You Need A Budget (YNAB) Review

Note: This is sort of a long post.  If you are short on time, but still want the gist of the situation, skip down to the last paragraph.  Then come back and read the rest later when you have time.

Tracking and managing your money is the most important thing you need to do in order to understand your financial situation.  When you add planning for your future into the financial equation, a full budget is formed.  When you budget your money,  your spending habits start to line up with your ideas of how you want to spend your money, instead of wondering where it all went.  You will sleep better at night, since you won’t have to worry about how you’re going to pay your bills (since they should be the #1 priority), and you will live a much less stressful life.

Many products exist for tracking your money, such as Microsoft Money, Quicken, etc.  A few exist for budgeting, but I am going to focus on one that stands out from the pack – You Need A Budget (YNAB for short).

I was a Quicken user for about 10 years.  I liked tracking my expenses, because it helped me  understand where I was spending my money.  But I always felt like something was missing.  Even though I tracked everything I spent, I still didn’t feel like I had a good hold of how I spent my money.  I would look at how much money was in my checking account, and make my purchases based off of that.

Little did I know, that was the wrong way to go about life.  Out of nowhere, I’d get a bill for 6 months of my car insurance (around $600).  Or I’d need new tires, and I didn’t have any money to pay for it (I was living paycheck to paycheck).  I knew something just wasn’t working like it should be.  I was always looking backwards at my money.

When my wife and I got engaged, we had to go to a class that informed us about a lot of things regarding marriage.  One of the topics was budgeting.  I never really budgeted my money, because I always thought of budgeting as being the same amount every month, which never seemed to work for me.  It seemed like I always spent my money toward different things each month.  The key thing they said during that class was that every month is different, and that you need to plan ahead.

I thought that sounded like a great idea to merge our finances, so I decided I was going to start up a spreadsheet to budget our money.  I thought I’d start fresh with my categories, so I googled something about it, and accidentally ran across this site: www.youneedabudget.com.  I started reading about it, and thought maybe using something like that would be even better.  So I started researching a few different companies, and decided to go with YNAB because it was a one time fee (as opposed to a monthly fee of their competitors).

I had no idea what I was getting myself into.  I read about a few things on their site, and thought the Four Rules set them apart.  I’ll just give you a quick overview of those rules, so you understand how YNAB is different.

Rule 1: Give Every Dollar a Job.  You make sure you assign every dollar you make a job.  If you plan to spend $50 on eating out, you put $50 of your hard earned money into that category.  You owe $100/mo on your credit card statements, so you assign $100 of your income to that category.  You do this until you assign every last penny you earn to some category that you have created.  You can have as many or as little categories as you want, so it’s extremely flexible.  This gives you a great sense of awareness about where you plan on spending your money.  Then you just execute your plan throughout the month.  It helps keep you on track.  This also brings you and your spouse together financially, as you both agree to where you plan on spending your money.

Rule 2: Save for a Rainy Day.  Remember that car insurance that threw me off before?  Well, this rule helps with that by planning for it ahead of time.  Instead of me being out $600 out of nowhere, I just budget $100/mo to my car insurance.  When the bill comes due, I just paid it and didn’t think twice about it.  Once the six months hit, I had the $600 already allocated toward it.  Saving for Christmas is another big expense I budget this way, as mentioned previously.  This rule helps balance the stress in your life by planning for those big expenses

Rule 3: Roll With the Punches.  Every month is not perfect.  Things still come up that you didn’t plan.  One of our biggest issues with this is groceries.  If we plan to spend $200/mo, we’ll spend $225.  If we plan on spending $250, we’ll spend $265.  It never fails – there’s always some category you’ll over spend.  This rule helps with those situations.  If you overspend by $25 on groceries in January, you won’t be $25 short for groceries in February.  It’ll spread the $25 across all your income for the next month, so you won’t notice it as much.  It still hurts, but not as bad.  I actually cheat on this rule a little bit.  I have a category I label as Buffer, which allows me to overspend on things.  When I overspend, I just take some money out of my Buffer category to replenish it, so I can start the next month fresh.  I try my best to not overspend more than what’s in my Buffer category though.

