It's Not About The Money

Book Club: You Need a Budget
===

[00:00:00]

The virtues of paper notepads
---

[00:00:00] Tyler: Steve, I need to tell you that you recently changed my life.

[00:00:04] Steve: Oh, okay. Well, thank you. What was, what, I don't know why I'm taking credit for this,

[00:00:09] Tyler: Well, yeah, and you don't know, it could be for the worse,

[00:00:10] Steve: I don't know what it was. It could be, it could be terrible.

[00:00:13] Tyler: yeah. No, no, you had mentioned to me that you had recently purchased some legal notepads of paper to have on your desk to take notes. And this is, was I think an outgrowth of your, Exploration of the Getting Things Done Method by David Allen.

Cause you were like labeling, you were labeling these notepads, like putting them full. I was obsessed.

Anyway,

[00:00:32] Steve: Yep. Yep. Yep.

[00:00:33] Tyler: uh, you kind of inspired me because as I work with my clients, I find that I like to take notes on kind of key things, key moments of our conversation, and I've been doing that digitally on my keyboard and it just feels kind of, I don't know, kind of dirty, kind of distracting cause you can hear my keyboard probably like clickety clacking in the background and like, I don't know, it's kind of disruptive.

So I. Based on your inspiration, recently purchased a notepad, paper, a paper notepad. I don't even know if [00:01:00] I need, do we need to specify paper now? Like it's not digital. It's a real

thing.

[00:01:04] Steve: mean, you're, you are differentiating the digital notes from the physical notes, so.

[00:01:07] Tyler: Um, and I've been using it during my coaching sessions and I feel like it has seriously made a difference. It could be all in my head.

I'm not sure, but like. There's something about them being able to see me like putting my head down. They know I have a pen in my hand and I'm just like, you know, they can tell I'm taking a note, I'm paying attention to what they're saying. And actually I am like better, I think, than I was trying to do it digitally because when I was doing it digitally, I was always kind of like self conscious about the fact that I was taking a note and how that would be perceived.

And now I'm not, I'm like all in. So,

[00:01:38] Steve: Are you writing down different things than you did before?

[00:01:41] Tyler: um, I think that's a good question. I'd have to like look back at my notes and see, but it feels different. Like. And because it's paper and pen, instead of like typing, I'm also able to like circle and like star things. Like instead of just having like a block of notes, right? I can be like, this is out of all these things that I'm [00:02:00] just kind of jotted down this, this, and this are like the, you know, action items or like the thing I want to circle, see if I can circle our conversation back toward in a few minutes, that kind of thing.

[00:02:09] Steve: Yeah. I like that too. And, and you can just like over on the margin, like here's a term that I need to look up or don't forget about this date or something like, I find when I'm in like a word processor sort of structure that I think differently than when I can just write anywhere on the page and draw and circle and underline and highlight things and

[00:02:29] Tyler: Yeah, I agree. And it's kind of much to my chagrin because I love digital and I love being paperless. But in this particular use case, paper is serving me much, much better. So thank you for the inspiration on that.

[00:02:42] Steve: You're welcome. So after you are done writing the note, uh, what do you do with the paper?

[00:02:48] Tyler: So far I've just been keeping it on the paper with the exception of action items, which would then go into my digital action lists. However, I've been thinking about transferring the pertinent information into my [00:03:00] CRM. I haven't done this yet, but I'm thinking about it. Because it would be nice to have a record of, like, the key takeaways, maybe, from conversation that's actually permanently preserved on the client record, if that makes sense.

[00:03:11] Steve: Yeah, that's, that's kind of what I do as well. Like, it adds an extra step. But I like the extra processing of like, I just got all the ideas out on the paper and then I come through afterward, you know, whether that's right after, or I tear this out and throw it in the inbox and process it later, that I'm going through it again to say, okay, here's the action item.

Here's exactly what needs to happen for this project to be complete. That goes into Todoist. Here are the salient parts that I want to preserve in the client file. And then the rest of it can just get shredded. Or maybe I take the notes and, and file it if there's, if I think I would still want the paper for some, something else in the future, kind of depends.

[00:03:51] Tyler: That's cool. That's

[00:03:52] Steve: yeah, but, but there are calls where I'm on like the, everything on the notes was action items and I'll just tear out the page [00:04:00] and put it in the inbox and say, log all of these as tasks.

And then I throw away the paper when it's done.

[00:04:05] Tyler: That's cool. So it's like a, it's a, it's a new, well, new, I was gonna say it's a new and unique capturing method, you know, new to us digital natives, I guess. I don't know. It's not new. It's paper, paper and pen, but new in the setting, I guess, to, to, to the way, to the way that I work

[00:04:22] Steve: Yeah. Great. Legal pads. 10 out of 10 would recommend.

Hello there, dear listener. I am Steve.

[00:04:35] Tyler: And I'm Tyler and welcome to another episode of It's Not About The Money, where we discuss a wide range of topics related to creating and running small businesses.

[00:04:44] Steve: Tyler has a financial coaching business. I run a tax practice. We're both small business owners like you. And this podcast is our attempt to make sense of the world one episode at a time.

