Do you wish you had more control over your money? (Yes!)

Do you wish you knew where all of your money was going? (Double yes!)

You Need A Budget (YNAB) is the smart software that lets me figure all of this out for myself. To make sure I was getting the most out of it, I talked to Todd Curtis, their Chief Knowledge Officer.

What is YNAB, exactly? I wrote about it in this article, The Minimalist Guide to Budgeting (for Sound Engineers). You don’t have to read the article to understand this interview; the first part is all about budgeting and applies to anyone and everyone. Then there’s a bit of fanboying at the end for the hard-core YNAB users out there (I love you guys!).

NATHAN LIVELY: Every time someone asks me if I like YNAB I give an enthusiastic “Yes!”, but then I always have to explain that there was a big learning curve that probably has more to do with the fact that I never learned to manage my money responsibly than the software being overly complex. Would you say that’s fairly common?

TODD CURTIS: Absolutely. Almost anything significant that we learn new as adults has a learning curve. As adults, we’ve collected all these thoughts about the way things should be, and we have to unlearn those things as much as we need to learn new things.

On top of that, people’s financial lives are complicated. There are a lot of moving parts, and we have a lot of issues like security and personal goals wrapped up in money. That’s where the stress comes from, but keeping a budget can remove that stress. We like to think YNAB—both the method and the software—does that easily. It’s just easier if you can forget what you think you know!

Understanding how to use money is just as important as language in surviving modern life. Why is our personal knowledge so lacking?

I love that analogy to language. But language is something we learn naturally—our brains are actually wired for language acquisition! Managing our money isn’t something we’re surrounded by from birth. So we each kind of grope around and try to develop our own solutions, which is too bad because in the end, it isn’t especially difficult to learn some strategies that can make a real difference.

More than one person told me that they bought YNAB, got started, then at some point stopped entering transactions and gave up. I bet this happens fairly often and I’m curious if you have any good strategies for maintaining momentum?

I think a lot of people give up the first moment they discover what they actually spend turns out to be different than what they expected.

Because if people have learned anything about a budget, it is that it is a rigid system. Make your numbers or else! As though you get a grade at the end of the month. But that mode of thinking doesn’t recognize that life is unpredictable, even though we all know that it is. When your plans change, your budget – which is just a plan for your money – needs to change, too.

What do you wish your parents had taught you about money? Or, if you could leave behind a collection of values for your children, what would they be?

Be intentional about your money. Set (and change when necessary!) clear priorities and think about how money can help you reach them—or not.

What are the most common mistakes you see people make with budgeting?

Forecasting—budgeting money that they don’t have yet. It’s easy to imagine any amount of future money when you do your budget, but then you don’t see the real need for change in your habits. You’ll go through the motions of what you think is budgeting without getting the positive benefits. Bottom line? Only work with the money you have now. The rest will come.

What are your responses to these two excuses? 1) I don’t make enough money to budget. 2) I make enough money to not worry about budgeting.

No matter how much money you do or don’t have, you have priorities. You’ll be happier and experience less stress if your money is aligned with them. That’s a budget.

How does YNAB compare to Quicken? Sometimes the best way to describe something can be through contrast.

The biggest difference, for me, is that other systems are retrospective. They look backward and give you reams of data. But sometimes, as one of our YNAB teachers likes to say, it’s just a glorious record of your overspending. A YNAB budget looks forward. It says, here’s how much money I have right now. What do I want it to do for me today? Next week? Next month? YNAB’s strategy aligns your money with your future aspirations rather than looking back.

For more information, YNAB has an entire article on the subject you can read here.

YNAB vs Mint? The great thing about Mint is that it’s free and it will connect to all of your accounts and automatically track transactions. The bad thing is that they have ads and you are not as in touch with your spending as when you have to put each item into YNAB. The whole idea is to get you to consult your budget before spending, and if transactions are recorded automatically you might never do that.

We’re really excited about a development we have just around the corner that will allow YNAB to connect directly with your bank. We shied away from this a bit in the past because we do believe, as you said, in being in close touch with your money. We never wanted automation to go so far that it put you out of touch with decision making. But by helping you stay organized with your transactions, we can keep you focused more on decision making. What do these dollars need to do for me right now? That’s an active process you need to be a part of. It’s what reduces your stress and allows you to take total control of your money.

Many sound engineers are independent contractors with irregular income. YNAB can work well for them because it has you wait until you have income before you budget any dollars, but what about the future? How much money should I have saved (buffered) so that I can take advantage of things like automatic transfers into my retirement account and automatic bill payments?

That is a decision that depends a lot on variables specific to your business. I mean, we tend to say that you should have at least a month’s worth of expenses in reserve. But what’s your risk tolerance? How even or uneven is your cash flow? How much do the cash needs of your business tend to vary? A lot of business owners would look at this and decide they need three, four, even six months of expenses saved.

What are some successful methods you have seen people use for budgeting with shared expenses? Colleagues, partners, spouses? Expenses that you don’t have complete control over (eg: you split grocery shopping with your girlfriend, but you do all of the shopping)?

I’d love to say there are tricks that will make it easy, but it really comes down to communication. Whether it is a business partner or a life partner, you’ve got to be clear about both your individual priorities and your shared priorities, especially at the places where they overlap or diverge. Have regular conversations about it. Have a budget date.

The other important thing in a shared budget is to leave some space for some autonomy. Hey, here’s money that is just for you or just for me, and we don’t have to report back to each other about it. That really helps things work smoothly.

TECHNICAL

How important is reconciliation? I haven’t done it, ever. Every day I spend about ten minutes checking all of my accounts for new transactions to make sure there was nothing I missed or entered wrong. Then once a month I “Adjust Balance” on each account because it is usually off a few dollars.

Reconciliation is important because you want to make sure the dollars in your budget truly exist in your accounts! If you don’t have an accurate record of transactions, you may be budgeting money you don’t have anymore. Having said that, making that adjustments you describe does the same job. You know you’re up to date.

I made some scary rookie mistakes when I first started using YNAB that I want to share with everyone. If you have any corrections or comments, that would be great.

TIP #1: It took me a while to wrap my brain around YNAB and credit cards (pre-YNAB I used debit cards only). For the first five months that I used it, I was budgeting all of my credit card expenses, but then I was also budgeting money to pay the credit card bill. That means I was budgeting twice as much as necessary and really stressing about the bill. When I finally realized what was happening I went back, corrected the problem, and realized that I had about $6,000 I had saved…on accident.

TIP #2: Since no one really taught me how to use a budget, traditional thinking told me that I should estimate my spending into categories for the coming month. It turns out Mark Butler calls that budgeting with Monopoly money. The way YNAB works is that you never budget a penny until you actually have it. So when you get paid, you apply those dollars to your budget. This is more like the envelope method that you may have heard about. One way to estimate into the future, which I have been using, is to use next month’s budget. So if we are in January, then you can go ahead and play with the budget in February and look at the summary at the top to see how much you have available.

Absolutely. That’s the sort of conventional wisdom about what a budget is – a plan based on what you think might happen if all your account balances follow a perfect path that happens to match exactly the last six or twelve months. But that is far less powerful than intentionally giving a job to every dollar you have right now. Want to look into the future? Set aside money for those future ambitions right now. When you have next month’s studio rental fee already set aside, there’s no need to forecast. You know you’re doing well.