You Need A Budget (YNAB)

With the world at a standstill due to the COVID-19 pandemic, one thing is certain. We’ve never budgeted at a time like this!

 

Jesse offers some comforting words in this time of crisis, and reminds us to follow Rule #1: Give Every Dollar A Job. Never stop budgeting. Even if it’s only a week ahead, a day ahead, staying engaged and continually planning will give you the best chance to survive financially in these times, and, eventually, thrive. Budgeting is one area of our lives that we can control, in the midst of so many things we cannot.

 

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Direct download: 423_Youve_Never_Budgeted_At_A_Time_Like_This.mp3
Category:general -- posted at: 12:00am EDT

At YNAB there is a document called the Vision Doc, which spells out the “commander’s intent” for the company, how to behave and act on the company’s behalf. Employees must make many decisions on a day to day basis, but with a clear commander’s intent they have the freedom to make those smaller decisions while adhering to the company’s greater goal.

 

It’s useful to develop the same commander’s intent for your budget. With a clear goal and aim for the budget, it becomes easier to make those small, day to day money decisions that, as we know, can add up to big dollars over the course of a year!

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

Direct download: 422_The_Commanders_Intent.mp3
Category:general -- posted at: 12:00am EDT

Jesse reads an excerpt from the book The End of Average by Todd Rose. In the late 1940's the Air Force had a dangerous problem on its hands -- aircraft of all kinds were malfunctioning and crashing at alarming rates. The Air Force brought in scientist  Lt Gilbert S Daniels to diagnose the problem. Daniels discovered that the Air Force had designed cockpits based on thousands of physical measurements taken from its ranks of pilots, then averaged. Daniels ascertained that despite the rigor and breadth of the measurements, not a single active pilot in the Air Force actually matched up with all the averages. In short, the Air Force had designed their planes around an average pilot that didn't actually exist, causing pilots to have trouble controlling their planes.

 

We can take a lesson from Lt. Daniels discovery when it comes to our budgets. It's tempting to come up with an average for each line item, and compare your budget to someone else's or perhaps even a regional or national "average." Designing your budget around averages may not actually fit your life, and, going back to Episode 420, may leave your budget rigid and inflexible.

 

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Direct download: 421_Dont_Be_Average.mp3
Category:general -- posted at: 12:00am EDT

We often talk about the budget as if it’s a noun. Is it “in the budget”? Did you check the budget? When you treat the budget as a noun it takes on a rigid, inflexible quality, like the budget is set on stone tablets.

 

But what if we thought about “budget” as a verb? As an action, an activity, budgeting becomes a process, a thing which can change and evolve with each iteration.

 

Jesse discusses the importance of budgeting and not just setting a “budget.” Thanks to Hannah who shared this revelation in her video My 5 YNAB Beginner Mistakes on the YNAB YouTube Channel.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Direct download: 420_Budget_No_Budget.mp3
Category:general -- posted at: 12:00am EDT

Money is made to spend. We all want something, and that something usually costs money. Some of the “wants” are fleeting desires, spurred by mood or peer pressure or perhaps just a whim. Other “wants” are genuine desires and items or experiences that actually add value to your life.

 

Whichever it is, Jesse argues that you should wait. Wait before you buy anything, even the genuine wants. For one thing, waiting helps you parse out the genuine from the ephemeral.

 

Jesse keeps a running list of wants on his phone. If he wants something, he adds it to the list rather than buying it right away. If he still wants it when he checks the list again later, he buys it. Many times, however, he will find things on the list that he hasn’t thought about in a while, and that he really doesn’t want. So the list can act as a simple filter and a sanity check for purchases.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 419_Wait.mp3
Category:general -- posted at: 12:00am EDT

There's a cliche in TV and film whenever something bad happens in a crowd of people, inevitably someone in the crowd shouts "why doesn't someone do something!" This is usually the cue for the superhero to enter stage right. We hear this sentiment all the time, not just in bad cinema, but in real life. Anytime a problem reaches a level of widespread concern -- whether it's a local neighborhood issue or a national one -- something must be done about it.

 

Some problems have no easy answers, and we often forget that inaction is a valid response. The same goes for our budgets! Not every budget problem can be solved right now. Sometimes you don't have the right information, or enough of it, to fix every issue in your budget. That's OK. Sometimes your budget is working just fine, and there's no reason to tinker with it. That's OK too. Don't fix it if it ain't broke!

 

Whatever your situation, remember doing nothing is still doing something.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

 

Direct download: 418_Doing_Nothing_Is_Something.mp3
Category:general -- posted at: 12:00am EDT

They are prepared for emergencies, for setbacks, for unexpected life changes. In fact emergencies don’t seem to happen as often to them. YNAB’ers are a lucky set, it seems, but maybe there’s more to the truth than a roll of the dice.

 

Survivorship bias is a logical fallacy in which you focus on a group of people or things that made it past a selection process, without considering those that failed. This bias can lead to a number of erroneous conclusions. In finance, survivorship bias occurs when evaluating the returns of, say, companies in a certain sector of the economy. If you only look at current technology firms, you might look at the technology sector and determine that it radically outperforms the market… but those same returns may look very different if you consider all the technology firms within the same time period that went bankrupt.

 

Survivorship bias appears everywhere in life, and YNAB’ers are no exception. At first glance it may seem like those in good financial health just didn’t have the same number of setbacks that those in poor financial health did. But maybe it’s not just luck. Maybe those with good financial health stay that way because they budget responsibly.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 417_Budgeting_for_Lady_Luck.mp3
Category:general -- posted at: 12:00am EDT

In episode 411, Jesse decried the ubiquity of credit cards and the fact that they enjoy a number of benefits that plain old debit cards do not... at the risk of getting yourself in debt. Since then, he's learned of a few strategies for managing fraud risk with debit cards.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 416_Opting_Out_of_Credit_Cards_A_Bit.mp3
Category:general -- posted at: 12:00am EDT

Jesse admits he's got an itch to scratch. He likes to invest gamble in the stock market from time to time, using an app that allows him to trade at the swipe of a finger.

 

At least he's honest -- it's gambling with fun money, not investing. And that's the key. It's money he can afford to lose, and it's not much.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 415_Scratching_the_Gambling_Itch.mp3
Category:general -- posted at: 12:00am EDT

Wealth is not a dirty word. After all, wealth can allow us to do many interesting and fulfilling things with our lives. At the very least, it provides options, opening up the range of possibilities before us. Simply put, wealth can allow us to live the life we want to live.

 

The only problem is that the accumulation of wealth is often followed by increasing expenses. Some of these are obvious -- a bigger, newer house usually costs more than a smaller, older one -- while others are insidious. A larger house requires more energy to heat and cool, more time and effort to clean and landscape, and more things to fill it up. That's just one example. We could say the same about cars!

 

Left unchecked, these growing expenses can once again eat into our wealth, robbing us of the optionality of wealth. As Thoreau once wrote, "he who owns little is little owned."

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 414_Optionality__Managing_Fixed_Expenses.mp3
Category:general -- posted at: 12:00am EDT

Save money for known future expenses, or pay down debt? It's a challenge many people face while trying to eliminate their debt. It's a conundrum too -- you could take your savings and pay down debt now, or hold onto to those savings for the new tires you know your car needs next month, or the Christmas gifts you want to buy for the family. If you do that, though, the debt balance stays the same while you continue to pay interest...

 

Jesse argues that optionality is the key here. Obeying rule #2 -- embracing your true expenses -- means setting aside money for those known expenses and eventualities in your life. It's tempting to pay down as much debt as you can now, but setting aside cash for your true expenses gives you options.

 

What if your true expenses are bigger than you anticipated? What if you get hit with unexpected expenses on top of that? If you've set aside the cash, you are in a position to handle those expenses when they come. If you've already used the cash to pay down debt, then you won't have any to cover unexpected expenses. This makes you much more likely to put those on the credit card and then... now you are in debt again.

 

Jesse often meets people whose finances look like their diets -- they yoyo in and out of debt constantly. It's a mentally and emotionally draining prospect. But by giving yourself options, you can have it both ways. You can prepare to pay your true expenses in the future AND pay down debt. And you'll be more likely to stay out of debt, which is the ultimate goal!

 

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 413_Optionality_Rule_Two_Instead_of_Debt_Paydown.mp3
Category:general -- posted at: 12:00am EDT

Jesse reflects on a Senate bill -- now signed into law as the Setting Every Community Up for Retirement Enhancement (SECURE) Act -- which will require a greater amount of employers to offer 401(k) plans to employees. The new law also makes it easier for annuities to be included in 401(k) offerings by easing the fiduciary rules around fees and expense ratios.

 

401k) plans are excellent vehicles for saving for retirement because they allow employees to put away a lot of money every year -- up to $19,500 in 2020. Some employers offer matching on 401(k) contributions, further boosting savings rates.

 

However, the inclusion of more annuities in 401(k) plans has a darker motivation. Annuities typically charge higher fees than mutual funds and index funds -- sometimes a percentage point or more -- making them an inefficient and expensive way to save for retirement for most people. On the other hand, they are very profitable for insurance companies! Not surprisingly, insurance companies lobbied hard for the relaxation of fiduciary rules in the SECURE Act.

 

Just like Jesse discussed in last week's episode #411, wherever there are incentives, there are people making money. The wise investor follows the money!

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 412_Incentives_and_Your_401k.mp3
Category:general -- posted at: 12:00am EDT

For better or worse (probably worse), credit cards are a major part of our financial world now. Cash is becoming less and less convenient to use every year, and debit cards continue to lack the same level of fraud protection that credit cards enjoy.

 

This isn't coincidence either. Jesse attended a "payments trends" conference in 2019, where the main topic was how to make payments easier, to remove as much friction as possible from the process of buying things. Why? Simply put, when you spend more money, more often, payment vendors make more money.

 

The problem is, you can't win the credit card game. Not only do payment vendors make money when you spend, the banks that underwrite credit card debt know (because they have studied human behavior) that when you swipe a credit card, you tend to spend more money. Credit card points and rewards are carefully designed to entice you to spend more money, because banks know that you will likely carry higher debt levels with a credit card.

 

So if you can't win the game, maybe the solution is just to opt out.

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 411_Opting_Out_of_the_Credit_Card_Game.mp3
Category:general -- posted at: 12:00am EDT

It's time to blow it all up! Every January, Jesse takes time with his family to "blow up" his budget and all the assumptions that drive it. He takes a fresh look at the dollars in the budget, and starts to question everything.

 

Need to set aside $400 for a new set of tires in March? That's a responsible Rule #2 line of thinking. But the burndown is your chance to think deeper... do we even need a car? Could we sell it and ride our bikes to work instead?

 

This is your time to think big, re-evaluate your priorities and life goals, and then question everything about your money. Nothing should be off the table at this point, because you're just talking. In the process, you may discover that your priorities have shifted, and it's time to take some new steps with your budget.  

 

Sign up for a free 34-day trial of YNAB at www.youneedabudget.com

 

Also, go to https://www.youneedabudget.com/bootcamp/ to sign up for the YNAB Debt Bootcamp!

Direct download: 410_January_Burndown_2020.mp3
Category:general -- posted at: 12:00am EDT