What happens when Oscar Wilde marries Dave Ramsey?
Oscar Wilde: “Anyone who lives within their means suffers from a lack of imagination.“
Dave Ramsey: “Act your wage.“
Maybe this is your relationship if one of you can spend like Oscar Wilde, while one of you can thrift hard like Dave Ramsey or maybe even Mr. Money Moustache. Money isn’t just numbers and math. We bring deep-seated beliefs, mindsets, and attitudes about money into our relationships that are rooted in cultural, religious, and childhood experiences.
It’s not trivial, this study found that arguing about money early on in your relationship may be the number one predictor of whether or not you’ll end up divorced.
This post is about how Amanda and I use an app called YNAB (You Need A Budget) to facilitate our weekly money conversations. This isn’t an in-depth guide to using YNAB, but it is how we use it for managing the complex financial decisions for a household of 6.
YNAB is a super-charged digital version of the “envelope budget” where you have an envelope for each category of your budget and distribute your cash into each envelope, but built around a system of four rules that keep you on target:
- Give Every Dollar a Job – you must allocate each dollar you have towards a specific purpose.
- Embrace Your True Expenses – identify the large, infrequent, and often surprising expenses, and create room for them in your monthly budget.
- Roll with the Punches – life never happens the way you planned in your budget. Easily adjust your plan and understand the impact on your goals immediately.
- Age Your Money – aim to be spending money you have had for at least 30 days, as opposed to using your pay to cover last months expenses.
Most budgeting apps help you track your expenses, but the true value of YNAB for Amanda and I is as a tool for creating a shared vision for our finances, and most importantly for increasing communication and alignment.
- Using this app helps us to create a meeting rhythm where we have a productive and practical conversation specifically about money.
- The app allows us to easily see each other’s spending at any given moment, and how much money is left in a specific category in a visual way that simplifies the complexities involved in every moment of, “Can I afford that?”. We don’t need to remember (or build up the courage!) to report our spending to each other. I know some of you stopped reading at the mention of “seeing each other’s spending”, but just put a mental bookmark on that idea and keep reading.
- When we sit down to “Give Every Dollar a Job”, it forces us to agree on where we intend each dollar to go. It is much easier to get on the same page before the money has been spent. Each time we do this we are back on the same page, with our goals aligned. If you are going to fight about money, this is where to do it. Hash out how it is to be spent before it is spent.
Here’s how it works for us.
Setting up the budget:
- We enter in all sources of money that we have to allocate towards the budget, like bank accounts and cash. This is placed in a category called “To Be Budgeted”.
- Next we create categories for “Immediate Obligations” such as groceries, insurance, property taxes, mortgage, and utilities. The types of items that are essential to living.
- After that we “Embrace our True Expenses” by creating categories for expenses like vehicle and home repairs, vehicle insurance, emergency vet visits, giving, etc. We estimate an total amount we should be prepared for, and divide that up into a smaller amount for each monthly budget cycle.
- Finally, we dream about any other “Quality of Life” items we want to budget for like travel, wish list items, investments, Christmas gifts, etc..
- Once all our budget categories are created, we “Give Every Dollar a Job” by assigning all the dollars in “To Be Budgeted” to a specific budget category. If you run out of dollars “To Be Budgeted” before you run out of categories to fund, you are officially normal. Go back and adjust the amounts in each category to do the best you can with what you’ve got – it’s fast and easy.
Maintaining the budget:
- When new income comes in, we sit down together and allocate each of those new dollars into the categories we established in the step above.
- As we spend money, whoever spends the money is responsible to record the transaction in the app. Yes, you can set up your accounts to automatically import all your transactions, but we find manually recording the transaction provides a touch of mindfulness around the spending that is so important now that most spending is so friction-less. I have found it best to build the habit of recording each transaction immediately, the app is so well-designed it only takes 15 seconds.
- Every week, usually on Sundays, we sit down and make sure our accounts are reconciled, input any transactions that were missed, or correct any that were incorrectly recorded. In this same discussion, we look at which categories we spent differently than what was planned and together reallocated our dollars the way we want them to.
- Repeat. And if we fall off the wagon (it happens to everyone), we start again with a fresh budget and fresh enthusiasm.
Tips & Tricks
- We budget very minimally for things like clothing, and nothing at all for things like “Dining Out”, even though we know we are going to spend money on clothes and dining out. Rather, we budget money into a “Discretionary” category, then when we do eat out, or buy a non-essential clothing item, we’ll transfer the money out of Discretionary and into the “Dining Out” or “Clothing” category. This process adds extra awareness that when we dine out or splurge on some Arcteryx, it is taking money away from other things we could be spending it on. When you see $100 sitting in your “Dining Out” category, it can give you license to go out for a meal without really comprehending that this is taking $100 away from something you might enjoy even more. It keeps opportunity cost top of mind for all discretionary spending.
- Not many people like to sit down and budget. Like any habit you are trying to build, try pairing YNAB time with something else you enjoy and put it in the calendar for the same time every week. Maybe go out for a nice meal and do it over dessert. We typically sit down with a good coffee for our weekly review. We tried wine, but that didn’t work out because the numbers got blurry.
- Eliminate, “We can’t afford that.” from your speech and your thinking. Replace it with, “What can we do to afford that?” It reframes your thinking in a way that is more likely to lead to solutions. Make a plan to be able to afford it.
- If you are uneasy about your partner being able to see all your spending, you should ask yourself why that is . . . but an interim solution while you think about that is to agree with your partner about an appropriate dollar value you can each spend unreported. In YNAB, you could create a categories for this like, “Jeff’s Play $$” and “Amanda’s Play $$”.
- Saving & Giving: you might be in a situation where you don’t think you can save, or give. Think about the in terms of percentages, and start with 1%. This isn’t enough, but it is a great start. You can find a way to save one cent out of every dollar, and give one cent of every dollar, because you are resourceful and you are generous. Commit to increasing it by 1% every year, and every time you get a raise. If you get a 5% raise, dedicating an extra 1% to your savings will help prevent “lifestyle creep” and still leave you with an extra 4% to enjoy and put to use in your budget.
- Disagree, and commit. You may reach an impasse with your partner when giving every dollar a job. Take a lesson from Amazon’s Jeff Bezos: “it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” Once you commit, you are committing to help make the plan succeed, not looking for ways to sabotage it and and say, “I told you so.”.
- When you are sure (or at least pretty sure) that you don’t have enough money to adequately fund your true expenses, you will feel extreme resistance – right down to your bowels – to creating a budget. Take a deep breath, brew a good coffee, and do it anyway. You need to shine a light into the black cave and see how big the dragon in there really is. If this is your situation, you’re probably going to need to ask for help, and you will increase your chances of getting the right kind of help if you have some intelligence about your true financial picture.
I don’t know what it feels like to go hungry (unless I am intentionally fasting), but I do remember what it was like to be in the lineup at a grocery store wondering if my overdraft protection is sufficient to pay for my groceries. YNAB will help.
Lastly, YNAB isn’t cheap. It is so expensive I can’t believe I find it worth it, but every year when my subscription fee is due, I happily pay it. There isn’t a lot I can do about that, but there is a 34 day free trial, and if you use my referral link when you subscribe, you and I will both get an extra free month. If you are a college or university student, you are eligible for a free year. If you need a budget, I suggest giving the free trial a try, and even if you decide not to continue using it, learning the system will help you think about your budget in better ways long-term.
Fun money quote: “A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope