Title You Need a Budget
Author Jesse Mecham
Year Published 2017
Kind of Book Finance
How strongly I recommend it 10/10
My Impressions This system was a game-changer for me. Core principles like, 'give every dollar a job' and 'only budget with the money you have now' revolutionized the way I manage my money. This book explains the system, the YNAB app helps you put it to use! There are also some great chapters towards the end of the book for budgeting with a partner and teaching children to budget.
Date Read March 2022
Practical Takeaways
Rule One: Give Every Dollar a Job ie. Put every dollar you have into categories for what it is going to be used for
Rule Two: Embrace Your True Expenses ie. Figure out expenses that only come once a year or come by surprise (but will inevitably come eg. New tires, medical emergencies) and put money aside each month for that.
Rule Three: Roll with the Punches ie. Be flexible in adjusting your budget as needed
Rule Four: Age Your Money ie. Put aside money this month to pay for next months rent. Then put aside money this month to pay for rent two months from now etc.
Calculate how much money you typically spend on Christmas presents. Divide that number by 12. Set aside that amount of money each month.
If you overspend in one category one month, pull money from a less important category
Ask yourself what you want your money to do for you
Make a budget (no matter how much money you have)
Decide what your spending priorities are, then assign money to those categories
Only you can decide what your money is for (YNAB just helps you reach your goals, but the goals are up to you)
engage with your money consistently eg. Check spending, accounts etc.
Every time new money enters your bank account, assign those dollars to a category
Only budget with money you have now! (Don't budget with money that is not in your bank account yet)
If you don’t have enough to budget out the rest of the month, then budget for things based on 1)when the money is due 2) their importance to you eg. Budget for rent due on the first before phone bill due on the 15th eg. Budget for couples therapy (very important to you) over movie night (not as important to you)
Look at all your "surprise" expenses over the course of a year. Divide that number by 12 and set aside some money each month to budget for them. Eg. Ambulance ride cost $12,000 set aside $1,000 a month for medical emergencies
If you truly value impulse buys, create an impulse buy category and set aside money for it each month (as a bonus you won't feel guilty spending that money)
Make sure you’ve set aside enough to keep food in your fridge, a roof over your head, and the collection agencies off your porch.
Write down your quality-of-life goals even if you don’t have money to assign to them right now.
Take the time to think about what makes you happy and add those things to your budget—even if they’re just ambitious notes right now, with no dollars yet available for them.
Pay off debt ASAP
Only use credit cards if you're using them to spend the money that’s already in your bank account.
Once a year (best done in January), question every one of your expenses. Question the “givens” like housing, transportation, and insurance. Question the vacations you always take, the gifts you always buy, and the food you always eat. Every single item should be on the table. Following the tactic of asking why six or seven
times as it relates to any one of your line items
Budget for high gas bills all year long (not just in the summer and winter months)
Set money aside each month for things that will eventually need to be replaced (eg. Tires, shoes, lightbulbs)
Budget for medical bills when you (or your family or pets) are healthy.
Create a giving category (giving to others)
Look at past bank statements to estimate your TRUE costs (including non-monthly expenses and surprises)
Don't ask can i afford this. Ask does this move me closer to my goals
Never make your goal "Make more money" (No matter how much money a person has, they will always want more)
instead of an emergency fund, assign money to Essential categories for several months down the road (eg. If its January and I've already budgeted for April I have a 4 month emergency fund where I could not work and still be able to pay for everything)
Assign your money to future months expenses if you have already assigned everything to next months expenses
Don't pay for your kid's college. Teach them how to budget, work while in school, and get scholarships
avoid student loans!
Set a goal, break it down into manageable monthly amounts, and start funding the life you want.
Treat your budget like a flexible plan
If you are constantly over-spending in one bucket, ask yourself if your goal is realistic
Keep working on increasing the time between receiving money and spending it.
(The sprint) go a short period of time during which you go to extreme measures to accumulate extra cash. Once you’ve brought in enough to fund a month of expenses, you’ll officially be out of the paycheck-to-paycheck cycle. Push yourself to the limits, and when you feel you can’t do it anymore, remember this is only temporary.
(during the sprint) Abolish nearly everything during your sprint. Don’t just cut back on eating out—eliminate eating out. Don’t go to the movies. Cut out any frills. Dig
deep into your pantry for most of your food and only spend on essential perishables. Have fun for free: hike, bike ride, have a picnic with the treasures in your pantry.
Promote your services on social media.
Post your services to gig boards
Sell stuff you don't use
Airbnb, temporarily rent out your home and stay with friends.
(budgeting with a partner) Have monthly number-crunching meetings with your significant other where you talk about spending (still think of these as dates,
(budgeting with a partner) Use your first budget date to explore Rule Zero in three ways: what’s most important to you as an individual, what’s important to your partner, and what you value together as a couple :your budget will have three sets of priorities: yours, mine, and ours. Boil your priorities down to a small number of things—around one for each of you, and two that you share.
(budgeting with a partner) keep all your money in one joint bank account. The same goes for credit cards. It doesn’t matter who earned what. It’s one shared pool of money that is funding your shared life together. Embrace that and support one another on the journey.
