The Art of Manliness - #363： Budgeting Doesn't Have to Suck

00:00:00.000 Brett McKay here and welcome to another edition of the Art of Manliness podcast. If you find

00:00:18.840 yourself running out of money before your next paycheck, or if you've been having trouble

00:00:22.300 making a dent in your debt, then you, my friend, need a budget. My guest today is Jesse Mecham.

00:00:27.120 He's the creator of the You Need a Budget personal finance system and software, and he's just

00:00:30.680 written a book about the philosophy underpinning his system. It's called You Need a Budget, the

00:00:34.940 proven system of breaking the paycheck to paycheck cycle, getting out of debt and living the life you

00:00:39.020 want. Today on the show, Jesse tells us the personal story behind his software, why most people fail at

00:00:43.520 budgets and the myths people have about budgeting. He then walks us through the four rules of the You

00:00:47.640 Need a Budget system, as well as actionable advice on how to implement them. Whether your goal is to

00:00:51.600 pay off your debt or simply feel some control over your finances, this episode is for you. After the

00:00:56.080 show's over, check out our show notes at aom.is slash YNAB, where you can find links to resources,

00:01:01.260 where you can delve deeper into this topic. And Jesse joins me now via clearcast.io.

00:01:09.480 All right, Jesse Mecham, welcome to the show.

00:01:12.760 I'm so happy to be here. Thanks for having me, Brent.

00:01:14.800 So you founded a personal finance service called You Need a Budget, and you just wrote a book,

00:01:20.880 the same title, You Need a Budget, The Proven System for Breaking the Paycheck-to-Paycheck Cycle,

00:01:24.680 Getting Out of Debt and Living the Life You Want. What I love about your story is like a lot of really

00:01:29.800 successful, useful businesses. You started You Need a Budget because you had a problem of your own

00:01:35.700 that you had to solve. Can you give us the backstory of You Need a Budget?

00:01:39.760 Yeah, I could do the two-word one or about there. I mean, we were young newlyweds. I was still in school

00:01:46.820 and we were going to have a baby. And so we were naturally broke because when you're married and in

00:01:53.580 school that happens, but the baby really, really extra stressed for me. So Julie, my wife, and I,

00:02:00.700 we were using this budgeting system that I'd created for the two of us, and it worked pretty well

00:02:05.980 despite pretty meager incomes. You know, we were getting by. We were actually able to save

00:02:11.260 a little bit. And then when the baby was coming, we really wanted Julie to be able to stay home and 0.91

00:02:17.100 just be full-time 100% with the baby. And that would mean that her income would go away. And I

00:02:23.000 needed to figure out a way to shore up the gap. And that was where I had the idea that I could

00:02:27.880 sell our budgeting system to other people. And I was just young enough, just naive enough to

00:02:33.000 believe that that would work. So that's what we started with.

00:02:36.880 So let's talk about budgeting in general, because I think everyone listening to this show has probably

00:02:41.200 tried budgeting at some point in their life and they stick to it for about a week and then they go

00:02:47.760 over and then they're just like, okay, I'm just going to give up on this completely. So why do

00:02:52.480 most people fail at keeping a budget? What's so hard about the way most people keep budgets?

00:02:57.600 They do two things wrong. One is that they use a budget to forecast what they will learn and what

00:03:04.180 they will spend. And then we can get into details on that if you want. But then the second bit,

00:03:08.820 it's almost as if I'm horrible at basketball. I used to be pretty good and then I stopped playing

00:03:14.400 around the time I was 12 and haven't touched a ball since. And it would be like me deciding I'm

00:03:18.280 going to play basketball again and demand that my free throw percentage be 95%. And that's what they

00:03:24.800 do with their budgeting. They've never budgeted before. They're probably pretty poor with their

00:03:28.820 money, the management of it. And then they just suddenly think because they've written down this

00:03:34.420 budget or whatever they've done that they're suddenly going to be perfect. And also

00:03:38.600 probably be able to have psychic kind of future fortune telling kinds of abilities. And that just

00:03:44.980 doesn't happen. So they blame the budget for the fact that they have this high level of perfectionism

00:03:49.520 that they're trying to live by and they're just getting started. I have so many analogies. I have

00:03:54.720 weight training analogies, dieting analogies. All of them are the same. It's like, listen,

00:03:58.580 you're just getting started. Give yourself a break. So that would be no forecasting and no

00:04:03.840 perfectionism and budgeting will live to go another day. But people approach too much with those two

00:04:09.880 things in mind and kind of torpedo it from the outset. So let's talk about the difference between

00:04:13.680 budgeting and forecasting. Can you go to that in more detail? Yeah. So what happens is, well,

00:04:18.420 what we really want to do is introduce scarcity into their decision making. So that's the principle.

00:04:25.840 And you just got to make sure that you're clear on that. If there's scarcity in your system,

00:04:30.340 and you know, you only have $300, $3,000, whatever it is that that amount is finite.

00:04:36.160 Then when I say, Hey, Brett, what do you want to do with that $300 before you are paid again?

00:04:42.060 Then you are crystal clear on what your priorities need to be because we're dealing with a very small

00:04:47.860 or at least a very finite amount of money. When we forecast and you as an entrepreneur,

00:04:53.040 and I'm in the same boat and 75% of Americans do deal with variable incomes of all sorts,

00:04:58.360 they end up using the forecasting to pad their system with extra money and they kill the scarcity

00:05:07.640 from it. So you would say, Oh, I, maybe you're chatting with your, you know, your wife or

00:05:12.940 something. And it's kind of like, okay, we want to do this, this, how's it going to work? And you

00:05:16.280 think to yourself, Oh, well I'll make some more money here. This'll probably happen. This good thing

00:05:21.320 in the business, we're going to do this launch. We all come up with all of these like really rosy

00:05:25.640 ideas, like looking through, you know, the future, like through these rose colored glasses

00:05:30.140 and then answer and try and, uh, instead of prioritizing brutally, honestly, and say, listen,

00:05:37.360 this is the amount of money we have. We then say, Oh no, I'll make more in order to not have to deal

00:05:43.620 with the question of, I have a finite amount of money. And you can do this with a fixed amount of

00:05:48.600 income when you're on the most sure paycheck of all, or you can do it when you're, you know,

00:05:52.720 a realtor just jumping from one house sale to the next. But we forecast to make ourselves feel

00:05:59.120 better about, or to avoid essentially the idea that there's a finite amount of money that we're

00:06:05.800 dealing with. So when we first start someone out, I just say, what's in your bank account?

