One of the keys to financial success is not just knowing where your money is going, but deliberately and intentionally choosing what you want your money to do for you.
That’s one of the underlying themes of a new book I just read called You Need A Budget. The book is written by Jesse Mecham, creator of the You Need A Budget (YNAB) budgeting app.
Disclaimer – I’ve never used the YNAB app so I can’t personally speak to its effectiveness. However, after reading Jesse’s book I’m considering giving YNAB a whirl.
Whether you’re a loyal user of Jesse’s app or a budgeting novice, there are some great lessons in the You Need A Budget book, and in this review I’m going to share some of my favorite nuggets.
The Four Rules
The YNAB philosophy can be neatly summed up by its Four Rules:
- Rule One: Give Every Dollar A Job
- Rule Two: Embrace Your True Expenses
- Rule Three: Roll With The Punches
- Rule Four: Age Your Money
Rule One is all about setting priorities and allocating your money toward your goals. If you’re not doing that now, your money is probably just slipping through your fingers.
You end up with no money left at the end of the month and you can’t even remember what you spent it on.
Don’t worry, it has happened to me too.
The key to breaking out of that cycle is consciously deciding where you want your money to go and making sure it gets there.
Rule Two covers an important part of budgeting that many people forget about, and it sets them up for failure.
When you create a budget, you probably have no trouble listing all of your regular monthly expenses such as rent and groceries. But what about less regular expenses like your annual car insurance bill or Christmas shopping.
You know you’ll have these expenses but if you account for them in your monthly budget they will sneak up on you and catch you unprepared.
Using the YNAB method you save for these expenses each month so when they pop up you already have the money set aside for them.
Rule Three is all about rolling with the punches and accepting that not everything goes according to plan.
No matter how well you prepare, unexpected expenses will pop up.
There will be times you’ll want to splurge a little in one spending category.
That’s okay. Life happens.
When these things happen, you’ll need to be flexible and shift your spending around for a month or two to make up for any shortfalls.
The alternative is falling deeper into credit card debt and that is never a good idea.
Rule Four is to age your money and build yourself a cushion.
Rather than living paycheck to paycheck and waiting for your next payday so you have enough to cover your bills, you spend last month’s money and in the process do away with a lot of stress.
I think Rule Four is the weakest of the rules and it can be easier said than done when you’re struggling to make ends meet.
Who can think about building a cash cushion when you’re just trying to keep your head above water.
Still, there is value in the concept once you get your family finances in order and start feeling like you’re in control of your money.
Love and Money
Chapter 6 is titled Budgeting as a Couple and it’s a good one.
I really think this chapter should be required reading for every couple because so many arguments and unneeded stress could be avoided by following its advice.
Sometimes I feel like my wife and I aren’t always on the same page when it comes to our finances.
Sure, we’re pretty compatible overall. But we are individual people and our wants and goals aren’t always going to be in perfect alignment.
That’s not necessarily a bad thing by the way.
Being part of a couple doesn’t mean you stop being your own person.
The key is communication and respect for each other’s needs.
Mecham suggests meeting with your significant other and choosing priorities (Yours, Mine, and Ours) together.
For example, my main goal right now is paying down debt to free up cash flow. My wife thinks its time for a new bed so we’re currently saving for that. And family time is vital to both of us so an annual family vacation is a must.
Boom. Just like that I listed our top priorities.
And while those priorities might change, we find it extremely helpful to keep them in the back of our minds.
When we’re tempted to splurge on something we just remind ourselves of our current priorities and ask ourselves, “Is this tempting bit of spending moving us closer to our goals? Or do we need to reconsider our priorities altogether?”
Teaching Kids About Money
As a father of three young rugrats, I desperately want to see them succeed in life and avoid some of the potholes that tripped me up.
My parents were not very financially savvy, and schools don’t do a very good job of teaching kids about managing their money either.
Unfortunately, I had to learn about personal finance through trial and error. And error, and error…LOL
As a dad it’s my job to pass on my hard-earned knowledge to my kids and Mecham too believes that you’re never too young to start learning about money.
He tells a great story about his son saving his money for a special toy and then blowing it all on Swedish fish.
As soon as the candy was gone his son instantly regretted spending all his money.
I think we’ve all made a purchase that we regretted, right? I know I have.
Anyway, isn’t it better for your kids to learn that lesson when they’re young and the only thing at stake is a pile of Swedish fish?
It’s certainly better than accumulating tens of thousands of dollars in credit card debt.
You Need A Budget is a quick read of less than 200 pages, but it is packed with useful tips.
It’s not a step by step guide to creating a budget (I guess that is what the app is for) but it does spend a good deal of time talking about mindset and how important it is to managing your money.
If you’re already 100 percent on top of your money and have no concerns about reaching your goals, you can skip this book.
But if you’re struggling with money, living paycheck to paycheck, and ready to take control of your finances, this book is for you.
I see You Need A Budget particularly helpful to couples where one person wants to change their spending habits and the other doesn’t recognize a problem or wants to continue spending freely.
If you can get your partner to read this book, it might just flip a switch in their head and turn them into a saver.
Where to Buy: Purchase You Need A Budget on Amazon
Mike Collins has been working in the financial industry since 2002 and is a self-proclaimed money nerd. He’s written for numerous personal finance websites and been featured on sites such as MarketWatch, Fortune, and Business Insider. Mike’s created Wealthy Turtle to give readers the tools and knowledge to manage their money like a rock star.