(Clarify any tax moves you make with your trusted tax advisor.)
As more business owners are using YNAB to manage their cash flow, I think it’s important to specifically address how to handle one of the largest infrequent expenses you have: taxes. It can literally bankrupt you if you don’t handle your taxes appropriately. Let’s not have that happen.
Earlier, I outlined all of YNAB’s categories, as they’re set up to run the YNAB business. One in particular is called Quarterlies, and it sits in the “non-YNAB” master category. The reason it’s under “non-YNAB” is because the business doesn’t pay the taxes; I, Jesse the individual, do. So a tax payment outflow is not an expense, it’s a distribution to me, that goes directly to the Tax Man.
Jesse, What are You Talking About? What are Estimated Taxes?
When you earn a paycheck, your taxes are withheld and sent to the Tax Man automatically. You file your return and end up getting a refund, or owing some more, based on how your tax liability calculates.
Some of you earn money in lieu of, or in addition to, a paycheck. Your taxes on that income aren’t withheld automatically. You need to do the withholding yourself, estimating what you’ll owe, and paying the Tax Man once each quarter.
I’ll call these payments quarterlies, or estimated taxes, throughout this article.
How Do You Estimate Your Taxes?
This is a question for your tax advisor. They’ll basically give you a set percentage of your profits to withhold. You could look back at prior tax returns to get an idea, but if your business income has changed significantly from one year to the next, your estimate may be off. A quick rule of thumb: if the business is doing better, you’ll want to withhold a higher percentage. Again though, this percentage can’t be from the hip (been there, done that, no thanks on doing it again).
For our example, let’s say our agreed upon percentage is 25 percent. (I’m purposely avoiding going complex with the percentage calculation, because every single reader of this post will have a different, very specific scenario.)
Your MONTHLY Quarterlies Workflow in YNAB
Armed with a percentage of profits to be withheld for taxes, it’d look something like this.
Let’s say you just wrapped up your books for the month, have reconciled your accounts, and want to see how profits shook out. You’d click on Reports -> Income v. Expense, find the month column, and look at the “Net Income” number at the very bottom. You see that profits for the month were $8,000.
You’d pop over to the Budget, and in your Quarterlies/Estimated Payments budgeted cell, you’d click in there so the cursor is flashing, and type:
8000 * .25 [Enter]
That would populate your Quarterlies budgeted cell with $2,000 (25% * $8,000 in profits).
You’d see the Quarterlies category balance increase by the $2,000 you just budgeted, and your Available to budget would decrease by the $2,000 budgeted.
Your Quarterly Quarterlies Workflow in YNAB
In the US, your quarterly payments are due April 15, June 15, September 15, and January 15 (of the following year).
Let’s say it’s September 1st, and we just finished doing the books for August. We had profits of $8,000 so we budgeted $2,000 into the Quarterlies category for September. In fact, we’ve done that for three months now:
|Month||Profits||Percentage||Budgeted to Quarterlies||Quarterlies Balance|
So our Quarterlies balance is now $6,000 ($2,500 from June, $1,500 from July, and $2,000 from August).Now we simply cut a check, or use EFTPS.gov if you’re in the US, to pay the $6,000 to the tax man.Because you’re following Rule Two, you don’t feel the big payment. That’s what Rule Two is for. And applying it to your taxes will make your life MUCH less stressful.
Why Not Just Do This Quarterly?
Because you’ll forget that the money is spoken for, and you’ll have budgeted and spent it on something else. You need to make sure you budget for your taxes on a regular basis. Don’t kid yourself, and think that the money will just magically be there. Too many business owners do just that, and then when the tax bill actually comes due, they’re stressed, scrambling, and scared.
Let me know if you guys have any questions on this! I’m happy to answer in the comments.
Last year I had the pleasure of hanging out with J.D. Roth for a week in Ecuador. He’s a down-to-earth, genuine guy, and it was a pleasure to hear his story of going from deeply in debt to a self-made millionaire in…eight years I believe. Many of you probably know him from his #1 personal finance blog: Get Rich Slowly.
For the past year, he’s been working on Money Toolbox. It launched this morning. He’s basically compiled all of his financial tips, tricks, tactics, and wisdom into a year-long email course, and a great guide on…basically all things money.
J.D. interviewed me (as well as 17 other “experts” on various money topics) all about budgeting a few months ago, and has let me release that to you guys. All of these interviews are part of the Money Toolbox. You can download the interview here, if you’d like to give it a listen.
Since today is their launch day, I wanted to let YNABers know. Read through the site, and see if it’s something that you’d benefit from. J.D. offers a great guarantee, and kept it very reasonably priced, which was very nice to see.
Oh, and in the budgeting module, he gives a healthy shoutout to YNAB. Sweet.
- Step 1: Get Your Stuff Together
- Step 2: Your Spouse Owns a Category
- Step 3: Your Spouse Owns a Long-term Category
- Step 4: Give Options for Success
Hopefully, if you’ve been practicing the steps I’ve shared so far (I’d love to hear about it), then you’ve made some headway. Your spouse should start to get it. (If not, perhaps there are other issues of which I am not qualified to interpose.)
They’ve been practicing their categories, learning how to roll with the punches within their categories. But then this happens…
You made a budget, painstakingly went through every category adjusting as needed, smiled with satisfaction when you were finished, and then two weeks later…here it comes.
“Honey, I’m going out to buy a wedding present for Chrissy.”
“What category is that coming from?”
“Well…I don’t know. Did didn’t you budget for it? You knew we had this wedding to go to.”
Bah! Your budget is foiled again. Now you have to scramble to make it work. Perhaps your spouse is ready for a sneaky introduction to the big picture of your budget. Because, you know what? This is going to happen every single month. One person will know about things going on in the calendar (or just in their mind) that the other one has no clue about it.
This is why you need Step 5:
Your spouse edits an already entered budget.
“Hey honey, here’s what I thought we needed to do this month with the budget, but I’m sure I’m leaving out some things you want to do. How about you take a look at it?”
In a good YNAB married relationship there is always someone who proposes and someone who edits. Even if you switch off, it’s easier that way.
So because your spouse has been successfully entering transactions and managing a few categories on his own, he’s comfortable enough at this point to look at the budget in YNAB and not be totally freaked out and overwhelmed. She knows what YNAB is all about and has even been experiencing some peace as a result of it.
Then when he takes a look at the big picture, it all starts making sense.
“Oh, if I want to be able to buy that new [insert electronic gizmo that I have no care about here], then we really need to lower something else…geez, where else can we save? Why are we spending so much on a lawn service? Maybe I could start mowing the lawn myself.”
At this point, your spouse has just discovered that you’re not the bad guy – math is the bad guy…if there is a bad guy. Math is neutral, I suppose, but you get the point.
Jessiebird here today, with a budgeting aphorism I use in the YNAB forums all the time: “You can only do the best you can do.”
Granted, it’s trite. And clunky. And it’s possible I didn’t even make it up. (I feel like I did, though. It doesn’t seem like something Socrates* would have said.) But it has become my budgeting go-to phrase.
Before I was budgeting, I was not doing the best I could do. Whether because of my avoidance tendencies, poor organizational skills or laziness, I often paid bills late and incurred fees. I failed to deposit checks in a timely manner and didn’t balance the checkbook for months at a time.
Because I never know how many transactions we had outstanding, I never really knew what we had in the bank, so I would avoid paying any bills just in case there wasn’t enough. I could have done better, but I didn’t, and the guilt nagged at me constantly.
Finding YNAB was a huge help. The budget made things clearer and encouraged me to get — and stay — on top of the finances. All of our problems were over!
Just kidding about that last part.
We still had a lot of debt and a few past messes to clean up. For instance, when I first started using YNAB, I had a couple of seriously overdue bills. I had been making payments — never in full and never on time — always with the unsettling knowledge that I should have been doing more.
YNAB, by showing me exactly where all our money was and where it needed to go, gave me clarity on those late bills. I saw that I would not be able to get caught up on them in one month. But I could do it in two.
Steeling my courage, I called creditors and made payment arrangements (a much more civil and less humiliating process than I had anticipated). I felt an unfamiliar surge of relief and I knew why: because I was finally doing the best I could do. I still had overdue bills, but I was taking care of them to the best of my ability at that moment.
If you are new to YNAB, you might be feeling frustrated that, as much as you love the software, your gung-ho budgeting efforts aren’t instantly solving all of your financial woes.
If you are being proactive about your budget and working consciously toward your financial goals, you are succeeding — even if you’re still behind on a bill or two, even if the car keeps breaking down and your Car Maintenance category is at zero, even if your net worth isn’t positive and won’t be for a long time.
Don’t be so hard on yourself. You can only do the best you can do.
*Yeah, I’m 99 percent sure Socrates didn’t say it. But I bet he would have if he’d had YNAB.
“Revealed” is such a hokey marketing word. But I just returned from MicroConf in Vegas and hokey marketing is on the brain.