00:06:09.800 They tell me, I don't care what the amount is. And then I say, okay, what do you want that money to

00:06:13.760 do before you were paid again? And their stress suddenly disappears. They feel very purposeful,

00:06:19.160 very intentional. And we've completely removed that murky area where someone's guessing what

00:06:25.660 amount of money they should be dealing with. Gotcha. And I guess another part of that,

00:06:29.560 besides the amount of money you're coming, it's coming in, you're also budgeting for,

00:06:35.460 and we'll get into this more details, like unexpected expense, like they're expected expenses,

00:06:38.920 but they don't show up very often. Yes. Yeah. We, we call that, that's the second rule of our

00:06:44.700 system where you're embracing your true expenses. And those, these are larger, less frequent expenses

00:06:50.560 that tend to surprise us and that shouldn't. So we probably drive cars and you know, if you drive

00:06:57.160 a car on a road and it has tires that continually rotate at that high velocity that they'll wear down,

00:07:01.820 yet we're all surprised when we have to replace our tires. And then someone will say, well, I don't

00:07:06.320 know when it'll happen. And I say, that's fine. You don't know when, but you do know that it will

00:07:10.500 happen. And we know that having money saved for it is better than having zero saved for it. So

00:07:15.760 what we want people to do is look ahead to those larger, less frequent expenses, and then start to

00:07:22.300 break them down into manageable monthly amounts and give yourself monthly bills that you're dealing

00:07:28.700 with. So if it's vacation that you're saving for, or it's Christmas that you're getting ready for,

00:07:33.640 we want you to get ready for Christmas in January and then be ready, you know, every month,

00:07:39.440 setting aside a little bit of that Christmas bill so that come December, you just, you just enjoy

00:07:44.120 yourself. And, uh, it's actually merry, right? Instead of stressful. So the idea is that the

00:07:49.320 money, you have a pile of money waiting for a bill to land instead of a pile of bills, just waiting

00:07:55.300 for you to finally land some money to take care of them. Gotcha. Okay. So rule two, embrace your true

00:07:59.840 expenses. Let's talk about these rules that you jumped right to it. Let's talk rule number one. We

00:08:03.600 skipped rule number one. What's that? The rule number one is to give every dollar a job. And that

00:08:09.060 goes back to that principle. You don't forecast. It's just what amount of money do you have on hand

00:08:14.040 right now? And you're just prioritizing and prioritization in and of itself is fairly simple,

00:08:20.100 like in concept, but actual doing can be quite challenging. So we want all of our money to go

00:08:26.580 towards specific purposes. What people end up doing is just behaving very reactively with their money

00:08:32.080 and as a result with their life. And if you can be intentional and proactive with your money,

00:08:38.000 I say, I, and you say, I want my money to do these things. I want my money to do that.

00:08:42.460 Then suddenly you feel purposeful and your money. It's not that you're, you're cutting back. You're

00:08:47.620 not saying, Oh, I'll spend less here. I'll spend less there. That's a very boring conversation for me

00:08:51.420 to have. I would never want to talk to you about, here's how people save money. Not that people shouldn't

00:08:55.620 or that that's bad. It's just, that's boring to me. I want people to just be very purposeful about

00:09:00.480 what their money is doing. So that's rule one is that purpose driven. What should this money do

00:09:05.460 before I'm paid again? So we call that giving every dollar a job. Rule two is it's a spin on rule

00:09:11.260 one, just prioritizing again, but looking ahead to those larger, less frequent expenses, breaking them

00:09:17.340 up into monthly amounts and making sure that as you're deciding what your money should do,

00:09:21.640 you're also keeping in mind like future Brett that's out there. That's like, Hey man, I'm the

00:09:26.000 guy that's stuck with the blown out tire, like throw me a bone here, you know? And so you're just

00:09:29.980 always kind of looking ahead and saying, okay, I don't want to leave future Brett in the lurch here.

00:09:33.940 So let's throw some money his way as well. So, you know, he's not stranded on the side of the road

00:09:38.320 with a blown out tire and no money to boot. Our third rule is to keep rolling. If you want

00:09:42.800 is to give, it's essentially give some flexibility to the system. So when people first start,

00:09:50.000 we talked about that perfectionism. We really want people to recognize that out of the gate,

00:09:55.200 it is a rule that you change your budget as you go. It's like playing chess. If someone opens one

00:10:01.180 way in chess, you will respond and then they play and you respond. Everything's a give and take.

00:10:05.820 Everything's a response to something else. And your budget is the exact same way. You have a plan,

00:10:10.160 like a great football coach has a plan. They've been working it for a week. And then as soon as the

00:10:15.300 other team steps on the field and they start opening up their playbook and showing their hand a little

00:10:19.280 bit, a good coach adjusts and adapts and responds. A horrible coach. I mean, we'd yell at the coach

00:10:25.240 that said, Oh no, no, I set up my plan. You know, I'm never going to change it. That'd be the worst

00:10:30.180 coach in history. They wouldn't have a job more than a few games. So in budgeting, it's the same way

00:10:34.940 when something happens and it wasn't what you foresaw. Hey, just change the budget a little bit and keep

00:10:41.240 rolling. A perfect budget is a budget that is, is done again and again and again, not one where you

00:10:46.260 happened to guess right on what you would spend on any given amount. And then our final rule is to

00:10:51.500 age your money. And that's the idea that we want you stepping away from the financial edge

00:10:56.340 and spending money that you earned at least 30 days ago. So if you earn money today, you won't need to

00:11:04.160 spend that money in your normal, normal flow until about 30 days from now. And it has all sorts of

00:11:10.900 benefits we can dive into if you want. But the idea is just getting away from that financial edge,

00:11:15.740 getting away from the stress and being able to make better decisions as a result.

00:11:20.960 Okay. That's great overview. Let's get into some of the nitty gritty and how to implement this.

00:11:25.160 So rule number one, give every dollar a job. Let's say you talk about this in the book,

00:11:30.920 you know, you have, everyone has like their obligatory expenses, mortgage, rent, gas, utilities,

00:11:36.360 student loan payments, perhaps. So you sit down, you look at your bank account, you assign every

00:11:43.720 dollar in your bank account to those expenses. What do you do if you don't have any more money

00:11:49.820 left for other expenses, like say the true expense of, you know, replacing the tires,

00:11:55.320 like putting aside that for when that happens? What do you do there?

