Other than listening to this week’s episode of the HerMoney podcast, what are some of the other things on your to-do list today? Have you taken time lately to think about what you’re prioritizing in life? A lot of us have since the pandemic — having more time to ourselves these last 18 months enabled many of us to focus on where we’re headed in a way that we hadn’t before. So, what’s on your must-do list now that we’re all emerging into a brighter, more normal 2021? What’s at the top of your list of needs? Specifically, what’s at the top of your list of financial needs?
Maybe — just maybe — you need a budget. At HerMoney, we would argue that everyone does, and so would our guest this week. Jesse Mecham is the Founder of You Need A Budget — the popular budgeting platform often abbreviated as YNAB. Since its launch in 2004, You Need A Budget has helped hundreds of thousands of people break the paycheck-to-paycheck cycle, get out of debt, and save more money. Jesse is also the author of the best-selling book by the same name: You Need A Budget, and his company recently earned recognition as Fortune’s #1 best small company to work for.
The YNAB app has nearly 33,000 five-star reviews on the Apple App Store, there are 64,000 people in the YNAB Facebook group, and the numbers don’t lie: In their first two months budgeting with YNAB, the average member saves $600, and in their first year of budgeting, they save $6,000.
Listen in as Jesse tells Jean how YNAB started out as just a spreadsheet, and how the “four rule” method that exists at the heart of You Need A Budget is the reason for its success. Jesse breaks down each rule in detail, and they are as follows:
Rule 1 – Give Every Dollar a Job
Rule 2 – Embrace Your True Expenses
Rule 3 – Roll With The Punches
Rule 4 – Age Your Money
We also talk about budgeting routines — the daily habits that we need to develop, and the amount of time that should be spent on budgeting, especially initially, for people who may have never done it before. And we dive into Jesse (and Jean’s!) favorite mental “tricks” that may trick our brains into saving more.
You also won’t want to miss Jesse’s best piece of advice for people who may have started and stopped budgeting at various times in their lives, who may be thinking something like: “You know what, this just isn’t for me, I don’t spend more than I make, so what’s the problem?” (HINT: It’s a big problem!)
If you’ve never had a budget before, Jesse says it’s something you should feel free to consult every day — you’re not being obsessive, you’re just being thorough!
“The daily looking at your budget, kind of tinkering around, moving money around, is totally healthy. It’s perfect,” he says. “It’s just getting you attuned to the idea of knowing what dollars you have, and, more importantly, what they will do for you, in the near and further ahead future. The other bit that’s a really strong habit to build, is when you spend the money. Right before, you pull out your phone and you look and say, ‘I’m here at a restaurant. How much is in my restaurant category? Okay, I’ve got enough. Here’s what I’ll order.’ It’s this proactive containment of our behavior, based on knowledge.”
Unfortunately, people often think of budgeting as restrictive and a tool that means zero fun… But Jesse explains how budgeting is not about restrictions at all. He also talks about how the need for budgeting has changed drastically in our one-click, instant-gratification world, wherein many of our purchasing decisions are being influenced in a way that they weren’t previously, via social media, Amazon, and many other outlets.
Jesse also offers his best pieces of advice for our listeners who may be thinking: “You know what, I’ve put this off for too long, I’m ready to get started.”
In Mailbag, we hear from a listener who is wondering where her son should start saving money while he is in medical school, and we hear from a woman who is wondering if she and her child should move (even though it will be expensive) due to a negative experience with a next-door neighbor. Lastly, in Thrive, we look at new ways to lower your healthcare costs in 2021.
This podcast is proudly supported by Edelman Financial Engines. Let our modern wealth management advice raise your financial potential. Get the full story at EdelmanFinancialEngines.com. Sponsored by Edelman Financial Engines – Modern wealth planning. All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416
Jesse Mecham: (00:01)
The daily looking at your budget, tinkering around moving money around is totally healthy. It’s perfect. It’s just getting you attuned to the idea of knowing what dollars you have and more importantly, what they will do for you in the near and further ahead future the other bit, that’s a really strong habit to build is when you spend the money right before you pull out your phone and you’d look and say, I’m here at a restaurant, how much is in my restaurant category? I’ve got enough. Here’s what I’ll order. It’s this proactive containment of our behavior. Based on knowledge.
Jean Chatzky: (00:39)
HerMoney is supported by Fidelity Investments. You worked too hard for your money to let it sit on the sidelines. Fidelity can show you how to demand more from your money every day. Visit fidelity.com/HerMoney to learn more. Hey everyone, I’m Jean Chatzky. Thank you so much for being with us on this beautiful June day for the HerMoney Podcast. Other than listening to our show, what are some of the things on your to do this today? Have you taken the time to think about what you’re prioritizing in life? I know that since the pandemic, a lot of us having more time to ourselves these last 18 months have been able to focus on where we’re heading in a way that we hadn’t before. So when you think about what’s on your must do list, now that we’re heading into a brighter, more normal rest of the summer and fall, what’s at the top of your list of needs specifically, what’s at the top of your list of financial needs.
Jean Chatzky: (01:47)
Maybe you need a budget. I would argue that most people do. And so would our guests today, Jesse Mecham is the founder of You Need A Budget, the popular budgeting platform often abbreviated as why YNAB since its launch in 2004, why YNAB has helped hundreds of thousands of people break the paycheck to paycheck cycle, get out of debt, save more money. Jesse’s also the author of the bestselling book by the same name, “You Need A Budget” and his company recently earned recognition as Fortune’s number one best small company to work for. If you haven’t already heard of why YNAB, let me just tell you that I have never seen a budgeting platform with such loyalty before. The app has nearly 33,000 five star reviews on the Apple App Store. There are 64,000 people in the YNAB Facebook group, and the numbers don’t lie: in their first two months budgeting with YNAB, the average member saves $600 and in their first year, 6,000. Jesse, welcome. Thanks for being here.
Jesse Mecham: (03:01)
I’m glad to be here. Thanks for having me Jean.
Jean Chatzky: (03:04)
So I know I’m asking you to look back in the past, but tell me about you. What inspired you to start this company? Because it’s not really just a company, it’s a movement.