In working with a lot of small business YNABers over the past little while, I was asked how I (Jesse) have set up YNAB’s (the business) categories in YNAB (the software).
I’ll tell you right now, I’d love to pare them down. It’s a lot easier to do that on the personal side, but still worth the effort either way.
Also, bear in mind that the easiest way to determine your category set up is just to start and see what you need as transactions come up and surprise you. Another little hack is to scan your bank statements over the last few months and write down potential categories for transactions (especially the larger, less-frequent expenses that you maybe would have forgotten, but now won’t, because Rule Two will be firing on all cylinders).
Without further ado, and perhaps just for inspiration, here is our YNAB Business Category Setup, subject to change on the whimiest of whims.
- Buffer – I keep about two months of revenue in our Buffer, because we follow Rule Four, and then some.
- Revenue – Desktop
- YNAB 3 – about to be retired, since we aren’t selling it at all anymore.
- YNAB 4
- YNAB 4 Upgrades (here’s where you can upgrade, if you haven’t.)
- Amazon.com – I’m hiding this one right now, because it shouldn’t be there. We don’t sell on Amazon.com anymore.
- Giftcode – If you buy a digital giftcode for a friend.
- Amazon Downloads – Holy hannah, here’s another one. Hiding now.
- Guide with Code – for the workbook+redemption code combo.
- Guide with Key – for the workbook+activation key combo.
- Revenue – Mobile
- iPhone – hiding this now. No longer even care to look back and see it.
- Android – and hiding this one too.
- iPad – just kidding. This isn’t even on there, because we’re not done. Also, I announced that the coming iPad app would be free anyway.
- Revenue – Other
- YNAB the Book – monies come from Amazon, where they won’t allow us to list the book for free, but require that it’s $.99. This arrangement is, needless to say, making us rich.
- Coaching – we occasionally coach someone for about a month that really wants one-on-one attention.
- Commissions – we earn commissions from our relationship with Betterment, my favorite way to invest. Oh, and Ting, where several of our team members have saved a lot of money on their cellphone bills. Also, commissions from YouNeedTermInsurance.com.
- SB Consulting – we work with several small businesses, where we do their books for them (in YNAB, of course) and meet with them monthly to do some analysis, strategize cash flow management, etc.
An update 20 minutes after posting: In the comments, I’m receiving questions about “revenue” categories. I use the standard categories, and record inflows to them. That sticks all of the funds into their appropriate product categories. Then, when I’m ready to budget, I suck the funds out of those categories by entering the appropriate negative budget amount to get the revenue categories all at balance:0. For a more in-depth, older (but still relevant) blog post specifically about this, head here, specifically look at the “How I Made the Transition” section halfway down.
The rest of these categories aren’t as fun, as this is where money starts flowing out, instead of in. (Except for paying our team. I really enjoy doing that.)
- Printing & Shipping
- Transaction Fees – fun fact: it took YNAB something like two years to earn in a month what we now pay in fees for processing credit card transactions.
- Redacted – can’t say. But I do fund it, so when we’re ready, we can spring on it.
- iOS – iPhone and iPad efforts.
- Android – our Android efforts.
- Redacted – sorry…exciting stuff though.
- Design – anything from branding, to UX, to print.
- QA – to make sure we never ever ship a bug. :)
- Benefits & (Some) Taxes
- 401k – Employee – when I process payroll, employee contributions withheld from their paychecks and sent to the 401k are paid through this category.
- 401k – Safe Harbor – a fancy name for the three percent that YNAB contributes to the 401k, on behalf of stateside, full-time employees. It vests immediately.
- Health Insurance – I avoid having health insurance be a benefit of employment with YNAB (I think individuals should shop around, employers shouldn’t do this for them), but this line item covers my own personal insurance for my family.
- Workers Compensation – A required outflow when running payroll.
- Payroll Taxes – FICA, half paid by YNAB, and half paid by YNAB’s team.
- Support & Education
- Customer Service – the good people behind every single support email sent our way!
- Teachers – the various voices that come out of your computer, should you do the very, very smart thing, and attend one of our excellent online classes.
- Advertising & Promotion
- Marketing Experiments – I set a goal to fund this category every month with a fixed amount, and have it be dedicated to doing experiments in marketing. So far I cannot come up with any good ideas that require the funds I’m setting aside, but I’m still sticking to my goal.
- PPC – Google, Yahoo!, MSN search ads.
- Referral Fees – fees happily paid to you good people, for sharing YNAB with your friends through our referral system.
- Other – a grab bag of marketing efforts not large enough to merit their own category.
- Blog Mgt & SB Consulting – this really should go somewhere else, because it’s changed quite a bit. It’s Mark’s category.
- Radio – this, so far, has been somewhere between dismal and an absolute failure. I’m in contact with a guy that built his business on radio, and he said he could help me. #holdingOutHope
- Facebook - occasionally we promote a post on Facebook, or run some other kind of ad.
- Systems & Admin
- Hosting, Domains, Software, etc. – this category grows on its own, I swear. Beware the $50 monthly charge for that necessary service, where there are 40 of those services. (I exaggerate only slightly.)
- Supplies – office supplies, one of my favorite categories. Protein powder, bananas, peanut butter, and other less important things, like paper.
- Telephone & Internet – you guessed it.
- Fees – our tax adviser, bank fees for wires and ACHs, the occasional foreign transaction fee, payroll processing fees, etc.
- People – This is for part of the YNAB team that isn’t part of a specific category (me, our COO, our executive assistant…I think that’s it.)
- Office Space – because we love that movie. And because of our rent here at the office. I honestly haven’t seen the movie, which means half of you now hate me.
- Business Development
- Conferences – to attend, or send someone to attend.
- Meals & Entertainment
- Gifts – we give birthday presents, and Christmas presents. And occasionally spontaneous YNAB swag.
- Meetup – Costa Rica in November for every single team member. If you’re going to join the YNAB Team, you’d do well to do it before…the middle of October or so.
- Team Development – funding our monthly book club at the moment, and maybe some team feedback analysis that I’m looking into.
This next (and last) master category is all non-YNAB stuff. This is the last category, because it’s funded last, and only with funds that couldn’t be better used further up the list. Well, except for paying me and Uncle Sam. Those are important.
- Interest – it’s cute how much this is each month.
- Shareholder Distributions – this is where I track money that flows out of the business to me, either as a direct payment, or as an expense that’s not a business expense (like when I bought my dog).
- Quarterlies – I fund this each month, based on profits earned from the prior month, and then pay out the category balance on 4/15, 6/15, 9/15 and 1/15 (of the next year). EVERY SMALL BUSINESS OWNER NEEDS THIS CATEGORY.
- Other Investments – sometimes an interesting investment pops up, and I’ll fund this a little bit so I can jump on the opportunity.
- Real Estate – I put a little bit here, if there’s any left. It goes toward my rental property empire (2). This is a way for me to not keep all of my eggs in one basket (YNAB).
- Betterment – to keep things sane on the personal side of things, I contribute to Betterment directly from the business account. This is basically an owner distribution, but I capture it separately because I care about it enough to do so :) This also means that all of our required “saving” happens with money that never hits our checking account. Which has made it easier for me to give the budgeting reins to Julie.
Reading back through this post, I find 1) that it was fairly therapeutic and 2) quite detailed. For those of you that asked the simple question of, “How does YNAB have its categories set up?” I think you got more than you bargained for :) Happy to answer questions in the comments.
I came to YNAB hoping the budget would improve our finances, and it did. But now and then I’m reminded that the effects of the budget reach far beyond the numbers.
Take gift giving, for example.
I am lucky to have many friends and relatives. Yet I spent years gasping in shock every time one of them got married, had a baby or got another year older. I never saw it coming.
Life events often mean celebrations, and celebrations often mean gifts. The thought used to give me a stomach ache. I wanted to honor people’s milestones. I wanted to feel generous. Instead, I felt panicked.
Given that we were always scrambling for money (regardless of our income at that moment), we had no wiggle room for gifts. I’m ashamed to admit it, but there were times when instead of feeling joy for those I cared about, my thoughts ran closer to “Why do people always decide to get married right when we’re flat broke?”
(This was a trick question, of course. Thanks to poor money management, we were ALWAYS flat broke.)
Then I found YNAB.
YNAB gave me the tools to fund a gift category. That took care of the financial stress surrounding gift giving. That, in turn, did something even more important: It freed me up to celebrate other people’s happiness — without stress.
Not too long ago I needed to buy a birthday present, a shower gift and a housewarming gift in the span of a couple of weeks. My gift category couldn’t cover all of the purchases and instantly I started to feel that same old anxiety with the same sense of resentment.
But I knew what to do.
I followed Rule 3, rolling with the punches (known in the YNAB forums as “playing whack-a-mole”), to free up some money so I could pay for all three gifts. And then, with a bit of category adjusting, I increased my monthly budget in the gift category so I wouldn’t fall short again. Problem solved.
