165 You Need a Budget YNAB

165 | Do You Need A Budget? | YNAB

The founder of YNAB, Jesse, joins Brad and Jonathan to share his story. YNAB or You Need A Budget, was founded in 2004 and currently has over 100 employees.

Jesse's Story

The need to budget became a reality when he got engaged to his wife Julie. Based on their incomes, they knew that they needed to be careful with money in order to survive. Jesse is a self-proclaimed recovering accountant, so, he built a spreadsheet and it worked really well for them. The spreadsheet became the base for the original piece of YNAB software.

After a year of using their spreadsheet successfully, the couple was about to have a baby. They realized that they needed to have more money coming in to make their budget work.

With that, Jesse started YNAB as a side hustle with the intention of selling his spreadsheet for extra income. The goal was to create an extra $350 each month in order to avoid taking out student loans while Jesse finished school. At first, he listed the spreadsheet for $9.95.

Julie and Jesse decided on a budget of $63 as a test fund to sell the spreadsheet. Jesse used these funds to run Ad Words. However, the spreadsheet didn't start selling until he bumped the price up to $19.95.

At this point, Jesse's business partner, Taylor, came along and asked about potentially developing software around the spreadsheet.

Related: Why A Side Hustle Is FI's Secret Weapon

Finding Your Non-Negotiable

The impetus to start selling his budgeting spreadsheet came from a strong aversion to debt. At a young age, he read one of Dave Ramsey's books. From that point on, he had a very strong aversion to borrowing money to pay for school. In fact, it was a non-negotiable point that he would make it through school without taking on any debt.

The other non-negotiable point in their life was that Julie wanted to quit her job. At the time, she was working as a social worker earning around $12 an hour. It was a goal for the couple for her to stay at home and make it through school without any student loans. Those were two things that they would absolutely not compromise on.

In order for that goal to become a reality, they had to earn an extra $350 a month for 2.5 years. In total, that amount was around $7,000. Although it may seem like a completely reasonable sum to borrow for school to some people, it was unacceptable for Jesse.

Due to these non-negotiables in his life, he had to get creative.

I feel like people sell themselves short on their creativity and their drive and their will when they can just easily step past having zero dollars into a little bit of debt just to get 'em by. It's not 'cause I hate debt, you know, on it's own, but I do feel like it does people a disservice in that way.

Jesse suggested that everyone should find out what their non-negotiables in life are. Once you figure that out, you'll force yourself to get creative because you can't take the easiest path.

Check out You Need A Budget for yourself here.

Teamwork With Julie

Throughout their journey, Julie and Jesse have been on the same page. However, that is a result of open and frank conversations along the way.

In one conversation, Julie tore Jesse away from his laptop a few months after YNAB launched. They went for a walk with their brand new baby and she reminded him of his priorities. She reminded him that he needed to find a balance between his family and his business. If he couldn't find a good balance, then she requested that he find a way to stop.

At that moment, he knew she was right.

Along the way, they have had many conversations that have steered their journey together. Some of those conversations were about their finances and finding a way to live within their means. At one point, they were living in a big, new house without any furniture.

At the same time, he had just spent $80,000 on new YNAB software that had to be completely scrapped. Julie never said anything bad about the project, she just agreed that starting over on the software had to be a tough choice. She never held the moment against him or said I told you so. Throughout the ups and downs, she has always had his back.

Money Conversations

For Jesse and Julie, talking about money was always a part of their relationship. In fact, their money conversations were very frequent.

It started out of necessity because they needed to record every dollar that they spent on their budget. When they had money to spend, they worked through their needs together. Although they never overtly said we need to be frugal, they knew what their budget needed to handle until their next payday.

All I had to say was “hey, we have $900 and $350 of it goes to rent”…We had this extra money and we'd just say “what does this money need to do before we bring in more money?” And that kind of conversation, should just happen regularly. And it's not about ‘we should do this, we should do that'; but it's like “what do we want this hard earned money to do?”

They chose to spend that money together wisely in order to make it to the next inflow of cash.

Although many couples don't talk about money, it should be a regular conversation. After all, money creates the life you live so you should make sure to work through those choices together.

Related: How To Get Your Spouse On Board With FI

Introducing A Spouse To FIRE

Many people that find the FIRE movement find it difficult sharing that excitement with their spouse. In fact, when you first introduce the topic it might seem like you are crazy. However, it is important to restart the conversation.

For Jesse and Julie, their biggest budget disagreement was about their grocery budget. Each month, they would agree on a grocery budget. Each month, Julie would go a little bit over. At some point, they had a frank conversation about this.

Since Julie does all of the grocery shopping, she shared that the most important thing to her was efficiency. She wants to get in and out of the store before one of the kids melts down. Whether or not she hits the coupons or sales doesn't matter as much to her. After talking about these reasons, the grocery budget has been bumped up.

