Hey there. It’s producer Steve and I am hijacking this show today because I have something I want to share with you today. I’m not telling Ray what I’m doing. So you want to know what I’m talking about, stay tuned.
From Philadelphia, the home of the Liberty Bell, Financial Freedom Radio starts now. Here’s your host, Raymond Jewell.
Hey there everybody, it’s Steve. Yes, Ray is not here today. Ray is feeling a bit under the weather. I told him the show must go on and I had a couple ideas for shows I have been wanting to do for a while now. So I’m taking over the show today and I’m going to talk about some stuff that’s important to me, some financial stuff that’s important to you. Hopefully by next week, Ray feels better, but if he doesn’t I’ve got a backup plan. Before we get started, I’m going to give you guys a heads up. I’m not used to being on this side of the camera for this long. I have my little control panel here that does all the fancy bells and whistles. If I’m looking down, it’s me trying to control the buttons. So you have to be patient with me. This is a technological challenge for me to be the star and producer of the show. So I’m going to work on that and hopefully give you some good quality information.
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So today, I want to talk about something that’s very important to me. It’s on topic with the show, but it is a bone of contention between Ray and myself. Ray is not a fan of Dave Ramsey. When you understand where Ray comes from in the big picture that Ray is working from, I get it. I think there’s some value in some of the things that Dave Ramsey talks about. I was a big fan of Dave Ramsey, I was a big follower of Dave Ramsey before I met Ray. Ray opened my eyes to some of the changes and tweaks that can be made to some of his teachings along the way. At the end of the day, there’s some value in some of the things he talks about and that’s the part I want to talk about today. If you’re listening to this podcast, I would recommend you go over to YouTube. This is going to be a visual episode. You can listen, but if you want to get the full effect, you’re going to want to go hang out at YouTube.com/FinancialFreedomRadio and watch the video presentation of this one.
We’re going to talk about near and dear to my heart called budgeting. Ray tends to take these shows into a direction of big picture stuff. He’s a macro-economist. I get it. I know where he’s coming from, but I like to take them to smaller bite-size chunks of things that people can do today, right away to start moving themselves toward a financially free future. It all starts with budgeting in my opinion. Since I’m running the show, my opinion counts. What we do here in my house, and I’ve been doing it for probably about 15 years now, is we use software. I’m going to show the software. It basically runs our budget for us. We don’t look at our checking account balance anymore to see if we have money. We don’t look at can we afford to do this? By the way, I want to take issue with people that say I can’t afford to do something. That’s a very victimizing statement that puts you as the victim. When you’re in complete control of where your money goes and what you do with it. What you should be saying is “I choose not to spend my money on that new car.” You could absolutely go out today and get the new car. You can’t say you can’t afford it if you have a roof over your head and you have clothes on your back. You can afford a new car. A more empowering way and a more positive way to phrase that is “I choose not to spend my money on that at this time.”
When you adopt a budget strategy and when you learn how to budget properly, then you can take a more positive view on your money and your finances. You don’t always have to live paycheck-to-paycheck. A lot of people take budgeting as how did I do. It’s a reactive thing people do versus a proactive thing which is what I do. Reactive being how much did I spend last month versus how much do I have to spend on this thing this month. So, that’s how we run my budget. We’re going to talk about that today.
The software that I use is called YNAB (You Need a Budget). You can get it by going to ynab.com or youneedabudget.com. If you want to support the channel, you can go to FinancialFreedomRadio.com/Ynab. That’s an affiliate link. If you buy through that link, it doesn’t cost you anything but it does help support the channel. Ynab.com or FinancialFreedomRadio.com/Ynab. This is the software that I use. This is the software that I’ve trained my children to use. This is what’s helped us over the past 15 years get out of debt to become more financially free. I’m nowhere near where I want to be, but I’m definitely on the path to getting there. It’s largely due to this kind of software. This is more of a proactive budgeting software. Basically the way it works is they have a set of rules. If you adopt this software’s mentality, you’ve got this software’s philosophy. They have a 4 rule system that dictates how you use the software and how you do the budgeting. It’s a little bit of a flip of how Dave Ramsey’s focus. Dave Ramsey’s focus is on budgeting with the goal of reducing your overall debt which is something that Ray is not a fan of as far as lost opportunity cost. You’ve heard the past shows.
I consider the idea of budgeting a good idea in the sense that it helps you understand where your money’s going and help you get in front of those expenses. So what I’m going to do today is talk to you about the rules of how the software works. You can see the basic gist and the similarities between traditional budgeting and YNAB budgeting and how Dave Ramsey’s thought process fits in here. I think it’ll be fun.
Let’s take a look at the first rule of YNAB. The first rule is called “Give every dollar a job.” When money comes into your life, you get paid from a paycheck, someone gives you birthday money, whatever the case may be. However money enters your life, you immediately assign it a function. It doesn’t matter what that function is. It could be going to groceries, it could be going to the rent. It could be going to play money. You give it a job to do. So at the end when you’ve got your money coming in, every dollar is given a job. Whatever job you give it, you stick to the plan. Rule Number 1: Get some Dollars. Rule Number 2: Prioritize those dollars. Rule Number 3: Follow the plan. You have to commit yourself and be consciously aware of where you’re spending your money so that you don’t deviate from the plan your setting up for yourself. So that’s rule number 1.
