Three (hint: it’s better).
1:20 – handling overbudgeting (Rule Four)
1:48 – Rolling with the punches (in Boxing)
3:00 – Why you don’t care about your checking account balance
3:40 – An easy trap for people with shared finances (and no budget)
3:58 – Max, my newborn, cries out.
5:15 – First of month, implementing Rule Four
5:45 – Borrowing from yourself instead of Visa or Chase.
0:00 – There is no normal month with your finances.
1:20 – Will likely change the order of the Rules (eventually).
1:35 – Talking about the Buffer.
2:10 – All about timing, the sprint, belt cinch, firesale, etc.
3:20 – A demonstration of Rule One with envelopes.
3:50 – The horrible inefficiency of bill timing to paychecks.
5:40 – Batching bills = efficiency = probably 3 hours per month and no stress.
6:00 – Variable income EXCUSE debunked.
0:30 – With variable incomes, forecasting is always, always, always wrong.
1:40 – Reaching Rule One (the transition).
2:05 – Why I was afraid to originally introduce Rule One when selling YNAB (and why I was totally wrong to be afraid).
Q & A Begins
3:15 – Break expenses down weekly? Or just do it as a month? What’s the optimal period for a budgeting session?
3:42 – Increased frequency of budgeting is tough, worth it if you’re struggling though.
4:28 – Frequency of entering receipts for our household (now that we have the HABIT!)
5:28 – Multiple bank accounts? Does YNAB care where the money is? The colored dresser scenario.
0:48 – Why cash is sometimes really helpful for stick-to-it-iveness.
1:30 – Do you track cash in a different way? Nope.
2:10 – No demo of the software…but we import.
2:48 – One spouse that’s motivated…and one that isn’t.
4:00 – Handling split transactions.
4:30 – Don’t force yourself to do the tedium, if the tedium will make you quit.
4:48 – Some tactics to use at the grocery store’s conveyor belt.
5:35 – A nice testimonial for Rule One from a very wise man :) – “Your life will change.”
6:25 – How we cheated to get our buffer. Sort of.
7:00 – My own testimonial of the methodology as it works in relationships.
0:00 – Establishing responsibilities among spouses with the budget.
1:00 – A funny story about my dry humor getting me in trouble.
2:05 – A “hot” thing to do with your fun money.
2:20 – Money laundering — it’s BAD. Don’t do it. Confess if you are doing it and get things right.
3:30 – Worse than hiding excess cash…
4:10 – YNAB was not in my life plan, a conclusion.
When people set out to “do their budget” they go about it with an approach that is just completely counterproductive. It’s rigid. Formal. Stifling. Ineffective.
One of my favorite board games is the old classic Risk. Great family fun guaranteed every time.
If you want to win in the game of risk, you need to possess one attribute in spades: adaptability.
Yes, you have a plan. And once you see how the other players are placing their armies, you move to your second, third, fourth… eighth plan. If you’re sitting there from the get-go saying North America is yours regardless the cost, regardless the surrounding circumstances, regardless what happens to you from externalities…you’re hosed.
We do this in traffic to. We’ll have a plan B. “Hey, take Mill, but if it’s looking bad we can always head south on 16th and then back over on Washington.”
We do this all the time. It’s a built-in survival instinct perhaps.
But when it comes to money, we have this other emotional side of the equation that is just absolutely insane. Financial academics that study investors continually prove again and again that investors aren’t rational, and that we make completely insane (read: stupid) decisions when it comes to money, how we deal with loss (and gain), risk, etc.
Out of the box, we’re also equally poor at budgeting.
You’ll sit down and begin to build either one of two budgets:
1) The Castle of Fairy Godmother Perfection, with you perched on top. If everything goes right this month, absolutely everything, then you’ll stay on budget. It will be the first normal month in your entire history of adult existence. It’ll also be the first normal month in the history of mankind.
2) The Alcatraz of Unrealistic Miser-y, with you locked inside. This is the budget where you’ll lose 10 pounds because you’ve budgeted $120 to feed your family of four with the main plan being to fill up on complimentary coffee creamer while at work.
In both of these unrealistic scenarios, you’re going to fail. The main reason being that you’re not coming at your budget with multiple plans — just one all-out-this-better-work-or-I’m-never-trying-again-plan.
Listen. You’re the Commander in Chief. Your money salutes you. Tell it to do what you want, but be flexible. Recognize that there are no normal months, that you do have to eat, and that you will go over-budget in a few categories pretty much every single month.
Do I lock my sites on the strategically-superior location of Iceland (in Risk) and just go after it with tunnel vision until I either finally get it (at what cost?) or fail? (At what Cost?)