You can think about this in your own money conversation with your spouse. Find out their reasons first. Talk about your hopes, dreams, and desires as a couple. Don't bring up money for several conversations, simply talk about shared hopes and dreams. At some point, you can choose something positive and talk about how you could potentially make it happen money-wise.

Try and choose something really positive and awesome. [Asking] “How can we make it happen with the finances? How can we do this?” So just pick one goal, one thing. Make it not about spending less, make it about spending more. And have it be established because you've had great conversations about why…

It might be a slow process, but eventually, the link between money and dreams will be clear.

Do You Need A Budget?

Once both of you are on the same page with your money goals, it is important to create a budget that reflects that. If you are both creatives, it can be difficult to delineate the budgeting responsibilities.

YNAB makes it easy to think about designing a budget to fit your lifestyle. If you don't want to think about each transaction, then you can think in a bigger picture. Instead of focusing on the granular spending, simply send off your intended savings and just spend the rest.

YNAB has the goal of aligning your spending with your values. Since people are spending so much energy earning money, it is important to line up that money with what you actually care about.

If your money is lined up with what you really value, that’s the peace. You can still be in debt, you can still be paying bills you wish you didn't have to pay, but you know that your money's now doing what you really want it to do. That's the key.

Check out our full review of YNAB here.

YNAB's Four Rules

YNAB follows four simple rules that make it a powerful tool.

Rule #1: Give Every Dollar A Job

When you set up your budget, it is all about tradeoffs. If you want more of A, then you can't get as much of B.

If you are choosing one, you are ALWAYS not choosing another. So if your choosing to blow some money here, then you're choosing to not have some savings over here. And having Rule One be always in operation, where there's those trade-offs, that's where you start to have those values make themselves known.

As you go through this process, you can start to see your values. If you are paying off debt, then you might naturally cut back on eating out. Although it is not an overt rule, most people choose to cut back on eating out once they realize that the tradeoff is not worth it to them.

Rule #2: Embrace Your True Expenses

This means that you should look ahead to larger expenses such as Christmas or your property tax. If you break up your larger expenses into 12 months, then you'll have a more realistic picture of what you have available to spend today.

You can extend this rule out to larger purchases such as a new car or fridge.

Rule #3: Roll With The Punches–Change As You Go

If you are changing your budget, then you are adapting to new information. Although you cannot predict the future, you can adapt along the way. If something comes up and you need to adapt, that's okay! It means that you are still right on track.

Rule #4: Age Your Money–Build Up A Buffer

Consider the age of your money. You want to spend the money that you earned months ago, not the money that you earned yesterday. With that, you'll have more room for error when life throws something unexpected your way.

As you consider these rules, remember that life is never static and neither is your budget.

There is no such thing as a normal month, ever…You will always be able to point to an expense and say “oh yeah, that one was kind of an exception.” And the month before that, “well, that was kind of an exception.” It just goes on and on. If you're living then your months are not normal. And the quicker you realize that, the quicker you realize that your budget is a fluid plan that is always needing to adapt and that's just part of being alive.

Think of your budget as a fluid plan and adapt it as needed. If you plan ahead for an expense that will inevitably pop up, you will find that life is less stressful. Instead of considering a new set of tires for your car as an emergency, you will realize this expense was bound to happen. You can simply take the money out of your planned budget and continue on with your month.

You won't have to dip into debt or your emergency fund for something as routine as a new transmission or broken washing machine. In fact, Jesse hasn't touched his emergency fund for eight years!

Related: Earn More Interest On Your Emergency Fund: CIT Savings Builder Review

Does Brad Need A Budget?

Brad doesn't feel the need for a budget. At this point, he spends around 10 minutes a month on his finances. Adding a budget seems unnecessary to him. Let's see what Jesse has to say about this.

Brad's Finances

He considers all of his money saved until it is spent. When he worked, the money was deposited into his checking account. All expenses flowed in and out of that checking account. Most things were automatic such as his mortgage, utilities, and credit card auto payments. He kept between $3,000 to $5,000 of extra money in his checking account to buffer any timing mishaps.

At the end of the month, any money left in the account, except the buffer, was sent to their investment accounts.

Jesse's Opinion

Brad already had a very simple budget. Brad had jobs for his money. $3,000 to $5,000 was meant to handle messiness, the other money had the job of being saved, and the rest was purposed to cover expenses. Although managing his budget in software would be overkill, it was still a simple budget.

Jesse And Julie's Budget

Jesse and Julie have dealt with budgeting ups and downs for years. At one point, he froze his salary for three years. Finally, they have been able to enjoy the benefits of YNAB. However, they have always stayed within their means.