Rule Number 2 is Embrace your True Expenses. When you’re first starting out, you think you need money for this, you think you need money for that. You don’t really have a clear picture of where your money is going until you start living this lifestyle for a month or two. That’s what embracing your true expenses means. Think of it this way. We live in a community, so we have a homeowners association fee. We know that’s an expense. What embracing your true expenses means is instead of waiting until December to pay that, we put a little bit of that money into that category every single month so that when the money comes due in December, we’ve already paid the bill because we’ve been getting money aside. That’s what rule number 2 is. Embrace your True Expenses. Did your car break down? Are the holidays coming? Christmas money is always a big thing. People always wind up buying everything on a credit card because they didn’t plan for it and pay off the credit card with high interest debt throughout the course of the year. Opposed to what we do is we set aside a little bit of money from every check into the Christmas category. So when christmas time comes around, the money’s already there for us. Rule Number 2: Find big infrequent expenses, create a goal to fund it every single month, and when that expense arrives, you just pay it. It’s really a brilliant strategy.
Rule Number 3: Roll with the Punches. With roll with the punches, you acknowledge and accept and embrace the fact that you’re not going to get it right. My nutritionist always tells me get it right more than you get it wrong. That’s what roll with the punches is. You may budget $200 for groceries and actually spend $220 for groceries. You’ve spent more than you budgeted. It’s not a problem with this software and with this strategy because what you do is you may have budgeted $100 for shoes so you simply take $20 out of your shoe budget to cover the whole that you created in your grocery budget. Now you have $80 to spend on shoes. It’s really a great way to accept the fact that you’re going to not always stick to your budget. Nobody ever does, I’ve never done it at 15 years. I know that if I don’t, I simply move money around to cover it. I think Dave Ramsey of envelopes, putting money in envelopes. We did that for a while at Christmas. When we took our Christmas money, I would put so much in an envelope and I’d put so much in an envelope for my kids. When that money was gone from that envelope, it was gone. That’s kind of how this software works.
Rule Number 4, the final rule. Age your Money. The ultimate goal of this software is to get yourself to a point where the money you’re taking in this month pays the bills for next month. If God forbid something were to happen, you were to lose your job, you were laid off, you were incapacitated and couldn’t work, your bills are taken care of because the money that you need to pay this months bills you earned last month. It takes some time to get there. We weren’t able to get there for a very long time. I think it took us probably 5 years to get there. It’s not something that happens fast, but it’s the longterm goal. That’s what they call aging your money. When you start to use the software or you start to use a budget and don’t use this software, you’re going to become conscious of where you spend your money. One of the reasons people get fat is unconscious eating. You just eat and don’t even realize you’re eating. Same thing with spending. When you’re spending and don’t realize that you’re spending, you wind up spending more than you have and you live beyond your means.
When you start to budget, when you start to use software like this, it forces you down the path of being aware where your money’s going and spending it purposefully. It’s really weird how this works because it just seems to happen as you start to become aware of where you’re spending money, you’re going to start spending less. More moneys going to get freed up and when more money gets freed up, you go back to rule number 1 and give that money a new job. Something that benefits your life, something that benefits you and not just something that’s a reactive thing. We build an emergency fund so that when we have an emergency, we’ve got the money sitting there for it. If our car breaks down tomorrow, we take it to the garage tomorrow, we get it fixed tomorrow, we pay the bill tomorrow. We’ve got the money set aside in a bucket specifically for emergencies. That’s how the software works. Those are the four rules of how it works.
What I’d like to do now is walk you through a quick and dirty little demo of how the software works. I’ve got that pulled up here. It’s a web-based application. Again, you odn’t have to use this software. I just swear by it because we’ve been using it for 15 years and we love it. It has saved our financial lives because it made us aware of where we’re spending money. We’re now at the point where our money is more than a month old. We’re able to take the money from this month and pay bills two months out in the future because of this. We’re able to get ahead of our finances. The ultimate goal being right 6 months of reserves so if something happens, you’ve got the bills covered for 6 months. We’re working toward that goal. As we move down that path, we’re able to free up some money and do some of the things that Ray talks about, investing in gold or in silver or buying more insurance with it. It all starts with being aware of what money you’re making and what money you’re spending. That’s what this software does.
When you first install the software, what I did was create a new budget. This is what comes up when you create a new budget. Give it a name. Currency US Dollar number format. Pretty standard stuff. Really don’t have to change anything here. When you do that, this is where it starts you. It starts you with some basic categories you can put money in. Immediate obligations, rent, electric, water. This is a tickler, a way for you to think about some things you may not have already thought about it. True expenses, debt payments, quality of life goals, just for fun. You can add additional categories. This is not my budget. This is just a sample. You can add categories that make sense to you. Maybe you have a gym membership, maybe you have a car payment. Whatever maybe for you. They have the stuff I forgot to budget for. Remember, Rule Number 1 is give every dollar a job. If you don’t know where to put money, you can put it here and then as you go to rule number 3, which is roll with the punches, if you become deficient in a category, you can use this to pay for that.