You Need a Budget, by Jesse Mecham
---

[00:04:55] Tyler: And today, Steve, it's happening. [00:05:00]

It's

finally happening.

[00:05:02] Steve: It's happening.

[00:05:03] Tyler: We love to talk about, you need a budget. And so we went and did. a book club episode about the book, You Need a Budget by Jesse Mecham.

[00:05:13] Steve: Hooray. This is the first time I have read the book, even after having used the system for years and years. I think you've read it twice now. Is that true?

[00:05:22] Tyler: I did, I read it a long time ago and I reread it again just the other week in preparation for this episode, but I actually want to ask you about that right off the bat. So as someone who has used YNAB for a long time and been really familiar with the YNAB method, And the software, did reading the book make a difference to you?

Like, did you learn anything that you didn't already know? Or was your practical experience basically all you need?

[00:05:49] Steve: I felt like reading the book was a reminder of the philosophy behind it all. Sort of a, uh, take me up to the 30, 000 foot [00:06:00] view and remind me, what is this all about? Why are we

[00:06:03] Tyler: Why are we doing this?

[00:06:04] Steve: benefit are we going to get out of this? That's the thing that I found really useful from this book.

[00:06:09] Tyler: Okay. Yeah. I kind of felt similar, similarly, and although I'm very steeped in the YNAB method and practices and software, I found that 30, 000 foot view very refreshing and it actually recalibrated my, my own budget and my own approach to budgeting. And of course, consequently, my coaching in ways that surprised me quite a bit, actually.

[00:06:33] Steve: Oh, interesting. Okay. Cause I remember feeling kind of called out by this one, uh, of like, "You're overdoing it when you obsess over your budget. Check it several times a day and talk about it to anyone who will give you an ear. It's great that you're really into your budget. It's a thing of beauty. I know, but try to keep it from consuming you.

Check in every few days, make sure you're staying on track. Then go on living your life."

[00:06:54] Tyler: I don't think that applies to us. Come on.

[00:06:56] Steve: Aha! At the time I felt called out by that, um, [00:07:00] and, and, uh, I read the book, it was probably a couple of months ago now, and, and since then I have checked my budget less frequently, and I don't know if that is a result, not consciously, but just that I've sort of, uh, let that go a little bit and gone to living my life more, rather than focusing on it so much.

I don't know, but I, I found that interesting. So I guess it sort of did change my behavior. as well.

[00:07:25] Tyler: In that you budget less or you check your budget less.

[00:07:28] Steve: Well, yeah, checking the budget less. Right, exactly.

[00:07:31] Tyler: Well, what were

[00:07:31] Steve: I'm not obsessing about it all the time.

[00:07:33] Tyler: When you were obsessing over it. Like, what, what did you enjoy about checking it? Like, what were you checking it for? Was it just to see how your spending was going? Or were you just want to see, what is my net worth?

What is my net worth? I mean, I don't know. Like what, what was the, the draw?

[00:07:47] Steve: Uh, it's like, uh, I know that new transactions have come in and I want to make sure they get categorized correctly and they have the right notes in the memo field and the payees are correct. Like all of the little details I [00:08:00] want to make sure they're all correct and, you know, I can do that just as well once a week as I can every

[00:08:04] Tyler: Oh, I see what

[00:08:05] Steve: so it doesn't need, so that's, that's kind of what has changed.

[00:08:08] Tyler: So you still do it. You just do it

[00:08:10] Steve: Uh, yeah, yeah, yeah, yeah.

[00:08:12] Tyler: And it still all gets done. Yeah.

[00:08:14] Steve: Mm

[00:08:15] Tyler: You know, I also feel called out by that and I probably, that's why I don't remember that quote. I must've just blocked that out because I still like obsessing over my budget. Although. I mean, you know, when I was training to be a YNAB coach, they did kind of call us all out on that in our cohort.

They're like, look, you need to realize that a lot of people that you're going to work with are, are not going to be like you

[00:08:38] Steve: Oh, yeah, well,

[00:08:39] Tyler: like, like they're hiring you because you are the way that you are, you know, the things that you know, that you, you do the things, you know, so the expectation shouldn't be that everyone that you work with is going to become like you and use, use YNAB with the same fervor and obsession maybe that you do, but you just need to get it to work for them. Right. So that, that is, that's a good point. That's a good point.

[00:08:58] Steve: Yeah, I think that's [00:09:00] true of a lot of service businesses, like, as a tax pro, I have to resist the urge to use all of the IRS terminology and like, explain things in accounting terms, because that's, that's not what they hired me for, that they hired me to know that stuff and to tell them what the relevant parts that they need to know, explain it in a way that they understand, but not to convert them into accountants.

[00:09:24] Tyler: You're there to make their life more convenient and more optimal for their situation. Right. Yeah. So it's the same kind of thing. Yeah. Well, cool. Yeah. I need to think about that a little bit. I, I actually don't, the thing that I obsess over my budget with more than checking it is kind of like playing with the way my categories are organized. I like to switch it up periodically, but anyway, we can talk more about that later, right?

