Learn to budget efficiently in just 9 posts.

[GAMEchief]

Brought to you by Personal Budget Software - Finance Software for Windows & Mac

Your Budget - Your ROCK

Read a "money book" carefully and you'll notice every "guru" mentions the need for a budget. Each stresses its importance for...oh, about three sentences. They then move on to catchier, more popular, more saleable things.

That's the biggest problem people have with budgeting--it doesn't sell. It's not sexy. It's not complicated. As a matter of fact, a lot of times an author sells a book by over-complicating something that was simple to begin with. Not so with a budget-- it's just too straight-forward...

BUT, it is the ROCK upon which your financial life is built. It is your foundation. All other financial decisions are appendages to the budget. The budget is the tree. Your retirement plan is the fruit. The budget is the massive trunk, rooted deep into the ground, immovable by any force. The new car you want is the fruit. The house you want--the fruit. The college savings you're dying to put away for your kids is, you guessed it...the fruit.

If you don't plant and care for the tree, you won't get the fruit...

Most financial books focus on the fruit. During this course, we're focusing on the tree. The fruit needs to come from somewhere, and that's ALL we're going to talk about (well, almost).

The next post will discuss the budget's bad rap, and expose some dirty lies about budgeting. In two posts we'll hit our First of Four Rules.

Write down the "fruit" you would like to grow from your financial tree. What will you do?
Get out of debt?
Pay off your home?
Invest more earnestly for retirement?
Put away money for a fancy vacation?
Buy a new TV?
Write down your financial goals. This course will open your eyes to the reality of those goals--they are a reality. You just need to plant your tree, help it take root, and watch it grow.

Action Steps:

Write down your short- and long-term financial goals.

[GAMEchief]

Brought to you by Personal Budget Software - Finance Software for Windows & Mac

Last post we talked about how a budget is the ROCK of your financial plan. Of all things financial, it's first priority. If you're concerned about your retirement nest egg, you must first be concerned with the chicken. And, as we talked about yesterday, if you want to grow some fruit (retirement, debt freedom, college funding), you need a budget - err, tree. Whatever.

I'm sure it was as true in your neighborhood as it was in mine. There was a house nearby that the kids decided was haunted. It was occupied by some scary lady whuld peer through her curtains and scare the living daylights out of any kids that dared set foot on her lawn. You stayed awake with your friends during sleepovers daring each other to knock on the door and bolt.

Little did you know how absolutely wrong you all were! The scary lady was the sweetest lady you ever could have met. She peered out of her window hoping you would come and knock on her door, so she could show you pictures of her grandkids that lived thousands of miles away. She also wanted to feed you the most delicious chocolate chip cookies you ever would have tasted. She just wanted some company. You never heard her talk (because you wouldn't dare go near her house), but if you had, you would have heard the sweetest grandmotherly voice EVER.

See what I'm getting at? A budget is like a sweet grandmother who bakes to-die-for chocolate chip cookies but is shunned by the neighborhood for no good reason! (I'll see if I can't use some sort of analogy with each day. By the end, I imagine we'll all be good and confused!)

Dirty, Rotten, Lousy Lies.

Why is the budget so shunned? Lies, and the media. (Just kidding about the media.)

Lie #1: I'm spontaneous. Budgeting destroys spontaneity. Wrong. If, on a whim, you buy shoes, and you've done it consistently, and you can't stop, you either need to take drastic measures to keep yourself out of shoe stores or you need to acknowledge reality and budget for it. You still won't know which shoes you're going to buy (brown, white, black? Who knows!? That's the unpredictable spontaneous part), but you're acknowledging the fact that you WILL do something unplanned. See? Spontaneity and budgets can coexist.

Lie #2: I'm not heavily in debt. I don't need a budget. If money ever passes through your fingers, you need a budget. Your money works harder, lasts longer, goes stronger, thinks faster, and moves quicker. Whatever your income, you need a budget.

