Update 9/16/2014: I’ve clarified this (rather divisive) blog post, to be specifically talking about non-mortgage debt. I’m not a fan of student loan debt, but it’s a gray area when it comes to “good debt verses bad debt.” I plan on writing a post about good debt and bad debt, coming shortly :).
I’ve had this sneaking suspicion, as of late, that we’re becoming—how do I say this— soft in our thinking, which directly affects our actions.
YNAB, as a brand/company, doesn’t talk too much about things beyond the Four Rules. We teach you:
- Rule One: Prioritize your spending/saving, and recognize the reality of finite resources. You don’t hear us say much about how or what to prioritize.
- Rule Two: Look ahead for larger, less-frequent expenses, and break them into monthly amounts. Build those monthly amounts into Rule One’s priorities. Again, we don’t take a stance on what larger, less-frequent expenses you should have.
- Rule Three: Adjust your budget as the need arises. We don’t want you to quit. We don’t want you to define successful budgeting as the ability to guess what will happen in the future. Rule Three is just a way of saying, “Hey, if Rule One and Two are feeling a bit brittle under these new circumstances, it’s okay to change things.” We do not teach you what “needs” would merit changing your budget under…yep…Rule One.
- Rule Four: We teach you to learn to live on last month’s income (called a buffer). It’s just a really nice place to be. You can get out of the paycheck to paycheck cycle, pay your bills as they come due, and just sleep a little easier at night. We do not tell you that reaching this buffer is mission-critical. We don’t yell and scream about the fact that you don’t yet have your buffer. We let you decide how to prioritize your buffer based on, you guessed it, Rule One.
Rule One’s kind of a Big Deal, no? Lo and behold, your priorities end up being the important part in the whole methodology. We’re saying something like:
Prioritize (r1), now prioritize taking the future into account (r2), now prioritize again when you get new (better) information (r3), now make the whole prioritization process easier by prioritizing a month ahead (r4).
We’re silent on your actual priorities. As “YNAB the Fancy Company” we’re silent.
But I’m going to share my own personal opinion on your priorities. Imagine that you and I know each other very well, you know I care about you, and want the absolute best for you.
In 1994, I was 14 years old and my dad gave me two books:
- Financial Peace
- The Richest Man in Babylon
When I was 18, my dad gave me The Millionaire Next Door.
Reading those books has framed my priorities for the past 20 years. By “framed” I should say something more like, “I treated them as absolute truths, and didn’t waiver from the instruction.”
Here’s where I write about things you could perhaps improve. In other words, here’s where I start questioning your priorities. Here’s the single biggest mistake I see in your priorities.
You treat debt, especially non-mortgage debt, as a given
You’re subjected to an environment that’s teaching you that debt is simply a part of life. Question your core assumptions around your lifestyle, and then perhaps debt isn’t a given.
If you would treat non-mortgage debt like the most absurd proposition of all time, if you would get to a place where you don’t even entertain the idea of debt, your mind would take hold of that thought, and you would unleash your creativity, your resolve, and your force of will on that debt.
In early 2004, I was projecting what mine and Julie’s finances would be like once our first baby came into the picture. I was making great money as an internal audit intern ($14/hour) and had a bit over two years left of school for my Master’s of Accountancy. I was sitting on our Dr. Pepper Can Cooler (wedding present) at the Wal-Mart desk, trying all sorts of scenarios that would 1) allow me to finish school, 2) let Julie quit her job with the state ($11/hour) to stay home with Porter and 3) do it all without borrowing any money. All three were non-negotiable.
My projections were dismal, I was mad, and there didn’t seem to be a solution. I was projecting full-time school, and entertaining the idea of working 30 hours per week at my internship (we technically weren’t “allowed” to work in the accounting program, but I ignored that guideline). It was a road to burnout, but I was entertaining it because I wasn’t entertaining the idea of borrowing the money needed for tuition.
