On You Need a Budget

I picked this up without realizing it’s an outline of You Need a Budget’s philosophy of personal finance, and it’s actually a really good book. I first used YNAB a few years ago, in grad school, trying to figure out how to live in Boston on a stipend of $21,000 a year (which I didn’t manage — I accumulated credit card debt in the process). It didn’t work for me then, but having read the book, I suspect that’s because I didn’t understand the theory behind Jesse Mecham’s model. When we think about budgeting, we tend to try to anticipate our future expenses, create categories, set limits, and stick to them. That isn’t what Mecham means at all — he calls that “forecasting,” and it isn’t particularly helpful. For YNAB to work, you have to already have the money in hand, and the single big idea is: every dollar has a job. After you’re paid, you look at your bank account and your bills and assign each dollar to a category, which gives you a much clearer sense of what you can actually afford. The crucial thing is to stop thinking of money as a series of expenses and start thinking of it as a set of value judgments and priorities — allocating money to a category is a choice about what matters most to you. A thousand dollars on bagels for the month, or toward a mortgage? Pay off debt aggressively, or take a luxurious vacation to Bali? The model forces you to think clearly about what you want from life, and I find that genuinely valuable.

Mecham lays out four rules, all of them really variations on the first:

• Give every dollar a job
• Embrace your true expenses
• Roll with the punches
• Age your money

I’ve explained the first already; the others are about keeping the whole thing from falling apart. “True expenses” are the things you have to pay for that are irregular or unexpected — your car breaks down, say: do you have the money, or does it go on credit? Embracing them means recognizing that such things happen and setting aside money in advance; better to allocate $50 a month and have $250 ready than to have nothing. The third rule is about understanding that the categories aren’t set in stone — if you have higher expenses in one than another, it’s fine to move funds, and it’s good to keep some uncategorized “fun money” so the budget isn’t too stringent. “Age your money,” finally, is an interesting way to think about your finances: the money you’re spending today, how long ago did it enter your account — a day, a week, a month? By lowering expenses you can break out of the paycheck-to-paycheck cycle and build some breathing room. The money I spend tends to be less than two weeks old, which is the paycheck-to-paycheck cycle; it’d be really nice to see my funds reach ninety days old. There’s a chapter per rule, plus thematic chapters — “budgeting as a couple,” “slaying debt,” “teaching your kids to budget,” “what to do when you feel like quitting” — which were neither as interesting nor as helpful as the rule chapters (with an exception for the one on children), but they flesh things out. Now that I’ve read it, I feel I can run with a philosophy of personal finance that’s actually helpful — a way of limiting impulse spending and finding stability — and Mecham’s model seems genuinely powerful. I’ve already made my own spreadsheet and started putting some of it into practice. I wonder how my finances will look in a few months.