Liz Kariuki

My Book Notes for You Need a Budget by Jesse Mecham.

1 Introduction

Personal finance is a wide field encompassing topics such as budgeting, investment, debt-management, saving for retirement, insurance etc. You Need a Budget (YNAB) is a system concerned with budgeting without strong opinions regarding the other facets of your personal finance. Your priorities regarding investment, retirement savings etc are yours to determine. YNAB simply provides a framework with which to spend your money.

According to Mecham, the reasons most people have anxiety around money are: not being sure they know what is the best course of action, they don’t have a system for making decisions and being scared to know the truth of where their money goes to. He intends to solve this problem by offering a concrete system for handling monetary decisions and giving you a new mindset with which to look at your money.

I am sure every one of us has written a budget before and know of it’s importance so you are probably wondering what this system has to offer. We usually write a budget by listing down our needs and wants and then assigning an amount of money that we intend to spend each month. And then go over budget each month like clockwork. Until we don’t see the need for a budget if we can’t follow it. Well, what we have been doing is not budgeting, but forecasting. We look into the future and guess our upcoming income and spending. Budgeting is looking at the money you have available at the moment and spending it on things important to you. It is that plain and simple. With budgeting you are able to be intentional about where the money you have at hand is going.

2 YNAB Rules

i. Give Every Dollar a Job

This rule is as simple as it sounds. Give every shilling in your account a purpose. Focus first on the needs that have to be met e.g. rent, groceries, power etc. After this is done, you get to focus on the kind of life you want to live and the priorities you have. Write down the goals you have in life; the things that make you happy. This would include traveling, charity, paying off all your debts, saving up for a wedding etc. Add these to your budget even if you may not have money to allocate to them at the moment. You will need to do some deep thinking as to what is important to you and what you can sacrifice to get there. After this, you can add the ‘fun’ expenses that aren’t a priority.

ii. Embrace Your True Expenses

Writing down and budgeting for your monthly expenses is easy and straightforward. But this does not reflect true life, does it? This is one reason why you may be put off by budgeting. You believe you can’t budget for everything. Your child’s broken bone. Spilling tea on your computer. Your broken shower. This is where rule 2 comes through.

You will need to set apart shillings for your infrequent expenses, both predictable(e.g. car insurance premiums) and unpredictable but inevitable(e.g. Christmas Holiday shopping). Once you have taken care of your obligations, put a bit aside for each of your true but infrequent expenses to avoid being blindsided when they come knocking.

iii. Roll with the Punches

Popular advice on budgeting holds that failing to live up to your budget is a failure on your part. This rule holds that you should adjust your budget to allow for whatever comes your way. When an unexpected, unbudgeted for expense arises, pull money from one of your categories and move on.

iv. Age your Money

This is the secret to breaking out of the paycheck-to-paycheck cycle. Your money’s age is the difference between when the time it is earned and when it is spent. The ‘older’ the money you spend is, the more stable you are. To achieve this, you need to save the amount of money that you spend in a typical month; budget it for the next month and not touch a shilling from this month’s paycheck. This gives you the clarity to spend your money without the pressure of having to spend your money as soon as you earn it.

3 For Families

Many conflicts about money are conflicts about priorities. By sitting down and discussing these with your partner and budget for each of your priorities as well as your shared goals. You should get to know each other’s habits with money, ideas about money, and what you’re each bringing to the arrangement. You should also consider giving your children a basic allowance and teaching them the basics of YNAB if you find it helps you get in control of your money.

4 Why You Should Read The Book

The book contains a lot of exercises for figuring our your priorities as well as examples of how YNABers solve the problems they encounter. It is a worthy investment of your time, money and energy and you will reap it’s benefits for the rest of your life.

5 Additional Resources

You Need a Budget Website