Julie and I got $5 each month for fun money. Our grocery budget was $100 per month. We barely drove the car (I would have sold it except it wouldn’t have made a dent in our shortfall). We skipped a honeymoon. We didn’t eat out. Despite our best frugal efforts, the projected monthly shortfall was about $350. Coincidentally, that was how much we paid in rent.
So I decided to start YNAB.
Had I entertained the idea of borrowing money to cover tuition (the loan would have been “super reasonable,” just about $7,000 for a graduate degree! <—sarcasm intended), I never would have felt the need to build a little business that could perhaps cover rent. Had I entertained the idea of debt, this business never would have been started. What a tragedy that would have been.
Don’t treat debt as a given. It’s not! You may have to sacrifice really hard things in order to get there. If this is ringing true to you, then you may need to prioritize your debt and get obsessed about it.
Don’t underestimate your creative power. Don’t underestimate your work ethic. Don’t underestimate the force of your will. Are you content just chipping away at your debt, or do you want to get rid of it? It’s plenty hard reaching your financial goals presently without having to also be funding your lifestyle from the past.
You don’t question your assumptions.
Is your house obscenely large? 🙂 Because of that obscenely large home, you pay through the nose to heat and cool the thing so you can enjoy your debt-fueled lifestyle at a comfortable 78 degrees. Are your vehicles insanely expensive? Is your restaurant budget killing your health and your finances? Is the grocery shopping aimless? Is your closet full of clothes you don’t even know you have, with a garage full of stuff you can’t even recall? Is your holiday spending more a reflection of what you think others think?
Just question those assumptions. Again and again and again. Find people that haven’t made those assumptions and find out what makes them tick.
Here are some specific assumptions, where I write very forcefully, to hopefully give you a gentle nudge down the path of questioning.
Downsize. Sell your home, taking any equity out of it that’s there and get something smaller, cheaper, and more reasonable. You’ll make new friends. Good friends you’ve had, you’ll keep them. Rent for a while. Rent a small apartment. Enjoy the journey. I know it’s sacrilegious in a lot of America, but maybe consider an apartment!
Yes. What if you considered an apartment with much cheaper rent?
Think about renting an apartment for a while.
Protect the idea from your assumptions that are attacking it right now. Defend your idea. Reframe.
Sell your car(s).
If you’re upside down in your car, you should sell it right now. Borrowing money for an asset that goes down in value is really, really bad.
Sell a lot of other stuff.
It’s not a good investment, to borrow money to buy a bunch of stuff, and then have to sell it for pennies on the dollar so you don’t have to keep paying for it, but maybe it’s still a good move for you.
You’re stuck with your situation until you decide to do something about it. Go through your garage and get rid of half your stuff. Then get rid of another half. Since you’re moving anyway, this will help that process along. Now we’re making progress, and being efficient to boot. 😉
If you have seasonal gear (skiing, mountain biking, hiking, camping, boating, etc.) it needs to go. Buy that stuff later from someone else who’s trying to get out of debt. Share your story of doing the same thing, and how it transformed your thinking forever, and how it’s hard now, but they will be so happy they did it.
De-clutter to gain visibility.
You should be able to list every item of clothing you own. You don’t need all of those shoes, sweaters, and skirts. Minimize. Sell your excess clothing or just give it away. Pull all of the clothing from every corner of your room and pile it all on your fancy bed.
Grab a laundry basket and fill it with the clothes you want to keep.
Shoot for selling, or giving away 80 percent of your clothing.
De-clutter in every single room of your house. Start from one end of your massive house and move to the other. Get rid of stuff. Sell the kitchen gadgets you barely use. Sell the kids’ toys they’ve forgotten about. Sell lots and lots of stuff.
De-cluttering will give you visibility into your consumption, because you’ll now notice every new item that you accidentally purchase.
Stop eating out.
I know it’s convenient, but you’re okay with that because you recognize that 1) you’ll be healthier and 2) you really, really want to get out of debt.
