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Why Most Budgets Fail but YNAB Succeeds

Why Most Budgets Fail but YNAB Succeeds

You have no money

    Chances are at least one of your New Year’s resolutions had to do with money. So how are you doing on your budget?

    I can’t count the number the times I’ve created budgets only to throw in the towel and decide that they just don’t work. Usually my frustration is due to any of the following:

    1. The amount assigned to a category just isn’t realistic. After figuring the numbers and seeing I had a little distribution problem, I determined I could eliminate entire categories or set them unrealistically low. I let my excitement and determination to save money and get out of debt cloud reality. Amidst visions of picking up second-hand clothing at Goodwill and planning to cook all meals from scratch using basic pantry staples and spending $100 a month on groceries, I just knew I could make this strict budget work! A month later I was discouraged and feeling like a budgeting failure.
    2. Projected income for the upcoming month never manages to be close to actual income. If you’re salaried, this becomes easier. If, however, you’re an hourly employee or an entrepreneur, it’s much more difficult to predict what you’ll make next month. Without fail, a project will fall through, you’ll have to take days off work, or whatever. I’m sure Murphy has a law about this. Just know it will happen.
    3. Projected expenses are never accurate. If you do manage to come near budgeted amounts in many of your categories, there will be some unexpected expense that hits you and throws the whole budget off. Your car needed a new radiator. Your child had to be taken to the urgent care center.

    Once any of these things happen, it can lead to questioning your entire budgeting philosophy. If you suddenly need to pay toward your insurance deductible this month, do you then take that money from another category? Eventually budgeting can seem like a science that is only for those who have some special know-how, a surplus of income, or are likely living in straw bale houses and making cheese from their goats. All-or-nothing syndrome sets in, and you determine you’re just a free spirit, incapable of being fettered by the tedious nature of budgeting. It occurs to you that since you have some debt already, what’s a little more debt going to matter?

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    How I stumbled on the software You Need a Budget (YNAB), I cannot recall. I imagine it was likely in my search to find answers to these basic questions above. Spreadsheets, budgets on paper, Quicken, Microsoft Money–all of these just weren’t addressing my budgeting issues. After perusing the web site, I decided had nothing to lose by downloading a trial copy. After only a few days, I was so impressed that I purchased the software.

    While you’ll find that YNAB has the same features of charts, graphs, downloading statements directly into the software, etc., that software like Microsoft Money does, you’ll immediately note that YNAB has one major difference: It actually gives you a plan with education and support to help ensure your success.

    The YNAB Plan

    1. Stop living paycheck to paycheck. That’s what all budgeting advice says, but YNAB takes a different approach that I think is the key to making a budget work. With YNAB your expenditures in the current month are based on your last month’s income. So there’s no guesswork about what you think you’ll make or spend next month. You’re working with what you have.
    2. Give every dollar a job. Since you’re working with last month’s income, you will be portioning that money to categories. Every single dollar will be planned for a particular category (or job).
    3. Prepare for rain. It only makes sense to set aside money so those unexpected expenses don’t crash your budget.
    4. Roll with the punches. I like this one. It promises you will fail! Failing is part of the program. Microsoft isn’t going to tell you that. How many times do we quit because of an all-or-nothing tendency? YNAB makes small adjustments if you overspend in a category. And since failing occasionally is part of the program, you can pick yourself back up and resume your budgeting, knowing you’re still on track.

    The company further supports you by offering a free PDF book (upon purchase of the software) and free videos and information on topics of budgeting.

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    One of the keys to the YNAB philosophy is that you must get a month ahead on your income in order to have last month’s income at your disposal for this month’s expenses. This is the hardest part, but if you look at it as a challenge and take joy in watching your savings grow, it becomes easier. Accumulating a month’s savings is expected to take several months.

    A Chat with Jesse Mecham, CEO and founder of You Need a Budget

    I have my own ideas on why budgets fail, but I was curious to see how Jesse Mecham, CEO and founder of YNAB, would answer some questions related to YNAB and the challenges of budgeting in general:

    Q: Jesse, what gave you the idea to create YNAB with a budget based on last month’s income? I am unaware of any other software that does this.
    I was using spreadsheets before marriage, and then after becoming married, I had this idea. I knew I wanted to assign money to categories, but I wondered how I could possibly know how much to assign without overdrafting or getting ahead of myself. When asking someone to create a budget they often don’t even know what they’re spending in the first place. If you go over budget, just keep moving.