It still amazes me. On the budget screen, the gift category is just a cell with a modest dollar amount in it. Not a big deal. But in real life, the simple act of budgeting for gifts has, finally, allowed me to become the generous giver I had always wanted to be.
That is a very big deal.
About two years ago I hit a personal best on my 1RM back squat. The next day I went hiking with some scouts and was sucking wind within the first 10 minutes of the hike.
Realizing I was strong (relative), but had no cardio to speak of, I stumbled upon CrossFit. I rolled my own at my home gym for a while, and then joined an actual CrossFit gym a little while later. Julie (my wife) joined right along with me.
I’m pleased to report that my 1RM back squat has increased, and my cardio has gone through the (it’s all relative people!) roof. In other words, I’m stronger, faster, more flexible, and more coordinated than I’ve ever been.
Four or five days a week I walk into the gym and let our trainers teach me how to be more fit. You guys can coach someone to an explosive snatch, a lightning-fast Fran time (mine is 3:27, I need to learn that buttefly pullup), and a perfectly-executed muscle up.
Now, I want to turn the tables a bit, and teach you CrossFit owners how to be financially fit. Let me highlight a few mistakes I see being made regarding your cash flow management. I want to leave you financially stronger, faster, and more flexible.
The overarching principle, is to recognize that your finances are vital to your business! I reached out to Ben Bergeron of CrossFit New England (I’m a big fan), who had the following to say:
“Having your books in order is a top priority for small business owners…[outsourcing allows you] to focus on the true factors that determine our success; customers, employees, and growth opportunities.” – Ben Bergeron, CrossFit New England
Ben is a big advocate of outsourcing those things in your business that keep you from focusing on the business. I couldn’t agree more. However, if you can’t (yet) outsource your bookkeeping, you can certainly make them a top priority, and avoid the following five mistakes while doing so.
Mistake One: You Intermingle Your Business and Personal Finances
Keep separate bank accounts for your personal and business use. Don’t intermingle the two. It makes tax time horribly, horribly inefficient and probably pretty inaccurate. If you mingle business and personal expenses, and end up being audited, you will hate your life.
Another reason to keep your business and personal finances separate is so you can know how the business is even doing! Are you having to heavily subsidize its operation with personal money? Are partners having to toss in a few hundred dollars each month to cover “this or that” on a regular basis? Are you profitable? If you don’t separate your finances, answering those critical questions is next to impossible.
Solution: Separate your business and personal finances immediately. Separate bank accounts, and separate tracking.
Mistake Two: You Make Spending Decisions Based on What’s in the Checking Account
I know how this goes because I made the mistake of running my software business the same way. You look at that big checking account and you think, “Yeah…we can buy another rower.” Or maybe it’s, “No way can we buy another rower! Or paper towels for the bathroom!”
Do you need to hire another coach? Can you afford it?
Are you wanting to build out a complex membership management/billing/training system? Can you afford that?
The sound system is broken. Can it be replaced?
Looking at that big (it’s all relative) pile of money in your checking account and asking yourself if you can afford something…you’re asking an impossible question, because you don’t have proper insights into what expenses have already “spoken for” that money.
In other words, you may have $9,800 sitting in your checking account and you think, “Well, yeah, let’s get a new rower.” Before you realize that um, taxes are due. Not only can you not afford that rower, you suddenly can’t afford those paper towels.
Solution: We teach our small business clients this simple question: “That money sitting in my account, what does it need to do before more money comes in?” Answer that question every time you’re “doing the books” (see Mistake Three) and you’ll find clarity only found at the end of a 20-rep squatting session.
Mistake Three: You Don’t Track What You Spend
You have no idea if that member management system is actually worth it, because you aren’t tracking what you’ve spent on it, and how that’s translated into more revenue.
You don’t know what you spend on equipment maintenance, because you haven’t bothered to record when you spend money on fixing the old stuff, or buying something new.
Those t-shirts you bought. Were they worth it? That bowling event you planned for your members, how much did it actually cost, all-in?
You write down your workouts, right? And you have your members record their workouts, right? Recording your spending is just as important. Just like a recorded WOD, recorded spending gives you a historical record that provides information for you down the road as you begin to proactively plan what to do with your money.
Solution: Track what you spend. But don’t fall prey to Mistake Four in your pursuit.
Mistake Four: You Use Quickbooks to Manage Your Books
The beauty of a CrossFit gym, is that it’s simple. Oh so simple. I love everything about it. You’re a cash-based business, you carry limited (if any) inventory, your monthly revenue is predictable over the short term, and you don’t have to worry about invoices or purchase orders.
In other words, as a CrossFit affiliate, you very likely don’t need Quickbooks. It’s overkill and will only confuse and de-motivate you.
Solution: Use YNAB (pronounced why-nab), of course ;)
Mistake Five: You’re Reactive to Cash Crises, Instead of Proactively Deciding What’s Important for You and Your Gym
The rower breaks, so you pay for the repairs on a card (probably your personal card, see Mistake One). You decide you want to throw some kind of “End of the Open” event for your members, so you buy some food, maybe rent some tables and chairs, and have a great time. But you didn’t really have the cash to float that, so you put it on the card.
Your equipment is in such disrepair that prospective members are a bit turned off by the first impression you’re giving them. But you can’t buy new equipment because hey, it’s expensive. You grit your teeth and grab the duct tape (I made up the part about the duct tape).
Instead of waiting for these things to inevitably happen, I want you to look at that big pile of money in your checking account, and answering that question of “What should this money do for me?” I would encourage you to look AHEAD and be proactive about these expenses.
For example, let’s say you want to throw an annual member appreciation barbecue. You’ll need tables, chairs, and food. Maybe the whole thing will cost around $600. You’d like to do the event every April – which means you have a year before the next event. If you set aside $50 per month for the next year, you’ll have the money ready when it’s time to buy the burgers. No crisis, no credit card – no worries!
Solution: Look Ahead for those Larger, Less-Frequent (but Significant) Expenses and break them into manageable, smaller monthly amounts to save for. A few examples: taxes, annual membership events, CrossFit Open extras, equipment repairs (just guess on this, and be a pessimist about how long the gear will last), extra holiday spending, and perhaps the summer drought, where people freeze or cancel their memberships.
Small businesses fail because they manage cash poorly. You don’t want a financial DNF for your gym - so take care of your cash!
While I wrote this article specifically for CrossFit gym owners, these principles are universally applicable to any business owner. I’d encourage you to take our free 9-Day Small Business Cash Flow course. You’ll be able to ensure your business finances stay fit for the long haul.
Hey, YNABers. Jeremy here. When my friend, Kenny, handed me a copy of Total Money Makeover by Dave Ramsey, it felt a little like getting a speeding ticket. What are you trying to say, dude? Kenny’s intent was pure, but I was feeling the sting of having been tapped on a bruised area.
The book sat on my shelf for a long time, but Kenny’s excitement at how he was applying the principles finally pushed me to start reading it. Soon, I was stoked to get a grip on my finances and have success stories of my own.
I cashed my next paycheck in small denominations. They looked wonderful all laid out on the bed. I cheerfully divided it up into my envelopes. It felt so good take definitive action and I was hopeful for the first time in ages.
My enthusiasm was louder than the nagging in my head that wondered when the novelty of this process might wear off. Sooner than I thought, as it turns out.
The first strain in my envelope relationship was when I went to grab a shopping cart. I smacked my forehead and spun back toward the car when I realized I’d left my envelopes at home.
The second was when I returned. I realized I didn’t love carrying envelopes full of cash around. I can be a bit off center, to be sure, but the crunchy sound they made in my jeans pocket made me wonder: is this what it will be like to walk around in adult diapers?
The last straw was at checkout. After a dozen or so items beeped though the scanner, I realized I had items from at least four different categories whizzing by. My heart sank.
How was I supposed to handle that? Say, “Excuse me, ma’am, but could we please remove those last three items from the auto department, add the produce, and finish that transaction so I can get change for the money in this envelope?” And then do that three more times?
Simple as that, Walmart killed my cash budgeting system.
Are there workarounds? I’m sure. There are folks much smarter than me who use cash very successfully. One of my best friends in the world is the Chuck Norris of envelope budgeting, as far as I’m concerned. He makes it look effortless. Then again, he rescues people from burning cars for a living. You know, when he’s not singing, playing multiple instruments, and writing with incredible talent.
Me? I’m just glad I found You Need A Budget (YNAB).
Nowadays, I swipe my debit card and let the clerk sling items past the scanner. I calmly enter the transaction on my phone and split it into my categories. Hit “save.” Done.
Meanwhile, my wife’s purchase at another store instantly updates our budget as well. Using YNAB, I can live the debt-free life of a cash budgeter, with the accuracy and convenience of a card.