Rule 4: Stop Living Paycheck to Paycheck.  This rule really sets the software apart.  To use the software at it’s fullest potential, you really need to live off last month’s expenses.  This is especially key to people who have variable incomes, as it lets you know exactly how much you have to spend for the month on the first day of the month.  It’s still magical even if you have a set income, though.  Once you get to this point, your whole outlook changes.  I keep forgetting which weeks I get paid, because it doesn’t matter to me.  According to me, I get paid on the first of every month, as that’s when my budget switches over.  My money builds up throughout the month, but I don’t spend it until the next month.  This rule really helps reduce the stress of managing your money.  If you have a bill to pay, you just pay it.  You don’t have to worry about when you’ll get paid next to make sure you have enough money in your account to cover the bill.  Since you are living on last month’s income, you already made the money last month.

YNAB’s four rules really set the software apart.  These four rules are built right into the software, so you don’t even really have to think about it.  When I used Quicken, I was always looking backwards at my money, and never really got to save much due to that.  With YNAB, I’m always looking forward, while still tracking everything that already happened.

With Quicken, I had different savings accounts for different things: one for car payments, one for house payments, etc.  But savings accounts are not budgets, and YNAB helps us logically separate our money from the physical location.  You just need one checking account, and maybe one savings account (just to earn more interest).  Instead of looking at your account to see how much money you have to spend, you look at the category where you want to spend your money.

When I used Quicken, I could tell you exactly how much money was left in my checking account.  Now, I couldn’t tell you even within hundreds.  I know there’s a few thousand in there, but other than that, I have no idea.  But I can tell you exactly how much money we have left to spend on eating out this month.  This is a much better way of thinking.  It almost gives you a sense of euphoria with your finances.  You spend money where you want to spend it.  Your spending aligns with your values.  It’s magical.

To sum it all up, budgeting your money is a must.  YNAB does an incredible job with this task.  They keep everything very simple with their software, and incorporate life-changing rules into their application (that’s a good thing!).  YNAB is the greatest piece of software I’ve ever used.  It’s helped us get on track with our spending, and stop living paycheck to paycheck.  Once you taste this way of living, you’ll never want to go back.  If you want to sign up for YNAB, click here to save $6 off your purchase (and I get a referral bonus if you sign up).

Online Business – Accountant and E-Commerce Shopping Cart Software

Check two items off the list for starting my business: finding an accountant and an online shopping cart provider.

I’ll start with the simple one first: the accountant.  I called around to 11 different accountant companies in the area during the evening timeframe, because that’s what my availability is.  I wanted to make sure they are available when I would be able to talk to them.  Out of the 11, 6 were either closed or simply did not answer their phone.  I got different rates for my personal taxes this year (another goal I needed to accomplish soon), and what sort of hourly consultant rates they charge for starting up a business, along with getting a feel for the individual.

I ended up picking one that is a local business, that I believe is even run out of their home.  They are not a CPA (which is a good thing – save some $$), and have had over 30 years with bookkeeping and accounting.  They have been doing taxes since 1993, and have Christian values.  I have an appointment with them next Saturday for both personal and the new business consultation.  If you’re in the area, and are looking for an accountant for either your personal taxes or starting up a business, contact me if you want more details on this company.

As far as an online shopping cart provider goes, I actually shocked myself.  I worked at MonsterCommerce/Network Solutions for 6 years, entirely with the e-commerce product.  I was even the Product Manager for 2 of those years, and helped shape the current shopping cart.  I went into this thinking I would pick the NetSol cart.

However, since I worked there for so long, I also have a great feel for the direction of the company – more specifically the e-commerce product itself.  Without going into any details, let’s just say it’s my belief that the e-commerce product has gone into what I consider “maintenance mode,” where no major new features are added, but it’s just sustaining basically in an as-is state.  I could be wrong in this, but it’s my belief.

Now, I mean absolutely no disrespect to any of the people I know that still work there.  Everyone I know that I worked with closely that’s still there are great people who still care about the customers.  However, I do believe that the company as a whole is not focused on the e-commerce product, and unfortunately I don’t think anyone can change the company’s position.

So, up until I left the company, I believed that their shopping cart was one of the best out there for someone starting up a small business, and I would have chosen it without a doubt as my #1 choice.  But there was one newer company I knew about that seemed to have huge potential, so I had to look them up.  The name of the company was Interspire, and at the time they just had a purchase version of their cart.  They had a similar business model as Network Solutions’ e-commerce product – make the cart easy to use, but flexible to work with most businesses.  I looked them up this week, and saw how far they’ve come.  They now have a hosted version called BigCommerce, and it blows everything else I’ve seen for a brand new business out of the water.  I signed up with a free 15 day trial, and I have already decided that it’s the e-commerce platform I am going to use.  It has a ton of features, and is easy to use.  They seem to do just about everything just how I would do it if I were in charge of the company, so they are a perfect fit for me.