One of YNAB’s great strengths as a piece of software is the extreme ease with which you can shuffle money around. It was meant to be shuffled. Flexible. Adaptable. That’s what will keep you in the game for the long-haul!
You live in a world that isn’t real. You’ve been basing your financial decisions on everything you’ve seen around you, and you’ve allowed yourself to believe that what you’re seeing is true. What you’re seeing is very rarely true.
This may sound harsh, or insensitive, but the guy that just rolled up two doors down with the brand new lawnmower is going to be paying for that thing (twice over) for five years.
The lady whose house is decorated immaculately is late on her credit card bill.
The parents whose kids have all the latest toys are up to their eyebrows in debt.
The young, successful salesman across the street refinanced his home three months ago to free up $400 in monthly cash flow. He has no idea where that $400/month has gone.
The doctor is working himself into oblivion, but can’t make headway on his student loans.
The husband that bought his wife the new car she’s been wanting is now sleeping less. He doesn’t know it, but his wife secretly wishes he hadn’t bought it.
The happily married couple simply avoids the topic of money.
You don’t see any of that, but it’s all there. And, unfortunately, you’ve lived most of your life making decisions based on assumptions that are entirely false. The people you see around you, and who you aspire to be are all broke. They’re all stressed.
There’s a scene in The Matrix (the original, good movie, not the sequels) where Neo is just finding out a bit about the Matrix. He knows enough to know that something with the world he’s always known isn’t right. Morpheus gives a great line:
Like everyone else, you were born into bondage.
Morpheus is talking about the fact that all Neo has ever known is the Matrix. A façade. A fake life. There’s nothing real about it. In a lot of ways, until we kick some seriously bad financial habits and starting doing things that are liberating (I won’t say, *AHEM* exactly what those things are), we’re stuck. Zero progress is bondage — period.
To end the scene, Morpheus gives Neo a choice of two pills. If Neo takes the blue pill, he’ll wake up and not remember anything about their encounter. He’s allowed to push a big Reset button.
If Neo takes the red pill, he gets to see “how far the rabbit hole goes.” He’ll get to see the reality for what it really is.
Since Neo is the hero, and since he chose the red pill, what type of parallel do you think I’m going to make? The red pill — the REALITY pill, is your budget. Nothing about what you see around you is true. The only thing true is what you care about, what you bring in, and what you let flow out of your life. Your values are real. Your perception of the financial situation of others around you is not real.
Once you’ve taken the red pill, your financial potential is greatly enhanced. Please take a few seconds to view this clip from a classic:
Once Neo saw reality, he was able to control his own destiny. Could the similarities be any clearer here? Once you get a strong dose of your own reality (through effective budgeting), you’ll also be much more empowered to control your own financial destiny.
What’s the financial equivalent of stopping a speeding bullet in mid-flight? I have no idea. But my guess is that you can do it.
Oh, and in your financial world, you are The One.
(This was originally in response to a customer’s question — something along the lines of ‘How does this work really?’ Her husband is a doctor, which is why you’ll see that mentioned below).
The master bedroom in our house is upstairs, and we have a great, huge chest of drawers there. The dresser was one of our first pieces of furniture, so it has sentimental value.
When the laundry is done, it ALL goes upstairs and is literally dumped on our bed. My wife and I then fold it while we’re watching some show or something.
Your money (and everyone else’s, so don’t feel bad) is not as bad as the clothes all sitting on the bed. If I want to wear my red shirt, I CAN just start rummaging through the clothes. I know it’s there. It takes me a while to find it, it’s not efficient, and I know there’s a better way, but hey, I found my red shirt so the crisis is averted. This money management method doesn’t work long, and leads to stress, and lost clothes (money).
What your money is probably like though (again don’t feel bad) is maybe something like this. You fold all the clothes, and then you remove all the drawers from the dresser and just stuff them into the “shell” of the dresser however they’ll fit. NOW, if I want my red shirt, I KNOW it’s in the dresser, I just have to rummage until I find it. It kind of looks like everything’s fine from the outside (at least when viewing the dresser from the side), but really there’s chaos in there! And it stresses you out. And you know in your heart of hearts that it’s not the right way to do things :) The drawer-less dresser is your main checking account.
YNAB is the drawers.
Each drawer has a purpose. Top-left is for the unmentionables, top-middle for socks, second drawer down for t-shirts and shorts, etc.
Right now you have this pile of clothes in a drawer-less dresser and YNAB’s going to apply some organization to it.
You’ll create budget categories.
Each month your hard-working, educated, super-human doctor husband (seriously, super-human most likely, I have friends trying to make it through residency!) brings home a clean pile of laundry and dumps in on the bed. The way you guys have this working (for every couple, this is different), it’s now basically your responsibility. Your job will be to take that pile of money and organize it into drawers (categories).