Jesse Mecham: (03:16)
Hmm. I liked that. You said it’s a movement. What moved me, honestly, this would have been 2002, late 2002. I was engaged to be married to Julie, my now wife. And she was at work working for eight bucks an hour in the university library. And I had sat up to a computer nearby in one of our computer labs there. And I was just kind of doing a little pro forma, look ahead. And like, what is, what is our money situation going to be like for me and Julie and I was making eight bucks an hour, she was making eight bucks an hour. And so you combine that and you, you don’t just suddenly have all of the synergy. You know, you don’t have this all like now we’re doing fine. We were still going to be very, very well we’d have to be careful with our funds.
Jesse Mecham: (03:58)
So I built a little spreadsheet just for me and Julie. And it was just for us to track every penny and to make sure that we were really being intentional with our, our hard earned but scarce money. And it was a year later when a little over a year later when we were expecting our first baby and Julie wanted to be able to step out of the workforce. She was our primary breadwinner. At that point, I was still had loads of school left and she wanted to step out of the workforce and just focus on Porter, our inbound. And I was all in on that, but was just crunching the numbers. And I thought, can I work more hours? I can’t do that. I was already kind of breaking the rule in our accounting program at school where they said don’t work at all. And I was already working 25 hours, so I couldn’t eat more there, but I thought maybe I could just sell this little spreadsheet that Julia and I have used that had worked well and just try and make enough to be able to pay our rent, which was 350 bucks a month.
Jesse Mecham: (04:54)
And that included utilities, Jean. Oh, the days.
Jean Chatzky: (04:58)
Yeah. You’re going to have to tell everybody what part of the country you’re in, because even back in 2002, $350 a month, you were not in New York City.
Jesse Mecham: (05:08)
No, no. We were in a little Provo, Utah, living beneath a couple that had been married for, I think 70 years, they were in their nineties and we lived in their basement and about three weeks into living there, we found out that if you opened this kind of random door in our bathroom, it would just go right into their side of the basement. And so I just didn’t realize that we had such easy access to that, that sweet couple, but we did. And yeah, we became great friends with the Fars. They were fantastic, but it uses a tiny little one bedroom. It was very New York-esque in its size, just not in its price. We’ll say that.
Jean Chatzky: (05:42)
I got to tell you, like, when I first moved to Brooklyn and it was far before 2002, it was 1986. When I graduated from college, my share of a two bedroom apartment was $400 a month. And my room was not big enough where my futon would open all the way. So it was like a bed where the headboard was leaning up. You know, it was, it was almost like luxury, but not intensional.
Jesse Mecham: (06:12)
Yeah. So you, so you were on like one of those select comfort, like, you know, you can adjust the mattress, you just couldn’t adjust it, but it was, it was,
Jean Chatzky: (06:20)
It was, it was at least, you know, my, my head was a little elevated and, and, uh, yeah, I didn’t snore that year.
Jesse Mecham: (06:27)
There you go. Perfect. That was our situation. Like we didn’t own a car, we didn’t own a computer. Our main concern was paying for books for school and just trying to squirrel away as much money as we could. And we just lived really, really cheap. But even then it wasn’t going to be enough for us to hit our two goals. And so that was what moved me to start YNAB.
Jean Chatzky: (06:46)
When you started selling this little spreadsheet was the response automatically, oh my God, I need this.
Jesse Mecham: (06:54)
Oh, no, not at all. It was crickets. I started trying to sell the spreadsheet by telling people about the spreadsheet, telling them how the calculations worked, just the nerdiest of nerdy approaches to trying to sell a spreadsheet. It didn’t work for six months. It was just almost enough where I thought is this even worth my very limited time, but I stumbled upon the rules that we have now at YNAB those four rules, they were named a little different, they were differently ordered, but I realized that the spreadsheet was kind of enforcing a way of thinking about our money. And so I scrapped all talk of the spreadsheet and I just, the website was all about our rules and this is why it works. And it is why it works. You could follow YNABs four rules, learn those. And then, heck, probably use one of our competitors, use pencil and paper, build your own spreadsheet. Any of that I think would work because we’re really trying to go after behavior change and changing the way people think. And then the software that just pays the bills for us to keep doing what we’re doing, but the magic is in the method.
Jean Chatzky: (07:56)
Well, let’s talk about the method. Let’s talk about the four rules and why they’re so effective in getting people to change their behavior. The first one is that you gotta give every dollar a job. What does that mean?
Jesse Mecham: (08:13)
A little bit of what you alluded to in the intro when we’re talking about, okay, what are our priorities? What do we care about? I think often money just kind of leaves or people tell us what our money should do. And we haven’t even really given it a second thought. And so the first thing we do, we kind of turn budgeting on its head and we tell people do not under any circumstances forecast that you will earn money. And then what will you do with that money? That’s a traditional budget. You know, that very well, okay, I’ll earn this much, I’ll allocate this much, and that’s good for kind of a basic understanding of your situation. But when we want to get to actual prioritization, when we do this exercise, we really flesh out what we care about. We say, okay, Jean, how much do you have in your checking account?
Jesse Mecham: (08:54)
And if you are average and you know, these stats probably better than I do, but for a lot of our people that start with us, they make good money, but their checking account balance sits on average around $350, it’ll be high. And then just precipitously drops. So as low or high as it is, we ask, what does that money need to do before you are paid again? And we’ve just flipped around from reacting to all. I shouldn’t have spent that, oh, I feel bad about this. Oh, should I, could I, whatever. And we just say, okay, no, no, no. Forget the past. Starting from now, what do we intend? And that just seems to give people this fresh lease on life where they’re like, oh, this, what is this feeling that I’m experiencing? And they’re feeling control, even though we haven’t given them a lot, you know, a winning lottery ticket at all. They’re just bet they’re feeling some control.
Jean Chatzky: (09:43)
They’re deciding what their money is doing rather than doing and then feeling bad.
Jesse Mecham: (09:50)
Yeah. And the sad part about feeling bad is if you can’t afford it, you didn’t know. You could, and you feel bad. And if you can’t afford it, you feel bad. And so we’re, we’re stuck in this spot. We think, well, when do we spend money and feel good about it? You know? And this is how.