(budgeting with a partner) Make sure your monthly sessions are a safe space where you can talk openly, listen to your partner, and compromise. Remember that this is really about staying on track to hit the goals you’d set together. Keep the vibe warm by treating your monthly powwow like a date (not a meeting). Curl up on the sofa with the iPad. Bring cocoa. Go to a cafe and talk about how you’re doing over dessert.
(budgeting with a partner) Don't just talk about money once a month. Communicate with your partner about your spending decisions as they unfold.
Budget for the things that bring you joy.
(budgeting with a partner) Having a no-questions-asked “personal fun money” stash for each of you (even if it's only $5 a month) Ie. neither of you has to answer to the other about what you did with your loot.
(budgeting with a partner) get to know each other’s habits with money and beliefs about money.
Don't borrow money for a new car
(Debt) pay off your lowest-balance debt first if you have multiple debts.
keep your spending habits the same even when your income increases. (to avoid lifestyle creep)
Increase your income
Fund your true expenses first.
Give kids an allowance so they can start learning how to manage money early. Keep the amounts small and you won’t need to worry about spoiling them with handouts. Set aside 10% for giving • Put 50% of what’s left after giving into savings They can do whatever they want with the rest.
Let kids waste their allowances spending money on whatever they want. (they will learn from it) Once the money is theirs don't try to manage or control it for them.
avoid paying kids for chores. Instill in them that "We do chores as a duty and as an act of joy, love, and commitment to the people with whom we live."
(for kid's allowances) Each kid would receive a flat amount based on his or her age. Julie and I decided on $5 for oldest $3 for second oldest, $2 for second youngest, and $1 for youngest each week.
Treat your child’s allowance as a tool for learning. Keep it consistent and keep it separate from any of their other responsibilities.
Start your kids on a budget at eight years old,
Remind your kids that they may not want to have to dump all of their December allowance into gifts. So I help them calculate how much they’ll need to save each month leading up to Christmas.
Have a budget meeting with your kids, just like you would a spouse or partner, to decide what things are their responsibility and what you will continue to provide.
Once your kids have part-time jobs, they can gradually take on more expenses that you feel fall in their domain.
As kids get older have them use their own money to pay for their friends gifts
Leave yourself a little breathing room in ygour budget ie. Guilt free spending or stuff i forgot to budget for
Don't set unrealistic spending targets
Unless one transaction very clearly straddles two spending targets (like when one Costco receipt covers food and skis and pajama pants), send it to one category and be at peace.
If you’re not happy with your budget, go back to the question you asked yourself in the Introduction: What do I want my money to do for me?
When things get stale, or you feel your budget just isn’t working for you anymore, wipe it out and start over—whether that means clicking the Fresh Start link or opening a new notebook or spreadsheet.
lower the thermostat a few degrees at night and snuggle up in flannel everything.
Big Ideas
Thinking about money constantly disrupts our peace of mind
Many people don't budget or keep track of their spending
Because
Many people are scared to know the truth about how much money they actually have (or how much they are spending)
Often when we're stressing about money we're not aware that we are
We often only become aware of how much we were stressing about money when the stress goes away
When you increase the time that passes between receiving your money and spending it, you will be less stressed
We make better decisions when we're in a state of scarcity
Because
When we are in a state of scarcity we HAVE to be more intentional with our decisions
We feel guilt for two reasons
We did something that was not in alignment with our values
Other people's expectations of how we should live is making us feel bad about what we did (even if WE felt it was right)
You can almost always do something to cut back on how much you're spending
The more you budget, the better you get at it
If you increase your spending to the degree that your income increases you will continue to feel the same amount of anxiety about money
Infrequent expenses are either
Predictable - the same every year eg. Christmas gifts
Unpredictable, but inevitable eg. Medical emergencies
Once you've started giving every dollar a job and budgeting for your true expenses, you will look to your YNAB app to see if you have the money for something, not how much money is in your current checking account
No matter how much money a person has, they will always want more
Therefore
Your goal should never be to make more money
It is easier to take money from your Emergency Fund if it is not assigned to something specific (eg. Like travel or Christmas gifts)
When your income is variable it is easy to trick yourself into thinking you make more money than you do, by telling yourself the amount you make during the months you make a lot is how much you REALLY make and the amount you make during the months you don't make a lot is the exception
If you are constantly overspending in one category, you probably aren't being realistic with your goals
Surprising Facts
Eighty percent of Americans have debt of some kind.
89% of Gen Xers and 86% of Millennials have debt.
Unknown Terms
Forecasting (finance): looking into the future in order to guess at your upcoming income and spending.
Lifestyle Creep: When a person increases their spending to the degree that their income increases.
Predictable expenses: infrequent expenses, but we know
exactly when they’ll hit and how much they’ll cost. There are bills like insurance premiums and car registrations, but also remember predictable spending bumps: holiday shopping, summer camp, gardening supplies, back-to-school clothes.
Unpredictable (but inevitable) expenses: expenses like car repairs, impulse donations, wedding gifts, shampooing the carpets after your aging dog forgets to go outside for certain activities