    Q: So what would you say is the reason that most budgets fail?
    The biggest reason is people don’t see a reward that matches their work and their input. So there’s a lot of work and thought up front, and for most people the budgeting process is fairly unnatural. What happens is people don’t see the results they’d expect from the work they put in. It’d be like eating really well for three months and not seeing a change.

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    Q: How, in this economy, can people get a month ahead in income? Is that advice still feasible? This seems like the hardest step.
    It’s definitely is the hardest part, and with the hardest part comes the most rewarding part as well. Consider sales of belongings. The goal is not so much having a month saved. What you’re really trying to do is just last an entire month without touching that month’s paychecks. Look to your current employer first; do some overtime. Most of the time it’s people ridding themselves of clutter that makes the fastest progress.

    Q: I was using your software before being surprised with a diagnosis of cancer in my 30s in 2007 (I’m cancer-free now, thanks). For individuals and families facing major financial crises, what advice would you give them for making budgeting work when there simply isn’t enough money available for expenses? Can YNAB still somehow work for them?
    That is tough. First, make sure every dollar has a job. There are parts of the budget that can be done even if you’re in the red for long periods of time. No matter what you do, still record everything you spend. Maintain some awareness as much as possible. When people get in emergency mode, they lose control and awareness. The best way to fight back is to simply record what you’re spending. It’ll rein you in much quicker than not doing it at all.

    Q: Your web site states that YNAB makes small adjustments to your overspending. How does it do this?
    YNAB is like a virtual envelope system. The software wants you to maintain your savings but still have money for Christmas or your vacation you just borrowed for, so when you bring in money for the next month, you take that wad of money and drop that back into other envelopes that need replenishing. Every overage is automatically deducted from next month’s income.

    Q: I do see you have a 60-day money back guarantee. Do you also have a free trial?
    There are both. The trial is not advertised. People were getting the software and not understanding the why behind it. Weekly webinars are available with a live teacher to see. However, if readers want the free trial, they can go to http://www.youneedabudget.com/test-drive .

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    Q: It doesn’t appear that YNAB automatically downloads transactions from financial institutions on a regular basis. Is this feature coming?
    Technically it’s not very difficult, but it is very expensive. That expense would either have to be passed on to the customer or we would have to find another revenue source to support it. Banks and credit cards want to keep us separate from what we’re actually spending, which is contrary to YNAB philosophy because it reduces awareness. The feature is planned, but we also want the customer to look at the methodology. As far as time lines, the new Mac/PC version is first priority. After that, we would look at implementing automatic downloads of transactions.

    Q: I see that you have the guide in the form of a PDF file. I really like the idea of a paper book. How long before this is available?
    I’m currently trying to see where the book is fitting the overall system. We are considering a paper book.

    Q: Are there any new features in the works that you’d like to share?
    Our next software version will be using Adobe Flex AIR technology. The methodology will be the same, but the design will be different. The interface will be easier to use. Reporting will be much more dynamic and flexible. We hope to have that in beta in May/June.

    Q: Is there anything else that we haven’t covered that you would like to add?
    If people don’t want to worry about the 60-day money-back guarantee or purchasing the software yet, I’d recommend they just sign up for the free budgeting course at http://www.youneedabudget.com/course. It’s not a sales pitch. In 10 days people walk through the methodology and get down to the nitty-gritty of budgeting, money in relationships, why cash flow is sometimes so stressful, how it can be made easier, talk about rule number four, and discuss why people don’t talk about budgeting.

    The Downsides?

    I haven’t found many, but they are:

    • No integration with a handheld device. If you like to enter purchases on the fly on your smartphone, it can’t currently be done with YNAB. According to Jesse Mecham, YNAB wants to store the data online so people can get to their transactions and category balances through possibly an SMS approach, mobile web interface, and/or an iPhone application perhaps the middle of this year or later.
    • Since the company has never taken any funding or loans, some major features like integration with a handheld device tend to take a bit longer to roll out.
    • YNAB Pro is not Mac-compatible (the basic version is). However, a new Mac and PC version is expected to be available in the summer of 2009.