Jean Chatzky: (10:05)
I want to actually come back to that. The feeling good about the spending, because I don’t think even people who can afford it, I think sometimes they don’t get there. Right. We hear a lot from listeners in our Mailbag segment, we get a lot of letters from people who find it tough to spend money, even when they have plenty.
Jesse Mecham: (10:26)
Yes, yeah. It’s a tragedy.
Jean Chatzky: (10:28)
How does the job solve for that?
Jesse Mecham: (10:31)
So if I were to say like, Jean, what do you care most about? You’d start with family relationships. Most normal people do. And what we are kind of wanting to do is we want to be really thorough. Like in auditing, you’re looking for completeness when it’s tough to get your hands wrapped around what the whole thing is. And so there’s tricks around it to get there. And with our money, we’re trying to say, well, like what let’s be really thorough, really, really thorough about what do we want our money to do? And you exhaust that list. You have people really think all the way through what do they care about most? And then when they realized that all of the things they care about most are being taken care of, suddenly, then we have license for those other things that were giving us grief, perhaps incorrectly so.
Jesse Mecham: (11:16)
But we’re feeling bad about spending here or there. It’s really nice to spend money on something when you know that it’s not robbing something else that you find more important, but aren’t aware of. And that’s where that friction happens with people. They’re like, oh, I’m going to treat myself that, that whole like, treat yourself, we’ll talk about, you know, it’s like, let’s do that. Let’s absolutely do that. And the way you do that with all of the fun, and none of the fear is by saying, well, have I covered everything else? Or am I going down a road that’s going to end poorly. So if we make sure we’re covered first, then we spend happily and it’s a great spot to be rule.
Jean Chatzky: (11:54)
Number two is embrace your true expenses. And I think the key word in this sentence is true. Not embrace. It’s true because we don’t have a handle on what our real expenses are.
Jesse Mecham: (12:10)
Yeah. In my accounting education, we used to talk about accruing expenses and amortizing expenses and all these kinds of weird phrases use in business. But rule two is a little bit like that. I would say like, okay, Jean, do you have any kind of abnormal spending in December just in your household? And you’d be like, well, yeah, of course the holidays are there and we eat more. We have people over, we, you know, whatever we give gifts. And so there’s this uptick in spending that is a real expense. Or you say, finally, we get to go on a vacation sometime in 2021, it’s going to be fantastic. That is a real expense. We tend to ignore the expenses or at least casually, and maybe strategically forget the expenses that are large, but less frequent. And so someone will look at their W2 and, you know, in the U.S. That tells them how much they’ve made. And they’re like, all the, you know, HR is wrong. There’s no way I made this much money because I have no way. I couldn’t show you where it went. And then like, I make enough why aren’t I, you know, here’s my cable bill, here’s my cell phone, here’s my rent. Why aren’t I getting ahead? But they’re not considering those large, less frequent, sometimes even fun expenses like vacation or anniversaries.
Jean Chatzky: (13:18)
So what’s your strategy for dealing with them? I I’ve told this story before on the show, but I’ll just give you a brief version of it. I don’t carry credit card debt. And I don’t even like to see a big balance on my card. Even when I know I have the money to pay it off. And so when I have a big trip coming up, I will put the money in a separate account. We took a big trip for my 50th birthday to Hawaii. And I just front-loaded it. I put the money for a year in a separate savings account. So I knew it was there and prepaid what I could, because I thought that coming back and just seeing the bills was going to take so much of the fun out of the trip. How do you deal with it?
Jesse Mecham: (13:59)
I liked the way you said front-loaded. I like to envision everyone kind of walking on their financial timeline lifetime line. And you were basically just thinking about Jean’s 50th birthday party before the party, the trip, you know, the big trip. And it was like, you had future Jean that was going to be partying in Hawaii. And you had current Jean and you both were sitting there negotiating like, well, what should we do here? What are we gonna do this money and future Jean’s like, I need actually a good bit because I really want to enjoy myself. So I keep it coming. And you’re just tossing money down the future timeline to your future self. And it’s building up into this nice pile in the separate account. So when the time actually comes, you just walk up and you’re like, well, here’s the pile.
Jesse Mecham: (14:39)
It’s like when people heading west used to plant corn for people that would come behind and they would leave stashes of things. It’s that idea. It’s like, okay, in the future, I want to have that set aside and I’m going to keep walking. I will get there eventually, no matter what let’s hope. Right? So when I’m there, let me have this little pile. It’s a negotiation between you and future you of like, okay, what will you need and future you is like, well, I’m going to actually in three months, I’ll be on the side of the road. I’ll need a tow truck. A tire will have blown out. I would love for you to think about that for a moment. And you’re like, okay, I guess I won’t do sushi this month. I’ll think a little bit about the car tire. It’s that negotiation. But the beauty of it is when people are presented with future you and current you, and you’re having this little debate, we do start to orient ourselves and make pretty good decisions around the future where I know the behavioral economics and that’s super interesting space. People really struggle thinking about the future. Did you catch that? I think it was Merrill Lynch that did the study, where they would age the person and then see if they would respond?
Jean Chatzky: (15:37)
I did. I went and I put my face in that horrible app and saw all the wrinkles that are coming my way.
Jesse Mecham: (15:44)
And it makes you want to save more. That was what the result was.
Jean Chatzky: (15:48)
It does. And the researcher said that it’s not enough to just look at a picture of your parent. Even if you look like your parent and you love your parent, you actually have to look at a picture of you.
Jesse Mecham: (16:00)
That’s rule two. So rule two is a function of rule one. Rule one is giving every dollar a job and rule two is saying, and remember, some of the jobs will happen in the future. So let’s consider it all. And now I’m having people say, should I give my child a toy for Christmas? Or should I go splurge? And I’ll, I don’t like the word splurge, but should I go out to eat tonight? No one does that calculus, if they’re normal, but if you’re budgeting, following those first two rules, that’s the kind of thing you’re doing. And you can probably have both, that’s the beauty of it, but at least you’re weighing them and considering what those values are.