Lie #3: I don't have time to budget. Oh, don't even go there! Throughout these posts you will learn the most effective, efficient way to manage your money. It takes one to two hours per month. (My wife and I have been as fast as 38 minutes for the entire month. Yes, I timed it. Quiet, you.) Put another way, you're saying you DO have time for: talking with creditors, going to the bank to take out a loan, financing the purchase of a couch, settling for a new job that you don't want because you can't make it one month without a paycheck, etc. You don't have time NOT to budget.

Lie #4: Budgeting means lots of paperwork. Nope. How the heck could my wife and I have done ALL money management tasks for the entire month in 38 minutes if there was a ton of paperwork involved? We enter our spending on our phones, and plan monthly. That's it. Sometimes there's something good to eat while we're doing our budgeting meeting, but I'll talk about that on Day Six.

Lie #5: Budgeting causes inexplicable pain and suffering. Just the opposite my friend! The budget removes inexplicable pain and suffering. It is your straight-to-the-point doctor that never misses a diagnosis and tells you like it is. The budget will make your life easier. Truly.

Lie #6: I'm on a variable income, so I can't budget. Wrong again! Budgeting is NOT forecasting. You'll just answer one question every time new money comes into your life: "What do I want this money to do before I'm paid again?" That's it. No forecasting. No guessing.

Write down what has kept you from budgeting. Do you not know how? Is the tracking too daunting? Is the software too overwhelming? Have you used the TIME excuse? Write those all down, then critically address each one of them. Are your excuses also just dirty rotten lousy lies about a sweet, lonely grandmother?

Based on my experience working with others, these lies appear fairly often. They're dirty, rotten, lousy lies. Pay them no heed. Remember: the budget wants to give you fresh, hot, gooey chocolate chip cookies, and just chat in a sweet, grandmotherly voice for an hour or so each month. Tomorrow we're going to get into the mechanics of the budget, starting with the First Rule of Cash Flow. Hey, it only gets better, so hang on for the ride.

[GAMEchief]

Brought to you by Personal Budget Software - Finance Software for Windows & Mac

Let's discuss the mechanics of budgeting.

Money is like breathing:

In
Out

With fancy marketing and pushy salesman, many times more money goes out than comes in. The result of that is...debt and stress.

When you're operating on a budget, the pattern changes just slightly:

In
>> Assigned <<
Out

We'll talk about each aspect of a budget, why it's there, and what you need to do to make it work.

Inflows & Outflows

Inflows: Typically, when you think of money coming into your pocket, you think of your employment. Some people are paid twice per month; others are paid every two weeks. Some are paid just once a month. None of that matters though because you always follow the same three steps. You record your income, decide how to spend it, then track your spending against your plan.

Every dollar you receive should be recorded as an inflow.

Outflows: Outflows are really pretty basic. Any time money flows out of your pocket (or you charge something on a credit card - meaning you incur the obligation to pay money out of your pocket), it is an outflow.

How big does an outflow have to be for it to really "count" as an outflow? It need not be very big at all. Did you stick a penny in the gumball machine at the oil & lube station while you were waiting for your car to be serviced? Congratulations, you just created an outflow! (How'd that gumball taste, by the way?)

The one-penny charge is a bit of an exaggeration, but I do it to illustrate a point. Too often we talk ourselves into little purchases that we think won't really add up. It's true that even the little things add up, but there's something even more important:

If you're constantly making exceptions to recording an outflow, you'll never successfully form the habit.

I should probably mention that people place WAY too much weight on the notion of having to record everything you spend. Remember the other day when I said that my wife and I had been clocked at doing the ENTIRE budgeting process in 38 minutes? That included recording every single outflow for the month--manually. Just record it on your phone as you spend it. It takes seconds.

There is a psychological advantage in writing things down. It keeps you closer to your money. This is a good thing. As you write down EVERYTHING you spend, you'll notice your spending decline. Not because you're "cutting back", but because you're more aware of your money doing things you value.

Begin recording every single purchase you make-and stop whining!

