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Kindle Notes & Highlights
by
Jesse Mecham
Now imagine how you’d feel on the day your $600 insurance premium is due if you’d saved $100 a month over the last six months. You wouldn’t flinch. There would be no stress around it at all. In fact, you’d probably feel pretty happy and proud that you can just pay your bill and move on. You’d remember
Think back to any time you’ve looked at your credit card statement and decided that your huge balance was just because of “an especially crazy month.” Maybe your surprise charges looked something like this: A gift for the wedding you attended, that GoFundMe donation for your coworker’s daughter, a new tire after you drove too close to the curb to avoid that pothole (both came out of nowhere!), and—gah!—a last-minute suit for that wedding because your old one is two sizes too big (the only downside to hitting your weight loss goal).
Here’s the thing: many of your surprise expenses aren’t surprises at all. Look at your life from a broader view. You know tires don’t last forever (set something aside each month for auto maintenance).
Assess my budget for what is NOT being budget. Which months are extra spending months. Set back some money for yearly clothing and shoes. Enough money for gadgets? How much have I spent on gadgets last year? Entertainment money? Out of town money?
Maybe this will be painful for you, but it will be worth even a quick skim to pick up on important patterns like the frequency of your vet visits, charitable giving, or infrequent bills. It’s also a great chance to reinforce your priorities. If you cringe with every pizza order you see, use that frustration as ammunition to align your spending with your goals moving forward. This isn’t about dwelling on the past—you’re just peering at it long enough to fully understand where your money is really going (and where you might want it to go instead).
With your immediate obligations funded, go down your priority list and assign dollars to jobs in order of importance. If you’re not sure what to fund first, try targeting the infrequent bills that always tend to blindside you, or the spending peaks, like holidays, that always set you back. The ones that make you cringe when you even think of them. Then fund the others as you can.
Think about how much stress stems from the “surprise” expenses that always make us feel we can’t get ahead, or the big debts we dream of vanishing. If you take a broader view of your spending and stockpile money for those big expenses, that stress will disappear.
Julie and I have goals in our budget that have no money in them at all. They’re long-term targets that we’d like to accomplish one day, but they’re not urgent enough to attract our dollars yet. Our big one right now is a family cabin. We’d love to save for one but we want to be mortgage-free before we start. So we put the cabin in our budget as a reminder, and something to look forward to.
Put simply, Rule Two takes over your brain. Don’t worry—this is a good thing. The biggest change is in your spending behavior. When your long-term goals are on your radar, your bank account balance is no longer the deciding factor in whether or not to buy something.
“Does this move me closer to my goal(s)?” You’re considering the future ramifications of your decision in a very concrete way, and spending becomes about real trade-offs:
“If I buy these shoes now, it will take me an extra month to hit my vacation goal.”
Rule Two draws the line to real consequences. Now you’re thinking, “If I buy this, I’ll have less money for that thing I want in three months.” That reality makes all the difference. Now the trade-off isn’t about having less money, it’s about not having something you’ve decided you want. There’s no deprivation there at all. You’re getting something for your sacrifice. Something you actually want!
This is so true. And you also start thinking about the other costs of a big purchase. And also how can I hang onto that money longer?
But she rolled with it because Matt was such a Four Rules die-hard. (He once forwarded one of our emails about Rule Four to twenty-three of his friends, and you can’t spend more than ten minutes with this guy without hearing about
“I definitely watched the ‘click’ happen in Allie’s eyes,” Matt says. “She was amazed that the $1,000 was painlessly there. It was a big moment.”
It’s smart to be prepared if your income stream suddenly dries up.
But even in that case, we don’t recommend having the money just sit there in a generic pile labeled “emergency.” Instead, assign the cash you have to future expenses.
Don't just have a generic emergency account for loss of a job. Instead, pay forward some true expenses for when that job is lost.
Technically your bank account will look the same as if that money were a generic emergency fund—it will just sit there as one big sum. But your budget will tell the full story: you’ll know exactly what each dollar will cover, and for how long.