Make budgeting sacred again
---

[00:09:48] Tyler: So can I just share what, uh, uh, I've made a list of five things. We don't have to go through the whole list, but I kind of want to touch a couple, touch on a couple of these, like as I was reading the book, [00:10:00] changes that I made either to how I think about budgeting and YNAB or how I actually do it. And I kind of wanted to share the first one of these that I, that I wrote down. Which is that I want my budgeting sessions to be sacred again. This is not doing me any favors in terms of making me look not like a budget nerd. But what I mean is I think over time I got more interested in the details of like, yeah, what are the transactions?

How am I trending on my spending for certain categories? Whatever making sure it's my plan is coming to be but it got pretty rote, right? Like I had a little routine when I got paid I would log into YNAB. Reconcile my accounts, sign the money. I use targets pretty heavily in YNAB. And so a lot of it's just automated and it take, took away the process or took away from the process of examining my desires.

And answering the question, like, what do I want this money to do for me? [00:11:00] Because I'd already kind of like, based on historical data, I just kind of figured out what it probably would do for me based on my past behaviors, which is totally a different question than what do I want this money to do for me?

[00:11:11] Steve: mm

[00:11:12] Tyler: And like that process of having that conversation with myself and like taking ownership of it and deciding, and like maybe directing it in a way that's different from last month or the month before that, according to what I desire right now, like that's, I wanted, like reading this book really made me want to have that experience again. And so that's what I've been focusing on among other things since reading the book. And it's awesome.

[00:11:34] Steve: Mm. I like that. I think I tend to fall in the trap of Bookkeeping because that's the thing that I love to do anyway, and so let's let's make sure all these details are correct and and The historical reports are an accurate reflection of reality. What what actually happened? but the power of Scarcity, [00:12:00] really, is what this is about, is like, let's force you to acknowledge this is the amount of money you have right now, uh, that has to do all the things you want and need it to do until you get paid next, and so what do you want it to do in that time?

[00:12:16] Tyler: Yeah, yeah, I find that when I focus on the bookkeeping aspects of it more than on the values and desires aspect of it, I still spend, I spend out of line with my values more often, actually, because like, I know I can just kind of spend, I can do whatever I want, basically, and I can just roll with the punches, YNAB rule number three, right, and like cover the overspending.

And so it's just like slipping if, you know, if this isn't maintained, you're, you're kind of like present and future focus on this. It's easy to slip into like, let's retroactively just fix whatever happened, which there's nothing wrong with that. Right? Like I'm not going into debt. My net worth is still growing as I like save for retirement.

Like nothing is wrong with it inherently, but it's not a [00:13:00] joyful experience. It's more just like living by the seat of my pants. And I found that I was living more by the seat of my pants, spending more by the seat of my pants than doing it with intention, which is kind of the point of YNAB is to get you to be intentional and like be in charge and in control of your money.

Right?

[00:13:15] Steve: Yeah, and not in the sense of you're restricting yourself so much as, you know, like you've taken the time to understand what is What is it that, what are my priorities with this finite resource? And then letting that guide your behavior rather than the behavior sort of trickling back into, well, how are we going to fix that in the, in the numbers here,

[00:13:39] Tyler: Yeah.

[00:13:40] Steve: given what we did?

[00:13:41] Tyler: And you know, this brings up a really interesting question to me, which is how does budgeting the YNAB way, or in general, how does budgeting change when you have plenty of money available to you versus when money is tight? And my theory is, my working theory is, when you have plenty of money, you spend less [00:14:00] intentionally.

[00:14:00] Steve: yeah, that makes sense.

[00:14:02] Tyler: I talk to people all the time who have plenty of money. And these are not my clients, by the way. I'm talking like when I try to talk to my friends and family about this kind of stuff, right? And they're like, uh, we don't care. Like we have plenty of money. Like we're not in debt, like whatever. It's fine.

I'm like, but, but are you living your true best life? Like, sure. You're fine, but are you great? And then they're like, okay, go away. I don't want to talk to you anymore. That's not, you know, uh, cause I really, you know, when there's, when there's, when that scarcity isn't present and you're not feeling it, you don't have to make decisions about what you care about most.

So it's easy to blow a bunch of money on stuff that's like kind of like fun or cool in the moment, but you don't really care about, right? And like the more margin you have in your life and the more money you have available that above like meeting your basic needs, the easier I feel it is in my observation to just like not be intentional about it.

Kind of just do whatever feels good in the moment, which is not inherently bad. Again, it's just like, not necessarily the best, I guess.

[00:14:58] Steve: Uh, yeah. Like if [00:15:00] you. If you want to make the most of this life that you have, and the resources that you have, you can be more intentional about it.

[00:15:09] Tyler: I guess that's the optimizer in me speaking, and not everyone is an optimizer, so that's important to keep in mind.

[00:15:15] Steve: Oh, well that's interesting, yeah. So, maybe the thing that draws you to this would not be as big of a draw to someone else in your same situation.

[00:15:26] Tyler: Right.

Reframing "can I afford this?" to "does this move me closer to my goals?"
---

[00:15:27] Steve: Okay. Well here's a quote that's sort of related to that, maybe. We can talk about: "Rule two, moves the question from, can I afford this to, does this move me closer to my goals?"