For Post Four we'll talk about the First Rule of Cash Flow, that crucial middle step of the budgeting process where you...budget.

Action Steps:

Begin recording every single purchase you make. Without exception. It doesn't matter how you record it (pencil, iPhone or Android, spreadsheet, etc.), just make sure you do it consistently beginning today. Right now.

[GAMEchief]

Give Every Dollar a Job

We've covered the basics of a budget. You have your inflows, and your outflows. Sandwiched in the middle is Rule One: Give Every Dollar a Job. YOU are the boss.

Imagine a business where there are no defined job descriptions. Engineers work on the marketing plan, or determine how to amortize a lease for the accounting. The marketing employees love spending time on the factory floor looking at the big, shiny machinery. The accountants (with all their personality) enjoy spending their time trying to sell the product to customers (imagine how well that's going).

I think you get the picture. This is not a company that has mastered cross-functional team theory. This is a company with no defined employee responsibilities. You wouldn't want trk there--and your job wouldn't last long if you did. It is only a matter of time before a company without properly defined roles is going under.

A household, where the dollars' roles are not properly defined is destined for similar financial failure.

Our dollars cannot just go about their business doing whatever they please.

Not even a little bit.

With spending ever easier, it has become even more important that we consciously assign each of our dollars a job to do for the month.

Let's say that $2,000 comes into your hands during the month. You must assign each and every single, solitary dollar a job. Some goes toward rent, and do their job during that very month. Other dollars will go to saving for a new vacation. Some dollars have the job of just being "ready" for an emergency (much like firemen, right?). You'll have some dollars that sit around for six to twelve months before finally doing something (saving up in anticipation of car insurance premiums, and Christmas come to mind). Every dollar still does something. No dollar goes without a job.

Ever. Even the fun money.

You Still Need Some Breathing Room

When my wife and I first started budgeting, we made the same mistake most beginners make. We didn't allow any breathing room. I have to give credit to my wife though--she was much more dedicated than I was. I started noticing that I was stressed about money. I was stressed about spending it. I was stressed we wouldn't have enough of it. Frankly, it was getting to me. I felt like I couldn't justify spending money on anything.

This is a dangerous situation. I was struggling and wanted to quit!

We were assigning every single dollar a job. Every job appeared so important! I felt like I couldn't buy a candy bar. I felt constricted. After a month or two of working like this, I talked with my wife about it. We decided each of us would get a little bit of "fun" money to spend on whatever we wanted--with no accountability.

Amazingly, the amount can be small--but it does need to be there! We settled on five dollars each per month. Five lousy dollars and I felt like I could buy the world. Learn from our mistake. Every dollar needs a job, and every budget needs some breathing room!

I've found too often that when people are unrealistic with their budgeting (as my wife and I were), they give up. Why? You can't do unrealistic things for a significant amount of time when you're living in a brutally realistic world.

The intentional lack of accountability to your spouse is key. It doesn't matter if one of you is the complete breadwinner of the family, once it hits the budget, it belongs to the household. Only once you assign fun money to each other do you once again have your "own" money.

(Guys, it's very romantic to spend your fun money on your wife.)

I can't stress enough how important it is to have your dollars working for you instead of just doing their own thing. As you implement Rule One, you'll notice that your dollars work harder, longer, and stronger for you. They're more efficient. They don't put up a fight. They do what they're told. They're basically the opposite of your teenager.

In this technologically progressive (and fiscally-irresponsible) society, you need to use something that will allow you to assign your dollars their jobs with ease. You can use a pencil and paper, my software, envelopes, a chalkboard - whatever. Just make sure every dollar gets a job!

We've talked a lot about assigning your dollars jobs, but we didn't mention the process by which you do that. Next post will be a special post because we're going to focus specifically on budgeting in a marriage. If you're single, well, next post you'll learn what you'll do once you're married (or you can take a day off).

Action Steps:

Create a list of your dollars' potential "jobs." These will be your spending categories.