Jean Chatzky: (16:34)
When you’re thinking about the tire on the side of the road, that is an emergency fund expense. So a lot of people have now shaken up their philosophy of how much needs to be in an emergency fund because of the pandemic we’ve learned, yes, emergencies happen. They can come out of nowhere. They can be long lasting. What’s your philosophy on an emergency fund. And where does it fit into the rules.
Jesse Mecham: (17:04)
What I’ve noticed, and this is over, over a decade now. The people that follow YNAB, they end up having fewer emergencies and not because they’re luckier it’s because they’re starting to think more granularly about what will, what could, what might happen pandemic aside for a moment? And they’re saying, oh yeah, these car tires won’t last forever. So I’ll set some of that or the HVAC. My word, the heat right now is insane out here. And our neighbor across the street, her AC went out, I said, “you can sleep over here.” I mean, but she didn’t know that her AC would go out in three years. It shouldn’t, it’s under warranty, but she’s waiting for the guy to come and repair it. But we know they won’t last forever. And so that’s what, that’s what you cross your fingers and hope for.
Jesse Mecham: (17:49)
And what we try and have people do is think more about, okay, likely large expenses. They’re going to come up. And we’re finding that most people don’t end up using maybe a three month fund, maybe six months. I’ve heard people say a year now is more comfortable for them given 2020. But we found that when we think about what is likely that we start to kind of squirrel the money away for the roof, for the house, even though it’ll be 15 years until it happens. And it kind of, reclassifies a lot of what we would say, oh, this was an emergency. We now are saying, oh, I knew this would come. I didn’t know exactly how much, but I knew it costs more than zero. I know it happened. And so it’s been an interesting phenomenon, but a lot of wine average tend to sit pretty flush with cash, but it’s like their emergency fund is just kind of spread across these jobs instead of being in one pile.
Jean Chatzky: (18:40)
Gotcha. Rule number three is roll with the punches and punches are those emergencies, right?
Jesse Mecham: (18:47)
Yeah. Yeah. Or something as benign as your brother calls and says, “Hey, we’re in town. Can we come by?” And, and they have five kids and your grocery bill is going to shoot up for a few days. It could be, you know, not something quite so dramatic, but even this it’s even saying, you know, I thought I was going to spend this much on a gift. And I actually want to spend a little more, I found some little, little fit Jean’s 50th party, you know, that that idea it’ll fit it even more. And so I’m going to do that and take from my clothing category. It’s more like a coach making halftime adjustments during the game than it is something just out of left field. Totally surprising us.
Jean Chatzky: (19:28)
The last time we talked, you told me you have seven kids. I imagine you find yourself doing this often.
Jesse Mecham: (19:35)
I’m surprised the cheer thing right now. Yeah. That rule three on that. I was like, oh, I didn’t realize we had to fund four fancy duffel bags in this situation. But apparently you do. So you pull and you move money around a little bit and you make things happen. Yeah. We still have seven though. So I just want to report that things are still going fine.
Jean Chatzky: (19:54)
Oh, good. All right. Yeah. No, I wasn’t. I wasn’t meaning to allude that you, you somehow had fewer at this point.
Jesse Mecham: (19:59)
Two of them I’m like, I don’t know about you two. I might. I don’t know, but no, we get along, but you’re right. There’s more variable. There are a couple more variables in the household. And it’s funny that we had to make a rule saying, Hey, for that plan, you set up for yourself. Go ahead and change it. If you’d like to, we have a weird idea that, oh, I have now budgeted. So I’m supposed to be this clairvoyant fortune teller that can just predict exactly what’s going to happen. Oh, heavens, no, absolutely not.
Jean Chatzky: (20:26)
Yeah. I mean, I like to try to keep my savings category sacrosanct. Right. I like to try to make sure that I’m funding that category before I’m funding anything else and that, that number sticks, but any of the other numbers I’m happy, you know, moving them around.
Jesse Mecham: (20:46)
Yeah. Gotta be a little squishy. I liked that. You have some non-negotiables. I think it’s important that we kind of have a little bit of a stack ranking for what we would pull from first in case of an emergency or something surprises us. And everyone knows, oh, it’s more like the eating out the entertainment, you know, the squishy or stuff like that.
Jean Chatzky: (21:04)
Yeah, yeah. Rule number four is the one that confuses me. And I’m sure it’s the one that confuses a lot of people. You talk about aging your money. Can you explain how that works?
Jesse Mecham: (21:15)
Yeah. So if you were to pay me today and I spent all that money tomorrow, I would have spent money that was one day old. You paid me today. I spent it tomorrow. That is, as you well know, that is for 80% or so of Americans, pretty standard fare, living paycheck to paycheck. And we have a big pile of bills waiting for money to arrive. And that money goes out very quickly. The metaphor breaks down, but some people are even spending money they don’t have yet on cards and they’re going to supposedly catch up later. So the idea of aging your money, we’re saying, well, the money that you earn today, let’s not spend that dollar for 30, 40, maybe even 50 days. And it’s not a rule that you actively follow. If you follow the first three rules, you’ll just kind of notice that you’re leaving a pile of money that’s growing over time and all your different categories.
Jesse Mecham: (22:07)
You’re starting to set aside for holiday spending. You’re setting aside for a big trip in 2023. And that money is all getting older and older and older. It’s like a grain silo. You’re filling it up. And then you’re slowly using it. And if your fill up rate is faster than your use rate, it will get older. Over time. I came up with it from my accounting days with inventory and I thought, oh, this is, this is what this is. We’re talking about, kind of tronches of money. And we really don’t tell people to do anything in particular, except watch your number in the software. It’ll start to climb, just keep following those first three rules, keep adjusting, keep budgeting. And you’ll break out of that cycle. Pretty soon someone will be facing the month of July and they have all of the money already earned, sitting in their account ready to go. And that’s where, you know, okay, you’ve broken that cycle.
Jean Chatzky: (22:55)
How do you know if you’ve got too much sitting in that account? I mean, one of the things that we hear a lot and our sponsor Fidelity has actually done some research on this. You know, women often have thousands of dollars in our accounts, more often than men, thousands, and thousands of dollars in our accounts sitting in cash, earning nothing that really should be invested rather than saved.