If you’re just now jumping into our discussion, I’m sharing my husband’s strategy for getting me onboard with YNAB:
- Step 1: Get Your Stuff Together
- Step 2: Your Spouse Owns a Category
- Step 3: Your Spouse Owns a Long-term Category
Okay, so you’ve been practicing letting go of control while your beloved practices operating a few categories – some long-term, some not. It’s going well, but you have bitten your tongue more times than you have cared to.
You’re probably ready for Step 4. Now, before I divulge Step 4, let me share an important word with you: FINESSE. You know, subtle, skillful, delicate. So here goes:
Step 4: Give options for success.
No anger, no pouting, no passive aggression, no giving up. Just…finesse – grace, skill, delicacy, subtlety, and artistry.
“STOP GOING OVER IN GROCERIES!!! WHERE IS THAT MONEY GOING TO COME FROM?!”
“Hey honey, groceries is dangerously close to zero, and it’s March 5. Are you sure we’re going to make it? The great thing about this budgeting program is that it doesn’t matter if you go over. You see they actually plan on you going over! Anyway, we have a few options:
1) we can just eat from the pantry as best we can the rest of the month (I don’t mind beans and cornbread),
2) we can take some money out of our trip category and do the trip later, or
3) we can have less next month to spend.
Which one do you think we should do?
Boom – Rule 3! See what we did there?
Options are a great way of creating a win-win situation. You’re not giving your spouse options that you can’t live with; that wouldn’t be fair. But you also haven’t communicated total disgust and disdain for her and her organic produce addiction. You’ve simply communicated, “Hey, let’s roll with the punches.”
Sneaky, I know.
The beauty of Rule 3 in YNAB is that it lets you calm down. If you’re not calm about the unexpected, you don’t have your stuff together, so go back to Step 1! This alone will get your spouse on board with it. By this point you should be calm with yourself and bringing your spouse into the wonderful reality of options. Your spouse starts to think, ‘I should just pick an option before one picks me.’
We’re two weeks into April so I thought I’d post an update to my post about my annoying grocery bill. There were also a few comments on the original blog post that I wanted to address a little more directly in case not everyone read the comments.
After I wrote the post, there was something still nagging at me regarding the horrific number of $575.86 for January. It’s such an abnormally high amount for me. It’s usually around $400.00 a month. Really.
Then I remembered something. I was doing a 30 day gluten free experiment during January. My brother had been up visiting at the holiday and had great success eliminating gluten from his diet. I was inspired and decided to give it a 30 day test. (Side note: Though it was a game changer for him, I didn’t notice any difference.)
I suspect some of you who are gluten free will respond that it could be done for much less – and I know that’s true. I was trying some different things as part of the experiment and I just wasn’t paying attention to my budget. But I was relieved that I remembered that something was different and that contributed to the higher bill.
Has that ever happened to you? You look at a category and say, “Woah, what happened there?”. Just think about it for a minute and you can probably get to the bottom of it. Then, take what you’ve learned and move on. Yes, I had a horrible grocery bill in January, but it’s not the end of the world. Feeling bad about it will only get you so far. Remember to let things go and move forward.
Goodness, this is a lot of work. How will you sustain this?
A few folks mentioned that I wouldn’t be able to keep this up, it’d be too tedious. I don’t intend to do this forever. I’m just trying to move the needle a bit. I know there will be a day when I realize “Ok, I’ve learned what I needed to learn from this experiment.” Then I can shift gears.
Think about that for a second: You can change your approach to your budget any time you want. How cool is that? And you thought budgets were restrictive. Pssh.
So, how April is going?
Pretty good. It actually hasn’t been that hard to maintain. These are my numbers right now:
I’m pretty set for meals through April. I’ll just need fresh fruit for the most part. I’m betting I’ll come in under $300 for the month. I haven’t done anything with the breakdown information yet. Too soon.
When I find my mind drifting off to “Hey, maybe you should go to the grocery store.”, I stop and think for a moment. Do I really need anything? That’s stopped me a few times, and that’s a good thing because once I’m in there, I quickly lose control.
“Mmm…fresh bread, yum. Cookies! Gotta have those. Lasagna, wow, haven’t had that in a while. Oh…I’ll need spaghetti sauce for that. Do I have cheese? Well gee, I’m already here, maybe I should get a few more things.”
I spiral out of control in about 4.2 seconds once inside the store. So I’ve done two things to slow that down.
I made a simple have/need list as suggested by Sonny in the comments on the original post. (Thanks Sonny!) I had to inventory what I had, but now I have a spreadsheet and can check it from my phone in the store.
Second, I make a list before shopping and try harder to stick to it. It seems to help. Sometimes it’s the small things, right?
What about sales tax on these split transactions?
Yana asked about sales tax and it’s a good question. When a transaction is split across a half dozen categories, what do you do with sales tax? Put it in it’s own category? Nah. Just let YNAB handle this for you.
When you’re creating the split, if you select “Done” before allocating the full amount of the transaction, YNAB will open a dialogue box to ask you how you would like to handle the unassigned amount. Chose “Auto-distribute amongst splits”. This will distribute the remaining amount between all items.
Can I get a report with a percentage breakdown for these categories?
Hannah was wondering if YNAB can report out the % spent in each of the sub categories. You can do that easily in reports.
At the top of the Spending by Category report, make the necessary adjustments in the filter:
I chose “This Month” for the time frame and selected the Grocery Project master category:
Then you’ll see just that master category in the pie chart:
Click on the pie chart to see the breakdown by sub category:
Voila! Percentages! You can change the time frame as well once you have a few months of data.
That’s it for now. I’ll post another update when April is over. If you have any questions or want me to address something specific in the next follow up, just leave a comment.
Ah, but so are those heavy startup costs. The folders, glue sticks, pencils, calculators, tape, binders and highlighters. Boxes of Kleenex. Locks.
Depending on how you establish your budget categories, you might even include new sneakers, gym shorts, hoodies and jeans in your children’s back-to-school costs. I don’t; I have a separate clothing category for the kids, and it stays relatively stable from month to month. I am also extremely lucky to have an older sister who regularly boxes up and sends me the OshKosh and Children’s Place items that her own children have outgrown.
But it doesn’t just end with the September stock-up. There are myriad other expenses that pop up throughout the school year. If I search YNAB for “school fees”, I can see that over the last two years, I’ve shelled out for school supplies, hot dog lunches, popcorn days, pizza lunches, tennis lessons, chess lessons, festival costumes, badminton lessons, field trips and project supplies. And that’s not all: there’s a camping trip coming up at the end of June for the grade 4s. Cost: $190. (Luckily, the boys’ dad will split it with me.)
YNAB lets me plan for these inevitable expenses ($56.76 for just one term of hot lunches, holy cats!). This makes August much less stressful, because I know I’ve already got a healthy category balance for buying the kids’ school supplies.
And actually, as I flip back through my budgets for the past number of months, I can see that I have been budgeting too little (I had to snatch five or ten bucks from several categories last September so I could blast an extra $70 into the school fees budget). I see now that ten bucks a month isn’t going to cut it, even with my ex sharing some of the costs. I think boosting my monthly budget to $20 will provide me with more peace of mind, especially now that both boys are getting older. And more expensive.
How do you manage your back-to-school costs?
Hello YNABers. My name is Jesse Mecham and this is podcast number 56 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.
Last week was significant because the United States found out that we’re keeping our President for another four years – and that’s pretty much all I have to say about that. But it was a big week. And man, I’ve got to be honest, I’m kind of glad that we’re going to hear different news for at least a little while – it has nothing to do with today’s podcast.
But I am excited, VERY excited to have an expert in identity theft on as a guest today. His name is Robert Siciliano and he knows his stuff. He is the author of ’99 Things That You Wish You Knew Before Your Identity Was Stolen’; he is – how do you say this company’s name? – McAfee… Will someone please give me the pronunciation on that? McAfee. That company has been around for so long, I still don’t know how to say that name. Anyway, he consults for them. They’re big into security – computer security, viruses and all that. Over the last 29 years Robert has studied white collar crime, cyber crime, identity theft, martial arts and self-defense. So you’ll hear more of his back story when I give you the interview, but his goal is to educate and empower audiences, and help us stay smart and keep our families safe from potential physical or virtual attacks in today’s world. And it just doesn’t seem like… I don’t know, it just happens all the time.
I had a lot of questions going into this interview and I honestly felt a little bit powerless, and Robert provided info that made me feel pretty darn good. He’s appeared on Anderson Cooper, the Today Show, CNN, MSNBC, CNBC, Fox News and Inside Edition, and just a ton of others that I won’t list. But without further ado, let’s learn a little bit about how we can outsmart the thieves and protect our identities from being stolen. You will be happy to know that it is not NEARLY as hard as you think. Here we go…
J: Alright, I’m on the phone with Robert Siciliano of robertsiciliano.com. Robert, thanks for helping on the podcast today.
RS: Thanks so much.