    The Bottom Line

    YNAB’s philosophy and software features combat many of the reasons bugets fail. It’s inexpensive, bug-free, and worth checking out. YNAB ($24.95) and YNAB Pro ($49.95) can both be downloaded from http://www.youneedabudget.com. The software comes with a 60-day money-back guarantee. If you want to try it out first, a trial version is available at http://www.youneedabudget.com/test-drive. Both YNAB and YNAB Pro include a free copy of the PDF ebook “The YNAB Way.” The Pro version comes with bonus features, such as a car maintenance schedule, income tax forecaster, and more. The developers are very responsive to customer feedback and will support you with visual and written materials that help you understand the psychology of successful budgeting.

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    Last Updated on June 25, 2019

    5 Books You Must Read if You Want to Be a Millionaire in Your 20’s

    5 Books You Must Read if You Want to Be a Millionaire in Your 20’s

    Millionaires and billionaires read more than you think. In fact, the likes of Warren Buffet are said to read 1.000 pages a day. As the old saying goes “There’s no smoke without fire”; so, start off with these 5 incredible books!

    1. The 48 Laws of Power

    48-laws-of-power

      “If you are unsure of a course of action, do not attempt it. Your doubts and hesitations will infect your execution. Timidity is dangerous: Better to enter with boldness. Any mistakes you commit through audacity are easily corrected with more audacity. Everyone admires the bold; no one honors the timid.”

      On your journey to becoming a millionaire in your 20’s, there will be many people trying to manipulate you into doing what they want. This international bestseller by Robert Greene is the widely read by those in the entertainment industry because of its dog-eat-dog environment. This book is a must-read for anybody who wants to claim power and keep it. it’s a fun read that tells the story of some of the most powerful people in history.

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      An example of a law of power is: Always say less than necessary.

      • When trying to impress, the more you say the more common you look and less in control.
      • Be vague.
      • Powerful people impress and intimidate by saying less.

      2. Influence: The Psychology of Persuasion

      influence-the-psychology-of-persuasion

        “Often we don’t realize that our attitude toward something has been influenced by the number of times we have been exposed to it in the past.”

        This book explains the core strategies people use to influence others using real world examples. Robert Cialdini’s book goes over human quirks like the need to be consistent, and how you can use that in your marketing strategy to make more money. “People’s ability to understand the factors that affect their behaviour is surprisingly poor,” Cialdini says, “which leads to people making poor decisions without realising why.”

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        Cialdini includes real world examples of why people join cults, buy certain jewellery, or give to charity.

        3. Blue Ocean Strategy

        blue-ocean-strategy

          “Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space. Value innovation places equal emphasis on value.”

          This book argues that leading companies don’t succeed by battling competitors in “Red Oceans”, but by creating “Blue Oceans” where they have uncontested market space to grow. It goes over case studies like “Cirque Du Soleil” who created a blue ocean by creating a circus platform that didn’t include animals or more than one act on at once but instead, decided to focus on talented performers and music who created a mystical storyline.

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          4. The Fountainhead

          the-fountainhead

            “A man’s spirit is himself. That entity which is his consciousness. To think, to feel, to judge, to act are functions of the ego.”

            The Fountainhead takes place in the United States, mostly in New York City, during the 1920s and 1930s. Billionaire Mark Cuban named his yacht “Fountainhead” after this book. This classic novel is about the struggles of an innovative architect named Howard Roark and his effort to achieve success on his own terms. Many entrepreneurs are inspired by this book because it depicts how you should be uncompromising when it comes to your vision and your goals. If you follow this way of life, you develop the ability to change the world and creating something unique.

            5. The Compound Effect

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            the-compound-effect

              “Do you know how the casinos make so much money in Vegas? Because they track every table, every winner, every hour. Why do Olympic trainers get paid top dollar? Because they track every workout, every calorie, and every micronutrient for their athletes. All winners are trackers.”

              This book is by Darren Hardy the CEO of Success Magazine, he goes over how it’s the small, seemingly insignificant choices that compound to create success or failure over time. No one has a plan to be broke and fat but that’s what happens when you don’t have a plan and go along the path of least resistance. Hardy argues that you cannot improve something until you measure it and to always take 100 percent responsibility for everything that happens to you.

              So, those are five books you must read if you want to give it a try to become a millionaire in your 20’s. What are the best books you have ever read? Leave a comment and share these life-changing books with your friends to help them become successful like you.

              Featured photo credit: Bill Gates Foundation via businessinsider.com

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