Promise yourself that you'll allocate some dollars to your "Fun" category. Your budget's longevity depends on it.

[GAMEchief]

(This post's topic is focused on finances shared between two people. If you're single, feel free to skip to the next post, or maybe follow along for future reference! Your call

Yesterday we addressed a ton of issues regarding Rule One: Giving Every Dollar a Job. I purposely left one HUGE issue completely out; it deserves a day of its own.

When I was in graduate school I attended a Business Law course. One day in class, I realized that the budgeting that happens between spouses is much like the consensus ad idem (meeting of the minds) we were discussing that very night.

From Wikipedia:

"...a term in contract law used to describe the intentions of the parties forming the contract...where there is a common understanding in the formation of the contract...The reasoning is that a party should not be held to a contract that they were not even aware existed."

For a valid, enforceable contract to exist between two parties there needs to be this "meeting of the minds." This must happen during your monthly Budget Meeting!

The Budget Meeting

The budgeting meeting is a contract between two parties: You and your spouse. As with any contract, there is negotiation before agreement. A healthy negotiation involves honesty, compromise, and respect.

Honesty in negotiation means that if you agree to a spending amount, then intend to fulfill your side of the bargain. Guys: if you agree to spend $50 on tools for February, then you aren't allowed to spend any more than $50 unless you can renegotiate the contract with your spouse (which means taking the money from some other place in the budget).

Honesty also means you're up front with your spouse about concerns. If you're suffocating under the budget, voice that concern!

When your spouse voices those concerns you need the "friendly" side of negotiation. Are you compromising when appropriate? Are you respecting your spouse's needs and wants?

The Budget Meeting should not be 30 minutes of dread (you don't really need more than 30-40 minutes for a month. As you improve, you'll knock it out in ten minutes). The more you budget, the quicker you'll recognize what's required. Each spouse will have more realistic expectations, and be compromising and respectful of the other's.

What if your spouse just isn't the "financial type"? There are a few (million) of those. Some are in denial. Some are really busy. Some are unbelievable earners and don't want to be bothered. Most are just petrified when you say the word "budget."

The word 'budget' tends to conjure fears in spouses. It has a pretty negative connotation attached to it.

You say: "Honey, I'd like to set up a budget with you."

They hear: "Honey, I'd like to control you when it comes to money."

You say: "Honey, we should probably budget for big expenses."

They hear: "You're spending too much money (but I'm not)."

You say: "Honey, let's try and keep to our budget this month."

They hear: "Honey, why don't you try and keep to my budget this month?"
0
That's just the way it goes. If you're having trouble convincing your significant other of the importance of a budget...keep trying! Spell it out in clear and friendly terms. A budget is a set of common goals for the two of you trk toward.

Remember: "a party should not be held to a contract that they were not even aware existed." If you aren't sitting down with your spouse and agreeing together on how much and where to spend, you can't really hold them to that "contract."

If your spouse refuses to sit down with you and manage the money for 30 minutes each month (you even agree to handle entering all of the transactions!), you have a deeper marriage issue than just budgeting. If you've told them it would mean the world to you if they would participate--they'd have to be a backward person to refuse. Tell them I said so!

Hot Chocolate = Success

A successful Budget Meeting should take place whenever new money comes in. Remember, keep it short. Make it fun. Have hot chocolate during the meeting. Go to a movie afterwards (budgeted, of course). Attach something positive to it. Just do it!

When you are successfully budgeting ("success" in budgeting does not mean you never overspend) with your spouse each month, you will notice some very positive changes in your money and your relationship. Your finances will improve. Within your relationship you'll feel more teamwork, respect, and camaraderie. Your communication skills will skyrocket.

The Budget Meeting is the most powerful tool in solving money problems in a marriage, or improving the money situation in your marriage.

Have your spouse read this post's material. Talk it over with them. Spread the love!

Next post we're going to get into Purchasing Power, and the Second Rule of Cash Flow.

