I want you to manage your money effectively so you can get out of debt, save more money, and break the paycheck to paycheck cycle. There’s a key skill that we’re going after for this behavior change:
How powerful is awareness, coupled with nothing else? Quite. A few weeks ago I was reading The 4-Hour Body by lifestyle hacker/author Tim Ferriss. I’m a fitness junkie and that book had my name all over it. On page 67, there was an extremely interesting experiment that Ferriss highlighted.
Phil Libin weighed 258 pounds and wanted to “experiment with laziness. He wanted to lose weight.”
Phil had a simple method in mind: ‘I wanted to see what effect being precisely aware of my weight would have on my weight.
Ferriss reports that Phil lost 28 pounds in six months by doing…nothing.
First, having arbitrarily decided that 230 pounds was his ideal weight, Phil drew a blue line in an Excel spreadsheet. The downward slope represented his weight decreasing from 258 to 230 over two years. Every day’s target weight, which sat on the blue line, was just 0.1% (approximately) lower than the previous day’s. He then added two important lines below and above his “target” blue line: his minimum allowable weight (green line) and his maximum-allowable weight (red line) for each day. He had not plan to hit his exact target weight each day, as that would be too stressful.
What we have here is an exercise in awareness (with no other exercise!).
It was 100% pure awareness training, nothing but tracking…Awareness even at a subconscious level, beats fancy checklists without it. Track or you will fail.
What Do Weight Loss and Money Management Have in Common?
How would your finances look in two years if you simply recorded your net worth, the way Phil recorded his weight?
How much would you spend on items you don’t really care about, if you tracked how much you spent on those items?
How would you prepare for big-ticket future events such as vacations, Christmas, and car repairs, if you were made aware of those future events on a frequent basis?
Your net worth would go up. Your spending on things you don’t care about would go down. You would be prepared for those big-ticket events.
The Levels of Awareness
There are levels of awareness, and I want to talk about each level separately. Get to the fourth stage of awareness as fast as you can 🙂
You’re a financial train wreck. You respond reactively to money situations as they arise. You give very little forethought to your money in the future, and you’re stressed to the max (though you claim that if you think about or try to “plan” with your money, you get stressed out. Right…)
You’re not doing much better. Your goto information in raising your awareness is to check your bank balance to see if there’s money in there so you can buy X. You buy X, because the money’s there, and then you get a bill two days later that you can’t pay because you bought X. You check your bank balance, but you (incorrectly) use it to make your spending decisions.
You have some kind of bill-paying system in place that keeps the month-to-month obligations from burying you. You still find yourself not really gaining much traction and you’re a bit confused as to why you’re not making gains on your credit card debt. Instead it seems that the debt inches up bit by bit. You get a windfall and throw it at the debt, breathe a sigh of relief, and then the debt begins to climb again. You have good intentions, but a lousy system.
You’re using YNAB. You recognize that every dollar needs a job and, when money comes in, you make sure it’s told what to do. You import your transactions from your bank on a fairly frequent basis and make sure you’re still on budget. You’re beginning to build Rainy Day Funds (Rule Two) and are understanding how those future big-ticket obligations play into the month-to-month needs. You’re getting an idea of your True Expenses.
You’re using YNAB every few days. You enter your transactions manually at the end of each day, or at the point of sale with the YNAB iPhone App. Your spending decisions are dictated solely by your budget, not your bank balance. You’re on a tear financially and will soon break the paycheck to paycheck cycle.
This is the nirvana of money management. You’ve been following the YNAB Method for so long that it’s just a part of you. You can’t imagine managing your money any other way. You only check your bank balance so you can balance it to your budget every once in a while. You can predict with uncanny accuracy exactly what you’re going to be spending in categories (even the unpredictable ones). You’re not living paycheck to paycheck, your bills are on autopay (you have no idea on what specific day bills are actually paid), you’re killing your debt, and are eyeing the mortgage as a likely next target. Your kids ask the Budget if they can have something — not you. And you do all of this in about an hour each month.
You need to be at the ‘Very Aware’ level as quickly as possible.
We’re about behavior change here, and the change will only come about when you’re aware. The software is a tool to help you funnel your awareness toward your financial goals.
If you’re looking for something claiming to let you “set it and forget it”, or something that will “do everything for you” then you have most definitely come to the wrong place. If something’s doing everything for you, it will do nothing for you.