[00:15:39] Tyler: I love this. I love this so much.

[00:15:41] Steve: Cause the question, can I afford this? When, when money's not tight, the answer to that is probably always yes. Like you have the cash available. Like, uh, if by, by afford, if you mean, is there money in the bank to cover this expense? The answer is almost always yes. Uh, and [00:16:00] so then what, what does that mean anymore?

But reframing it as, does this move me closer to my goals? That brings that intention back into it. Is this the highest and best use of this money right now?

[00:16:11] Tyler: Based on what I want the most right now and value the most right now. I,

[00:16:16] Steve: Not just what feels good, uh, for the next five minutes,

[00:16:19] Tyler: yeah, I, you know, This applies across the board too. I mentioned, you know, how is budgeting different when there's plenty of money versus when money is tight. And I think maybe the principles are the same, but when there's plenty of money, you just have to kind of like self impose the feeling of scarcity.

I had a session somewhat recently with a client who makes, around a million dollars a year in income. Which is a lot more than what I'm used to dealing with in my life, full disclosure. But, but he had the same stress and the same questions about money as the people that I work with that make a hundred thousand dollars a year or thereabouts.

Right? And that was fascinating to me. I just, I'm still having [00:17:00] my mind blown about the con blown by the conversation that I had with him. Um, really cool guy, had a lot of awesome stuff going on. But felt scarcity in the same way that we all do. I think that's interesting.

And so the conversation with him wasn't like, can I afford this? Cause most things he can afford to your point. Right. But, uh, he and his wife had a desire to become homeowners and they live in a kind of expensive area. And that was their desire and their decisions with money day to day, though they were not stressing them out financially in any way, they didn't have any debt, they weren't like, you know, sinking in problems or anything financially as one would hope with that kind of income, but like they were not getting any closer to being able to own a home in the, in the neighborhood where they wanted to live.

[00:17:47] Steve: Interesting. Yeah.

[00:17:48] Tyler: But they could easily afford it if they just like figured out that that was their goal and then applied their money to that goal. They could afford a home very easily, very soon. They hadn't [00:18:00] figured that out yet.

[00:18:01] Steve: Yeah, it just takes some self imposed discipline of, I want to focus on this thing right now instead of just kind of letting life happen.

[00:18:11] Tyler: Yeah.

[00:18:12] Steve: Fascinating.

Balancing True Expenses with the flexibility to budget for emerging priorities
---

[00:18:13] Tyler: So I, I'm going to just continue on my tirade here and tell you what I changed about how I budget based on this, the reading of this book. Um, uh, and one of the, this is something, you know, these are things that I used to do actually. And then I got away from with. Um, additional experience and whatever. And now I'm going back kind of like to the roots.

Right. So one of the

[00:18:34] Steve: kind of reminds me of our episodes about Getting Things Done.

[00:18:38] Tyler: Yes,

[00:18:39] Steve: You've reread that book and then sort of went back to the basics on that system. Maybe this is just a thing we need to do with these systems in

[00:18:46] Tyler: totally agree. Cause

like, you know, the laws of thermodynamics apparently apply to these, to these systems, just as much as they do to the physical universe, perhaps. Right. So like, you know, you, you, you can, you bring some order, [00:19:00] you create some order out of the chaos. And then life happens and it kind of just devolves until you kind of like bring it back in, in, in line.

So one of the things that I was doing most recently is I arranged my budget categories by, I don't know what you want to call it, domain, sort of. So like I had a group of budget categories related to owning a home, a different group related to owning a vehicle, owning a dog. Does that make sense? So it was like by domain, right?

And the categories were grouped together under those headers because I was more interested in the reporting aspect of it. Like I wanted to see how much does it cost me to. Own a home across all these different budget categories or own a car, etc, etc. So, and that's cool. There's a lot of value to that, right?

I, again, I'm not saying that what I was doing was wrong in any way. It's just was maybe further from the spirit of the YNAB method that what I'm doing now, which is I totally blasted that apart [00:20:00] and I rearranged my budget categories according to my priorities.

And some things related to owning a home are higher priority, such as paying the mortgage, then, uh, other things like, uh, having. My homes smell good because I have a subscription to a scent diffuser, for example, right? Like there's definitely a different, there's a whole spectrum of priorities, even within those domain topics, if that makes sense.

[00:20:30] Steve: Yeah. Okay. That's interesting. Go on.

[00:20:33] Tyler: uh, so that, that was a big change that I made actually. Um, and it's had some. Fascinating. Like, I don't know. I didn't expect it to make that big of a difference, but actually it really, really has when it comes to the, every time I get paid and I do Rule One of YNAB, which is to give every dollar a job because I've organized my categories by priority now, it's kind of like start at the top and go to the bottom.

And instead of, well, I don't know, that's more of a logistical thing.[00:21:00]

[00:21:00] Steve: Well, yeah. But it's, it makes it very clear, like the, the important things are at the top and they need to get funded first. And then if there's money left over, then we can do, The less important

[00:21:09] Tyler: Yeah. And because I've been doing the YNAB method for so long, I'm in a place where I'm several months ahead in my finances instead of behind. So like when new money comes into me, it's like, I'm, it's easy for me to budget towards the future things. But because I use targets so heavily and because I'm ahead, like, these are all like good problems to have, don't get me wrong, but I was relying way too much on just automating it.