Action Steps:

Hold a budget meeting with your spouse. Talk about long- and short-term goals. If necessary, hold hands during the process.

[GAMEchief]

We've covered a lot. I hope you're beginning to feel the power of the budget. Maybe you're even developing some respect for that six-letter word. You've also realized there is no truth to the lies surrounding budgeting. You've recognized that your life, as you know it, will improve immensely when you implement these principles. We've gone through the ins and outs of inflows and outflows. We talked about assigning every dollar a job. And just last post we stressed the importance of the Budget Meeting in your marriage. Did you talk with your spouse about it?

Save for a Rainy Day

Today we hit the Second Rule of Cash Flow: Save for a Rainy Day.

Rule Two can only happen when Rule One is happening. Remember how you're assigning your dollars to different jobs? Well, let's say your $360 car insurance premium is due every six months. That works out to be $60 a month, right? I know, the complexity is going to blow you away, but you'll want to budget $60 into your car insurance category each month. When the sixth month rolls around, guess what your balance will be? $360. You'll cut the check and pay the bill. YOU DON'T FEEL THE BIG BILL.

I'll bet you can remember a few months ago when something big WAS due--maybe your property taxes, HOA dues, or...Christmas. How was it handled? I can't speak for everyone, but based on what I've experienced, if you don't plan for those high points with the bills, you'll be leveled. You were likely barely making it month to month and then a $360 big-kahuna-type bill came down the pipeline. Perhaps you "had to" charge it.

The cycle of being "surprised" by bigger bills, and charging them bit by bit...pretty soon you have $12,000 of credit card debt and no apparent way out.

There is a way out. Acknowledge the fact that some of your money should just sit there until the big bill comes due.

This principle, obvious as it may seem, truly works. It forces you to acknowledge in the "good" months (where nothing big is due) that you inevitably have a rainy day ahead. Instead of having eight good months, and four bad, you're going to have twelve normal months.

Trust me. It's much easier to handle twelve normal months.

What About "Surprises?"

This all appears quite easy when $360 is a fixed payment. But what about something like car repairs? When's the transmission going to fail? When will the air conditioner stop working? When will your grandpa accidentally break the door handle off of your car while trying to get out, which causes you to have to roll down the window and reach for the outside handle whenever you want to get out of the passenger side?

I've digressed.

You're not a statistical outlier. You'll have home, car, and teeth repair surprises.

These surprises are NOT emergencies. You KNOW they're going to happen, just not WHEN. So you guess. It's as easy as that. You don't have the fixed amount, but having something set aside is better than nothing Your guesses will improve over time.

Think about some rainy days in your life. I've talked about car insurance, Christmas, HOA dues, and property taxes. You may also have club membership dues, self-employment taxes (done quarterly), health insurance premiums, birthdays, anniversaries, relocation, etc. It's basically anything big that is happening that you can estimate and plan for.

I use my software that tracks these balance accumulations for us--but that is not necessary. You could just as easily use real envelopes, or write it on a piece of paper on your fridge. You must track it, or it won't work.

Planning for these big expenses gives you back your sanity and financial peace of mind. I promise you from my own experience that giving every dollar a job (Rule One) will help your money go further, and you'll find you have enough to save while the sun shines, for those rainy days ahead.

Next post we're going to focus on the sport of boxing. Well, sort of.

Action Steps:

List all of your larger, non-monthly expenses (life insurance premiums, property taxes, Christmas, vacations, etc.)

Divide the totals of those expenses by twelve to get your monthly funding requirement.

[GAMEchief]

Brought to you by Personal Budget Software - Finance Software for Windows & Mac

Roll With the Punches

Rule Three is, by far, the most elusive of the Four Rules of Cash Flow, but it's my favorite.

You've probably heard the saying, "Just roll with the punches." It means you're adaptable. The origin of the saying comes from the sport of boxing: "Said of a boxer: to move the body away from and in the same direction as an opponent's punches to reduce their impact."