Jesse Mecham: (23:23)
I try and teach people, and it goes a little bit back to your savings allocation and kind of the sacrosanct idea. At some point you might say some of these dollars, their job needs to go be to get out in the world, take some risks and make their living. Right. And so I think it’s a question of what would allow you to kind of have it be, as my oldest would say a big nothing burger, meaning like if this was gone, I wouldn’t miss it. And I’m set. Or if this account stayed around this size, I would be totally okay. I wouldn’t give it a second thought. It’s that level that we’re finding. And I’ve found that I need a larger account than many. I’ve also found that many people live so on the edge, I couldn’t sleep a wink with what people have acclimated themselves to, but we just found out that they carry a lot of stress with them, but it is fairly personal. I think at some point we would say, Hey, you have so much here and that’s just cash. What would be your safest amount? Let’s add 50% to that. Now, anything above let’s start putting it to work, having those dollars, get out and find more dollars.
Jean Chatzky: (24:29)
Yeah, I think that makes sense. I mean, we don’t want to cause sleepless nights while we’re trying to get our budget in shape. I have other questions about your budgeting hacks and your every day budgeting routine. But before I jump into that, let me just take a moment to remind everyone that HerMoney is proudly sponsored by Fidelity Investments. It is no secret that women are on a different financial journey than men. So it’s important to plan for those differences when thinking about retirement and social security and investing and more Fidelity can help. They are taking steps to help women demand more from their money because you have worked way too hard to get where you are to keep your money on the sidelines. So get the skills, get the investment advice that you need to put it to work for you and visit fidelity.com/HerMoney to learn more. I’m talking to Jesse Mecham of You Need A Budget (YNAB) Okay. Daily habits, daily budgeting routines. How much time should we really be spending on this every single day? And does that time taper off as you get good at it?
Jesse Mecham: (25:42)
It does taper. Absolutely. When we’re trying to change behavior change mindset and see that I’m in real lasting changes. What’s most interesting here. We have to recognize that we might do something that one could even view as a little unsustainable longterm, and that will be okay. We’re in this kind of break-in phase. So in that instance, the daily looking at your budget, kind of tinkering around moving money around is totally healthy. It’s perfect. It’s just getting you attuned to the idea of knowing what dollars you have and more importantly, what they will do for you in the near and further ahead, future the other bit, that’s a really strong habit to build is when you spend the money right before you’d pull out your phone and you’d look and say, I’m here at a restaurant, how much is in my restaurant category? Okay, I’ve got enough. Here’s what I’ll order. It’s this proactive containment of our behavior based on knowledge in that minute, when you’re in the restaurant, you don’t need to know how much is in your 401(k). You don’t need to know all the balances of all these different accounts or credit cards. All you need to know is how much have I allocated for my restaurant category. And so in that moment, you look and you make a good decision.
Jean Chatzky: (26:56)
And what if you’re in that restaurant with friends and you can’t control what they order, this gets awkward. It gets awkward around the table. It gets awkward with people. How, how do you handle it?
Jesse Mecham: (27:07)
A little bit of a chicken, you know, in that instance, I don’t like to rock the boat. So like Jesse Mecham personal stuff. I would just make sure that the category had plenty to handle. Do you get this Jean where people are like, oh, you do money.
Jean Chatzky: (27:23)
So let me figure out the tip, Yeah.
Jesse Mecham: (27:24)
Yeah, and I’m like, oh no, no, no, no, no, no. I’ll gladly cover it and y’all can Venmo me. And then my wife’s like, don’t do that. It’s awkward for her. Cause she and I are wired a little different. So I don’t know how to handle that. Get different friends, maybe. No, I’m just kidding. You got to make sure that when you’re trying to change your behavior and you’re doing some of that, you know is good for you, you better have friends that they can tease. Teasings fine. But if it turns into like really trying to sabotage you just have them email me and I will write a sternly worded email to that friend. Like, listen, let’s not sabotage each other. We’re trying to do something pretty unique and pretty cool. So back off and let me order my half salad and you just, you cool it, you know?
Jean Chatzky: (28:08)
Yeah. Yeah. And I also think that you’ve kind of know who those people are and those are maybe the people that you go on a walk with and you don’t go out to eat with.
Jesse Mecham: (28:14)
Oh yeah. Change the environment. I mean, let’s just do more walks and less eating out in general.
Jean Chatzky: (28:20)
I know we discussed this. I mean, food is the budget buster.
Jesse Mecham: (28:24)
It is no doubt at YNAB we are very clear to not tell people what to spend their money on. But if I were to guess and tell you where people have cut in order to free up money to pay off debt and hit bigger goals, they cut eating out basically top of the list across the board. No exceptions.
Jean Chatzky: (28:40)
What is your answer to people who have started and stopped budgeting at various times in their lives? And they think, you know, this is just not for me. Like I don’t spend more than I make. So what’s the problem.
Jesse Mecham: (28:53)
I tried that I tried it for a year. I tried to not budget and just say, you know what, I’ll have my 401(k) funded, Julie. We’ll just be doing the full funding there and really be doing well. We’re hitting our big goal and I’ll just let the rest do whatever it does. And it was no way to live. I ended up spending more money than I couldn’t tell you where the money went, but we spent more and the lack of awareness led to money just kind of going out the door. We still had our savings goal, but everything else I just thought, oh, it just kind of went through my fingers in some indecipherable way. And the accountant in me didn’t really couldn’t sit well with that. So there is room for improvement with people that still say, Hey, I know where all my money goes.
Jesse Mecham: (29:39)
I would say, no, you don’t. You think you do. Or they say, I make plenty there’s you probably do make plenty. But at some point we have to say, Hey, this is real money. That has real value that I’ve worked really hard for. Let’s make sure that I’m getting the value from it. Commensurate with the effort that I’ve given to get it. And that’s, I think that rubs like my, my most core sensibility. It’s like, you’re giving 60 hours of your life each week for this money. Let’s make sure that it’s still does what you want it to do. Let’s spend a few minutes a week, a couple hours a month, really making sure our money is still doing the things we need it to do. I mean, your listeners work hard. They work so hard to make money. And then once their effort is converted into money, they’re like, ah, nah, I just can’t. I couldn’t be bothered. I don’t get that disconnect there. If you can’t be bothered to make sure that the money is doing what you really value, how can you be bothered to work so hard to make so much? I don’t know. It’s just for me, that’s an inconsistency. So I pushed back on people there and say, wait, you’re a high achieving motivated individual. Why don’t you just take one little bit of that. High-achieving motivation and extended into your money’s behavior and see if we don’t just make cool things happen.
