#363： Budgeting Doesn't Have to Suck
Episode Stats
Summary
Jesse Mecham is the creator of the You Need a Budget personal finance system and software, and he s just written a book about the philosophy underpinning his system, You Need A Budget, the proven system of breaking the paycheck-to-paycheck cycle, getting out of debt, and living the life you want. Today on the show, Jesse tells us the personal story behind his software, why most people fail at budgets, and the myths people have about budgeting. He then walks us through the 4 rules of the YNAB system, as well as actionable advice on how to implement them. Whether your goal is to pay off your debt or simply feel some control over your finances, this episode is for you.
Transcript
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Brett McKay here and welcome to another edition of the Art of Manliness podcast. If you find
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yourself running out of money before your next paycheck, or if you've been having trouble
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making a dent in your debt, then you, my friend, need a budget. My guest today is Jesse Mecham.
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He's the creator of the You Need a Budget personal finance system and software, and he's just
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written a book about the philosophy underpinning his system. It's called You Need a Budget, the
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proven system of breaking the paycheck to paycheck cycle, getting out of debt and living the life you
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want. Today on the show, Jesse tells us the personal story behind his software, why most people fail at
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budgets and the myths people have about budgeting. He then walks us through the four rules of the You
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Need a Budget system, as well as actionable advice on how to implement them. Whether your goal is to
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pay off your debt or simply feel some control over your finances, this episode is for you. After the
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show's over, check out our show notes at aom.is slash YNAB, where you can find links to resources,
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where you can delve deeper into this topic. And Jesse joins me now via clearcast.io.
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I'm so happy to be here. Thanks for having me, Brent.
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So you founded a personal finance service called You Need a Budget, and you just wrote a book,
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the same title, You Need a Budget, The Proven System for Breaking the Paycheck-to-Paycheck Cycle,
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Getting Out of Debt and Living the Life You Want. What I love about your story is like a lot of really
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successful, useful businesses. You started You Need a Budget because you had a problem of your own
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that you had to solve. Can you give us the backstory of You Need a Budget?
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Yeah, I could do the two-word one or about there. I mean, we were young newlyweds. I was still in school
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and we were going to have a baby. And so we were naturally broke because when you're married and in
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school that happens, but the baby really, really extra stressed for me. So Julie, my wife, and I,
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we were using this budgeting system that I'd created for the two of us, and it worked pretty well
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despite pretty meager incomes. You know, we were getting by. We were actually able to save
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a little bit. And then when the baby was coming, we really wanted Julie to be able to stay home and
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just be full-time 100% with the baby. And that would mean that her income would go away. And I
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needed to figure out a way to shore up the gap. And that was where I had the idea that I could
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sell our budgeting system to other people. And I was just young enough, just naive enough to
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believe that that would work. So that's what we started with.
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So let's talk about budgeting in general, because I think everyone listening to this show has probably
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tried budgeting at some point in their life and they stick to it for about a week and then they go
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over and then they're just like, okay, I'm just going to give up on this completely. So why do
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most people fail at keeping a budget? What's so hard about the way most people keep budgets?
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They do two things wrong. One is that they use a budget to forecast what they will learn and what
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they will spend. And then we can get into details on that if you want. But then the second bit,
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it's almost as if I'm horrible at basketball. I used to be pretty good and then I stopped playing
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around the time I was 12 and haven't touched a ball since. And it would be like me deciding I'm
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going to play basketball again and demand that my free throw percentage be 95%. And that's what they
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do with their budgeting. They've never budgeted before. They're probably pretty poor with their
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money, the management of it. And then they just suddenly think because they've written down this
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budget or whatever they've done that they're suddenly going to be perfect. And also
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probably be able to have psychic kind of future fortune telling kinds of abilities. And that just
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doesn't happen. So they blame the budget for the fact that they have this high level of perfectionism
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that they're trying to live by and they're just getting started. I have so many analogies. I have
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weight training analogies, dieting analogies. All of them are the same. It's like, listen,
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you're just getting started. Give yourself a break. So that would be no forecasting and no
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perfectionism and budgeting will live to go another day. But people approach too much with those two
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things in mind and kind of torpedo it from the outset. So let's talk about the difference between
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budgeting and forecasting. Can you go to that in more detail? Yeah. So what happens is, well,
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what we really want to do is introduce scarcity into their decision making. So that's the principle.
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And you just got to make sure that you're clear on that. If there's scarcity in your system,
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and you know, you only have $300, $3,000, whatever it is that that amount is finite.
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Then when I say, Hey, Brett, what do you want to do with that $300 before you are paid again?