It’s a bittersweet victory for me though, as I would have liked to have used the software product I helped mold.  It’s a shame that the Network Solutions e-commerce product has fallen flat over the past couple of years, due to the company’s overall shift away from e-commerce.  I would have really enjoyed using that product, and using the connections I’ve made with both employees and store owners, but it wasn’t meant to be.  It’s time to move forward with my business, and I have to choose the best path for me.

Worries About Starting an Online Business

I’ve been involved with retail since I started my working life at age 17.  I have specialized in e-commerce for 6 years, and have helped thousands of online businesses succeed.  I’ve helped determine what features people need to have a successful business, and gave thousands of people advice.

But it’s different when I want to start my own business.  There are lots of holes in what I know.  I could tell you everything you want to know about usability, what features matter for an online store, and how payment gateways work, but I don’t have a clue about the legal side of starting an online business.  I’ve gone back and forth on starting a business for myself.  I think it has a ton of positives for the future.  I don’t want to be a developer my entire life.  I think owning a business that brings in enough money to support my family would be a great way to live.

But where do I start?  Do I just open up a new online store and go to town?  Or am I supposed to talk to a CPA to get the financials in place first?  Or do I need to register my business before I take any additional steps?  This is where I’m stuck.  I have wanted to start an online business for years.  I’ve even gone so far as to narrow down what I want to do: sell home theater accessories.  I think they’re the perfect product for me: I have a lot of knowledge about home theater, already have one good source to get cheap, reliable products, and the products are small so they won’t cost so much to ship.

I know I won’t make any money selling things online for probably the first year or two, and it will take up a lot of my time initially.  I’m worried that I won’t find enough time to get the site up and running.  I’m worried about any kind of financial losses that could occur throughout the process.  I have a lot of worries.

But I think it’s time to finally jump right in.  I know I’ll hit some stumbling blocks along the way, but I’ll never get any of it done if I don’t ever start, right?  So I’m going to get started on it.  I’ll keep everyone informed as things progress.  If anyone has any advice for me, feel free to let me know.  I’ll take any help I can get. 🙂

Start Saving Now for Next Christmas

Believe it or not, now is the time to start saving for next Christmas.  Christmas is a large expense, and you should be planning for it year round.  A few weeks ago, I mentioned how to set up a Christmas budget.  If you haven’t done so already, set up a new savings account for Christmas, and transfer 1/12 of your determined Christmas budget into that account today (or on the next pay day).  Then, set up automatic transfers on the first of every month for the same amount.

If you follow these simple steps now, you’ll barely  notice missing the money throughout the year.  You will feel much, much more relaxed come December though, since you won’t have to worry about how you will pay for everyone you buy for Christmas.

New Year’s Goals – Progress

It’s January 15th, and I’d say I’m doing okay on my workout goals.  I decided to go a full 3 miles today, and see how long it takes me.  I ran/walked it in 30 minutes, 30 seconds.  I’ve been trying to run at least a mile three times a week.  So far, I’ve been doing it.

As far as the push ups and sit ups go, I found a nice little program that has been working well so far.  I just found them last weekend, so I’ve only done a week so far.  The push ups program is called One Hundred Push Ups.  I just finished up week one, 11-20 push ups.  The sit ups is something very similar: Two Hundred Sit Ups.  I started this one at week 3, 21-30 sit ups, and just completed week 1.

My financial goals are just as I expect them to be right now.  I paid extra on our student loans, which is pretty much automatic at this point.  The real test with that is what we end up doing with the extra cash we get throughout the year (bonuses, tax refund, selling old house, etc.).

So I’d say I’m doing pretty good with my New Year’s goals, as it’s always been difficult for me to keep up a workout routine.  I’m trying to take it slower this time, so I can do just that: make it a routine.  Then I can adjust it as needed.  Right now, I run between a mile and a mile and a half, and follow the push up and sit up routines already mentioned.

It’s still early in the year, but you gotta start strong, right?  I hope you’ve been keeping up with your New Year’s goals.  Hopefully, you set something.  If not, think of something you’d like to do this year, and start it now.  I’ll post once a month from here on out, letting you know how I’m doing, and hopefully it’ll serve as a reminder and motivation for you.  Me knowing I’m going to write about it once a month has helped to keep me motivated so far.

