You Need a Budget: The Proven System for Breaking the Paycheck to Paycheck Cycle, Getting Out of Debt, and Living the Life You Want

by Jesse Mecham

Those little stress daggers are actually the same question on repeat: Can I afford this? And this can be as small as lunch out with friends, all the way up to retirement.

We’re not confident we know what is best. We’re overwhelmed by options and have no idea whether to trust our gut, the guy yelling at us on TV, or something else entirely. We don’t have a system for making decisions. I’ll talk a lot about this throughout the book, but the bottom line is that we need a system in place to drive our decisions. Without one, we’re spending and saving on whims. We’re scared to learn the truth. Our finances are a black box. Money flies in and out of our accounts, and we guess we’re doing fine because the balance never hits zero, but we have no idea what’s truly going on. And we’re afraid to find out.

In truth, when we’re stressed about our finances, it’s because we’re not sure our money decisions are aligned with the life we want to be living.

The question we need to ask ourselves isn’t Can I? or Should I? It’s What do I want my money to do for me?

What do I want my money to do for me? works like a gut check that helps us see whether our priorities are driving our money decisions. When we know what we want our money to do for us, the options become a lot less daunting, and confidence quickly replaces the stress.

What do I want my money to do for me? is about nothing less than deciding what kind of life you want to live, and then making a plan so your money can help you get there.

It doesn’t matter—the point is to decide what your priorities are, and then make a plan to meet them.

That’s the beauty of a (good) budget: it lets you see exactly how your spending affects the rest of your life.

A concrete system for making financial decisions tailored to the life you want. That system is your budget. A new mindset for looking at your money in ways you never have before. That mindset is YNAB’s Four Rules.

Rule One: Give Every Dollar a Job, is all about being proactive, so life doesn’t simply claim your money. Instead, you’ll decide on priorities first, then assign dollars (only the ones you have right now—we’ll talk a lot about this!) to those priorities before they walk off. Because your money is going toward your highest priorities, your spending has to clear a higher bar.

Rule Two: Embrace Your True Expenses, combines the power of thinking ahead with taking action here and now. Whether expenses happen like clockwork (rent), feel impossible to predict (car repairs), or are just far-off dreams (cash for a wedding), they are all part of your true expenses. The key is to prepare a bit at a time by treating them all like monthly expenses.

Rule Three: Roll with the Punches, helps you adapt so you can handle whatever comes your way. Your budget is a plan—but plans change, and your budget should, too. Spend more than you expected on dinner out with...

Just pull some money from lower-priority categories and carry on. You haven’t failed at budgeting, you’ve adapted with the best of them. This flexibility isn’t how most people imagine ...

Rule Four: Age Your Money, gets you working toward spending money you earned at least thirty days ago. When you increase the time that passes between receiving your money and spending it, you’re more secure, more flexible. You’re breathing easier. If you’re implementing the first three rules, you’ll be aging your money before y...

This is not a set-it-and-forget-it approach.

If you’re ready to design the life you want, you’ll need to engage with your money consistently. Every time money hits your bank account you’ll set a plan for those dollars.

That kind of budgeting doesn’t work for a few reasons. First, there is no room for prioritizing. Every line item competes for your dollars and there’s no structure to decide what should get funded first. There’s also no structure to make sure important things aren’t left out. You probably (hopefully) give bills and life essentials top priority. But how will you decide what gets cash next, especially if you don’t have enough for everything? Put more toward your student loan balance, or save for vacation? Dump money into your daughter’s 529 or save up for her summer camp? Cue the running and screaming.

It also offers zero flexibility. You automatically fail the moment real life doesn’t align with your predictions. Who wants that kind of stress?

The difference between forecasting and budgeting is a lot like the difference between dreaming and doing. It’s fun to forecast and dream of the life you want if you can someday get those numbers to work. But how about looking at the money you have right now and creating a spending plan based on what’s most important to you?

When you view your money through this lens—prioritizing the money you have right now—the whole picture changes. Now you’re not just guessing and hoping—you’re being intentional with your dollars.

Your budget is all about thinking ahead. Just make sure you don’t forecast future money. That cash will be great when it hits your account, but you’re only concerned with making sure the money you have today gets you closer to your goals.

The feeling of scarcity might tempt us to quit, but when we step back and embrace scarcity, we make good decisions. When we recognize our dollars are finite, we’re more intentional about how we spend them. Scarcity pushes us to be very concrete about our priorities, and those that matter to us the most make themselves known in these moments. And that will help make significant changes for the better with your finances.

Here’s the challenge: It feels like everything vying for that $400 is a priority to you. You’ve wanted to show Evelyn your cooking skills since you first connected over your love of Top Chef. There’s simply no way you’re canceling dinner. Spending time with family is a top priority and you’d never miss your brother’s birthday. You can’t skip eating for the rest of the month (really, don’t try it). And you decided last year that you really want to dig yourself out of debt before you get married. (You didn’t even have a girlfriend back then—a girl like Evelyn was just a dream. Don’t mess it up!) What to do?