Without even going into the absurdity of eating-out establishments by the thousands surrounding all of us, without even going into how absurd it is that we pay disgusting prices to eat disgusting food…
We won’t talk about that. I’m just talking about your privilege. You’ve revoked your privilege to eat out! You’ll just eat simple stuff at home. In that instant, you’re doing something that others would find absurd (never eat out?!), bizarre, or disturbing, and in that moment, you’ll know you’re on the right track.
You will have the last laugh, you crazy, crazy person.
Cancel your vacations.
Obviously you don’t borrow money to go on vacation. But if you choose to go on vacation while you are still in debt, then you are borrowing money to go on vacation and no sane person would ever do that.
Do a stay-cation. A stay-cation is where you stay home and host a garage sale to get rid of all the stuff, right before you list your house for sale to move along with the downsizing process. After all, you can’t fit a ton of your stuff in that small apartment, so it needs to go anyway. (Efficiency! ;))
You do not go on vacation when you’re in debt. Not even little “getaways” for the weekend to “recharge.” You don’t need to recharge. You need to work. The luxuries can wait until you pay off that debt!
Do you see what happened here? Your past self really sold you a bill of goods. Your past self stuck you with a massive bill for things you aren’t even enjoying anymore. You’ve been conned by the greatest shyster you’ve ever come across, and that shyster is you! (That shyster is all of us.)
Here you are, not even able to enjoy a simple vacation because that con artist took you for all of your future disposable income that could have been used for a vacation.
The only way to get back at yourself, for conning yourself the way you did, is to pay off the debt. For your current and future self.
One of the reasons you can’t take a vacation is because you’re working during your free time. You can be doing odd jobs to earn extra money, working overtime at your job, holding your third garage sale, becoming an ebay expert, eliminating every expense possible, and optimizing the expenses that, despite your herculean efforts, can’t be eliminated. That doesn’t leave much time for vacations!
Use Facebook for something useful, and let your network know that you’re looking to earn extra money. Let them know that you can help them with any job they can conceive. Show up early, stay late, deliver above and beyond expectations and you’ll probably find yourself with a business bursting at the seams from referrals within a few months.
I’m a family guy (heaven knows, I have five kids) and I would miss my kids terribly if I were gone all of the time, working a second and third job.
It’s a good thing that this “work more” idea is a sprint. It’s not a life sentence. You’ll regain balance once that debt is paid off. You’ll have more balance than you ever though possible once it’s all gone.
Until you’re out of debt, there’s nothing balanced about your situation. Everything is out of balance. You’re on a teeter-totter where your debt has you leaning hard left, and the only way you can “be balanced” is to go way, way, way to the right. So far to the right that you’re about to fall off. So far to the right that your friends think you’ve gone crazy. Then you take a breath, and take another big step. To the right.
You still aren’t questioning your basic assumptions
The majority of you have read the above and come up with all sorts of reasons why it can’t work. Some of you are just shaking your head.
“Jesse’s gone off his rocker.”
“I always thought Jesse was pretty level-headed. What happened?”
“I don’t like Jesse.”
I’m not terribly level-headed. I’m sure I’m being presumptuous, since I can’t individually work with each one of you. You know I really like you, and I want the best for you.
Your most basic assumption that you need to obliterate from your mind is that debt is an option.
Debt is not an option.
The fact that you have always behaved this way does not make it right. Just normal. It’s tragic. It means you’ve missed out on an amazing ride of figuring out what really matters to you, and where your priorities really lie. Perhaps you’ve never had to sacrifice to have those true priorities surface. Don’t keep missing out!
Debt has kept you down and out, a slave to interest (of course), but also a slave to middle-of-the-road thinking and suppressed creativity. The process you will undergo to obliterate every single shred of debt from your life will change you forever. You will be stronger, your thinking will be clearer, your perspective will be sharpened, and your resolve will be immovable.
This is my prescription for your priorities: Pay off your debt. Your debt is a crisis. You don’t have any other priorities. This is a sprint. Start running.
I am rooting for you!