Jean Chatzky: (30:51)
And I would think this is even more important in this one-click world that we’re living in, in our show last week, we talked about Amazon and the way that Amazon has changed, the way we spend, we talked a little about the hashtag #TikTokMadeMeBuyIt. And how so many of our purchasing decisions are being influenced in a way that they weren’t previously, how much of a difference do you think that social media and sites like Amazon have made?
Jesse Mecham: (31:18)
I think it’s massive. I see a nice healthy market for people like you and me to keep trying to teach people to be more intentional. And it’s a little bit defeatist almost, but they’re in the profit making business. And that is fine. That profit making business has given us tremendous innovation and fantastic things that we all enjoy. Like tiny little computers in our pockets that are absolutely amazing. They’ve changed the world. But at the end of the day, you really have to just be super crystal clear on what matters to you and then make sure that you’re revisiting that. And if you’re sharing finances with a partner, my word you’re both on the same page, you’ve discussed your goals. The clarity is what counters, the kind of click happy stuff that we have being thrown at us regularly when you’re really clear on what you want. You can’t be swayed by even Tik Tok. Let’s hope.
Jean Chatzky: (32:11)
I appeared on your podcast recently. And you asked me, final question, what has your budget done for you lately? So I wanted to throw it right back at you. What has your budget done for you lately?
Jesse Mecham: (32:24)
Well, a few of my kids have really gotten into golf recently one day to the next. It was like they were obsessed and I think that’s normal for golf. So we were looking at just, okay, wait, they’re into this. We live two minutes from a course. And we were doing a lot of money shuffling for the year. Well for the summer, essentially, activities and plans because suddenly I had two boys that were saying, I want to go to the range. I want to practice. And yeah, we shuffled money around and got them figured out on how they could earn some money. I lent one of them money to buy their clubs, because it would take them all summer to earn the money for them. So in that sense that one’s been fun to watch because they’ve just thoroughly enjoyed themselves. The bigger one for us though, Jean is the car we’re really in the market for a new car.
Jesse Mecham: (33:08)
The only saving grace is we are trying really hard to buy one and can’t find it like they’re not available. So we’re just kind of in a holding pattern, but we’ve saved up for this car for, well we bought our other one in 2012. So we’re nine years in to setting aside money every single month in our car payment category that is now waiting for us on that future timeline for a 12 years older, Jessie and Julie that have the money now they’re to buy that car, we just need those chips to be installed and then we can get it and we can buy it and we can love it. So that’s been a long haul for us. I mean, setting aside money in that account for nine years, but it’s going to be great once we finally get just
Jean Chatzky: (33:46)
A tip for those golfers in your family. I have a younger brother who grew up and became obsessed with golf at just about the same age we lived right near a golf course as well. He made a lot of money collecting the way word balls and selling them back to the golfers.
Jesse Mecham: (34:04)
Jean Chatzky: (34:09)
Just a thought as we wrap up here, I know that you have a month long free trial for people who might want to see if YNAB is right for them, where do they find?
Jesse Mecham: (34:15)
youneedabudget.com or if you’re in a hurry, YNAB.com, they’ll both go there. You don’t put in a credit card. We have all this whole thing about being intentional with your money. And then, you know, we don’t try and be sneaky and make sure you’re not intentional with us. We want you just as intentional. So it’s a 34 day free trial, no credit card, give it a shot and definitely lean on our team. Write in questions. We do live chat and it’s actually live and you’ll get an answer very quickly back and you’ll get some funny answers sometimes from our very funny, helpful people that are there. So we are there for people that are like, I don’t get this. I failed five times. And half of our support staff would say, oh, I failed five times two. We’ve got you. So please lean on us for the support and help as you do that trial because we really want people. I mean, at the end of the day, someone who’s making a lot of money or a little, if their money is doing what they want, they feel good. And I think we need plenty of that. Just spread everywhere.
Jean Chatzky: (35:12)
Jesse Mecham, thank you so much. Thanks Jean. And we’ll be right back with Kathryn and your Mailbag. And HerMoney’s Katherine Tuggle joins me now. Hey Kathryn.
Kathryn Tuggle: (35:31)
Hey Jean. I loved that conversation.
Jean Chatzky: (35:35)
I did too. I liked talking to him. I find him very soothing and very calming. And you don’t typically think of that when you think of talking to an accountant about budgeting, but I just, I like the whole way about him and look, I mean, we know that in our Facebook group, there are a lot of people who are really obsessed with budgeting and they’re obsessed with YNAB it’s really, really helped them. And so I feel good about the fact that we’ve been able to have this conversation and get him on.
Kathryn Tuggle: (36:04)
Absolutely. I loved when you asked him about how we can get to a point where we feel good about spending money, because I think that that is a place that we all so desperately want to get to you, especially if we’ve struggled with debt in the past.
Jean Chatzky: (36:18)
Yeah, and part of it is lining up our spending with our values, you know, making sure that we’re using our money, the way that we want to use it. It just happens so quickly these days. I think what I like most about the process is it slows it down a little bit. You know, that the idea of giving each dollar a job just requires you to put an additional step between the earning of the money and the spending of the money. And that additional step is just enough of a pause to make you thoughtful and considerate.
Kathryn Tuggle: (36:53)
It’s so true. It’s so true. I also loved what he said about how, when some people get on a budget that it’s, as if they’ve been handed a winning lottery ticket, I think that really speaks to the power of feeling in control of your money.
Jean Chatzky: (37:10)
Yeah, and if you don’t like the word budget, that’s okay too. Right? You don’t have to call it that. I mean, it’s basically a spending plan. You’re planning, you’re spending like you plan the rest of your finances and that can be really valuable. I just want to throw in while we’re on this topic, a plug for FinanceFixx, we’ve been running our FinanceFixx coaches, which do a lot of the same things that we’ve been talking about in this conversation with Jesse. They really get you in touch with your money where it’s going, how you’re using it today, compared with how you actually want to be using it. But we have people there to help you. We’ve got some great coaches on board. We’ve got weekly office hours, we’ve got webinars. I step in and play a role as well. And we’ve got a lot of great digital content. And so if you’re interested in working with us to improve your finances in this way, and you want a little more of a hands on approach, you can check us out at FinanceFixx.com and we spell it with two Xs financefixx.com.