But when you know that money is for medical bills, you’re much less likely to siphon from it to pay for a birthday present. And if you do take the money (okay, you’re healthy today and your mom will be really disappointed if you skip her birthday), you know how much you need to put back, and why. The stakes are clear.
You may feel rich when that five-figure payment lands, but plugging it into your monthly budget will show you the real picture.
Just make sure that “extra” $1,000 is truly extra before spending it on a cruise when your tuition bill is due in two months and your next check won’t arrive until well after that. You may not like the truth, but you’ll be better off.
The problem is, most people have a hard time seeing their budget as a living, adaptable thing. They feel that if they change it, they’re not really budgeting, they’re cheating—but that couldn’t be more wrong. Rule Three: Roll with the Punches is all about adjusting your budget to allow for whatever comes your way. Because your budget is a plan that reflects your life, and like life, plans (and budgets) change.
Accountability is dealing with the truth of every decision you make. You’re actually never more accountable than when you change your budget. (Go ahead, read that sentence again, it’s important.) If you’ve overspent on eating out and need to take that money from a different priority, like vacation, that’s accountability. You are living the reality of what it means to spend more than you’d planned: you’re now that much farther from your vacation goal. It’s not a failure, but a reprioritization.
You’ll have funds to cover surprises the longer you practice Rule Two, but sometimes the hits are so huge, and so unexpected, they completely derail your plans. That’s when you’ll start squeezing dollars out of every
Not only were they prepared thanks to their emergency fund; they’d been so used to living below their means to reach their financial goals that they didn’t even need to touch that cash. “We definitely had to roll with the punches by adjusting our spending after May. We also stopped putting money into our savings. That combo kept us from having to dip into our emergency fund, which was huge. You work so hard to build that up, you really don’t want to spend it!”
Tracy and Dan’s experience is a reminder that the longer you budget, the less the punches will hurt when they do land. Even the mega-clobbers. Rules One and Two will help you roll with the punches:
That’s totally up to you. But the older your money, the further away that money stress will be. Age your money long enough, and the stress won’t even be in your line of sight.
You can use Rule Four: Age Your Money to help you measure how “old” your money is. Money’s “age” is based on the gap of time between when you earned the money (cereal in) and when you spend the money (cereal out).
deposited on Monday, then your money is five days old. Rule Four is more of a tool than a rule because we don’t set an absolute standard for how old your money should be—just older. We tell people that thirty to sixty days is a good goal, but one day is better than no days; five days is better than one. Just keep working on increasing the time between receiving money and spending it.
Spend less than you earn and use the difference to wipe out your debts. Once you have cleared that hurdle (and you will), instead of putting that extra money toward your debt payment, you have the luxury of letting it sit there and age. You’re no longer paying for what you spent in the past. Now you’re sending money to the future, so it’s sitting there waiting to be spent later.
With Rule Four, you’ve got a stack of money waiting for bills.
“Looking at those numbers, they almost seem fake,” Alex admits. “But the only real change I made was thinking about my spending. Previously, I never thought about how much I was spending on anything. It’s scary to think about now, because I don’t know what I was spending my money on!”
This quickly helped free up money for investing and building up a cash buffer. At the time of this writing, Alex is spending money that is more than two months old. He finished budgeting out January with a paycheck he received in mid-November. That buffer has a huge effect on Alex’s state of mind.
Even being a single paycheck ahead relieves so much stress and worry from day-to-day life.”
He knows exactly how much he spends on what, and that the money is sitting in his account for when the bills land. Actually, the only time he thinks about his cards now is when he logs in to redeem his rewards.
If you want to be very intentional about aging your money, you can save for it separately. Know you spend $4,000 in a typical month? Chip away at saving $4,000. When you hit your goal, use that money at the start of a new month instead of your upcoming paycheck.