By the targets that I had set, which like removes any thought that removes asking myself, like, what do I want this money to do for me before I get paid again, I guess I like pre answered that question with the targets, you know, but I wasn't making any live decisions. And what a consequence of that was, is that I wasn't making big progress on my big financial goals.

Because I've been using targets for every category, like all of my money was spoken for, according to the targets that I'd [00:22:00] set. So there wasn't much extra money, if that makes sense, to put towards like a new, fun, exciting goal that really rolls my socks up and down and gets me excited. Like, like, like a specific, like, so I was like, for example, I was setting aside 100 a month towards travel.

Because like I know that sometimes I want to travel, it would be nice to have some money. I'm not in that category when the urge strikes, I guess, or like when I feel like trying, but I'm finding it much more useful to be like, I want to visit my friend so and so in this state, and it's going to cost about this much money.

And I can allocate money to that goal way faster than a hundred dollars a month and get it completed way faster if it's a higher priority. This sounds so basic, but like, I don't know, does that make sense at all? Am I, am I going crazy here?

[00:22:48] Steve: Uh, it does. Yeah. That makes me wonder on my, my personal fun money budget, which we've talked about. I, there's the

[00:22:55] Tyler: Yeah. Which layer?

[00:22:56] Steve: there's, the Daybreak Tax Budget, and there's [00:23:00] the, there's the fun money budget, which is just mine to do whatever I want with, kind of thing. I do have it where everything has a target and that covers almost all of the dollars that come in every month to that budget.

[00:23:15] Tyler: Which is, we must say, very convenient and easy

and nice.

[00:23:21] Steve: So I get the, you know, it transfers in like every two weeks and I just go into the next month and say, uh, automate the, whatever the button's

[00:23:30] Tyler: Auto assign?

[00:23:31] Steve: And it just fills in as far as it can. And then when the next one comes in, I click the button again and it fills in all the rest of them.

And then that month is ready before the month starts kind of thing. But, uh, this gives me something to think about of that. If every dollar is already spoken for, then so maybe I've just already answered the question of what do I want the money to do when I set the targets,

[00:23:56] Tyler: right.

[00:23:57] Steve: but there's, so maybe that's okay. I don't [00:24:00] know,

[00:24:00] Tyler: yes, it is okay. And there's not a right or wrong way to do this, but, but there's, it's a trade off, right? And so what you're trading off for the convenience of having your budget, like template, basically preset and automated, what you're trading away as maybe some of the empowerment and excitement that you get from kind of making, shorter term decisions about what your, your, how to like concentrate your focus, basically.

Of what you want your money to do.

[00:24:27] Steve: Okay. Yes. That's a great way to say it. Cause, cause it is not quite as exciting as it was before I had all the targets set up when, when it's like, well, I, okay, I got this money and I don't know how far it's going to go. Let's see what we can do with it. Uh, you know, and it was, uh, and now it's like, well, and the, the amount coming in, will cover all of these things. I don't have to think about it,

[00:24:47] Tyler: Yes.

[00:24:48] Steve: but then, you know, then it's not, I don't get that, uh, little thrill of like, Hey, I thought about what I want this money to do now. I thought about it again and I've decided [00:25:00] this and I'm happy with that

[00:25:01] Tyler: Yeah.

[00:25:02] Steve: sort of thing.

[00:25:03] Tyler: Well, it's kind of like, you know, the way it sounds like we were both kind of on a, on a similar track before reading this book for a long time, which is kind of, basically we'd been doing YNAB long enough that we had a really good sense of our true expenses. Which is a big part of the YNAB Method, right?

It's like, basically what that means is you look at all the expenses that could occur throughout the year that are irregular, but you know, that you need to be saving up for, and you basically make everything a monthly expense. You divide all your, you divide all your large irregular expenses into monthly bills, basically, right?

So the money is always there when it's due. It's great. But I think I, for My own taste, again, this is just the influence of the book on me. So I, again, there's nothing wrong with that, but I kind of took that to an extreme where I made everything a true expense, like someday I will travel. And so I'll just like tuck money away for that again.

Is there anything wrong with that? No. Was [00:26:00] it exciting? Also, no. Does that make sense? So, so big. And so like the, this is the thrill that I got when I changed that to, visit such and such a friend in this state.

You know, I know I'm going to need to pay for Airbnbs, gas for the car, whatever, you know, maybe dog sitter, depending on it, you know, it comes out to like, not that much in this particular case, like maybe 1, 200 or something. And like, that's something that I could fund today if I just pulled money from a future month and just like dumped in there, but because I had broken everything into true expenses and just funded a hundred dollars at a time, like that would never even occur to me.

It's like, Oh, I could go on this trip tomorrow if I wanted to.

[00:26:38] Steve: Right. Where otherwise it's, you're, you're waiting a year for that much to accumulate.