J: This is… I’m pretty excited to discuss this, because this is a topic that’s near and dear to my heart. I have never been a victim of identity theft, but it’s just becoming more rampant; and since I’m in the financial arena I felt like we had a lot of people that would do well to hear what you have to say. So, just really quick, just kind of tell me how you got into speaking on this and… you’re an expert on it, so I’m just kind of curious about your back story a little bit.
RS: Sure. I’ve been involved in issues revolving around personal security since I was a kid; and personal security essentially is securing the person from violence and theft. And back in the day – ’80s and ’90s – my focus was on preventing predators from hurting you – robbing your home, mugging you, and then sexual assault, things like that. As I grew older and as technology became a significant part of my life and everybody else’s life, personal security evolved into the virtual world as well. So now I speak to all things violence and theft prevention, both online and on the ground.
J: I see. Every day it seems I hear some news story about credit card numbers being stolen and some server being accessed, some company saying, “Hey, we’re going to do this without,” or pay for identity theft for all these people whose names were exposed – it’s just growing crazy fast. It’s insane.
RS: And it’s one of those problems that unfortunately isn’t going to get any better anytime soon. It’s going to continue to get worse. And we just saw – just last week or a couple of weeks ago – in South Carolina there were 350,000 or so Social Security numbers that had been leaked. This is the situation we’re in. We live in a data-based society, and that means that our information isn’t just in one database, it’s in hundreds if not thousands of different databases and filing cabinets; and everybody that has access to those databases has access to our personal information. And then, of course, those same databases are becoming huge targets by criminal hackers looking to cash in on our personal information.
J: Yes. I remember… I became more aware of this, I read a book a while ago – you may even be aware of it – called ‘How to be Invisible’ by a guy named J.J. Luna – well, that’s his pseudonym – but it kind of clued me in on just privacy and just being more aware. And I was trying to practice that, and I was surprised at the resistance that I got from people on the other side of a transaction. So I’m out… one incident I was at some department store and they asked me for my phone number, and I pushed back and said, “Well, why do you need my phone number?” And then were upset with me for enquiring about why they were enquiring. Have you seen that? I mean, what do you tell people in those regards? Is that something that’s pretty common?
RS: Yes, and the funny thing is is that clerk or whoever it was you were speaking to, he doesn’t even/she doesn’t even know why they need the phone number. They have that set up in their system – it’s part of their sales and marketing process, it’s part of the way in which they identify you and the products and services that you buy and so forth – and that clerk essentially is told by his or her superiors that they need that information. And by you not giving it to them, it just makes their job that much harder. But in the end, it doesn’t serve you any better to give up that information because it’s just one more way that sales and marketers can get to you, and they know that much more about you. In the end, what kind of harm can that do, by giving out your phone number? Probably not much. If anything, it will cause annoyances for you down the road.
But I’m a firm believer that – and some… and many will disagree with this – that privacy essentially is an illusion; that it’s not privacy that you should fight for today so much that it is your security that you should fight for. It’s more so not that they have the data, it’s what they can do with it that can hurt you in regard to your financial life: essentially new account fraud – bad guys opening up a new account under your name; or account takeover – taking over existing accounts that you own and basically draining those accounts. So those are my two big concerns, really, from a security perspective. Privacy certainly is a problem, but really security is the ultimate issue.
J: That’s a great way to put it, because honestly, when I read about protecting your information I feel like it’s impossible. And so it leaves me overwhelmed and then I take no action. Where you’re kind of coming at this and saying, “What can they do with this information that they will get, and how can you protect yourself from that?” I like that – that’s more empowering, to be honest.
RS: You know, the data that they get that can ultimately hurt you financially is your Social Security number. And when your Social is compromised, and when they get it and they use it against you, essentially they’re opening up new financial accounts under your name – they’re getting a new loan, they’re getting a new credit card, they’re using that Social to get credit in your name with a mobile phone. And when they do get that credit, they go for a period of time without paying the bill and eventually that goes on your credit report, and that soils your good name. It soils your credit standing in society, and today we judge a person based on their credit. If you have bad credit, you are irresponsible in the eyes of society – and that’s a problem.
So, getting your Social can hurt you through opening up new accounts. And then of course they get your account information, like a credit card number, a bank account number and so forth, user names and passwords; and then they can take over your existing accounts. Your credit card in your wallet – they get that number, they take it over, they make unauthorized charges. If you’re not paying close attention to your statements, which many people don’t – you know, it’s amazing how many people don’t actually reconcile their statements and let charges go through and they pay the bill – that can hurt you financially as well. So it’s those two things – new account fraud and account takeover – that we mostly have to be concerned about, and there’s ways to deal with and respond to both in different ways.
J: So what’s the most… that is the most critical piece of information that we safeguard? is that the Social Security number?
RS: Yes, without a doubt. It is our primary identifier; it’s the key to the kingdom; it’s your national ID. And the thing about a Social Security number is that it was never meant to have as much responsibility as it does today.
RS: It carries a tremendous amount of weight. Back in the day – late ’30s – when they developed the Social Security administration, the Social Security number was for just that one purpose: to pay your Social Security benefits. So you paid into that account over the course of your life, and it wasn’t until really the ’70s and ’80s – more so the ’80s – that banks and creditors and the IRS and everybody else started to use your Social Security number as that de facto ID. It wasn’t until the late ’90s that babies actually started to get Socials at birth – so that’s a new thing. It’s only been the past 15 to 25 years that we’ve really heavily, heavily relied on the SSN, and it was never meant to be this private number that you protect and you don’t give out and you keep secret. But now, you know, you have to kind of shield it; you have to keep it below board. But you can’t because every time you give it out to an insurance agent, to a doctor’s office, to whoever, it’s one more opportunity for the bad guy to do something with it.
J: Absolutely. And I think a lot of times people make the mistake – I know I have… Another experience I had in trying to be more diligent with my information is I was booking a room to do a speaking thing, and the lady – I’m sitting across from her, face to face – and she says, “Can I get a card and we can reserve it?” And I said, “Absolutely,” I thought that was fine. I thought she’d have a machine that she was going to swipe the card through, but she just pulled out a form and started… you know, was going to write down my credit card number on this piece of paper; and I really had to push back. And it got a little awkward, but I just told her, “Hey, I’m really not comfortable with this. Can we do it any other way?” And so we figured it out, but she felt like I wasn’t trusting her. But what I was really doing was I don’t trust… I don’t know who I can or cannot trust, and she may be perfectly honest but the guy in the office next door knows exactly where those papers are filed and they never shred them and all that stuff. So it’s just one more leaky place to stick an important number.
RS: True. And here’s the thing about credit cards. So, I use my credit cards often, probably at least two or three times a week if not more. I don’t generally use cash if I don’t have to.
J: I’m the same way.
RS: And I just pay my credit card bill every single month and then I reconcile my charges nice and easily. So, here’s the thing about credit cards. I tell people when they ask me, “How do I protect my credit cards?” and I say, “Listen, don’t worry about protecting your credit cards.” I say, “Any time anybody wants that number for whatever purpose, whatever reason, for you to make a purchase in any way, shape or form, give them the number and don’t worry about it. Just swipe the card, write it down, give it out over the internet, give it to them over email, whatever you want to do – give out that credit card number.” And here’s the thing, because you can’t protect it; no matter what you do you can’t protect it. You hand it to waiter/waitress/gas station attendant, they’re going to be able to get the numbers off the credit card, whether they write it down or whether they skim it. It doesn’t matter because the numbers are printed on the card, right? Anybody can see it.
And so what your real responsibility is is not to protect the card, but really just to pay attention to your statements. Every single month, or really every couple of weeks, you really should look at your credit card statements online, making sure that you authorized each and every charge. And as long as you’re doing that and paying attention to your statements, in the event that there’s an unauthorized charge you just refute that charge and they will take it off the bill. That’s generally all you can do anyways, but as long as you’re paying close attention you’ll be fine.
J: Okay, it’s much more manageable. On the Social Security side and the new account fraud, are we just talking about freezing… is it a credit freeze? Is that the phrase?
RS: You know, I’ve been doing this now for over a decade and I’ve probably done 1,000 radio shows and spoken to hundreds and hundreds of journalists, and I’d say maybe two or three of them mentioned to me about getting a credit freeze. So, congratulations on that! It’s one of the things where… it’s one of those tools where everybody should have but nobody wants you to know about it. The credit bureaus don’t want you to know about it, the creditors don’t want you to know about it, the banks don’t want you to know about it. Anybody that’s in the business of granting credit does not want you to know about a credit freeze, because essentially when you have a credit freeze it takes you out of the business of getting credit. It takes you out of the credit-driven society that we have, at least temporarily. With a credit freeze you cannot get instant credit because… you can’t walk into Best Buy and just get that $5,000 plasma on instant credit because your credit’s frozen.
J: Got you.