Heck, you may have a closet for hanging clothes, and two dressers (a checking account, a few savings accounts, etc.) but YNAB doesn’t care about where the clothes are physically NEARLY as much as it cares about what you’re going to DO with the clothes.
So, back to money.
Let’s say you take home $5,000 per paycheck or something like that. There’s that pile of money. As far as YNAB is concerned, you’ll record that as an Inflow and that’s the equivalent of your husband dumping the piles of clothes onto the bed. Now, that money is ready to be allocated.
You’ll notice the $5k sitting in your Available for that month. You’ll want to modify, create, and delete the default Budget categories to fit your needs. The defaults are good, but you’ll want to tweak.
Now you simply start adding money into the Budgeted column. Have a bill due? Add the money there. Want to start saving for a great vacation? Add some money there. You know the tires are balding…add some money to the Repairs category. Give a little away, save some in your emergency fund, etc.
There are some intricacies to YNAB’s Method that make it a bit quirky (massively effective! :) ) and the first is Rule One. This may be stretching it, but going back to the clothes analogy, if you’re living on Rule One it basically means your husband brings home a pile of clothes in March and dumps it…where would a guy dump it? On the floor.
You don’t care so much though. In April, You (YNAB automatically) take that huge pile on the floor and move it to the bed. You put it all away, organized according to your and your husband’s values/priorities, and you’re feeling really good about things. Because as you’re spending money, pulling clothes out of the drawer for this or that in April (new baby clothes–congrats by the way!) you see your husband — halfway through the month — march up the stairs with a whole new pile of clothes, which he dumps on the floor!
See how good that feels? You’re there spending money and while you’re doing that, your husband’s out there earning money that you don’t even NEED until May!
Rule Two basically says, “Hey, don’t leave clothes on the bed. Make sure they’re all put away.” (prioritized, doing a job, etc.) This is huge psychologically, but we won’t get into that.
Rule Three comes about where you have this HUGE drawer in your dresser that’s pretty empty, but you want to take some sweet vacation. Each month you just throw some clothes in there. As time goes by, the drawer becomes ever fuller until you take that vacation, don’t use any debt, and have the time of your life. When you get home from vacation that drawer is empty and you don’t feel guilty at all, because that’s what it’s there for.
Rule Four helps everything stay in balance by forcing you to pay yourself back if you go over budget. Can’t really extend the analogy too far on this one… ;)
Your life will never be the same.
Don’t take six months to get there. Don’t do it halfway. Don’t waste time.
Sell every gadget. Sacrifice every luxury. Work every minute. Eat in.
If you can fill the unforgiving minute With sixty seconds’ worth of distance run…
This isn’t pie-in-the-sky talk: I promise it will change your life.
I’ve stressed again and again the importance of the budget meeting. It needs to happen at least monthly (for those of you completely out of control, up the frequency).
This isn’t a time for you to put on your hard-nosed, negotiating face and see if your spouse has the mettle to withstand your tricks and tactics all toward getting your way. This is a time to talk. As a matter of face, I’ll even say it’s a time to chat. However, there’s still some communication strategy that’s well worth learning.
The other day a good friend of mine (who doesn’t use YNAB fully, but does love and follow Rule One) told me he, “had to have a talk with my wife again about being frugal.”
I didn’t ask what he said exactly. I had a pretty good idea how the conversation went based on how my friend had framed it for me with that one sentence.
First, it may very well be that a “talk” was needed.
However, the way in which that talk — especially a talk about frugality — was given could have been improved to really deliver results.
The key is to communicate like a marketer. Budding marketer that I am, I do know that you always want to talk about the benefits of product X to your customer. You don’t worry that it can do 60 revolutions per second — you simply tell them that its speed will save them time. Bad marketers focus on the product and what it does, instead of focusing on what the product does for the customer.
When discussing frugality, how could we approach the topic differently? We talk about the benefits. Those benefits would be the goals you’ve agreed to during the monthly budget meetings. Those goals have buy-in from both parties and your spouse wants to follow them. So instead of saying, “Hey, we’re (or worse, you’re) spending too much money here, let’s try and cut back,” you’re saying, “I’m so excited that we’ll be able to pay cash for Christmas this year. It’s going to require some sacrifice, but MAN! This will be our first year where we haven’t gone into MORE DEBT to celebrate Christmas!”
Just paint those benefits all day long and my guess is that the frugality will follow.
This is The Wallet. My name is Jesse Mecham, founder of YNAB. Here I focus on the YNAB methodology, software, personal finance, and more.
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