00:11:58.100 Yeah. One is you don't pretend you do, right? So that's, you know, that's the one thing people

00:12:03.000 will do is they'll just immediately say, oh, well, I will earn some money in a few weeks.

00:12:07.380 So I'll go ahead. Nope, don't. When that, when new money comes in, then fund the tires there.

00:12:13.740 We could go, we could actually go one route here where we talk about people that genuinely have

00:12:19.040 an income issue where they really are. They really don't make enough to fund their current requirements.

00:12:26.080 That is not, that is a very real case, but it is not the majority of people. The majority of people

00:12:34.520 have enough and they're just mismanaging it. What happens is the reason I get, I, I'm leery of

00:12:40.760 talking about not having enough money is only because most people say that as an excuse to not

00:12:47.660 even start. So they'll be like, listen, I already know I spend more than I make and it's just the way

00:12:53.240 it is. And so I can't budgeting would just show me what I already know. And that thing couldn't be

00:12:58.340 further from the truth. Budgeting lets you be proactive to make sure your money is doing what

00:13:02.420 it's actually supposed to do. And if we can get people doing that a lot of the times, like 90% of

00:13:08.460 the time, their money starts to kind of line up, not be wasted on things that they actually don't

00:13:14.540 really care about. And they end up with some surplus. And this, this really does happen in 90,

00:13:19.680 95% of our cases where they end up with surplus and they feel like they got a raise. And it's not

00:13:25.080 because we've said, don't spend money here. How could you buy that? I can't believe you spend your

00:13:28.820 money on this. None of that. They just are more purposeful and suddenly they find more money.

00:13:34.260 It's the same thing people experience when they start planning their day. They're like, well, gosh,

00:13:38.340 this day felt, I felt like I had more time in my day. It's the same principle. You were just being

00:13:41.760 purposeful about what you wanted to do with that resource. And that resource suddenly seemed more abundant.

00:13:46.640 So I might've gone off a little bit on a tangent there, but that idea of not having enough most

00:13:51.240 of the time is just used as an excuse for people not to start. Gotcha. And another thing I've had

00:13:56.060 problems with budgeting in my experience is that, okay, I set my budget. I create these little

00:14:00.980 buckets, right? For different things, but all the money is in one account. And so like, I'm spending,

00:14:09.200 I'm like, oh, well, I had to keep in my head, well, this money is associated for this,

00:14:12.760 but I look at my account and like, oh, I've got lots of money there that could be used.

00:14:17.360 What do you do to the man? It's more of like, I think it's a psychological

00:14:20.260 issue than anything. Yeah, it is. I mean, well, what's happening?

00:14:24.900 One is you're most of the way there, right? So you're making the decisions that you need to make.

00:14:30.560 A little bit on the implementation is maybe, you know, could be tweaked, but

00:14:33.840 what people do a lot of the times is they'll move money to different accounts to really have

00:14:38.760 to be out of sight, out of mind. I find that to be very tedious for the most part. Then when you

00:14:43.300 need the money, you got to transfer it back. And just like this back and forth, it's a little bit

00:14:47.400 of a revolving door of a savings account situation happening. What we do is, I mean, I don't want to

00:14:52.200 speak to the software specifically too much because people can hear this podcast. They can read the

00:14:57.040 book. They don't need to use our software to implement what we're talking about. So I want to be

00:15:00.280 very clear there, but in the software, it's built to show you all those buckets, right? And to show

00:15:07.020 you the balances you have. So when you pull out your phone and you say, hey, honey, let's go out

00:15:11.180 to eat. And there's $19. You'd say, okay, clearly we're doing, you know, little Caesar's pizza tonight,

00:15:16.060 not the sushi I thought. But, you know, your decisions are being dictated by the $19. You may

00:15:21.200 have $7,000 in your bank account, but you're only looking at the relative related bit there for that

00:15:28.400 one job, you know, going out to eat. So wine nabbers most of the time will just say they don't,

00:15:33.520 they aren't even aware of what their checking account balance is. They get funny looks from

00:15:38.220 tellers at the bank sometimes because they'll, you know, they're just kind of like, why do you

00:15:42.180 have so much in here? But at the end of the day, they're looking at each individual category balance

00:15:46.960 and then they're able to say, oh, okay, I have enough for, you know, I'm going to go out and,

00:15:52.320 you know, do whatever hobby I have. I've got money. I'm going to go play some golf. I've got money to go

00:15:57.140 out to eat. We've got money to go to the movies, not, you know, looking at that big pile where you think,

00:16:01.500 gosh, I have so much money. I could do whatever I want. Then you're back to

00:16:04.740 making decisions based on how big the checking account balance is. And that's, that's a recipe

00:16:08.940 for disaster. That's great. Here's another sort of, it's probably a tedious question. Another issue

00:16:13.880 I ran into that kind of made budgeting frustrating for me is like when I went grocery shopping,

00:16:18.060 for example, at Super Walmart, where they have more besides groceries, right? And then, you know,

00:16:23.340 so you buy food, but then you also buy other stuff that could be categorized as something else.

00:16:28.320 I don't know, who knows, automotive, whatever. And I'm like, okay, what do I do with this?

00:16:33.780 So what's your take on that? So my take is to make things as easy in my life as possible.

00:16:38.820 And maybe that goes against your strenuous life approach, but there are things where there's

00:16:43.560 no value add to the strain, right? And so I want to eliminate those. And this is one of those where

00:16:47.960 you could say, okay, could my categories be lumped into such a way where I can just kind of say,

00:16:53.240 ah, that's all in one category. That's one stop where you could just say,

00:16:56.420 I'm going to throw diapers in with groceries. The other thing you could do, and in our software,

00:17:02.020 you can just, you know, you just split the transaction. You just kind of ballpark it.

00:17:05.680 I would never have someone sit there with a receipt. I mean, I'm a former CPA. So like,

00:17:10.180 I get the whole, you know, like all the jokes about CPAs and calculators. I can do all those.