First Picture of Our Baby

We went to the doctor today, and were expecting to hear the heartbeat.  Instead, we got to see an ultrasound.  I recorded it with my phone, and here’s the first picture of our new baby:

Our First Baby Picture

You can see the baby sitting there in the middle, slightly off to the right.  We are not finding out the sex of the baby, so I will simply refer to the baby as “it.”  As soon as our new baby appeared on the screen, it kicked.  Then it started moving, and the nurse said it looked like it had hiccups.  Then it became obvious it was hiccups.  The baby even waved to us.  The nurse told us it looked like our baby was sucking their thumb, too.  It was really active, just in the short amount of time we got to see it.  Here’s the video I took:

How To Pay Off Credit Card Debt

Are you one of the millions of Americans that are burdened with credit card debt?  Do you have multiple credit cards, each with high balances on them, and feel overwhelmed about it?  You can get out, but it will take a lot of hard work and discipline to become debt free.  You have to really want to be debt free.

If you determine you really want to become debt free, you can do it.  First, determine how much extra you can pay per paycheck.  If you aren’t sure how much, pick a low amount (even as low as $5).  You can always increase it later.  Then, gather all your credit card statements.  Figure out the outstanding balance and interest rate on each card.  Now, you have two choices on how you want to approach eliminating your debt.

Mathematically speaking, the best way is to pay the minimum amount on each account except the one with the highest interest.  Take your extra money, and put all of that toward the one with the highest interest.  When that is paid off, take your extra amount PLUS the minimum payment of the account you just paid off, and use that amount as the extra on the next highest interest card.  Continue this process until you eliminate your debt.

But paying down debt isn’t just about the math.  Sure, it will get you out of debt quicker, but it doesn’t matter if it’s psychologically too tall of a mountain to climb.  Dave Ramsey recommends what he calls the “debt snowball” way of paying down debt, which attacks the psychological aspect.  Instead of putting all your extra money toward the highest interest debt, put it all toward the one with the lowest balance.  That way, you can get some quick wins, and eliminate entire bills quickly.  That will help give you the motivation to continue moving forward on the higher balance cards.  When you pay off a debt, move on to the next lowest balance.

In either case, make sure you continue to pay the same amount toward your total debt.  When you pay one debt off, make sure you take the principle for that debt plus the extra payment, and roll that into the next debt.  This is how you can really start to notice progress with each debt that gets paid off.  For instance, say you have the following debts:

  • $1000 balance with 15% interest – minimum payment of $30/mo
  • $5000 balance with 10% interest – minimum payment of $100/mo
  • $10,000 balance with 20% interest – minimum payment of $208/mo

If you were to pay just the minimums on these credit cards, it would take you 51 years and 4 months to pay off your debt at $338/mo, and you would have paid a total of $53,300.42!  If you follow the advice in this post, and add $100/mo to your total debt, you would pay a total of $438/mo.  You would be debt free in 4 years and 2 months, and would only pay $21,558!  Even if you only add $5/mo, but still roll your principle payments into the next credit card once the previous ones are paid off, you would be debt free in 6 years and 2 months, and only pay $25,062.09.

I’m sure you could think of a lot of things on which to spend the difference of around $30,000.  If you really want to be ambitious, you could take that $438/mo you were paying on credit card debt and start investing it once you’re debt free.  It wouldn’t change your standard of living any, and it’ll help you out a lot when you retire (but that’s a whole other post).

In addition to making these extra payments, don’t use your credit cards anymore!  Put your credit cards in a locked safe, and put the key in a difficult to reach place.  Or put your cards in a bowl of water, and put that in the freezer.  If it takes you time to let it thaw out, it’ll be that much more difficult to use.

In order to not use your cards for emergency uses, you need to save up a baby emergency fund.  Dave Ramsey recommends $1000 for people trying to get out of debt, and I think that makes a lot of sense.  So take your extra payments, and put them toward the emergency fund of $1000 first.  Set up automatic transfers on pay day until you reach the magical $1000 mark.  Don’t use that money for anything, unless it’s truly an emergency.  Note: an emergency is NOT any of the following: getting the latest iPhone, getting the oil changed on your car, paying car insurance, etc.  Those should all be planned expenses, and money should be saved ahead of time for them.  Once you reach $1000, then take the same amount and put that toward your credit card, in whichever of the two methods mentioned above you choose.

