YNAB Podcast Episode 82: The Age of Money

Hello YNABers. My name is Jesse Mecham and this is podcast number 82 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.

A lot of people – if they’ve just heard of YNAB or if they’re like the 80% of everyone – spend money that is not very old. For instance, you’re paid on Friday and you spend on Saturday what you earned on Friday, and then Monday you’re broke again. So the age of your money in that situation is very young.

Some people get in a situation that’s even worse where they’re spending money on a card that they haven’t yet earned. I was talking about this with Mark, YNAB’s blogger, about this and he called it in-[utero] money, money that hasn’t even been born yet, and you’re already spending it.

So we were thinking about that – the age of money. I wanted you to think about it as well. What would it mean if you were spending money that was 30 days old? That would mean that you had a buffer in place. We teach you to live on last month’s income. Essentially, we want you to be spending money that’s at least 30 days old. Think about Christmas and falling into level two with your rainy day funds, if in January you set aside $100 and February you set aside $100 and so on and so forth, in December you would have $1,200 with which you could then shower your children with gifts. And on average, the money that you were spending on Christmas would be six months old because you’d been saving for it for a year. And that would be a nice place to be.

Think about something even further out, like paying cash for a car. We bought a new car back in December and we were spending money, on average, that was two and a half years old because we’d been saving for that car for about five years. My kids’ college – if I help them out with college – will be hopefully giving them money to use that will be on average about nine years old, assuming we started saving when they were one and started using the money when they were 18. That using money that’s nine years old would feel really good versus using money for your kids’ college that is from last pay check – or worse, that is money that you haven’t even earned yet, it’s borrowed and you’ll be paying back later.

What if you set aside $200 each month for retirement, and then when you were 65 and you were doing this from the time you were 30… let’s say 25 until you were 65, and then you started pulling out money. That would mean that in your retirement you were spending money that was, on average, 20 years old, and that would feel pretty good.

For the time being, I just want you to ask yourself how old the last dollar is that you just spent. If it’s a day old, that’s not very good. When I was 10 and would earn my allowance, I would be given the money, I would get on my bike, I would ride down to the Bull Pen, which was a baseball card trading shop, and I would spend the money that I’d just earned on Topps baseball cards. And that money was about… I mean, the bike ride took me about 12 or 15 minutes, so that was about how old the money was. Are you spending money that’s so young or, as Mark said, hasn’t even been born yet? Or are you spending money that’s maybe 15 days old, 20 days old, 30 days old, 40 days old? As you get up into the 30+ day range, I think your stress drops. I think you’re able to sleep a little better, I think you’re able to stop timing your bills to your pay checks. I think you’re basically living on YNAB’s buffer, following Rule Four.

I’m just framing it a different way for today, which is to talk about how old your money is. And that dollar that you just spent at Starbucks – or at 7-11 if you’re not into the Starbucks scene – how old was that dollar? I think it’s a good measure of overall financial health.

So, think on that, and until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

Editor’s note: We’re working our way back through the podcast archives, posting transcripts each Saturday and Sunday.