00:17:14.680 But what you really want to just, you kind of look at the receipt and you say, okay,

00:17:18.020 most of this was groceries, except I bought new dash mats. So you're like, oh,

00:17:22.100 they were about 20 bucks. So you put the $20 in and then you say, okay, the rest was food

00:17:25.940 and you're done. So it's hopefully not too tedious, but if it is too tedious, you'd say,

00:17:31.160 could I make my categories a little less granular or, you know, and make myself just not care as

00:17:35.840 much, or can I just kind of ballpark things to have it not take up so much time? Because there's

00:17:40.340 no value in the recording of the transaction itself, except maybe a little bit of awareness about

00:17:44.840 the actual spending. The real value is the decision-making you made beforehand on how much

00:17:49.100 you wanted to spend. And then just the accuracy afterward, you want to make sure that you're,

00:17:53.340 you're tracking your spending so that you can make accurate decisions, but we don't want things to be

00:17:57.400 tedious. That just is a recipe for people quitting. So I, I hear you on that because it's, it's

00:18:01.780 annoying, especially if you're a little bit of a type A, you know, like you want it to be exactly 1.00

00:18:05.480 right, then it's particularly annoying. So. Gotcha. So let's say you've embraced your true expenses,

00:18:12.200 right? And you have all these things that you want to be like, how do you, I think one of the hard

00:18:16.160 things with money is prioritizing things. So like you take care of your obligatory, you know,

00:18:20.560 expenses, you've, you've listed out the, the expenses like for car repair, things like that.

00:18:25.920 But then you have these other things like these ambitions, these dreams, uh, and they're all

00:18:30.440 equally good. And it's hard to figure out, okay, which one do I focus on actually? Do you have any

00:18:35.180 insights there? Any like little mind hacks that help you decide which one to prioritize at any given

00:18:40.440 moment? Yeah. Well, one I've done for myself because I, I used to be kind of, I used to get mad at

00:18:45.480 myself for switching interests. So I, you know, back in like 2009, I got really into golf and I

00:18:52.480 would just play it all the time. And I, I got, uh, to where I wasn't embarrassing. Like I, I maybe

00:18:58.160 shoot, you know, I don't know, 18 over or something like bogey. I was essentially playing bogey golf,

00:19:03.380 which made it pretty fun. Right. Um, and then you start carrying too much and it makes it less fun,

00:19:07.820 but I got really into golf for a while and then I stopped. And now if I were to play it, I'd probably,

00:19:12.000 you know, shoot pretty horribly. Um, I got into guns for a while and still into it to a degree,

00:19:17.160 but, um, I did all these courses and, and got really into marksmanship. And, and then I just,

00:19:22.240 like my interest kind of waned. I got a dog for a while and I trained this dog. I want to do like

00:19:26.920 shoot soon training. And I was in a bite suit one time, like running away from this dog that was

00:19:31.400 chasing me. And, you know, we were doing training. It was super fun and exhilarating,

00:19:35.540 very exhilarating. Like it's exercise I'd never imagined. And so I'm, this is all kind of a long

00:19:41.520 way of saying like, you have these interests. If you're an interesting person, it means your interests

00:19:45.720 are, will be interesting. So, um, you have to give yourself permission to switch your priorities

00:19:53.300 around and not feel like you're doing something wrong. Uh, and that was a, that like, I'm just talking

00:19:58.060 to me personally now. Um, that was a big deal for me because I used to feel like, Oh, I haven't

00:20:02.940 maximized that, you know, like I haven't really become really proficient. And if I could just,

00:20:08.800 you know, the 10,000 hour rule or whatever, maybe that's a myth. I don't know, but that idea,

00:20:13.020 it just kind of bothered me. And then one day I realized, Oh wait, my thing is that I like to try

00:20:19.000 lots of things. And so I should be okay with that. And suddenly I am. So my prioritization, I just to go

00:20:26.820 back to kind of brass tacks, I always prioritize giving first and making sure, because I think that's the

00:20:32.260 best way to just really, as far as mind hacks go, you're just saying, Hey money, I don't need all

00:20:36.380 of you. And that, that right away is very empowering. Uh, number two is you just take care of

00:20:40.500 needs and you got to be really careful about what are needs versus wants. And then above that, I

00:20:45.820 really try and fund those goals. And we, we look as a family, um, Julie and I, you know, we're looking

00:20:52.620 at usually about a year, maybe two years out and we do it every January and we just kind of pick

00:20:57.920 like the big ambitious stuff we want to do right now. Like I'm, you know, chatting with

00:21:01.980 you, I'm in Manhattan and we knew the book was going to be launching. So we decided we're

00:21:05.660 going to spend three months in Manhattan with the kids and we have six kids. So it's this crazy

00:21:10.580 experiment and it's been super fun and really interesting to see. And it was just a decision

00:21:15.920 we made about a year ago. So when I'm talking about prioritization, I really want people to

00:21:20.800 recognize one, take care of your, your needs first, make sure you're giving a little,

00:21:25.520 because I think it's healthy for you. It doesn't give to whatever you want, however much you want,

00:21:30.160 but give a little bit and then be okay with, with your priorities shifting around as new

00:21:36.100 opportunities arise. And you just, I don't know, you feel like a new want pop in. So I don't, that's,

00:21:41.580 that's hardly budgeting at all, really. It's just, you know, it's prioritization of itself,

00:21:45.940 but that's kind of a personal thing of mine that, um, I've been living the last little while.

00:21:50.120 So hopefully, you know, one of your listeners get something out of that.

00:21:53.760 So what's your take on debt, you know, paying it off?

00:21:57.560 Uh, I don't like it. I'm not morally opposed to it. I bought, you know, rental properties a while

00:22:01.940 ago and, uh, you know, mortgage the rental properties to do that. So, um, the reason debt

00:22:08.040 is bad is because it, if our, if our job is to give every dollar a job, as it comes in, you say,

00:22:14.840 I want this money to go do that thing. If half of your money or some meaningful chunk of your money

00:22:20.040 is going toward paying debt, that means it's going toward things that have already happened

00:22:24.280 by definition. And with the exception of, of a house. So with, with that in mind, it's kind of

00:22:32.380 like debt. I mean, debt is just keeping you from doing rule one. It's keeping you from giving every

00:22:36.260 dollar a job because you aren't able to fund the things you really want. You're paying for prior

00:22:41.740 mistakes or prior bad luck or whatever you want to call it. So debt is just, it's, it's, uh, it claims

00:22:47.200 your cash before you can budget it. And that's why I don't like it. People need to get rid of it as