If you ever watch boxing in slow motion you'll see the fighters doing this all the time. It truly does lessen the impact, and keeps them on their feet so they can continue the fight.

In budgeting, the same advice holds. We haven't talked much about how people tend to get pretty depressed and down on themselves when their budget "doesn't work." They usually throw in the towel. Okay. I'll get off the boxing thing...maybe.

What happens when you go over budget? Well, nothing. You just roll with the punches. You adjust your budget to cover the overspending, and go cuddle up with a book.

If you can't cover the overspending by pulling money from another job, then you pull it from next month's money (with my software, that's done for you automatically).

That's the gist of the rule: when overspending happens, you address it. No guilt, just new information and a reassessment of priorities.

I'll spill my guts here. My wife and I have been married almost ten years, and we have operated using the YNAB Rules of Cash Flow the entire time. We have never, ever stayed within budget for every spending category.

The key is that we still just roll with the punches. What we overspend in one month, we pay back the next. Every category is zeroed that is overspent, and every category that has a surplus carries that surplus forward (Rule Two). It's masterfully simple. You don't really even feel what the budget is doing. It just takes you by the hand, makes a few corrections, and leads you gently down a more prudent path.

Alright, that's it for Rule Three, and Post Seven. Next post we'll hit the final rule, then I'll share with you some closing thoughts, and my own story from rags to...nicer rags.

[GAMEchief]

Brought to you by Personal Budget Software - Finance Software for Windows & Mac

This post we discuss the final Rule of Cash Flow. Rule Four.

When my wife and I first married, we worked part-time at the university where we attended school. Part-time work on a university campus equals, well, not a lot. I wasn't TOO worried about things, but the fact that our finances would be tight did inspire me to implement the Four Rules.

Everything seemed fine, but our variable income was causing problems. Our hours worked could change based on many external factors.

How do you budget when you don't know what you're going to make? While a lot of financial gurus will suggest that you forecast, then prioritize your expenses and always pay the top ones first, there is a better (initially harder, more fulfilling, and eventually easier) way.

You Live on Last Month's Income

Now I'm going to spend the rest of the time trying to convince you that it IS a good idea.

I know you're likely not there yet. This Rule is something you work toward. It's a goal.

How did we, two struggling college students do it? I'll admit, we had it kind of easy. Our wedding had just happened a few months before, we had wedding money sitting in our savings account. I withdrew enough to get us through March without touching March's paychecks. That's exactly what I'm going to ask you to do. You need to make it through one month without using that month's paycheck(s). Some intensity may be required.

If you want to stop living paycheck to paycheck, and enjoy the benefits of MUCH more flexibility in your finances, if you want to be able to budget easily and accurately, you'll want to do this.

The trick is to make it an entire month without touching your paychecks.

How is that Possible?!

How do you manage to get by for a month without touching that month's paychecks? Well, that's pretty much entirely up to you. I'll give you a few ideas to get you started. The key is INTENSITY. For the short-term, virtually ANYTHING is possible. Remember that! This is a sprint, not a marathon!

• Work overtime if your job allows it. Put in as many hours as you possibly can.
• Get a part-time job. You can make a thousand bucks a month working 80 hours in a month at a part-time job. Think pizza delivery, UPS, painting, lawn care, house cleaning, etc.
• Have a garage sale. That's right - get rid of the junk you don't need. Sell everything you forgot you had. People sometimes make enough from their garage sale to skip that month's paychecks entirely. Typically you make between $500 and $800.
• Negotiate your credit card rates down. Threaten to switch to other card providers. This can lower your minimum payment, substantially freeing up the extra right now for your buffer fund.
• Ask for a raise. Have you been an awesome employee? Do you truly deserve a raise? Then you should ask for one.
• Cut out your entertainment (keep thinking short-term here).
• eBay & Craigslist. Like a garage sale, but with a wider audience.
• Car pool. Sure it might be a bit inconvenient, but imagine if you could cut your gas bill in half!?
• Brown bag it. Don't eat out at all. Remember, a short-term solution for long-lasting rewards. Sacrifice! (You'll probably trim down a bit too - I know I tend to trim UP if I eat out a lot). You may need to brown bag your dinner as well if you're working overtime!
• Cash in vacation. Sacrifice a few vacation days for your peace of mind. Many employers will allow you to cash in your vacation.
• Is your tax refund on its way?
• Save all windfalls. You do get windfalls. They happen. Stash 'em.
• Cut your phone bill. Do you have a cellphone where you could get out of the contract inexpensively? Remember, it's a short-term solution for long-lasting peace.
• Sell your car. Perhaps, you have a car that is way too expensive considering your current income. Sell it! Even if you owe more money on the car than it's worth, you can refinance the difference (provided your credit is decent), which frees up some extra dollars. Remember, once your budgeting foundation is built, that debt will be destroyed.
• Don't go to the mall. Seriously.
• Cancel cable, satellite, etc. Seriously.