Here’s the real key to make all this happen – automatically schedule the payment the day you get paid.  Set it and forget about it.  Most banks allow you to set up automatic payments online.  If your bank doesn’t, switch banks!  If you get paid every two weeks, set the auto payment to go into effect every two weeks on the day you get paid.  If you start small, and realize you can live on less, you can adjust it later.  The key is to set up auto payment, and to set it on the day you get paid.  That way, you won’t spend the money on anything else.  Pay your debt first, then live off the remaining.

I am doing this right now with our student loans.  I’m taking the lowest balance first approach, and have already paid off two smaller loans.  A third one will be paid off by July of this year.  It’s really motivating when you have an entire payment disappear.

None of this is complicated.  It’s all pretty straightforward.  The hard part is actually being disciplined enough to go through with it.  Decide you want to get out of debt today, and start making progress.  Otherwise, you’ll be paying on your credit cards for the rest of your life.

Saving for a Baby

My wife and I just recently announced that we are going to have a baby, due on July 27th.  We found out about a week before Thanksgiving, but haven’t mentioned it to anyone until Christmas.  We wanted to wait until after 8 weeks, to reduce the risk of telling people and then having to tell them again if something bad happens.  We read that 25% of pregnancies end up in an abortion within the first 8 weeks, so we decided to wait until Christmas.

We’re both really excited about having a baby (it’s our first), but I’m going to focus this post on the financial portion of having a baby.  My wife works full time, and she plans on taking the 12 weeks off allowed by FMLA.  She won’t get paid for those three months, so it’ll be just my salary.  We also need to get clothes, furniture, etc. before the baby arrives.  As I just mentioned in my last post, my goal is to make a significant reduction in our debt this year.  But we also need to save some money for the new family member we will get halfway through the year, and here’s how I plan to do it:

  1. We are saving $100/mo just for baby costs.  Since we budget our money on a monthly basis, we both get an extra paycheck every 6 months (mine happens to be in July).  I will take our entire extra paycheck and add that to our baby fund, too.  This money will account for doctors visits, along with furniture/clothes/diapers needed right when the baby is born.  Luckily, my work has good insurance.  I talked with someone who recently had a baby, and they told me I could expect to pay ~$530 for the entire hospital bill ($30 for the initial visit – all other visits are considered follow up, and $500 for delivery costs).  The rest should get us started with furniture, clothes, etc. for when the baby’s born.
  2. To cover the 3 months my wife will not be working, we will cut back in some areas, and save up some before that happens.  We already have 2 months of an emergency fund saved up, and I plan on saving at least $300/mo for the last 6 months to help cover expenses.  We will not pay extra toward debt while she is out, which could hurt my financial goal for the year, but it will not drain our emergency fund during that time.  We will also have one of our student loans paid off by July, so that’s one less expense we’ll have to pay.  I figure it’ll be harder to save after the baby is born, as more expenses will come our way.

I know this approach isn’t perfect, but it’s what we can reasonably do to prepare for the baby coming our way.  I think it’ll help get us started, and we’ll deal with some unexpected costs along the way.  People that have had babies keep telling me that the first one doesn’t hit you much financially, but the second one does.  I’d still like to be prepared, just in case that’s not the case for us.

New Year’s Goals

I know it’s a few days late, but I wanted to talk about my goals for the new year.  I don’t normally make resolutions, but I got to thinking about it this year, and thought I could use a little motivation.  I like to think goals are better than resolutions, because they are hard-set items that are quantifiable.  Here’s my goals for 2011:

  1. Sell old house.  We moved in May, and rented out our old house, because the market was bad.  We are paying more than we’re making in rent, so I want to unload this burden.
  2. Reduce non-house debt by 47.57%.  I know, that sounds like a strange number, but I figured out what I think we could actually do for 2011, and that seems reasonable (as long as we sell our old house, and use the equity we have built up).
  3. Be able to jog 5 miles without walking.  I have become out of shape over the past couple years, and I really want 2011 to fix that.  This leads into my next few goals too.
  4. Do 100 push-ups in 3 minutes.  Seems reasonable after working out all year.
  5. Do 200 sit-ups in 3 minutes.  I used to be able to do 80 in a minute when I was in high school, so I figure I should be able to do 200 in 3 times the time.