00:22:52.100 fast as they reasonably can. And I personally like to have it be a very, uh, very rapid pace

00:22:58.040 because as soon as you're out of it, that, that cashflow that's freed up, it can just do wonderful

00:23:02.920 things for you as far as achieving goals and funding things that you really want to do with

00:23:07.220 your life. And it, and until then it's, it's a bit of a ball and chain around your ankle. So, uh,

00:23:12.480 especially the student loan debt, it's, it's particularly, it's inexpensive, but it can be

00:23:17.360 so large for a lot of people. Uh, yeah, it can be really be a ball and chain for a lot of young

00:23:22.360 people that are just starting out that should be able to have a lot more freedom than they,

00:23:26.060 than they currently do. So I would get aggressive with it and try and get it out of your budget as

00:23:30.840 fast as you can. All right. So prioritize that if you have it. Absolutely. Good. So one piece of

00:23:37.240 financial advice that goes against the grain against a lot of financial advice out there. I mean,

00:23:41.200 like an article of faith of all personal finance people is you have to have an emergency fund and

00:23:47.020 you're saying, no, if you do what I say to do, like you don't need that. Talk about that.

00:23:53.480 Yeah. It's, I mean, let's say you, you didn't take my advice and took their advice. More, more cash

00:23:59.020 on hand is better, you know? So, so you won't be wrong if you decide, no, I'm going to have six

00:24:03.180 months cash, Jesse. I'd say, okay, you'll be fine. What we're talking about here is when you're

00:24:07.240 living that rule two, where you're looking ahead and you're saying, okay, home repairs,

00:24:11.860 car repairs, uh, and you're just starting to give really specific names to these events that happen.

00:24:17.620 Most wine neighbors that have been doing this for a while, they'll write to us and they'll say,

00:24:21.820 I just like, I have a three month emergency fund. I never, ever touch it. And the reason they don't

00:24:27.300 is because they've named all those quote unquote emergencies and they just don't have them. Uh,

00:24:32.280 they've already prepped for them specifically. And then what you used to call an emergency and

00:24:38.320 you'd go into your emergency fund and you'd pay out of it. And then you'd be kind of sad that you

00:24:42.020 had to make your savings account balance go down, even though that's money, the money's there for

00:24:46.640 that, but you'd still feel kind of guilty about it. People instead just say, okay, yeah, that was for

00:24:51.220 my, my car tires and they've got money for it. And the emergency fund just sits there. So I would

00:24:57.020 encourage people, if you want to set aside money for real emergencies, once you've got your feet

00:25:01.360 under you following rule two, you'll just realize, man, I've got money here for everything or darn

00:25:06.240 close. I would look to an emergency fund for really big things. And I would call it those things. I

00:25:10.900 would call it like job loss, you know, or big life shifts or something, um, where you're calling it

00:25:17.920 really what it is. And you're being very specific about it. What happens is people will say, I've got

00:25:23.460 this emergency fund and then they'll use it when the new iPhone comes out because their iPhone gets a

00:25:28.880 little crack in it and they're like, oh, I guess I need a new phone or, um, I need a new computer.

00:25:34.180 And they wonder why their savings account doesn't grow. And it, it ends up becoming this holding

00:25:38.080 place until something is deemed an emergency. And so you have this flexible definition that can then

00:25:46.500 raid that pile of money. And people will always, they're like, yeah, for some reason, like my savings,

00:25:50.860 it just doesn't go up. It's like, it's a revolving door, money in, money out, just depending on your

00:25:55.000 mood. Oh, is this an emergency? I guess it is. And I would, I would stress for people name those

00:26:00.180 things, you know, and prep for them in a intentional, meaningful way. This is for a new

00:26:04.320 computer instead of this is just money for whatever I ended up calling an emergency. At the end of the

00:26:10.100 day, all the advisors, we're all saying the same thing. We're like, have money on hand. Don't go to

00:26:14.860 your credit card to handle that quote unquote emergency. And you'll be, you'll be far, far ahead of

00:26:20.620 the rest of the pack. So another thing you talk about in the book is you don't like a lot of other

00:26:23.600 budgeting gurus or whatever. I wouldn't call you a guru, but like, um, don't call me. You can call

00:26:29.380 me a guru if you want. But it's like, you know, like avoid credit cards at all costs. And you say,

00:26:34.140 well, no, if you want to use a credit card, that's fine. Just use it responsibly. And you

00:26:37.380 had this idea that I, I don't have a credit card, so it's been a while, but you talk about the credit

00:26:41.940 card float and how that can just screw up your budget. Can you talk a little about that?

00:26:46.040 Yeah. So most people, um, and I'll speak to those that would tell me I use it responsibly and I pay it

00:26:50.740 off every month. There's a good chunk of people that do that. Uh, the majority of people lose when

00:26:55.560 they're playing that game with credit card companies. And I, I attend like payment conferences

00:26:59.660 where they're talking about innovative ways that payments will be a new thing in the, in the future.

00:27:04.640 Like your car will go up to a drive-thru and your car will be payments enabled. I promise you this

00:27:09.060 will happen. I mean, I saw them, I saw Visa talking about it, you know, and, and, um, your car will

00:27:13.800 just pull up and they'll recognize you and the car will biometrically know it's you and you'll just pay

00:27:18.840 and they'll hand you your food. And they're, they're trying to remove friction from the payment

00:27:23.580 process at every step. So I'm taking a bit, a step back here from the credit card question just for a

00:27:28.700 moment. But the idea that credit cards remove friction is very, very obvious. And what we want

00:27:35.680 to do, and the reason they remove friction is because it's convenient, it's fast, it makes the effort more

00:27:41.300 pleasant and it keeps the person spending more. And a credit card company makes money when you spend

00:27:47.720 more money. So their, their interest is lined up to have you spend more. You just have to know that

00:27:52.300 going in. So when you grab the plastic, just know, okay, this piece of plastic, it is built to have

00:27:57.640 me spend more. Okay. We started there with like that as a baseline and it's not an assumption. Like

00:28:02.240 that is a truth. That is their, they only make money when you spend money because they get it all in

00:28:06.340 those percentages of fees. So then starting there, you'll have someone say, I only, you know, I pay it

00:28:12.640 all off. I never pay him a dime. I get points. Cool. I'll, I literally pay for my car with credit

00:28:19.240 card points. No, no joke. So I understand the points thing, but what happens is they, they have

00:28:25.820 done that. And they're saying, I pay off the balance every month. The test you need to give

00:28:30.460 yourself if you're one of these people is could you right now, if you look at your bank account balance

00:28:36.800 and you look at your credit card balance, could you pay off your credit card right now at any given

00:28:42.500 moment of any time in the month, could you pay it off? And if you can, okay, you're doing okay.