[00:26:41] Tyler: Yeah. Yeah.

[00:26:43] Steve: While all of these other things are also accumulating, but, but, being able to recognize, hey, this is an opportunity with what I already have here ready to go. I could do this if I wanted to. That's empowering.

[00:26:56] Tyler: I think it's empowering. I think it's more flexible. It's like [00:27:00] not what people think of typically when they think about budgeting, which is why a lot of people hate budgeting is because it's boring and tedious and, uh, bookkeeping. Sorry. I mean, I know you and I both like bookkeeping, so it's okay. But,

[00:27:13] Steve: bookkeeping.

[00:27:15] Tyler: but like bookkeeping, I would argue is not budgeting.

It's different. And the YNAB book and the YNAB method are making the argument that budgeting isn't tracking your money. Budgeting is actually making decisions about what you want the money that you have right now to do, and that those decisions should align with what you care about and what you're excited about.

So kind of by definition, it should be exciting and interesting because it's what you want to do. Yeah.

[00:27:42] Steve: And the difference in timeline is bookkeeping is backward looking, what happened in the past. Let's record that accurately and get reporting on it. But budgeting in this sense is the exciting forward looking, what do I want to do with this stuff?

[00:27:59] Tyler: Yep.[00:28:00] And another thing that I noticed when I arranged my categories by priority instead of by topic cluster or whatever you want to call it, um, it freed up so much money in my budget because now, once I have my top, like, uh, I guess you could say, what do they call the top priorities in YNAB? Like your obligations, right?

Like the things that you have to pay for, or like you get kicked out of your house or like your electricity gets turned off or like, you know, like. Food, shelter, clothing,

transportation, those things, right? Those are like your obligations. Um, once you know that those are covered. Actually, everything else is like totally up to you, really.

And I don't know, because I've been so regimented about making everything a true expense, I was basically maxing out my entire monthly income on all my true, well, so called true expenses. You know, with very little wiggle room on top of that to like do fun stuff with. Now, a much higher percentage And I use the word fun kind of like very loosely here because a lot of it still is like [00:29:00] necessary.

But, but you know, with varying degrees, like, like, like, like the scent diffusers or whatever, right? Like I could stop that anytime. I don't need that. That's unimportant. But, uh, it's fun.

[00:29:12] Steve: Yeah.

Budgeting for future months
---

[00:29:14] Tyler: So one other thing that I started doing, that I had stopped doing, is I started budgeting for future months again. So, I don't know if that means anything to you, Steve, but it's kind of part of Rule Four in YNAB, which they call age your money, which is just, you know, basically, as you spend less than you make over a long period of time, you get to keep your money for longer before you have to spend it, right?

[00:29:39] Steve: Right. And if you lost your income now, you have a longer runway before the money runs out.

[00:29:45] Tyler: Yeah. And so YNAB the software will allow you to start funding your future months before they even show up. Right. So like, let's say it's January right now. Let's say I funded all of my budget categories fully for January, uh, and I get paid next week. [00:30:00] I could put that paycheck towards February and start funding February.

Right. And as long as you're spending less than you make eventually, like in theory, that could go infinitely. You could fund further and further into the future. The age of your money would get older and older.

[00:30:13] Steve: Mm hmm.

[00:30:13] Tyler: Anyway, I had stopped budgeting the money, like specifically assigning it to future months and I'd put it into a kind of a holding category that's like next month and I'd just like put all my extra money in there, uh, and it was kind of serving also as my emergency fund and, you know, whether or not to have an emergency fund category in YNAB is like a whole different topic for a different day.

And it really does, again, There's no right or wrong way, but, uh, I just, I struggled. I spend my emergency fund. Okay. I'm just going to say it. If I have a fund that's called emergency fund, and then I want to do something cool. I just, I just do.. And it's a problem. I, it's not the biggest problem in the world, but it's a problem, right?

Uh, I guess I'm rolling with the punches in a very liberal way at that point.

[00:30:58] Steve: But there, there was a quote in [00:31:00] Rule Two about how if you have like a name on the category, it's a lot easier not to plunder that one. When something comes up,

[00:31:08] Tyler: Yeah.

[00:31:08] Steve: uh, like my Christmas budget is this way, like, uh, that's that money is set aside for Christmas because I know we are going to spend it for Christmas.

And so I want to make sure it is there by the time Christmas rolls around. So I almost never pull anything out of Christmas

[00:31:23] Tyler: do you really want to steal from your children? Right? Like, do you want to take away the gifts for each other? I mean, anyway, psychologically, maybe it has that effect a little bit, but

[00:31:33] Steve: Yeah. But, but when it's all in a, in a big lump sum of emergency fund or like, uh, slush fund, you know, uh, whatever, it's, it's very easy to be like, well, I can, I can pull a little bit out of here because there's still plenty in there. It'll be fine.

[00:31:46] Tyler: And I can just replenish it, which is true, you know, which is true.

[00:31:50] Steve: It's true, but it's, it's so much easier to keep track of, like, I know I pulled some out of here, but I don't know how much, where, if it's a named category and it's got a target on it, like I know [00:32:00] exactly how much is missing out of there and I can make a plan to put it back.

