You Need A Budget
By Jesse Mecham
Harper Collins Business, On Sale December 26
Jesse Mecham is the founder of YNAB, or You Need A Budget, the award-winning personal finance platform.
YNAB was founded in 2004 when Mecham and his new wife Julie were broke and, since they were students with big dreams and very few dollars between them, knew they needed to watch their money.
You Need A Budget is built on four simple rules that will revolutionize your thinking and the way you manage your money:
- Give every dollar a job – pick your priorities and make sure your money is moving you closer to what you care about.
- Embrace your true expenses – break your larger, periodic expenses into manageable monthly amounts.
- Roll with the punches – expect the unexpected and learn to tolerate necessary changes to your budget.
- Age your money – increase the time between earning and spending to break the paycheck-to-paycheck cycle.
My conversation with Mecham follows:
JS: How did you come up with your “What do I want my money to do for me?” Philosophy?
JM: As we began teaching our Four Rules, we realized we were just having people repeat a very basic process of asking themselves that question again and again. Obviously the question needs to be answered through the lens of our Four Rules, but it works! It really just came about from teaching the method and realizing we needed a way for everyone to “get going” quickly on the process. Everyone can answer that question out of the gate, so it’s a great place to start.
JS: How important is it to stress that people need significant money in the bank? Whereas, it seems too many people are pleased if they have enough to pay off the bills every month, living paycheck to paycheck
JM: Once people are following the Four Rules, they end up with “significant money” in the bank, not because they’re trying to amass some target number of dollars, but because they’re approaching that question from above thoughtfully. When you start thinking about people needing to fund next year’s vacation, this year’s holiday spending, the property taxes, the car tires that are getting worn out, the transmission eventually going out on the car, the roof leaking, the water heater breaking… my word when you start thinking through all of the reasons people need money for future eventualities, it’s no surprise significant money ends up sitting in the bank just waiting for those eventualities to happen!
I think it’s great once people can start paying their bills every month, but they need to recognize that a good chunk of their expenses are not monthly and when they’re not ready for those expenses, they end up treating them like “emergencies” and putting them on a credit card, just slowly adding to their debt (and stress) over time.
JS: Do you think schools should have money management classes in high schools and colleges?
JM: For college yes, because those kids actually have “pain” in the money management area. They have bills to pay already and they’re feeling the need. For high school kids, I think teaching them solid concepts is a good idea, but they don’t have the same motivation to really tackle their money management issues because they don’t have a lot of pain in that area. For college students that want to borrow money, they should be required to go into several hours of instruction to understand what they’re getting into. What we’re doing where we saddle “kids” with debt they barely understand, at amounts that are life-changing (in a bad way), is horrible, irresponsible and, to put it bluntly, mean.
JS: Would you describe your money philosophy as one of looking at a big picture? Like having people realize that what they spend at Starbucks could go to concert tickets, or as you mention a trip to Italy?
JM: It’s definitely a big picture philosophy because you’re having to ask yourself, “What do I want my life to be like? How can my money help me achieve my life’s greatest desires?” That, by definition is about the biggest-picture thinking you can do. However, the magic in the philosophy is that you quickly get down to brass tacks, and your daily decisions start being viewed through the big picture lens. It helps you make fantastically informed decision in the moment, while making sure you’re still moving toward your big picture goals.
JS: How important is it to have specific goals to budget for? On the flip side, if people do not have a big goal (wedding, house) are they less inclined to budget?
JM: If you don’t have specific goals, you aren’t budgeting. A budget is a scary word we use to say a “plan for your money.” I would definitely say people are less inclined to budget if they don’t have any goals because there’s then no point in the budgeting at all. Simply deciding to not spend X or to only spend Y is very boring if those limits don’t serve a greater goal.
JS: What kind of money lessons did you learn from your parents?
JM: I learned to live within my means and to only borrow money for things that go up in value. They taught me the value of a dollar, and also of taking care of the things I have. They very much have a “buy it for life” mentality that I’ve appreciated and tried to adopt in my own life as well. I’m a lucky guy, being raised by the parents I had.