00:28:49.400 But if you can't, it means you're floating. You're on that credit card float. What people are doing is

00:28:54.420 they're, they're, um, spending on their card, accruing debt, and then waiting for the paycheck to land

00:29:01.540 so that they can pay off their card. So they are in debt until the paycheck lands and they're paying

00:29:07.500 it off. What we want is you're running up a credit card responsibly all in line with your budget.

00:29:13.420 And you have the money there at any given moment, set aside that you could pay that card off. And

00:29:19.160 once you do that, I say, okay, you know, you're playing with fire a little bit. You know, you're

00:29:23.300 playing with a tool that is built to have you spend more. So you know all that, and you still are

00:29:29.240 living in line with your budget. You're, you know, every dollar has a job. You're sticking to it.

00:29:33.500 Your priorities are being hit. Cool. Knock it out, get those points, whatever you want to do. At the

00:29:38.080 end of the day, it's just a payment instrument, but it's a pretty slick one. And there are a lot

00:29:41.840 of bright minds behind the scenes that are being paid lots of money to try and figure out how to

00:29:46.840 make it as slick as possible. So just know that going in. And if you are floating, stop using your card

00:29:51.540 until you're not, because that, you know, you don't want to be floating. It's, uh, you've removed some

00:29:57.360 scarcity from your budget and that can kind of throw up intervention. Well, it sounds like just,

00:30:01.140 you should just treat your credit card like a debit card. Absolutely. Yeah. I mean, I should

00:30:05.000 have said that way. My answer would have been a lot quicker because that's exactly it. Yeah.

00:30:08.580 So let's talk about being flexible because that's, I think that's where you, that's where most people

00:30:13.560 give up. They, they're, they're doing their budget and then their budget doesn't go according to plan.

00:30:19.280 And there's like, ah, the heck with it. I'm just going to throw this out the window.

00:30:22.400 So what are some, I mean, how, what does that flexibility look? Is it like every day you're

00:30:27.240 adjusting your budget every week? What does that look like? When you're first starting, it, it might

00:30:33.120 be every day just because you really don't know how things actually go. So you're setting up a plan

00:30:38.580 and you're saying, this is my reality. I want to live by this reality, but you don't really know if

00:30:43.020 you're first starting out, what kind of reality you're dealing with. So it could be literally daily.

00:30:48.080 And with us, you know, it's on our phone and you're just, you're moving money around. We make

00:30:52.240 moving money from category to category very easy on purpose because we know this, this is a function

00:30:57.860 that people want that they need. So yeah, it can be daily. Um, for, for me and, and in my personal

00:31:04.900 system, I've been doing it for so long. People that have been doing it for a long time, they,

00:31:08.040 they end up adjusting maybe weekly and some even less than that. It's really a matter of how big is the,

00:31:15.040 is the overage and how much other room do you have in your budget? So if you're dealing with a

00:31:22.580 category, you know, total checking account balance of three grand and you just overspent by a thousand

00:31:28.040 bucks, that's a big deal. You'd be juggling right away. But if you overspent by 50 and your budget's

00:31:33.660 three grand, you know, fix it, but there's nothing's going to happen. That's going to really,

00:31:40.120 you know, set things on fire. So if there's a little bit of a judge of materiality in the budget

00:31:45.760 there, but, and then when you're first starting fix it often. So it just kind of reinforces is

00:31:50.800 reinforces that behavior of, Hey, when something happens, I'm just rolling with the punches. I'm

00:31:56.580 just adjusting. And that that's just good budgeting because you were saying like your budget doesn't

00:32:02.580 go according to plan, but the budget really is the plan, you know? And so your plan needs to go

00:32:07.440 according to reality and that's all you're doing is just adjusting to reality every day. That's how

00:32:12.140 you win. It's absolutely how you win. Um, and people just need to let go of the idea that they

00:32:17.860 have this crystal ball that tells them exactly how life will go for the next month. Life, there is no

00:32:23.000 normal month. You know, you just adjust as, as needed, you know, your whole life long.

00:32:27.760 Right. So how do you handle your income growing up? Cause like, or as it goes up. So for example,

00:32:34.580 when you're, I was in the same boat as you, uh, married in college broke. So it was really easy

00:32:39.760 to bud cause like scarcity existed, but then I remember when I got my first job, my first like

00:32:44.120 paycheck, I was like, Oh wow, this is amazing. And kind of the budget is like, Oh, I don't have to

00:32:48.660 worry. It's like, how does you need a budget? Like the system adapt itself as your income goes up?

00:32:57.900 Yeah. So maybe there are a few more zeros on the end of things. Right. But, uh, the idea is still,

00:33:03.040 and we have really good data around money, stress, and level of income. And there's basically

00:33:09.660 no relationship. I was chatting with a guy. He makes 200 grand a year. It's paycheck. It's

00:33:14.920 salaried. It's, you know, you can bank on it, makes bonuses as well. And his average checking

00:33:20.260 account balance, uh, would end up floating around $500 every time, you know? And I mean that when

00:33:26.000 you're making that much money and your checking account balance is sitting there, you are spending

00:33:29.880 down to the bone and he was so stressed. Uh, we, we got him figured out and he's doing,

00:33:37.760 he's actually retired now. I mean, he was making so much money. He made all sorts of life changes,

00:33:41.780 but at the end of the day, we got it all square. Someone making 40 grand, 30 grand, same thing.

00:33:48.080 They're stressed. And if you can get their money just lined up with what they really want, a lot of

00:33:53.320 time that stress goes away. So the fundamentals don't really change as the money gets larger.

00:33:58.320 What happens is you do, I mean, you do have more wiggle room. Like I don't stress about, uh, the

00:34:03.920 fact that I need to renew my registration for my car. I remember when I first had to renew it,

00:34:08.360 we were first married, bought our first car. I'd never owned a car before. And we get this bill a

00:34:12.620 year after we'd bought the car saying you owe us $125 for registration. I was blown away. I'm like

00:34:16.780 125 bucks. That'd buy a textbook, you know, as pricey as they were. And, uh, it threw us off.