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Then you are crystal clear on what your priorities need to be because we're dealing with a very small
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or at least a very finite amount of money. When we forecast and you as an entrepreneur,
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and I'm in the same boat and 75% of Americans do deal with variable incomes of all sorts,
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they end up using the forecasting to pad their system with extra money and they kill the scarcity
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from it. So you would say, Oh, I, maybe you're chatting with your, you know, your wife or
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something. And it's kind of like, okay, we want to do this, this, how's it going to work? And you
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think to yourself, Oh, well I'll make some more money here. This'll probably happen. This good thing
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in the business, we're going to do this launch. We all come up with all of these like really rosy
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ideas, like looking through, you know, the future, like through these rose colored glasses
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and then answer and try and, uh, instead of prioritizing brutally, honestly, and say, listen,
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this is the amount of money we have. We then say, Oh no, I'll make more in order to not have to deal
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with the question of, I have a finite amount of money. And you can do this with a fixed amount of
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income when you're on the most sure paycheck of all, or you can do it when you're, you know,
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a realtor just jumping from one house sale to the next. But we forecast to make ourselves feel
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better about, or to avoid essentially the idea that there's a finite amount of money that we're
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dealing with. So when we first start someone out, I just say, what's in your bank account?
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They tell me, I don't care what the amount is. And then I say, okay, what do you want that money to
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do before you were paid again? And their stress suddenly disappears. They feel very purposeful,
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very intentional. And we've completely removed that murky area where someone's guessing what
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amount of money they should be dealing with. Gotcha. And I guess another part of that,
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besides the amount of money you're coming, it's coming in, you're also budgeting for,
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and we'll get into this more details, like unexpected expense, like they're expected expenses,
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but they don't show up very often. Yes. Yeah. We, we call that, that's the second rule of our
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system where you're embracing your true expenses. And those, these are larger, less frequent expenses
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that tend to surprise us and that shouldn't. So we probably drive cars and you know, if you drive
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a car on a road and it has tires that continually rotate at that high velocity that they'll wear down,
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yet we're all surprised when we have to replace our tires. And then someone will say, well, I don't
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know when it'll happen. And I say, that's fine. You don't know when, but you do know that it will
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happen. And we know that having money saved for it is better than having zero saved for it. So
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what we want people to do is look ahead to those larger, less frequent expenses, and then start to
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break them down into manageable monthly amounts and give yourself monthly bills that you're dealing
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with. So if it's vacation that you're saving for, or it's Christmas that you're getting ready for,
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we want you to get ready for Christmas in January and then be ready, you know, every month,
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setting aside a little bit of that Christmas bill so that come December, you just, you just enjoy
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yourself. And, uh, it's actually merry, right? Instead of stressful. So the idea is that the
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money, you have a pile of money waiting for a bill to land instead of a pile of bills, just waiting
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for you to finally land some money to take care of them. Gotcha. Okay. So rule two, embrace your true
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expenses. Let's talk about these rules that you jumped right to it. Let's talk rule number one. We
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skipped rule number one. What's that? The rule number one is to give every dollar a job. And that
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goes back to that principle. You don't forecast. It's just what amount of money do you have on hand
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right now? And you're just prioritizing and prioritization in and of itself is fairly simple,
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like in concept, but actual doing can be quite challenging. So we want all of our money to go
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towards specific purposes. What people end up doing is just behaving very reactively with their money
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and as a result with their life. And if you can be intentional and proactive with your money,
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I say, I, and you say, I want my money to do these things. I want my money to do that.
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Then suddenly you feel purposeful and your money. It's not that you're, you're cutting back. You're
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not saying, Oh, I'll spend less here. I'll spend less there. That's a very boring conversation for me
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to have. I would never want to talk to you about, here's how people save money. Not that people shouldn't
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or that that's bad. It's just, that's boring to me. I want people to just be very purposeful about
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what their money is doing. So that's rule one is that purpose driven. What should this money do
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before I'm paid again? So we call that giving every dollar a job. Rule two is it's a spin on rule
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one, just prioritizing again, but looking ahead to those larger, less frequent expenses, breaking them
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up into monthly amounts and making sure that as you're deciding what your money should do,
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you're also keeping in mind like future Brett that's out there. That's like, Hey man, I'm the
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guy that's stuck with the blown out tire, like throw me a bone here, you know? And so you're just
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always kind of looking ahead and saying, okay, I don't want to leave future Brett in the lurch here.
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So let's throw some money his way as well. So, you know, he's not stranded on the side of the road
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with a blown out tire and no money to boot. Our third rule is to keep rolling. If you want
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is to give, it's essentially give some flexibility to the system. So when people first start,
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we talked about that perfectionism. We really want people to recognize that out of the gate,
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it is a rule that you change your budget as you go. It's like playing chess. If someone opens one
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way in chess, you will respond and then they play and you respond. Everything's a give and take.
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Everything's a response to something else. And your budget is the exact same way. You have a plan,
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like a great football coach has a plan. They've been working it for a week. And then as soon as the
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other team steps on the field and they start opening up their playbook and showing their hand a little
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bit, a good coach adjusts and adapts and responds. A horrible coach. I mean, we'd yell at the coach
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that said, Oh no, no, I set up my plan. You know, I'm never going to change it. That'd be the worst
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coach in history. They wouldn't have a job more than a few games. So in budgeting, it's the same way
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when something happens and it wasn't what you foresaw. Hey, just change the budget a little bit and keep
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rolling. A perfect budget is a budget that is, is done again and again and again, not one where you
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happened to guess right on what you would spend on any given amount. And then our final rule is to
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age your money. And that's the idea that we want you stepping away from the financial edge
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and spending money that you earned at least 30 days ago. So if you earn money today, you won't need to
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spend that money in your normal, normal flow until about 30 days from now. And it has all sorts of
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benefits we can dive into if you want. But the idea is just getting away from that financial edge,
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getting away from the stress and being able to make better decisions as a result.
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Okay. That's great overview. Let's get into some of the nitty gritty and how to implement this.
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So rule number one, give every dollar a job. Let's say you talk about this in the book,
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you know, you have, everyone has like their obligatory expenses, mortgage, rent, gas, utilities,
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student loan payments, perhaps. So you sit down, you look at your bank account, you assign every
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dollar in your bank account to those expenses. What do you do if you don't have any more money
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left for other expenses, like say the true expense of, you know, replacing the tires,
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like putting aside that for when that happens? What do you do there?
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Yeah. One is you don't pretend you do, right? So that's, you know, that's the one thing people
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will do is they'll just immediately say, oh, well, I will earn some money in a few weeks.
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So I'll go ahead. Nope, don't. When that, when new money comes in, then fund the tires there.
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We could go, we could actually go one route here where we talk about people that genuinely have
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an income issue where they really are. They really don't make enough to fund their current requirements.
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That is not, that is a very real case, but it is not the majority of people. The majority of people
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have enough and they're just mismanaging it. What happens is the reason I get, I, I'm leery of
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talking about not having enough money is only because most people say that as an excuse to not
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even start. So they'll be like, listen, I already know I spend more than I make and it's just the way
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it is. And so I can't budgeting would just show me what I already know. And that thing couldn't be
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further from the truth. Budgeting lets you be proactive to make sure your money is doing what
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it's actually supposed to do. And if we can get people doing that a lot of the times, like 90% of
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the time, their money starts to kind of line up, not be wasted on things that they actually don't
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really care about. And they end up with some surplus. And this, this really does happen in 90,
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95% of our cases where they end up with surplus and they feel like they got a raise. And it's not
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because we've said, don't spend money here. How could you buy that? I can't believe you spend your
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money on this. None of that. They just are more purposeful and suddenly they find more money.
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It's the same thing people experience when they start planning their day. They're like, well, gosh,
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this day felt, I felt like I had more time in my day. It's the same principle. You were just being
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purposeful about what you wanted to do with that resource. And that resource suddenly seemed more abundant.
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So I might've gone off a little bit on a tangent there, but that idea of not having enough most
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of the time is just used as an excuse for people not to start. Gotcha. And another thing I've had
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problems with budgeting in my experience is that, okay, I set my budget. I create these little
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buckets, right? For different things, but all the money is in one account. And so like, I'm spending,
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I'm like, oh, well, I had to keep in my head, well, this money is associated for this,
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but I look at my account and like, oh, I've got lots of money there that could be used.
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What do you do to the man? It's more of like, I think it's a psychological
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issue than anything. Yeah, it is. I mean, well, what's happening?
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One is you're most of the way there, right? So you're making the decisions that you need to make.
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A little bit on the implementation is maybe, you know, could be tweaked, but
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what people do a lot of the times is they'll move money to different accounts to really have
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to be out of sight, out of mind. I find that to be very tedious for the most part. Then when you
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need the money, you got to transfer it back. And just like this back and forth, it's a little bit
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of a revolving door of a savings account situation happening. What we do is, I mean, I don't want to
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speak to the software specifically too much because people can hear this podcast. They can read the
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book. They don't need to use our software to implement what we're talking about. So I want to be
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very clear there, but in the software, it's built to show you all those buckets, right? And to show
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you the balances you have. So when you pull out your phone and you say, hey, honey, let's go out
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to eat. And there's $19. You'd say, okay, clearly we're doing, you know, little Caesar's pizza tonight,
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not the sushi I thought. But, you know, your decisions are being dictated by the $19. You may
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have $7,000 in your bank account, but you're only looking at the relative related bit there for that
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one job, you know, going out to eat. So wine nabbers most of the time will just say they don't,
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they aren't even aware of what their checking account balance is. They get funny looks from
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tellers at the bank sometimes because they'll, you know, they're just kind of like, why do you
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have so much in here? But at the end of the day, they're looking at each individual category balance
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and then they're able to say, oh, okay, I have enough for, you know, I'm going to go out and,
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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
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out to eat. We've got money to go to the movies, not, you know, looking at that big pile where you think,
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gosh, I have so much money. I could do whatever I want. Then you're back to
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making decisions based on how big the checking account balance is. And that's, that's a recipe
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for disaster. That's great. Here's another sort of, it's probably a tedious question. Another issue
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I ran into that kind of made budgeting frustrating for me is like when I went grocery shopping,
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for example, at Super Walmart, where they have more besides groceries, right? And then, you know,
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so you buy food, but then you also buy other stuff that could be categorized as something else.