Kathryn Tuggle: (38:26)
Thank you so much, Jean.
Jean Chatzky: (38:27)
Thanks Kathryn. Should we answer some questions?
Kathryn Tuggle: (38:31)
I would love to. Our first question comes to us from an anonymous listener. She writes “Hi Jean. I listened to your podcast regularly and I haven’t yet heard a question like mine. I’m sure others in your audience either have young adult children pursuing higher degrees or maybe young adults in this situation themselves. I’m very excited to hear your thoughts on our dilemma. My son is a second year medical student following in his dad’s footsteps. It’s been a long year and a newly implemented fast tracked curriculum for year one, completely done on Zoom in his sequestered apartment. He’s planned well and has a mixture of federal and private loans to cover each of his four years of med school because he’s extremely frugal. He even plans to move home, when his third and fourth year relocate him to his hometown. He’ll have $8,000 to $10,000 left over at the end of each year.
Kathryn Tuggle: (39:23)
He’ll have the option to work off part of his loan money too, and he fully intends to take that option. He has an undergraduate loan of $7,000 at 1% interest, but no other debt, he could pay this off, but he’ll still have additional funds left over. He would also like to start investing for retirement. Most doctors do not get a regular paycheck until around age 27 and it’s meager during residency. They usually are in their early to mid thirties before they complete their 12 to 18 years of post-secondary training and start their first job as a physician, putting them behind the game in terms of compounding returns. We checked into a Roth IRA, but because he hasn’t earned the income, he doesn’t qualify, which is too bad because at the other end of medical training, he will quickly be in a high tax bracket. And his 60 year old self would really appreciate his 23 year old self finding a tax shelter. He could invest in stocks or mutual funds directly, but is there another option we’re missing? Thank you so much for your guidance.”
Jean Chatzky: (40:24)
First of all, let me just say congratulations for raising a kid who clearly has his head on his shoulders and his priorities straight. We hear a lot of student loan stories as I think you probably know, and you’re right. We have not gotten one like this. Usually it’s just, I’ve got so much debt. How do I deal with it? I’m not sure you’re going to love my answer because it doesn’t really track so much with the idea of compounding returns at this point. But let me dive into it and sort of explain it as we go. First of all, we know that legally federal student loans are only allowed to be used for specific purposes. They can be used for tuition and fees, room and boards, books, supplies, a computer, for example, they can be used for childcare expenses, which it doesn’t sound like your child has.
Jean Chatzky: (41:23)
They can be used for transportation. Private student loans are a little different. There are guidelines rather than rules for how to use private student loan funds. But I try to stick as close as possible to these parameters. Now, if you’ve got extra money, you can actually just return it and you can return it without paying any interest. You’re going to need to return it within 120 days, roughly six months of receiving it. And you can do that by working with your school and with your loan servicer. In other words, get in touch with the financial aid department. If you return a private loan, you will still be responsible for the interest on that loan. However, just returning the loan will make a big, big dent in your payment. The folks at student loan hero actually have a really, really helpful calculator where you can plug in the amount that you’re going to be returning, and you can see what sort of debt it will make in your overall debt.
Jean Chatzky: (42:40)
But suffice it to say with returning this much money, 8 to 10 thousand dollars a year, he will save himself a ton of interest. As for prioritizing that $7,000 at 1% interest. And the other debts that he’s incurring, I suspect that the interest rates on the new debt are higher than that interest rate. So I probably would not prioritize paying off the debt at the 1% interest rate. If he has free cash lying around from any sort of a summer job, he could certainly throw it against that debt, but kind of by the same token that when we pay off credit card debt, we pay off the highest interest rate on down. We do it because that’s the most cost efficient way of paying off any debt. As far as your Roth IRA question, I agree with you. I think it would be lovely for him to be able to get a jump on putting some money into tax advantaged options.
Jean Chatzky: (43:48)
And I’m thinking that when he starts working, as you say, he will be doing to get rid of some of his debt along the way that that may show up as earned income. I’m not sure how that’ll be reflected on his tax returns, but if it shows up as earned income, maybe you and your husband would want to front him the money to make a Roth IRA contribution at that point, thinking that perhaps he could pay you back later when he gets into those years where he has the very high salary, and that would just give him the opportunity to allow that money to grow. Of course, this is just something that you should do if you are in good shape for your own retirement, which I hope that you are. And I would not be surprised at all to find that that’s something that you might be able to do for him or with him. But right now he’s much better off not accruing interest on that extra eight to $10,000 a year, which will very quickly become $32,000 to $40,000 over four years of medical school. So my take would just be pay the money back and good luck to you. Good luck to him. Let us know what you decide to do.
Kathryn Tuggle: (45:12)
Such a thoughtful question from a great mom. And it makes me think about the question that we get asked a lot of people who are looking to pay down credit card debt versus invest for retirement, you know, and the truth is you should do a little bit of both and do as much as you can working to pay down the debt, but also save where possible.
Jean Chatzky: (45:33)
Absolutely. And the higher the interest rate on the debt. You just keep in mind the interest rate that you’re paying is equal to the return on your money. So you pay off a debt at 20%. That’s a 20% return on your money and unlike returns in the market. It’s guaranteed.
Kathryn Tuggle: (45:50)
Absolutely. Thank you, Jean. Our next question is from an anonymous listener. She writes, “Dear Jean, I’m a longterm podcast listener. I have lived with my financial life in order. I’m a 54 year old single parent with a 16 year old child. I have a paid off home and 10 times my salary in retirement. I’m a healthcare provider with a practice and a team of 12. I could retire when my child goes to college, the practice will be sold when I retire and is currently worth around a million dollars. My child has the GI bill and money in a 529 for college. The problem is that my child and I have a next door neighbor who is absolutely driving us nuts. He drinks to drunkenness. He trespasses on our property. He recently mistook my child and their dad for robbers and nearly caused an altercation. I’ve called the police on him once before for beating up a guy driving in the neighborhood.