00:34:22.840 So there are things like that. Now a hundred dollar surprise to me won't, I won't sweat it now like I

00:34:30.200 used to, but the principles are still the same where whatever amount of money you have, make sure

00:34:35.100 that it's doing what you really care about. And if it is, man, you know, you can design the life you

00:34:40.560 want and have your money serving that purpose instead of having it just be a source of stress and,

00:34:45.040 and relationship woes a lot of the time.

00:34:47.600 So this prioritizing, giving every dollar a job is, I mean, it's difficult because if it's new for

00:34:54.640 you, but it's easy when it's just you, how do you do this? When you bring in a spouse who might

00:35:02.180 have other priorities that are different from yours, other ideas about money and how to spend it?

00:35:06.900 What does that process look like?

00:35:09.680 So when you're first merging finances and, uh, there are things that, that each, each partner

00:35:16.040 brings, they bring different habits with their money. They bring, uh, different, bigger conceptual

00:35:21.800 ideas about money. And then they bring actual money or debt, right. To the relationship. So

00:35:28.480 you want to know what are their habits and especially what are their big ideas? Like,

00:35:34.360 do they think that the credit card is like a magical, you know, tool that gets them what they want right

00:35:39.500 away? Or do they think it's, uh, from the devil, you know, and were they raised a certain way and

00:35:45.500 how did their parents behave around money? And you can start to explore that with your significant

00:35:50.460 other. And you can say, um, what were your parents like with money? Did you ever hear them talk about

00:35:54.620 it? What did they teach you? And you just kind of explore that, not talking about money,

00:35:59.180 like dollars and amounts, just talking about the idea. And that can do a lot of kind of getting to

00:36:04.520 know you type stuff. Uh, you can go a long ways with that. Um, habits might be, you know, they have

00:36:09.260 different, they, they like to shop to relieve stress. They, they always like to go out and get

00:36:14.900 a coffee every morning and all those things are just kind of habits that come along with it. You

00:36:19.500 need to know about them. But at the end of the day, when you'd said like they have their own priorities

00:36:24.000 and you have yours, that is exactly the right kind of thinking. You, you have to recognize that when

00:36:28.900 you're budgeting together, there are three sets of priorities. You have yours, mine and ours. And

00:36:35.360 those three play a, they're vital that you, that you are clear with each other on whose priorities

00:36:41.840 are what so that you can speak intelligently to it. So when my priority is this puppy I bought and I

00:36:49.220 want to train and I want to get all this gear for this puppy, Julie's like, okay, that's yours. 0.75

00:36:53.960 And her priority might be, I want to do lunch with friends, you know, a couple of times or

00:36:58.380 whatever it may be. Or she, she loves furniture. Love she, she just loves it. And I couldn't care

00:37:03.560 less about it. Right. So she's recognized like, oh, this is one of my priorities. She loves cooking.

00:37:08.780 So the grocery budget, she cares so much more about it than I do because she wants to be able 0.70

00:37:13.400 to buy stuff to make this or that new recipe or things because it's just one of our huge hobbies.

00:37:18.140 So when you recognize that early on, then it frames the conversations to be so much easier where it's

00:37:23.500 like, okay, well, you know, what do you want for your hobby with this dog? What do you want to do?

00:37:27.320 Okay. Well, here's what I want to do for this. And I'm thinking about that. And you fund it,

00:37:31.860 you know, you just, you put money in those spots and then you have the hour priorities. Like for us,

00:37:36.000 it's travel where we want to have really fun experiences with the kids. They don't need to

00:37:40.480 be expensive, but we want to make sure that they're being done, you know? So we have categories for each

00:37:45.600 thing that we want to do. Like we want to go visit some family here. We want to go see some

00:37:48.920 historical sites or whatever it may be. And we make sure those things actually happen.

00:37:53.060 The budget at the end of the day ends up being a little bit of a to-do list for you and for your

00:37:57.780 spouse where you can, it's kind of like, these are the things we want to achieve. Some things only

00:38:02.400 you'll want to do, some things only I want to do, and some things we'll want to do together. I think

00:38:06.880 respecting that, I don't know, that goes a long way towards really being able to communicate well

00:38:10.860 about it because there's too much finger pointing with money and relationships. And we really want to

00:38:15.820 get away from that.

00:38:17.380 And how do you teach this stuff to your kids? Because I think all of us want our kids to be

00:38:21.440 responsible with money.

00:38:23.540 Yeah, I think a ton about that. One, it's super fun to teach them. So the book goes into pretty

00:38:29.920 good detail, but I'll just share one thing that I really have enjoyed. And that's, they are far easier

00:38:35.300 to teach than we are. So as adults, we come with all sorts of baggage. Like right at the beginning,

00:38:42.340 we were saying, this is about budgeting and people are kind of thinking, oh man, gosh,

00:38:46.740 do I really want to even listen to this, you know, this episode? I don't really want to hear

00:38:50.840 this. And it, with kids, they, you're like, hey, we should do a budget. And they're like,

00:38:55.700 what's a budget? Well, a budget's a way for you to make sure you buy the things you really want.

00:39:00.540 They're like, okay, sure. That sounds pretty good so far. And then you just say, what do you really

00:39:05.640 want? You know, I would talk with maybe Harrison, he's 11. So he's in this awesome age right now

00:39:10.760 where he's interested in everything. I'm like, Harrison, weren't you saying you wanted a hover

00:39:14.760 board? Oh yeah, yeah. I totally want one of those. What about that Nerf gun? Wasn't that one that was

00:39:19.060 like automatic that you could just hold down? Yeah. Well, I want Airsoft. Oh, Airsoft. We're

00:39:22.820 talking about Airsoft now. Well, what's that? Do you need gear for that? And you really stoke the fire

00:39:27.360 that's already in him and you get him just to list 25 things, all these things he wants. And they love

00:39:34.020 it. It's like a Christmas list, right? Then you say, well, Harrison, how much money do you have?

00:39:38.700 I've got, I don't know, 50 bucks. Well, how do you want to allocate it to these so that we can have

00:39:46.620 you buy one of these things? And suddenly he's like, oh, well, this list is way too long. And I'm

00:39:54.380 yet to see an exception to this where the kids don't just zero in on that one thing that they really

00:40:00.000 want and they throw all the money behind it. And it's like they have this innate ability to

00:40:06.060 prioritize where we as adults were like, well, should I do this? Well, my friends do this.