RS: So it takes a little more planning when you have a credit freeze to make big purchases. So my mum, for example; she buys or leases a vehicle every three to five years, and every three to five years she rings me up and says, “Oh, Robert, I need to get a car again and you need to do that credit thing you do,” and so I have to thaw her credit temporarily, and then within a week or so it automatically freezes back up and she’s fine. And that’s it. I don’t have to worry about my mother’s identity getting stolen because her credit is frozen. Same thing with me, same thing with my wife and my kids and everything else. Credit’s frozen across the board. That’s what you want. You want to have a frozen credit so the bad guys can’t open up new accounts under your name.
J: Okay. Now, I used to… no, I do still. I subscribe to LifeLock and I know there’s been some controversy on… you know, I haven’t followed it too much, I just kind of set it up and honestly forgot about it. Is that… Are they essentially just having me pay for them to do the freeze on my behalf?
RS: No. So, identity theft protection services today, the majority of them do pretty much the exact same thing. They all pretty much have an engine working in the background that does this. So, for example, you supply the identity theft protection service with your Social Security number, and they plug that into their system; and the back engine of their identity theft protection monitors your Social. So, any time that you or anyone else uses your Social to open up a new line of credit somewhere, that identity theft protection service probably will be notified of it. Through their system, they would get some type of a hit, some kind of a notification that so-and-so’s Social Security number is being used to open up a new American Express card in Albuquerque, New Mexico. And so at that time, as a subscriber to that identity theft protection service, you might get an email, you might get a text message, you might get something in the mail saying, “At this given point in time your Social is being used to open up an American Express card in Albuquerque, New Mexico. If you did not actually process this application yourself, give us a buzz, let us know so we can shut that down before it becomes a problem.”
So, there’s a technology out there that basically has… it’s in the process of every new account application for mobile phone companies, for utilities, for most of the major creditors, and before that application I fully completed, that Social is checked against your name, your address, your credit report, your age. So there’s a number of factors that are tied into your Social that this technology looks at and recognizes, and it scores that application and that transaction based on the information provided in that application on whether or not there’s potential fraud there.
J: I see. So the credit freeze is prevention of even having a notification created, it sounds like.
RS: You got it. That’s it, exactly, right. A credit freeze basically stops it all at the beginning. They can’t even use that Social to even access your credit because your credit is frozen; it’s done, it’s locked down. So identity theft protection without a credit freeze, identity theft protection allows the fluid process of you being able to access new lines of credit at any given point in time that you want. That’s what that’s for. In addition to that, identity theft protection services offer restoration in the event your identity is compromised, and generally that means in the event that their service fails.
So, you really have to pay attention to the fine print on that as well. But for $100 a year/$150 a year, it’s generally worth it, especially for kids, because children under the age of 18 can’t really freeze their credit, and identity theft protection really is the next best thing for them.
J: I see. So what’s the process for freezing my credit? How do I do that?
RS: So, the best thing to do is to do a search online for “state security freeze laws” – four words – “state security freeze laws”. And generally, at the top of search you’re going to find consumersunion.org – and if it’s not consumersunion.org it might be listed under financialprivacynow.org. It’s basically the same website. It’s not for profit, and when you click on that link there will be a website that you’ll… a web page you’ll access that will have a map of the United States, and you just click on your state and you’ll download a PDF file that essentially is the laws regarding a credit freeze for your state. In addition to that, you’ll see a download for a PDF that will have an affidavit and everything that you need to fill out, documents to send in to Experian [?? 0:20:03] and [?? 0:20:04] on getting a credit freeze. So, everything that you need via doing a search for “state security freeze laws” via consumersunion.org is right there. And you just fill it all out, send it all in. You need to send a copy of your Social Security number, which is fine – give it to them; give them a copy of a utility bill or two to verify your address; and they’re going to want to check.
So a credit freeze, depending on your state, is free if you’re a victim of identity theft; up to as much as $15 per credit bureau. So, the max you’re going to pay is $45 to freeze your credit and you’re done – and I think that’s a pretty good deal. And if you want to thaw off your credit, if you want to open it up and get a new line of credit, when you freeze your credit they send you a document in the mail within a couple of weeks with a username and a password and a website that you visit to thaw your credit when you want to get credit. So, it’s just… it takes a little bit of planning. So you want to go lease that car – you thaw your credit and then you go to the dealership a day later and your credit will be thawed. And then for a week or so it will be open and then it will automatically freeze a week later.
J: Wow. This does sound pretty easy.
RS: Yes, it is. Yes. I did it years and years and years ago when it first came out in 2008, and it was a little bit more cumbersome. They made a lot of mistakes, they didn’t have the paperwork or technology in order, and I had to redo it a couple of times. But today it’s much easier, it’s much more fluid, they have it together, and I recommend that everybody freeze their credit across the board.
J: I like that. So regarding your… I mean, that’s kind of the action that everyone listening to this podcast is… I’m hoping they’ll take. They’ll say, “Okay, I can do that,” and $45 is well worth it unless you’re leasing a new car every month it might be a bit of a hassle.
RS: And here’s the thing. I’m 44 years old. I’m in the house I’m going to be in for quite some time, I’m in the vehicles I’m going to be in for quite some time, I have my Visa, I have my American Express; I don’t need new lines of credit. And in the unlikely event that I do – which happens every one or two years, you might go to refinance your home or whatever – you just thaw it. It’s a once every one to two to three year process, and the older you are the less credit you need. And the younger you are, the more vulnerable you are. So I just think that everybody should freeze their credit.
J: Awesome. So, tell me, I mean, what do you… I know you go around and you speak, you’ve been on all sorts of news stuff, but can anyone… I mean, your website – robertsiciliano.com – they can check out for more info; and I saw you had a book on… Was it on Amazon that you have a book?
RS: Yes, it’s called ‘The 99 Things You Wish You Knew Before Your Identity Was Stolen’. So if you just go to my website – robertsiciliano.com – you’ll see “new book”, you’ll see stuff right on the home page, everything that you need to access that book.
J: Cool. Yes, it says $11 on Amazon, so the amount of info that… I mean, identity theft, I’ve never been a victim but you hear stories, and so it seems like the value proposition of spending a few bucks and a little time to freeze your credit, maybe looking at the ID protection services for your kids, sounds like it’s well worth the little bit of investment to save yourself mountains of headache.
RS: Yes, and read my book! Because it goes beyond just identity theft protection. In today’s day and age we rely on technology every day for something. I don’t know anybody at this point that doesn’t have a Smartphone, an iPhone or an Android or a Blackberry. That right there is a little computer, and that has a lot of your personal information in it. And then think about all the information that’s on your desktop or your laptop or your Mac. There’s enough data there generally to steal your identity. And in my book that’s what I talk about – all the different ways in which the bad guy can get access to your information, and all the different things you need to do to secure your digital technology; the difference between spyware and malware and ransomware, and what typosquatting is and cybersquatting is; and all these different terms and all these different scams that you need to be aware of. And the more… Knowledge, of course, is power, especially in your financial life. Right? And the same thing in your security life. If you up your security intelligence, the better off you’re going to be, the better chance you’re going to have of fighting off the bad guy.
J: What’s the number one mistake people make with their information?
RS: They think that nobody wants it. “Why would a bad guy want to come after me?” And that really is just denial and being lazy – that’s what that boils down to. They think that, “It can’t happen to me,” and so they don’t really do anything about it. They don’t invest in any antivirus, anti-spyware, anti-phishing and firewall. They don’t update that license when it says, “Hey, there’s a pop-up here that says it’s time for you to renew your license for your antivirus.” They don’t invest in a credit freeze. They don’t think about these things, and they don’t educate themselves – and you have to do that today. You know, tell your kids not to talk to strangers and then here they are on social media and they’re talking to these people all over the world. I work with McAfee. We just did a study and the recent study showed that more than one in ten kids are actually communicating with complete strangers online and then meeting them in the physical world.
J: Oh my gosh.
RS: So there’s a lot to know about our digital lives today, and the less you know the more vulnerable you are. And it’s one of those things, like you HAVE to do this. You don’t really have an option of not knowing what’s going on out there today. You can’t just throw your hands up in the air and say, “Okay, I’m overwhelmed. I’m just going to do nothing.” Inaction is not an option.
J: I like it. I love action and I love that it boils down to basically some really simple things you can do to kind of halt the criminals in their tracks. So, awesome. Man, this is good info. It was an overwhelming topic for me because I was thinking of trying to plug holes, but what you’re saying is, “No, just stop them at the final spot.” I like it – you’ve put me at ease.
RS: Good. And you know, a lot of things that you hear, don’t worry about. Like don’t worry about the privacy stuff. DO limit the information you put on social media; like DO limit… you don’t want to speak too much about your personal life on social media and here’s why – and this is what I mean when I say that. Think about password resets for certain accounts. So when you answer those questions, “Where did you grow up?” and “Where did you honeymoon?” and your mother’s maiden name and your kids’ names and your pets’ names and your birthplace and all that stuff; if those are the answers to the qualifying questions or the password reset questions and you post all that stuff on social media, that’s a problem. So, I try to keep that stuff more business; especially being somewhat of a public figure and so forth, you want to keep that stuff a little somewhat innocuous, not giving out too much information – for everybody, for that matter. And so just keep that in mind. Just be aware of what you’re posting and think of, “How could a bad guy use this against me?” Otherwise, you want to just talk about how you just ran a 10k, great; but just be cognizant, “What can a bad guy do when I’m posting right now?”