[00:32:03] Tyler: Yeah. And I think if I had to summarize the net like result of all these changes we've talked about that I've made to the way I do this since rereading this book, I think it would have to be that I have freed myself up to make quicker progress on the financial goals that are most important to me. And this is a good example of that because what I'm doing right now is I'm, I am budgeting into future months, but I'm only budgeting my obligations categories in future months. So basically it is a real emergency fund in the sense that like, I know that I have paid for January, February, March, and most of April right now, like.

My obligations, they're budgeted for. So if I lost my income today, I'd have that, like, I'm good for that many months, right? I don't like, it's the same amount of money. The money is there behind the scenes, whether it's in one budget category called emergency fund, or whether it's in all those categories in future months.

But just like your example with [00:33:00] Christmas. Like it actually has had a profound effect on me psychologically to the point where like it is harder for me to steal money from March, from my March mortgage to like do an extreme roll with the punches on an impulse purchase in January I think that's fascinating.

[00:33:17] Steve: Oh, okay. So when you say you've funded future months, it's not like you took the entire paycheck from now and allocated it to something in the future. Like it, it might just be, what I'm trying to figure out is when do the non obligation categories of future months or cur or the current month get funded if you're only, if you're funding into the future only.

[00:33:41] Tyler: Um, so my rule of thumb, let's say I wanted a three month runway on my obligations, how I would approach that is when I get a paycheck, I would just check to see if the current month that we're in, the calendar month right now, is it fully funded completely? And then is the next calendar month [00:34:00] funded completely?

And then if. Yes, and I've got the obligations funded out through three months, then all the money that I have left to assign could be assigned to whatever, to my focus goal. I don't know if that made sense. So another way to

think about it is, you know, is the current month funded fully and is the next month funded fully? And then is my obligations, are my obligations funded through, and it's arbitrary, it's going to be different for everybody, right? For me, maybe it's three months, maybe it's six months for you, doesn't matter. But once your obligations are funded that far in the future, then the rest you can just focus into whatever category brings you the most joy at the moment.

[00:34:36] Steve: Okay. That's cool.

[00:34:38] Tyler: Because I tend to be super conservative about my money and try and, I mean, I just plurge like anybody else, right?

[00:34:43] Steve: But you're living far enough below that income that you have enough wiggle room to be able to do this kind of a thing. And it's really cool.

[00:34:51] Tyler: and it's not extreme. It's not unlimited. It is very finite back to the scarcity comments that you were making before. Right. But I guess what I'm realizing is that by [00:35:00] arranging my budget this way, even though it's the exact same amount of money as I was working with before, it feels like a lot more and that's just interesting to me.

[00:35:09] Steve: Yeah. That is really interesting.

[00:35:11] Tyler: So thanks for coming to my TED talk about my therapy session about, about YNAB.

Teaching kids to budget
---

[00:35:16] Tyler: But we haven't even talked about the book yet. I mean,

[00:35:19] Steve: Oh yeah. The

[00:35:20] Tyler: should we talk about some of the standout moments or?

[00:35:24] Steve: I had a bunch of quotes in here and I think we've mentioned most of them actually. Uh, well, one that we haven't talked about yet is, uh, he talks about teaching kids to budget and, there's kind of, there's at least two schools of thought here. One is you give kids an allowance and that's just, that's how much money they get automatically.

They don't have to like do anything special to get it necessarily. And the other is the, you teach kids how to work and earn money and that's how they get their money. And then, uh, ideally. [00:36:00] In either case, once they have the money, then they learn how to budget and spend it.

[00:36:04] Tyler: Yeah.

[00:36:05] Steve: He, uh, Jesse seems to be more in the camp of like the important part here is that they're learning what to do with the money once they have it. So give them the money. And then teach them how to budget it, because, uh, you can always make more money and most people will, like, for most of your life, you will have the capability of making more money, you're not at the end of your earning potential yet. And so, don't focus on that piece of it yet. They can figure that part out.

Teach them how to budget, how to use this finite resource, and what to do with it, and how to deal with the emotions that come with it, and how to plan, and how to spend it well and align it with your priorities and all those kinds of things that are so much more beneficial to learn when the stakes are low and you're young, so that when you do come into a lot of money later in your life, you know what to do with it

[00:36:54] Tyler: Yeah. So you don't turn out like one of those lottery winners, right? I guess. I

[00:36:59] Steve: Oh, [00:37:00] yeah, like you just suddenly get this windfall and uh, and it ruins people's lives,

[00:37:05] Tyler: yeah. You know, I don't have kids, but I found the section of this book about teaching kids about money and how to budget to be really good. I mean, if I did have kids, I would probably try to apply a lot of what he talks about in there. And I was somewhat intrigued on his stance about like allowances versus like, earning, or I don't know if it's stance even, but like his, his discussion of allowance versus like earning the money through labor, through chores or whatever.

[00:37:32] Steve: Uh huh,

[00:37:33] Tyler: And I thought maybe I was intrigued by that because I did not have an allowance as a kid, I, once I got old enough, I could do chores to earn a little bit of money for like the things that I wanted to do. So maybe, I don't know, maybe I was having some childhood processing as I read that, but yeah, very impressive.