What I’m going to do is create an account. This has the ability to link accounts to US and Canadian bank accounts. You can see that you can have American Express, Chase, Discover. It has a bunch of them and even smaller ones. For the purposes of demonstration, we’re going to do an unlinked account. We’re going to create a checking account and call it “Checking”. We’re going to start with a balance of zero. So there we go. The software then switches to a transactional look as opposed to a budgetary look because this is where you’re going to add information in. Let’s say I receive $100 and call it today and let’s just call it “Paycheck”. Let’s say I get paid $500. Since it’s money coming in to my life, it goes into this to be budgeted category. I put under the inflow, which is the money coming in, $500. I’m going to save that. We’ll stop right there and let that sit.
If I come over to my budget, you’ll see up here at the top, I have $500 to be budgeted. Now, we go to Rule Number 1 which is give every dollar a job. I’ve only got two paychecks in the month. I get paid every other week. I know my rent is $400. I can’t put all of that in the rent right now. Remember rule number 3 is embrace your true expenses. Since I’ve got half of the rent in this paycheck and half in next paycheck, I’m going to go ahead and put in $200. What you’ll see is I now have $300 to be budgeted. $200 is sitting in my rent category. Now I’m going to put $50 in for groceries. I’m going to put Dining Out, because we’re going to go out to a restaurant, I’m going to put $75 there. I’m going to have some fun and put $50 to just have fun with. That leaves me with $125. I’m still new at this, don’t know what I’m going to use it for. So I’m going to put that here.
As you can see, I now have no money to be budgeted. All of my money is budgeted into categories Rent, Groceries, Stuff I forgot to budget for, Dining Out, and Fun money. Obviously, this is a very simple explanation, but you get the basic gist. Now, I’m going to go buy groceries. I’m going to go back to my checking account and I’m going to add a transaction and I’m going to go to Walmart. Since I’m buying groceries, I have to give it a category. I’m going to give it a category of groceries where I’ve got $50. I’m going to put in the category groceries. I didn’t spend $50, I spent $75. I’m going to save that. Now I have $75 going out of my life going to Walmart. Let’s take a look at what that does to the budget. You can see right here my grocery budget is now $25 in the red. That means I have overspent that category. This is what I had budgeted, this is what I’ve spent. Now I’m going to have to pull $25 out of this to cover that. It’s very simple to do. I simply click on this red number. It says where do you want to get the money to cover this. I want to cover this with Stuff I forgot to budget for. It will now take that to zero. Ups the budget amount to $75 and takes this down to $100. If you’ll notice, my to be budgeted is still zero because no money came into my life. That’s when this gets adjusted, but money did leave my life. All I’ve done here is roll with the punches and move it from one category to the other. So by living this way, I don’t ever worry about what’s in my checking account. I can see it here, but this doesn’t matter to me. This number’s irrelevant. What I’m paying attention to is I can’t buy anymore groceries until my next paycheck.
What I could do and what I could’ve done, if I dined out. Let’s show this as an example. I’m only dining out this week. I’m going to go back to my checking account. We’re going to go to Grottos, it’s a little italian restaurant where we live. I’m going to call it dining out and we spent $35 there. So I come back to my budget. You can see I have $75 budgeted, I spent $35 which leaves you with $40. I’m not dining out again. I know I’m not dining out again until next paycheck. So I can take this money and leave it here and when I get my next paycheck, just not put anything into this. Or I can click on the $40 and I can move that to stuff I forgot to budget for. That will take the dining out category to zero and change this category to $140. So now I have $140 that I can spend if I go over my budget. If I don’t, I just let it sit there. This becomes my emergency fund. What I would do is rename this emergency fund. As I have expenses that I didn’t account for, I can handle that.
Anyway, that’s pretty much what I wanted to show you guys. I’m trying to keep the time short. Again, I know this is a very visual lesson. If you are listening, I highly recommend you go check out the YouTube video. YouTube.com/FinancialFreedomRadio. Click the subscribe button, it helps the channel, helps us grow, helps us get the word out to more people. Click the notification bell. That’s what we wanted to show you this week. Hopefully Dr. Ray is feeling better next week. If not, I’m going to dig deeper into this software and we’re going to talk about how to use things like credit cards and things like that. This is a very simplistic example that I just shared with you, but I think it’s a very effective one. We can dig deeper into this if Ray is feeling under the weather next week.
Anyway, thank you all for watching. I really appreciate it. I’m not really used to being in front of the camera for this long. Hopefully I gave you some value. If I did, please leave some comments on the YouTube channel. Let us know what you think, let us know if it was helpful. Do you like this style of content? We’ll see what we can do to help you out from now on. Anyway, thanks a lot guys. I hope you have a great weekend. I’ll talk to you next week.
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