Based on my surveys, it takes an average of four months to get one month ahead. Think of that, what you earn in February, you use in March.

Remember, you can still follow the Three Other Rules, I just expect you to be working toward Rule Four. Pronto.

The advantages to living on last month's income are much further reaching than just eliminating the variable income problem of budgeting. When you are not living on the edge you are less stressed, healthier, sleep better, make wiser financial decisions, and enjoy a better relationship with your spouse. Life is BETTER. You no longer have to time your bills with your paychecks, saving you hours of time each month! Keep those benefits in mind as you're scrimping by without cable, eating brown bag lunches, and throwing everything extra toward Rule Four!

Take a moment to write down what you will do beginning NOW to get out of the paycheck to paycheck rut to be able to live on last month's income. Get crazy if you need to.

Rule Four is an important point, and absolutely vital if you want to have an easy, intuitive, cash flow system.

Action Steps:

Write down three things you can do in the next 24 hours to build a cash reserve that will get you through a very lean month.

Write down two more things you can do within the next 30 days to significantly build that reserve.

[GAMEchief]

Brought to you by Personal Budget Software - Finance Software for Windows & Mac

Today I'm just going to share with you a bit of motivation that comes right from my own life. I want to illustrate with the best example I have (our own) how absolutely powerful a budget can be in your life. It is the foundation of all other aspects of personal finance. It's the tree. The good stuff is the fruit. It's the sweet grandma with the gooey cookies. It just wants an hour or two of your time each month.

It was November of 2002 and I was newly engaged. People say when you're newly married that you live on love. But could love purchase my (overpriced) textbooks for the coming semester? Would love put food on the table?

No.

Our Story

So there I was, sitting in front of a computer in the library of the university. My fiancée was just across the hall working for $8 an hour. I would be leaving for my job in a few hours to make a bunch more--$10 an hour. I just sat there wondering exactly how we were going to manage. We were both full-time students, working part-time jobs. In our best combined month we would maybe make $1,200. Looming in front of us was the purchase of a car (neither of us had one), and three more years of school for me.

I thought we needed a budget, so I made one.

We were married the following February. Everything was absolutely great. I was definitely excited to be starting a new chapter in our lives.

I mentioned in Day Eight how Rule Four came about. I basically just thought it would be easier to budget if we lived on last month's income (and oh, how it is). Some wedding money tided us through a month, where we didn't touch those paychecks. We were now living on last month's income. I'll admit--we had it easy.

Rule One seemed pretty obvious. Every dollar should be accounted for. It just didn't seem right to only care what SOME money was doing.

The budget meeting was what surprised me. I thought it'd be more of a negotiating thing where she's guessing what I'm going to say, I'm guessing what she's going to say, and neither of us wants to say a specific number lest we leave some money on the table. It wasn't really anything like that. Not at all.