And then, you know, as far as giving out your phone number and stuff like that, just be careful who you give it to and when you give it out. Maybe get one of those Go phones, or you have a throwaway phone number, get a Google Voice number as a number that you might give out for certain accounts rather than just giving out your home phone or your mobile phone. Just be aware of that stuff and determine what your options are.
J: This is cool. I was just thinking about the maiden name and all that stuff – “What’s your mother’s maiden name?” – and I was just thinking on Facebook it’s really customary for you to put… for women to put their maiden name and then they’re… so you can find people. Like high school, some girl in high school, you don’t know her new name now; and I was just thinking, “Well, yes, you just find out what the person… who the person’s mum is on Facebook and she may list her maiden name,” and then you’ve got your first answer to that question.
RS: That’s how Sarah Palin’s Yahoo account was hacked by… The bad guy hit the password reset and just basically answered all the questions to reset the account by searching social media and the web.
J: You know, just last night I woke… well, it was this morning, it was about four in the morning; I reached for my phone on my bedside table – I’m trying to see what time it is – and I can’t find my phone. And I don’t know if I was sleepwalking or something, but my phone was nowhere to be found. I thought maybe I’d knocked it off; I couldn’t find it anywhere. So I pull out my iPad, I login and use the Find My iPhone App, and I find out that it is in my house somewhere. And then I do the little… you have an option to push this button and it will beep and send this to your phone so it starts making a noise, and it was buried in the sheets of my bed. I don’t know what happened, but anyway, I find the phone right next to me. My wife’s sitting there – I’d woken her up as well crawling around – and she’s like, “That’s kind of freaky.” And I’m like, “Yes, that’s kind of freaky,” you know. It’s just… You know, with convenience, I get there is a cost to convenience and we just have to be aware of what we’re paying, I suppose.
RS: That’s it. There is a cost to convenience and that’s what this all boils down to. All these technologies that we enjoy today are conveniences, and that’s what conveniences are – the tools of technology. And we rely on them to such a degree that it’s become a security and privacy issue, and so you do need to know how that… how signing up for that new site might affect you and what that new tool/technology is and how it works and how it might affect your life. Just don’t go blindly into these things.
J: Awesome. Well, man, I really appreciate you coming on and giving everyone a lot of good info. This is going to be… this is great. And I loved all the other points… Because I get asked this, you know, being in the financial realm. I was very uneducated here, and so I’ll be able to refer them over to your site, point them to this podcast, get people good info – so I appreciate that. That’s good stuff.
Well, have a great… Where are you located? I didn’t know if I asked you that.
RS: Boston, Massachusetts, born and bred.
J: I thought it might be Boston, but I didn’t want to be presumptuous. Well, yes, I appreciate it, Robert. You have a great week and maybe we’ll have to have you on again when they come up with another 50 ways to get at our identities. It’s always evolving – I’m sure you’ll have new things to talk about for years to come.
RS: Any time. I’m at robertsiciliano.com. Love to hear from you guys again.
J: Alright, thanks, Robert. You have a great week.
RS: Alright, bye bye.
J: Bye bye.
And that is a wrap. Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.
Hello YNABers. My name is Jesse Mecham and this is podcast number 57 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.
Today we are going to be interviewing a participant in an awesome program, proven program, to help people that have a debt addiction, and that is Debtors Anonymous. I found it terribly interesting to interview Linda and to find out how the program worked; and she is an excited YNABer and she spreads the YNAB word among her Debtors Anonymous aficionados. So, it’s a great program.
Without further ado, here is the interview:
J: Okay, this is Jesse and I’m here with Linda I – that is not her real name, but she’s a member of Debtors Anonymous, and I just wanted to have Linda speak with us about the program and how YNAB helps in that, but also maybe how people would know if they should look into it. So, Linda, let’s just dive right in. Well, first, let me thank you for being on the program.
L: Thank you, Jesse.
J: This will be a lot of fun. I wanted to basically dive right in and just ask you if there’s a point where someone should be concerned that they really… I mean, we know debt is a problem for many, many people, but when someone should be concerned that they REALLY have a debt problem; like what kind of signs to be aware of.
L: Well actually, the organization Debtors Anonymous has 15 questions to ask yourself that can give you a clue if you’re really in trouble, such as, “Do your debts cause you to think less of yourself? Have you given false information in order to obtain credit? Do you make unrealistic promises to your creditors?” So if you read those, they say if you answer yes to at least 8 of the 15 you really should look at yourself and consider it that possibly you’re a compulsive debtor. There’s also signs of compulsive debting. The Debtors Anonymous site is debtorsanonymous.org, and it just talks about compulsive shopping and describes a lot of different signs that you can tell if… You know, so if you’re borrowing money off one credit card to pay another credit card, or if you just don’t pay your bills, even if you have the money you just can’t find the bills so you accrue late fees – all those things are signs that there’s something wrong and your life is unmanageable because your debt is just becoming crushing. If you look at it and you’re just constantly using credit cards or you can’t stop shopping even though you want to… You know, I know people who have plenty of money but they are out of control with their spending, even though they have the money. So it’s not necessarily that you don’t have any more money or you just have a lot of debt; and they say a compulsive spender is just a debtor who hasn’t run out of money yet.
J: Okay. So there’s obvious financial strain there with compulsive spending. Someone that maybe recognizes that they have a problem, they want to stop, how does that compulsive spending affect the person’s life outside of the obvious financial… direct financial consequences?
L: Well, I found just from my years now of being in recovery compared to being out there, it destroys relationships. I mean, I think – you might know this – there’s a huge number of divorces that occur over finances. You know, when one of the partners is a compulsive spender and one of the people is responsible, it can just wreak havoc because the person who’s out of control is spending money that maybe is needed for the mortgage or for food. Another thing, it can affect your relationship even with children. Let’s say you have small children but you’re compulsively on the computer with the home shopping network, not paying attention to your children. It can affect your time; they talk about time debting where you just… you fritter away and waste time with compulsive spending and compulsively thinking about spending.
J: Absolutely. So it’s interesting, when they were… I remember speaking with someone and I said, “Well, how do you know when you’re addicted to anything?” and they said, “Well, as soon as it starts to affect other aspects of your life – your job, your relationships, your health, things like that – then you know that you’re addicted,” and that goes for alcohol or gambling or any other number of vices, so to speak.
L: Right. This is not a play illness, you know; this is a very, very serious thing and people, they kill themselves over this. I mean, it destroys lives. It’s not a joke. And I think anybody who’s experienced the weight of crushing debt or not being able to stop spending money and worrying about using money that should be used for something else but they just can’t help themselves can understand that this is devastating.
J: Tell me about the structure of the Debtors Anonymous program – how it works, what the benefits are for those that are seeking help through the program, and maybe the difference of them going the Debtors Anonymous route versus tackling it on their own.
L: Well, the Debtors Anonymous route talks about… First of all, you aren’t alone – that’s one of the wonderful things, is that somebody who also has that problem can really help somebody else who has the same problem, right, because you can identify it. There are meetings; there’s many, many meetings on phone, so people all over the world – it’s just amazing – can get on the phone and all talk about the problem and the solution. And they say the solution is a spiritual solution, but that doesn’t mean religious because it is a big difference. But it’s if we could have stopped on our own, I think people who really have a problem with being out of control with money and debt would do it. I couldn’t do it on my own.
So, the program is based on Alcoholics Anonymous, and there are 12 steps and those are kind of instructions. There are books that you read and… So people go to meetings, and there are face-to-face meetings but they do it on the phone as well. One of the key things is a spending plan, which is where YNAB comes in, because without… They don’t call it a budget, even though you call yours a budget – that’s sort of a “no-no” word in Debtors Anonymous because budgets can imply deprivation, like being on a starvation diet; whereas Debtors Anonymous is helping you create a spending plan which is showing you how to use money to live your life appropriately. As opposed to gobbling a whole cake, you know, eating it in proper bites. So, in Debtors Anonymous, by having a spending plan – which YNAB is THE perfect tool… In the older days people did what was called the envelope system where they literally kept cash in envelopes that were labeled Groceries and Hair-cut; and YNAB is a virtual envelope system. It’s just… it is THE most perfect tool, because it helps you accrue in your different categories so you save up for things monthly. And one of the best ways to do that spending plan is to take what you have to pay and you divide it up by, let’s say every month you owe your car payment, so you put that much away, or if there’s an annual… something you pay annually you divide it by 12 and for each month. I mean, I know this is all the stuff you teach as well! And you also get someone called a sponsor, who is another member who can help you on the phone.