You also wouldn’t have known—until it was too late—that the aged steaks you bought to impress Evelyn ultimately kept you from your debt-paydown goal. By being intentional with your spending, you managed to fuel all of your priorities with no financial fallout.

If you don’t have enough to budget out the rest of the month, then budget for things based on 1) their importance and 2) their sequence. So if you have $200 and you need to buy food, budget for that before budgeting for the rent that is due in two weeks. As soon as the next paycheck arrives, cover rent and any other essentials that are immediately due. If this leaves you really short and worried, you get creative.

That said, the goal of the Four Rules is to get you to the point where you are never timing bills to paychecks. That may feel impossible, but you can get there. Just keep your eyes on your priorities—and keep reading.

As I said earlier, there’s nothing wrong with looking to the future. YNAB’s Rule Two: Embrace Your True Expenses, is all about anticipating future expenses, and this is especially important for people with a fluctuating income.

Budgeting has you prioritizing the money you have—and leaves you feeling confident because you know it’s one hundred percent based in reality.

Budgeting helps you see where your money is truly going so you can reroute it if it’s not going in the places you want.

This looks a lot like forecasting, but there’s a key difference: Alexis and Phil made their plans based only on the $20,000 they already had. They didn’t play with nebulous numbers—they set a concrete plan for the real cash sitting in their bank account, based on their priorities.

When you spend on a budget, that latte is a purchase you’ve decided to make because you want to, and because you can, guilt-free. If you’re saving (or, rather, refraining from buying), you’re doing it with conviction, not just because “lattes are so expensive.” Guilt-free there, too.

This is the driving force behind Rule Two: Embrace Your True Expenses. By breaking large, infrequent expenses into smaller, frequent milestones, you’re getting rid of “surprise” bills that tend to blindside us. Suddenly, they aren’t surprises.

If you’re not planning, you’re tossing money at things as they land in front of you—whether those things are bills or desires—and just hoping you’ll have some left when the dust settles. With budgeting, on the other hand, you’re mapping out your spending decisions before they happen. You can plan for the unplanned, even if the “unplanned” is just for fun.

And if you don’t have anything in your “impulse buy” category this month, you’ll know it’s because you intentionally put your dollars toward something else—a different priority that’s more important to you. You’re in control.

Imagine paying your bills the moment they land because the money is just there, actually waiting for the bill. (Personally, I get a little thrill when I come home to a pile of bills I can pay on the spot.)

YOUR NEW MONEY MINDSET IN ONE SENTENCE: Forget future money; use today’s money to write your future.

CHAPTER 2: Rule One—Give Every Dollar a Job

Rule One: Give Every Dollar a Job sounds simple enough, and it is. Just check your bank account balance and assign a job to every dollar you own. You’re officially budgeting the moment you start doing this, and with every “job” you assign you’re answering the question: What do I want my money to do for me?

You’re literally writing a to-do list for your money.

YNABers Lia and Adam set these categories as their core obligations: Rent Car payment Natural gas Fuel Electricity Car repairs Internet Car insurance Life insurance Phones Student loans Groceries/toiletries Wedding debt

This is where budgeting gets exciting. You’ll quickly jump from paying your bills to mapping out a plan for the life you want to live. You’ll no longer just spend or save on a whim. You’ll be doing it with intention, and you’ll make sure the things that are most important to you get priority over your dollars.

To start, make sure you’re separating honest-to-goodness obligations from habits disguised as necessities. It can be hard to distinguish between the two at times. Just remember that your habits are ultimately negotiable in a pinch—your obligations are not.

It’s also a great time to consider how certain changes may improve your quality of life—after all, your budget is about making change for the better.

This isn’t about depriving yourself. The point is to question your habitual reactions to what you assume are obligations. Take a step back so you can see them with total clarity. You may find you absolutely need to pay as much as you’re paying. But you’ll often be surprised to discover how much is truly flexible.

Think of the car insurance bill that has a way of showing up every six months, or the water bill that slithers into your mailbox every three months—always out of the blue, always when you just thought you were getting ahead. Rule Two prompts you to break those bigger expenses into monthly installments so you’re prepared to pay them when they hit. When you do this, big expenses don’t feel so big, and you’re never blindsided. Because let’s face it: you know when your car insurance bill is due; you just don’t think about it until it’s in front of you. And it always lands at a bad time.

We call these your “true expenses” because they capture every expense involved in keeping your life running. When coming up with this list, think beyond scheduled bills to include expenses like car and home maintenance, or doctor visits.

You’ll be tempted to revert back to blissful ignorance, but hang in there. You’re making progress just by knowing where you stand, and budgeting will get you closer to where you want to be.

Write down your quality-of-life goals even if you don’t have money to assign to them right now. You will soon, and the moment you do you can put those dollars to work in exactly the way you want to.

Remember: You can do whatever you want with your money after your obligations are fun...

Picture how you’d feel if you threw a big chunk of money at your debt each month. Would it feel like an accomplishment? Like you’re chipping away at removing a weight from your shoulders? Or would you feel stressed about other things you might not be accomplishing because your debt is eating most of your paycheck?