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I don't know, who knows, automotive, whatever. And I'm like, okay, what do I do with this?
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So what's your take on that? So my take is to make things as easy in my life as possible.
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And maybe that goes against your strenuous life approach, but there are things where there's
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no value add to the strain, right? And so I want to eliminate those. And this is one of those where
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you could say, okay, could my categories be lumped into such a way where I can just kind of say,
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ah, that's all in one category. That's one stop where you could just say,
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I'm going to throw diapers in with groceries. The other thing you could do, and in our software,
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you can just, you know, you just split the transaction. You just kind of ballpark it.
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I would never have someone sit there with a receipt. I mean, I'm a former CPA. So like,
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I get the whole, you know, like all the jokes about CPAs and calculators. I can do all those.
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But what you really want to just, you kind of look at the receipt and you say, okay,
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most of this was groceries, except I bought new dash mats. So you're like, oh,
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they were about 20 bucks. So you put the $20 in and then you say, okay, the rest was food
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and you're done. So it's hopefully not too tedious, but if it is too tedious, you'd say,
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could I make my categories a little less granular or, you know, and make myself just not care as
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much, or can I just kind of ballpark things to have it not take up so much time? Because there's
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no value in the recording of the transaction itself, except maybe a little bit of awareness about
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the actual spending. The real value is the decision-making you made beforehand on how much
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you wanted to spend. And then just the accuracy afterward, you want to make sure that you're,
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you're tracking your spending so that you can make accurate decisions, but we don't want things to be
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tedious. That just is a recipe for people quitting. So I, I hear you on that because it's, it's
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annoying, especially if you're a little bit of a type A, you know, like you want it to be exactly
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right, then it's particularly annoying. So. Gotcha. So let's say you've embraced your true expenses,
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right? And you have all these things that you want to be like, how do you, I think one of the hard
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things with money is prioritizing things. So like you take care of your obligatory, you know,
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expenses, you've, you've listed out the, the expenses like for car repair, things like that.
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But then you have these other things like these ambitions, these dreams, uh, and they're all
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equally good. And it's hard to figure out, okay, which one do I focus on actually? Do you have any
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insights there? Any like little mind hacks that help you decide which one to prioritize at any given
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moment? Yeah. Well, one I've done for myself because I, I used to be kind of, I used to get mad at
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myself for switching interests. So I, you know, back in like 2009, I got really into golf and I
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would just play it all the time. And I, I got, uh, to where I wasn't embarrassing. Like I, I maybe
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shoot, you know, I don't know, 18 over or something like bogey. I was essentially playing bogey golf,
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which made it pretty fun. Right. Um, and then you start carrying too much and it makes it less fun,
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but I got really into golf for a while and then I stopped. And now if I were to play it, I'd probably,
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you know, shoot pretty horribly. Um, I got into guns for a while and still into it to a degree,
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but, um, I did all these courses and, and got really into marksmanship. And, and then I just,
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like my interest kind of waned. I got a dog for a while and I trained this dog. I want to do like
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shoot soon training. And I was in a bite suit one time, like running away from this dog that was
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chasing me. And, you know, we were doing training. It was super fun and exhilarating,
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very exhilarating. Like it's exercise I'd never imagined. And so I'm, this is all kind of a long
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way of saying like, you have these interests. If you're an interesting person, it means your interests
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are, will be interesting. So, um, you have to give yourself permission to switch your priorities
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around and not feel like you're doing something wrong. Uh, and that was a, that like, I'm just talking
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to me personally now. Um, that was a big deal for me because I used to feel like, Oh, I haven't
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maximized that, you know, like I haven't really become really proficient. And if I could just,
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you know, the 10,000 hour rule or whatever, maybe that's a myth. I don't know, but that idea,
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it just kind of bothered me. And then one day I realized, Oh wait, my thing is that I like to try
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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,
00:34:47.600
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?
00:35:09.680
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.
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
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
00:38:17.380
And how do you teach this stuff to your kids? Because I think all of us want our kids to be
00:38:23.540
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,
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
00:43:46.180
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.
00:44:19.360
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
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00:44:58.280
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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
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