The sprint is a short period of time during which you go to extreme measures to accumulate extra cash. Once you’ve brought in enough to fund a month of expenses, you’ll officially be out of the paycheck-to-paycheck cycle. Push yourself to the limits, and when you feel you can’t do it anymore, remember this is only temporary. At the end of a sprint you collapse over the finish line. You don’t want to run another step. You’re not supposed to be able to maintain this for a long time. That’s why it’s a sprint. Some things you can try:
Abolish nearly everything during your sprint. Don’t just cut back on eating out—eliminate eating out. Don’t go to the movies. Cut out any frills. Dig deep into your pantry for most of your food and only spend on essential perishables. Have fun for free: hike, bike ride, have a picnic with the treasures in your pantry.
If your sprint feels intolerable after a couple of weeks, you’re probably moving at just the right pace. Keep going. You have a goal and you can do this. You’ll go back to normal life soon. This will be worth it.
Remember that windfalls aren’t just surprise inheritances or end-of-year bonuses. They’re any cash jump: a tax return, a three-paycheck month, an employer benefit, the chance to take on extra hours at work. The point here isn’t about the extra money (remember, it’s not about the money!), it’s about making a really intentional decision whenever something like this happens. Whether you’re hustling to build a buffer or looking for ways to pay a big expense, it’s those little upticks that will help you get ahead if you budget them to your top priorities.
YNAB wants you to make choices for what’s happening now, and in the future. You have jobs you want your dollars to be working on. But when debt is in the picture, it claims those dollars before they even hit your bank account. Your choices are restricted. Consumer debt is the biggest offender because most of it is for stuff you didn’t even care about. And your present-day priorities are hurting because of it.
Borrowing for a new car is always a bad idea, since its value decreases the second you drive it off the lot. The margins on your losses are smaller with a used car but it’s still bad debt if you need a loan to buy it.
With debt, you’re spending money now that you won’t have until later.
For this reason, we recommend paying off your lowest-balance debt first if you have multiple debts. We want you to shrink the number of payments you’re on the hook for each month so you have more freedom to decide how to use your money. It all comes back to simplicity. The fewer things you’re juggling—whether they’re bank accounts or debt payments—the more clarity you have to focus on what’s most important to you.
“Rule Four was the game changer for me,” he said. “A month into using YNAB I was living off of my previous month’s income. Knowing I had cash on hand to cover all of the month’s bills was a huge stress reliever.”
His spending was still tight, but knowing it was for the purpose of building his buffer made the penny-pinching more tolerable. His end goal was not far (much closer than paying off that $104,000), and he says building that cash reserve made all the difference.
Rule Two: “Saving for true expenses is a big reason I was able to stay on track. I’d tried other budgeting solutions but nothing like Rule Two existed in those systems. I’d get stressed and depressed every time an infrequent expense hit. The holidays were the worst. Of course, I could have decided not to give gifts and be a jerk to everyone, but that didn’t feel like a real option.
That’s one of the biggest lessons I’ve learned: cutting down expenses will help to a point. If you want to move quickly with anything financially, it helps to get your income up. You have to be strategic about it. Just as you put plans in place for your budgeting goals, put plans in place for your income goals.”
Tracy and Dan had to get creative when it came to hanging out with friends and going on dates. “Basically, we did as much as we could at home. Movie and wine nights, dinner dates in. If we wanted to go out, we’d opt for Starbucks instead of a restaurant. We didn’t buy clothes or go out partying like the rest of our friends. When it got frustrating we reminded ourselves it was only temporary.”
Holly started budgeting with under $1,000 to her name and $18,000 in debt. She now has well over five figures in her bank account. She pays for vacations in cash, spoils her team of fellow Beachbody Coaches, treats her family, and most important, doesn’t stress about money.
Fund your true expenses first. There’s no use in dumping all your cash into debt payments if it will leave you broke when new bills come in. True expenses are especially tricky when you leave yourself little cash. One surprise bill or expense, and you’ll slide back into debt.
within those parameters. If my kids want to buy something outside their budget I try to remind them they’ll need to shift their dollars to fit in the purchase. They’re usually quick to decide: nix the new thing or shift their priorities. They never see it as failure—they’re just changing their minds about their priorities. Awhile back, Todd’s son Oliver was saving up for a few different toys (Legos, Minion figures, Pokémon cards, and a couple of other top priorities—hey, he’s nine).