Kathryn Tuggle: (46:46)
It’s not every day, but it’s enough for my stress level to be higher than I would like this neighbor doesn’t seem to be moving any time soon. My question is, should I sell my paid for, very nice home to build a dream home in a more exclusive neighborhood and go into debt for $200,000 to $300,000 for emotional peace of mind, but not financial peace of mind. My child will likely live with me and other 10 years, they plan on attending a local college and building a home with them in mind is not out of the question. I know this is a champagne problem. If it were a life or death situation, we would not have a question about what to do. Thankfully we have good neighbors on the other side and overall we like our middle-class neighborhood. Thank you so much for your guidance.”
Jean Chatzky: (47:36)
So I feel for you, I recently moved as all of our listeners know. And the thing that I am the most sad about is leaving my neighbors because I had amazing, amazing neighbors. And they were just a bonus. I did not expect it. When I moved into this neighborhood, I knew I would have people nearby, but I didn’t expect them to become such an important linchpin in my life. And the fact that they no longer live next door is just devastating to me. So I get it. And I similarly get how disturbing it can be to have neighbors who are troublesome. And yours sounds like it’s a lot more than just playing troublesome. It sounds like belligerent. It sounds like bordering on breaking the law or maybe even just breaking the law. So I have two thoughts and Kathryn, I’d love your take on this as well.
Jean Chatzky: (48:34)
My first thought is how bout a fence? There are some beautiful, beautiful fences these days, and maybe you could spend a lot less than $200,000 put in a wonderful fence and not have to worry about them, trespassing on your property anymore. Maybe you could even cut a hole or a door in the fence on the side of your good neighbors so that you can visit as much as you want. My second thought would be if that is not an option, and if calling the police another time or two doesn’t solve the problem, I’d probably move. I think, you know, working in the healthcare industry, you got a lot of stress. You’ve got more than your share of stress and we all thank you for what you do and for what you’ve done in particular in the past year. But I, living there for 10 years in these conditions, if it’s already bothering you, I would just say no. And you certainly have the money to make it work.
Kathryn Tuggle: (49:36)
Yeah. The last thing that you said, having the money to make it work, I think is all I needed to know. I think she’s got to get out of there. I think she’s probably got a fence. I think a fence would be my first move. I’m assuming she’s done the fence thing. And I also think that this guy sounds like a loose cannon, you know, especially with the alcohol involved. I think that you can’t expect him to behave as a normal, reasonable human, which is a little scary.
Jean Chatzky: (50:09)
No, and I wouldn’t hesitate to call the police again.
Kathryn Tuggle: (50:12)
Right? Absolutely. I just think, like you said, she’s got enough stress already just in daily life being a healthcare provider. This sounds like a layer of stress in her life that I wonder if she even knows how much it is actually affecting her. Maybe rent an Airbnb, a nice Airbnb in your hometown, near your work for two weeks and see if your stress level goes down precipitously because you know, you don’t have to worry about this guy and then maybe go from there.
Jean Chatzky: (50:48)
I love that idea because it also gives you, in fact, I would rent it in the neighborhood where you think you would want to live, because it also gives you an opportunity to road test the different commute, the different drive to school, how your child feels about being there. And it’ll give you a real flavor for it as well. I think, I think that’s great, but I would make sure that you’ve got security cameras on your place before you leave it or an alarm just in case.
Kathryn Tuggle: (51:16)
Yeah. And you know, it’s summer. So I think there’s probably options for even a month long rental given that summer is here. So it’s a good time to test it out.
Jean Chatzky: (51:27)
Absolutely. Very smart. Kathryn. Thank you. And in today’s Thrive, let’s talk about some new ways to lower your healthcare costs. In 2021. Healthcare is probably one of your biggest bills every month. Then your health plan, premiums, deductibles out of pocket costs may already be high. Even if you have health insurance from an employer, those expenses may be nearly unaffordable. If you’re buying coverage on your own. Thankfully, several new developments, many from the recent stimulus bill are making health insurance more affordable for people who don’t have employer coverage, it’s worth taking time to reassess your health insurance options now and find out whether you can save money at the same time, you’re protecting your health. This week, we’ve got a full rundown HerMoney.com, but here are just a few of the highlights. First, the American Rescue Plan increased the size of subsidies offered to help people reduce their insurance premiums based on annual income, the lower your income, the larger your subsidy, even if you didn’t qualify for a subsidy in prior years, it’s worth checking to see if you might now, especially if you’ve added a member to your family, gotten married, lost income, or experienced another life change.
Jean Chatzky: (52:46)
Generally you can only get health insurance through healthcare.gov or your state insurance marketplace during open enrollment in the fall or within 60 days of losing your job. But because of an emergency rule, the federal government has reopened the marketplace until August 15th, 2021 for the 36 states that sell insurance through healthcare.gov and many states that run their own health insurance marketplace have also extended their deadlines. So go to healthcare.gov. There you’ll find links to your state marketplace. It’s also important to note that the rules around COBRA coverage have changed if you have health insurance at work, but then you lose your job. You can usually continue your coverage under COBRA, which is the federal law that requires employers with 20 or more employees to let you continue your group coverage for up to 18 months after leaving your job. The problem is premiums for COBRA, and I know cause I’ve paid them.
Jean Chatzky: (53:49)
They have always been very high because you’re left paying for both the employers and the employees share of the premiums. But the American Rescue Plan also provided help with COBRA costs for people who are laid off and we’ll cover 100% of the premiums for COBRA coverage until September 30th, 2021. Good to know. Thanks so much for joining me on HerMoney. Thanks so much to Jesse Mecham for a great conversation and all the wonderful insight on how we can get on a budget that we can actually stick with. If you like what you hear, I hope you’ll subscribe to our show at Apple Podcasts. Leave us a review. We love hearing what you think we also would like to thank our sponsor Fidelity. We record this podcast out of CDMSoundStudios. Our music is provided by VideoHelper and our show comes to you through Megaphone. Thanks so much for joining us and we’ll talk soon.