At this point, the couple is less focused on budgeting on a granular level. Instead, they are thinking in terms of the business budget and leveraging that potential.

Check out You Need A Budget here.

Budgeting With A Variable Income

If you live with a reliable paycheck, then budgeting is more simple. With a variable income, you need to have more foresight and creativity.

The scarcity of a variable budget should be your best friend. Don't play with money that you don't have yet. Otherwise, you are avoiding the question of what your money should do before you get paid again.

The more volatile your income is, the more into the future you need to be budgeting your current money…Do not assume you will have money in a few days and avoid the question of “I'm out of money, what are my priorities?”

You'll need to have a big emergency fund. Don't assume that you'll find more income in a few days or weeks. Find a way to stretch your budget as far as possible.

Live Within Your Means

The most important thing is to live within your means. Although the means and life can change and grow, always stay within your means. If possible, create a gap. If you can create a larger gap, then you leave room for more opportunities.

How To Connect

You can check out the budgeting software on YouNeedABudget.com. You can contact the YNAB support team for budget questions, there is also a helpful support group for YNAB users on Reddit. You can contact Jesse directly at [email protected] or check out his podcast to find out more.

The Hot Seat

Favorite Blog, Podcast, or Book: Deep Work by Cal Newport. It is a competitive advantage to be able to do Deep Work.

An Inflection Point: Jesse created the audacious goal of paying off his mortgage by age 30. At the time, he didn't even own a home yet. Never underestimate the power of an audacious goal.

Favorite Life Hack: If you work out in the morning, it makes your whole day better.

Biggest Financial Mistake: In his personal life, it might be their first home purchase in 2008 right before the crash. It had negative impacts for many years. Also, he lost around $80,000 developing software that he never used.

The advice you would give your younger self: He would use YNAB to budget for his business. If he had been using YNAB to budget for the business, he could have been able to take advantage of opportunities along the way.

Bonus! What purchase have you made in the last 12 months that has brought the most value to your life? A table saw.

Related Articles

New to FI? Be sure to check out Episode 100: Welcome To The FI Community!

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7 thoughts on “165 | Do You Need A Budget? | YNAB”

  1. YNAB has been in our life for at least 6 years. It’s amazing how I can just pull my phone out of my pocket to take a quick glance at our cash flow to see where we stood at any given moment.

    Another side-benefit I have found with YNAB is the history of data. Sure, I could look back on years of bank statements — but having it all in one interface, the YNAB software helps me remember things…things like “why the heck did we spend four thousa… oh yeah, the month the air conditioning unit died.”

    I think we spend 10 minutes a month revising the budget and maybe another 20-30 combined minutes reviewing it during the month. It’s amazing how effective those few minutes can be once you get rolling.

  2. I am like Brad, never had a budget never needed one. Things automatically get deposited and paid from my checking account, any extra goes to taxable savings at the end of the month. I think the Grocery store story (Julie needed more money for groceries because the budget was not realistic) illustrates that having a budget is a somewhat artificial constraint. Simply live life on an internal budget – for instance, always try to keep utility bills low by not wasting energy. Don’t eat out much because just know that it is not a great way to spend money, plus more relaxing to have friends come to dinner and cook. I just hardly ever buy anything that is not really necessary – never have, never will. For instance, I have never made a habit of buying any liquid at the grocery store other than milk for the kids. No bottled water (wasteful), no juice (not healthy) no soda (junk) . Only buy what I know we will use before it goes bad. Buy seasonal and what is on sale at all times. Store brands whenever possible. Don’t use coupons for junk that you would never buy anyway! Also – just saying that I don’t know the price of a can or corn because no one should be buying CANNED corn – frozen is SO MUCH better! 🙂

  3. I almost didn’t listen to this episode because I don’t budget. Like Brad, I don’t spend unless I need to. Even so, I found this episode fascinating, especially Jesse’s examples of how he and his wife work their finances and how he recommends opening discussions about finances. He really has simplified an otherwise difficult discussion for so many couples. As I listened, I could think of certain people in my life who would benefit from various parts of this episode.

  4. We found YNAB *after* reaching FI and retiring (Jan 2008). We have been using it since Aug 2013. It has helped us preserve our financial resources and aided us in actually growing our nest egg despite spending 6-7% per year. Now that we are collecting SS we have reduced that SWR to 2-3% and our nest egg is growing even faster. A lot of that due to our continued use of YNAB.

    Thanks Jesse.

  5. Jesse talks about a Julie as his partner. This is so refreshing. I find so many men in the FIRE movement talk about I, Me, My rather than We, Us, Our — as though their partners make no contribution to their success. I don’t find women FIRE folk with the same dismissive attitudes toward their partners.

    Kudos to Jesse, and to Brad and Jonathan for having him on!

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