We just sat down together and looked at our money situation. It was a pretty healthy relationship exercise. It helped us face reality and decide where we needed to focus. It motivated me to squeeze in a few extra hours of work whenever possible. It motivated Julie to try and land a good job once she graduated. It really brought us together as a newly-married couple. There weren't any fights. There weren't any hurt feelings. It was just two people trying to figure things out--compromising, and learning what the other thought about money. It's been an extremely positive aspect of our marriage for the past ten years. I don't see that changing any time soon.

Rule Two, I hate to say, also seemed pretty obvious. We had big one-time expenses that would definitely need to be paid. But we knew we'd be sunk if we pretended like we would have all that money in one single month.

I remember the first time we were really nailed was with our license and registration tax that we needed to pay each May. We had been married over a year when we discovered that we owed the State $150 just so we could re-register our vehicle. I won't go into the aspects of this particular highway robbery, but we were caught by surprise. A hundred and fifty bucks was (and still is) a lot to us. We learned and adjusted. (How did we adjust? $12.50 goes into "License and Taxes" each month. We don't even feel it now).

Rule Three seemed important. Be FLEXIBLE. If we couldn't juggle money around for that month, I liked the idea of having next month's budget absorb the overspending. We paid ourselves back for mistakes, and the budget never let us get too out of hand.

To be honest, I really didn't know what we had. I thought it was just a somewhat clever (and obvious) way of budgeting. We budgeted like this for a couple of years without giving it much thought.

Since we were still in college, it was pretty easy for us to talk about our finances with friends. When everyone is broke, money isn't a sensitive issue. I would actually show them our budget. Our friends would ask me for a copy. I don't think one of them actually used it though. It was too tailored to our specific situation. (And getting one month's expenses to follow Rule Four is no picnic either).

With our first child on the way in June of 2004, I got to thinking. We had always wanted Julie to be a full-time mom. She was really looking forward to it. I had gotten a part-time "internship" at a company near the university. We figured if I worked 30 hours per week straight through school, we'd get by without taking on any debt.

I didn't think 30 hours per week would be too easy if I wanted my grades to remain respectable. So I presented Julie with the idea of selling our budgeting system online. She didn't think it would fly, which I still remind her about to this day.

As I prepared to market my idea, I began to appreciate what we had: a budgeting system that didn't take a lot of time, that worked. It had worked for us, which meant it would work for just about anyone.

So here we are today. What was a "hobby" site is now a full-time endeavor with a team of 18 spread across the globe. I became a CPA and then immediately let it lapse trk on YNAB. (I did obtain my Masters of Accountancy, if you were at all wondering). Our little boy is now nine years old, with a little brother (7), little sister (5), another little brother (3) and another little sister (1).

Life With a Budget is Good

Life is good. It isn't luxurious. The car with the broken door handle on the passenger side WAS my car and that WAS my grandpa that broke it (Day Eight).

But we have something that so many don't. We have A PLAN. It may seem like I'm attributing too much to the budget, but I don't think so. We have never fought about money. We've never gone into debt (except for our home, which is thankfully now paid for). We own our used cars outright. At the end of a Master's degree, where most people are at their poorest, we were at our richest! (Rich is very relative here, but you get my point).

I look around me and see people living above their means, with nicer cars, TVs, toys, homes, etc., and I can't help but feel sorry for them. True happiness does not revolve around the material things you have. True happiness comes from PEACE. And PEACE comes from living within your means. If you want to live within your means, these past days have showed you how.

The Rules are there for you to implement. I'd be out and out lying if I didn't tell you that I'm hoping you'll try my software. It's evolved into a pretty nice product, if I may say so myself. We provide live classes, fantastic support, and have tried to make it as easy to implement into your life as possible. Give it a 34-day free trial

Also, remember that the Rules can be used independent of any software. You could make your own system that does the same thing (don't underestimate the time involved though!). Implement the Rules if you do anything. They are powerful! They will help you!

Honestly, the Rules seemed to fall into my lap. Looking back now on that day in November, when I was feeling pretty stressed about money, I don't know, maybe I can chalk it up to inspiration. But at that moment I just thought to myself, "I think we need a budget."

We did.

And so do you.