Now, I do something called the HOW Program – Honesty, Open-minded and Willing. It’s a little more structured with the tools. So, I make a phone call every day to a sponsor; I tell the sponsor what I planned to spend yesterday to the penny, what I actually spent to the penny, what I plan to spend today; and I actually don’t spend one cent without calling somebody or texting somebody to let them know, and it is the most freeing thing in the world. So I no longer compulsively just go have a spending binge. And I also do some writing and reading every day – not excessive, just something that kind of helps me to think about the healing part of this. And we also call each other in between to get support. And one last thing, we do something called Pressure Relief Groups. That’s where two other members get together, say with me, and I do it on the phone, and they help me with any financial pressures, to work through my spending plan, to create the spending plan, to tweak it to if I need to save for something or if a crisis comes up. It’s just, it’s a wonderful way to support each other and to gain the strength together with others to do what we couldn’t do by ourselves. So that’s pretty much it.
J: So you combine… I sometimes wish that I could have YNAB sponsors; with everyone that purchases the software, I wish they could call someone and say, “Okay, tell me how this works.” We try and do that with our online classes to a degree, but I’ve always wanted that sponsor program. It’s always been so fascinating to me because it just seems so effective. You know, someone that has some empathy for that person’s situation, having been there and kind of walked that same path.
L: Well, that’s why I just created a website called gettingoutfromgoingunder.wordpress.com, and that’s the purpose. I wanted to talk about… That’s why I’m doing it anonymously because in the program you can’t reveal your name, etc. But I wanted a place where people who were maybe exploring this program, or even not, to understand how to use YNAB in context of the program. So for instance, today I just wrote a posting about split transactions and how to do them, and with some philosophical ideas around it. And I have some posts on setting up the spending plan within the context of the whole DA ideology.
J: This is great. So, for people that maybe… you know, maybe they’re not compulsive spenders, maybe they aren’t a prime candidate for Debtors Anonymous, but what are some good habits that people can maintain to make sure that their debting never becomes a serious issue?
L: Well, actually, something that shockingly my own son is doing on his own – he’s in college and he called me, he was all excited – he’s using a tool to write down every single thing he spends. And so he said, “Do you know, I spend most of my money on pizza!” You know, it was kind of funny! And I think the most… to me, the key thing is being… having clarity about what you’re spending your money on. I think everybody should use YNAB – I do, whether you have this problem or not – because you get… there is no more clarity than with your program. And I mean, you’re not paying me to say this! I’ve used your program for almost three years now, and it has just changed my life. I was an expert Excel… I could do Excel spreadsheets and all kinds of stuff, and before YNAB I just couldn’t get it right; I just kept, “No, but I need this and I need this and I need this.” And then when I got YNAB, you actually had everything that I felt that I needed.
So to me, the willingness to live by the categories, to reconcile with your bank account; I’m surprised at how many people don’t know how to do that. I just did a post because a couple of people were telling me they’d never done it before, and I was shocked. These are adults! You know, these are not just kids. So I think, I really think that being willing to live within your means is crucial, especially in these days. My husband is not a compulsive spender or debtor, and I’ve watched… he’s amazing. He, of his own volition, writes down every single thing he spends; he’s never had credit, other than he’s had a mortgage or a car payment; but if he uses a credit card he pays the entire thing at the beginning of the month. He’s never been in debt. And I think that’s the most important thing that people can do, is live within their means. I mean, just as a person. And that’s separate from the 12 steps, which is what somebody with higher power and power that’s greater than you in your life – that’s a little bit different.
J: That sounds… It really comes down to what we talk about a lot when we talk about Rule One, and just one word to sum up the idea of giving every dollar a job; and the idea is just to be aware. You know, just to have awareness; just to know where the money’s going and making sure that it’s doing things that you really care about.
L: Right. And you might find that, you know, if you’re short at the end of the month and you say, “Oh my God, I go to restaurants so much!” how much clarity that gives you. And you can change that behavior. And the other thing is… you call it the buffer, I call it living in the next month. That absolutely is the most amazing thing, and it’s not so easy to get to. But the idea of “what I earn this month I spend next month” is SO freeing, because on October 1st I don’t have to worry about that in the middle of the month… I know I’m getting a check on the 17th but today I’m almost out of money, I know on the 1st exactly what I have to spend for the whole month. It’s just the most fabulous thing, especially… well, for anybody who gets maybe two pay checks a month. Right? So on the 1st they have their pay check, but their spending plan is for the whole month; however they’re not going to maybe have enough on the 14th if that check hasn’t come, the second check.
J: It’s just a lot of stress there. That timing of those bills to pay checks is just lots of stress. Absolutely.
L: Yes. They should teach this in school!
J: They absolutely should. You know, the only problem with that is that the kids don’t have any pain yet. That’s what I always tell people. I say, “Well, if the kids had bills to pay then they’d start to feel that pain; but they don’t so they don’t perk up because they don’t have a pain to talk about.” But it is something that we… I mean, as parents, you know, you basically teach your kids by example, and it’s kind of like you do things so loudly I can’t hear what you’re saying, is kind of the phrase. And so I always hope that I can LIVE in a way that my kids can just see, “Oh yes, dad checks his budget before he spends money, and then he plans,” and things like that. So that’s probably the biggest thing. But that means we have an awful lot of adults to educate in the meantime.
L: That’s true. And I just want to make sure, because I think I just [?? 0:15:14] this off, but it’s really important to know that the 12 step programs – all of them – really have a basis in a spiritual kind of recovery and believing that you are not the power of everything; you’re not in control of everything, that you’re powerless and that there is a bigger power. So it’s not religious, but that is the crucial concept where it works. And we do help each other, but the biggest concept is that there’s something outside of us that can help us.
J: And it’s proven to be effective for how many… I mean, how many people have gone through it, any of those 12 step programs?
L: Oh, just millions and millions. And right now I have over three years of continuous abstinence, meaning that I have not debted, not incurred any new debt. My debt was at $33,000 and now it’s down to about $14,000 in this time; and I’ve been able to save money. So it’s really miraculous.
J: That is awesome. Well, Linda, thanks so, so much for coming on and sharing with us. I’m confident that there are people listening to the podcast that this applies to, and that they know people to whom this also applies, and so I love that you can get the word out. So your website – gettingoutfromgoingunder.wordpress.com – where people can read a lot more of what you’re writing, and probably find out a lot more about your story and things like that, and how you’re using YNAB as well.
L: Yes. But the Debtors Anonymous site, which is the real… My site is just my own; it’s not approved by them or anything; that’s not conference-approved. That website for Debtors Anonymous is debtorsanonymous.org.
J: Okay, awesome. Well, everyone knows where to go to get more information. Thanks so much, and you have a great rest of the week. And yes, good luck in your continued budgeting efforts.
L: Okay, take care.
J: Bye bye, Linda.
Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.
Hi – jessiebird here again. The other day I came across an old debt payoff chart I had made. It listed all of our debts at the time, with balances, minimum payments, interest rates and a grand total. The five debts — including a credit card on which we owed over $10,000 — came to a demoralizing $45,162.39.
The chart was dated Aug. 22, 2012.
That’s an important date. It’s not when we started with YNAB; that was July 2011. It was, instead, the first time I had been brave enough to write all of our debts down in one place — and that’s after we had already paid several off.
If you’re a natural-born number-cruncher who doesn’t feel like hiding under your desk every time you think about your staggering debt load, you might wonder how I could have waited so long. Well, when we first came to YNAB, I thought we’d never get out of debt. Seeing the total on paper would have confirmed what I already felt, that I was a complete financial failure. So I waited until we had paid down enough that I started to believe that maybe, just possibly, we could actually get a handle on the debt.
On the off chance there are few of you reading this who are where I was then, feeling hopeless under the weight of your own soul-crushing debt, I offer the following advice:
- Crawl out from under your desk; you can’t accomplish anything from there (and there might be spiders). As scary as it is, gather up all of your debts so you know what you’re dealing with. Compare the balances and interest rates to figure out the snowball payoff strategy that works for you.
- Focus on your whole budget, not just the debt. Do budget for the debts and pay them off as aggressively as possible, but don’t forget the importance of emergency savings, fully funded categories, a buffer, and even a little fun now and then. This is a budget, not a prison sentence.
- Stop letting your past mistakes define you. Yes, you’re in debt. Do the only thing you can do: Deal with it in your budget. And then stop feeling so bad about it. Seriously. It’s exhausting.
Obviously, I was a little late implementing step 1 myself. But I’m doing well with steps 2 and 3. Since I wrote up that debt chart 20 months ago, we’ve paid off around $27,000 (including all of the credit card debt). In total, I estimate we’ve paid off well over $40,000 in less than three years.
And here’s something I never thought I’d be able to say: We’ve only got $18,000 left to go.
(Granted, it would be even more exciting if I could say we were debt free. But at least I’m not hiding under my desk anymore.)