I think for anyone who has kids and is interested in teaching them about money, this is, this is a great place to start.

[00:37:54] Steve: If, if you want a good book, that's the other side of it, like teaching kids how to work to earn the [00:38:00] money. Uh, one that I read a couple of years ago is called The Entitlement Trap by Richard and Linda Eyre

[00:38:07] Tyler: I've heard of that one.

[00:38:08] Steve: That one's really good too. It's got a system of like how to give kids ownership of things and teach them how to

[00:38:14] Tyler: Yeah.

[00:38:15] Steve: earn, and, uh, the responsibility that comes along with that. So I don't know. I, I think there's a balance here between those two two ways of doing it

[00:38:27] Tyler: yeah, that makes sense. I don't remember exactly what the YNAB book says. I feel like he wasn't like really super opinionated on this. And he, like, to your point, he he's more like, you know, no matter how they get the money, learning how to handle the money is, is more of, I think, his angle. Is that right?

[00:38:45] Steve: Yeah, I think so. He did have one quote, uh, "Taking away their allowance for whatever reason is just as bad as taking away their books or their musical instruments. Keep the learning going no matter what." So I don't know if that, I don't remember the context, if it [00:39:00] was like, don't punish them by taking away their allowance.

Like, they should, they should still get the allowance. I don't think he's, he's at all opposed to like, uh, teaching them how to earn more money.

[00:39:11] Tyler: Right.

[00:39:12] Steve: So, but, but they should at least have, you know, a baseline of this much money is coming in and it's your job to figure out what to do with it.

[00:39:18] Tyler: Yeah. Yeah. I like that. Giving them a sense of ownership and responsibility for what to do with it.

[00:39:25] Steve: Uh huh.

[00:39:26] Tyler: And some of the examples that he has in the book of children making choices based on the money that they have are pretty cool. Like his own kids, like what they choose to spend their money on and like how, like, you know, in the mind of a child, they, they illustrated like the principles of YNAB almost naturally once they figured out that this is how much money they had, like, what do you want to do with it?

And, you know, they were able to like apply the rules better than a lot of adults, which I thought was kind of cool.

Well it

What makes the YNAB Method different?
---

[00:39:56] Steve: wasWell it

a great book. We didn't talk much about the book, I [00:40:00] suppose, but Very useful. We should do, we should do a, like a series on each of the rules at some point,

[00:40:07] Tyler: I think that would be great, where we actually talk about what's, what's,

in

this

[00:40:13] Steve: we've, I think we've mentioned all of them here, uh, in passing, but like, let's go through what, what they actually are, what they mean

[00:40:21] Tyler: You know, yeah. And I think maybe for today, a reasonable summary on this, and this comes actually from a conversation I had with a client earlier today, which is that YNAB as a personal finance method is really different from a lot of other personal finance methods. Because it doesn't, it's, it's, it's, it's agnostic really towards, you know, whether you should pay off debt, whether you should save for this, how much you should save for retirement.

Like it's really, really values focused. Right. And so they have an ideology, like Dave Ramsey has an ideology, the seven baby steps, right? The money guys have the financial order of operations, which are their like prescriptive. Well, order of operations for like [00:41:00] how to tackle your financial goals. YNAB does not have that.

And I think that sets it apart. And I think that is really obvious from reading the book, which is that their prescription is that you need to do some self reflection and figure out what you value, what you think is important and what makes you happy, and then use your money to achieve that as a tool.

And that's something that's really, I think that's kind of a, how I would summarize the, you know, the message of the book.

[00:41:27] Steve: And so maybe you land on the same steps that Dave Ramsey does, or maybe you don't. Uh, and either way, that's fine. It's your money. You are the one in charge of deciding what to do with it.

[00:41:38] Tyler: Yep.

[00:41:39] Steve: Cool. Yeah. I hadn't thought about it that way. All right. It's a, it's a process, but not, uh, not, not prescriptive. It's not an ideology. Well,

[00:41:47] Tyler: No, I think it is. It's just that the ideology is, is that you, you're the best person to make the decisions about your own money. Right?

[00:41:55] Steve: Okay. Yeah. And it's giving you a set of [00:42:00] tools for how to, How to figure that out, how to make those decisions, like Morgan Housel in the, in the Psychology of Money is, is big on, uh, people don't make money decisions because they're stupid. They make it because that's what they thought was best. That's what they thought was rational at the time.

[00:42:17] Tyler: Yeah.

[00:42:18] Steve: And, uh, maybe you're, maybe you need some calibration there of what, what that should be so that it aligns with your values. And this is one way to get there.

[00:42:29] Tyler: Yep.

[00:42:30] Steve: Well, if you want more YNAB content, email us at HelloAtNotAboutMoney, subscribe! There's plenty more where this came from.

[00:42:39] Tyler: I'm sure we'll be discussing these principles in the future as we tackle, you know, they apply to so many things and, uh, we like them and they're good rules to live by. So

[00:42:51] Steve: Yeah.

[00:42:52] Tyler: it's kind of fun to do it.