00:40:10.000 Should I be doing that too? And all of these things where the kids are like, I want that.

00:40:13.980 I'm going to have that. So you get them giving, you get them saving for long-term like college or

00:40:19.080 something like that. And then the rest of that money for us, we have our kids just, you can do

00:40:23.780 whatever you want with it. And we teach them about that prioritization and they do it naturally.

00:40:29.540 I mean, they do it so much easier than we do. So it's just fun to watch. You got to be patient

00:40:33.420 with them. I start them when they turn eight. It seems like they're old enough at that point to

00:40:37.500 really get the gist. And then one thing I learned from Ron Lieber, he's a New York Times columnist

00:40:44.460 that I chatted with a while ago, but really helped me was he gives an allowance to the kids just

00:40:50.780 unhinged from any other chores or anything. It's just, here's this money and it's not because you've

00:40:57.840 done any work. And at first I was thinking, whoa, whoa, whoa. No, no. You work, you get money. That's how

00:41:02.540 life is. But he said, no, no. The allowance is just there to teach them how to use it.

00:41:07.520 Teach them how to use the money. So we have our kids work. They do office work for me,

00:41:11.940 like clean the office and stuff. And they earn money that way. But with allowance, it's just,

00:41:17.180 here's the money and let's teach you how to manage the money and not have it married to, 0.91

00:41:21.920 you know, how well did you clean your room or whatever. And it's a small amount, but that really

00:41:26.940 freed up me and Julie. We just gave them the money and said, the money is there to teach a lesson.

00:41:31.560 And it's not the lesson of work for money. It's just the lesson of how do we manage it?

00:41:36.280 So that, those are two kinds of things that I've keyed in on. They learn easily and allowance is

00:41:40.460 just something to help. Yeah. That's what we do with the allowance. We just give it,

00:41:43.900 our son, Gus, he's seven, he gets an allowance, but it's like not tied to chores. It's like,

00:41:48.800 we don't want him to, we want him to do the chores because he's a part of the family.

00:41:53.000 Right. Cause I think if you throw in the money, it's like, you forget to pay him as allowance. It's like,

00:41:57.060 well, I'm not going to clean my room because you didn't give me my money. So this has been great.

00:42:02.040 What do you do whenever you're doing all this stuff and you, you, you, there's always that

00:42:06.560 moment. This happens with your, with dieting, with exercise. I'm sure it happens with budget

00:42:11.140 where you're just like, I don't want to do this anymore. Like I want to give up. This is too hard.

00:42:15.060 Any, any advice for those folks out there? You know, I, one thing, um, like in, in exercise,

00:42:22.660 I've noticed this, I'll just change it up. Like I'll just, I'll get a new, I'll just dial in a

00:42:28.260 new routine. You know, I'll say, okay, I'm going to do this instead. And that seems to kind of

00:42:31.960 re-energize me to approach, maybe I'll focus on a specific lift or whatever, but to, I don't know,

00:42:38.140 you have it with, you see it with new eyes and you get kind of new excitement. And there,

00:42:42.180 the book goes into a few different reasons why we, why we want to quit. But the one I want to

00:42:46.180 keen on here is just starting fresh with it goes a really long way toward seeing it with new eyes.

00:42:53.020 And that would mean that you just kind of throw out your whole budget and you look at the pile of

00:42:58.040 money you have on hand. And if you've been doing YNAB for a while, the pile will be bigger than when

00:43:01.660 you started. And with that brand new pile of money that's unassigned to any job, you would just sit

00:43:08.040 down. If you're sharing finances, you sit down with your spouse and you'd say, okay,

00:43:12.500 here's this big pile of money. What should this money do? And you start from the top and you think,

00:43:17.440 oh, we've got to pay the mortgage. Okay. You know, we've got, you know, you start working

00:43:21.280 your way down. A lot of this stuff's going to be the same, but it's seeing that large pile and then

00:43:26.360 knowing that it's, it's not spoken for that kind of breathes new life into the budget and can

00:43:33.180 reinvigorate it. So that that's one, one piece of advice that I would give is just maybe start fresh

00:43:38.660 with it and see if you can't, yeah, breathe new life into it that way.

00:43:42.160 Well, Jesse, this has been a great conversation. Where can people go to learn more about the book

00:43:45.220 and your work?

00:43:46.180 So the book you can find at, I mean, any retailer, it's just called You Need a Budget. And you can

00:43:50.900 go to youneedabudget.com. If you're in a hurry, you can do YNAB.com. It's YNAB. And yeah, we,

00:43:56.040 we have a ton of resources out there. You can take free online workshops that we run all the time

00:44:01.620 and you can read, watch videos. We just, we really try and teach. We just teach and get it all out

00:44:06.780 there. And then if you like our tool, that's how we make our money, but we teach for free and it's

00:44:12.420 working well for us so far. So yeah, I'd encourage people just to check that out.

00:44:15.840 Awesome. Jesse Mecham, thank you for your time. It's been a pleasure.

00:44:18.880 Thank you.

00:44:19.360 I guess there's Jesse Mecham. He's the author of the book, You Need a Budget. He's also the creator of

00:44:23.540 the software, the same name, You Need a Budget. You can find the book on Amazon available for

00:44:27.300 pre-order right now. And you can find more information about his software and service at

00:44:30.760 youneedabudget.com or you can just type in YNAB.com. Also check out our show notes at

00:44:35.420 aom.is slash YNAB, where you can find links to resources. We can delve deeper into this topic.

00:44:47.080 Well, that wraps up another edition of the Art of Manliness podcast. For more manly tips and advice,

00:44:51.400 make sure to check out the Art of Manliness website at artofmanliness.com. If you enjoy the

00:44:55.220 podcast, I've gotten something out of it. I'd appreciate it if you take one minute to give

00:44:58.280 us a review on iTunes or Stitcher. It helps out a lot. If you've already done that, thank you.

00:45:02.180 Please share the show with a couple of your friends. Word of mouth is how this thing spreads. The more

00:45:06.780 the merrier around here. As always, thank you for your continued support. And until next time,

00:45:10.800 this is Brett McKay telling you to stay manly.

The Art of Manliness - December 12, 2017

#363： Budgeting Doesn't Have to Suck

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