Why We Approach Financial Planning and Budgeting Differently

Picture of Jesse Mecham, founder and CEO of YNAB.
Jesse Mecham, founder of online budgeting tool “You Need a Budget.”

Disclaimer: Neither the author, nor Providers & Families Wealth Management, LLC or its employees, are affiliated with, compensated, or endorsed by You Need A Budget (“YNAB.”) This is not an endorsement of YNAB and should not be read as such.

On his company’s website, Jesse Mecham (founder and CEO of online budgeting tool “You Need a Budget,” or YNAB for short) explains in his like-titled book how budgeting and financial planning are different:

If it is impossible to perfectly predict your expenses, a budget needs to be nimble and adaptable, right? Except most budgeting systems are decidedly “set it and forget it.” You make a budget at the beginning of the month, set it in stone, valiantly try to bend the fates and laws of the universe to make the month turn out exactly like the numbers you guessed, er, projected. Oh, and then beat yourself up and feel guilty when it doesn’t.

In retirement planning, “forecasting” is very useful. We forecast what we will spend, how much things will cost, and how much more expensive they’ll get over time. We even forecast how are investments will perform, even though there’s no guarantees.

Related: Yes, You Can Keep a Budget

When it comes to budgeting, forecasting is much different. If we forecast what we’ll have, we’ll forecast how we can spend it, and often make the mistake of spending it now. This is why YNAB’s approach to budgeting is so unique: you only focus on what’s in your bank account today, and you split it up into bitesize pieces designed to accomplish its own tasks.

Budgeting is a fluid, active process that requires dilligence and awareness.

Most budgets are backward. You start by projecting or guessing what your income will be, then plan how to spend that money. The farther out you go with this exercise, though, the less accurate your guesses–about your income or your expenses–are going to be. (Go ahead, I dare you to try and perfectly predict your expenses even for a week). The result? You are always in the dark, guessing, and waiting for the other shoe to drop.

With YNAB, you only budget money you have right now. It’s an allocation system, rather than a forecasting system. Therefore, you are on solid ground, fully aware of what you have and where you are going.

What about that big bill next month? Slow down, we aren’t there yet. With YNAB’S approach, we focus on what are current money is doing. And if it our current money isn’t helping us achieve our objectives, then we need to rework it.

Check out YNAB for yourself here.

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.

Talking About Death: Not Morbid, But Practical

In fall of 2017, my high school classmate, Ana, passed away. I had known her since elementary school, although we were never close friends. Her problem in 4th grade was with homework. It wasn’t that she struggled with it, in fact quite the opposite; she just never did it. What I admired most is how much she didn’t care. She never looked ashamed or scared when she said she didn’t have it. Right or wrong, she was confident. I’ll never forget the teacher offering to carry her on his shoulders around the school if she just did her homework once. (She never took him up on it.)

Ana was broadsided in a car accident by a driver that wasn’t paying attention. She loved going to the beach. She had a dog. She had two kids. She had parents and siblings. She was young – only 31 years old. She was a normal person who lived a normal life, and then lost it. The fact that she didn’t do her homework in 4th grade is inconsequential now.

I wasn’t her financial advisor. I don’t know anything about her personal financial situation. But based on the footer of her obituary asking for donations to her children’s GoFundMe account, my guess is that Ana didn’t have life insurance.

If you were to ask the average 20-something how they envision themselves going out, my hunch is you’d find a common theme between “in my sleep” and “peacefully” at an old age.

As we grow older, the natural passage of time begins to show us that old age is not always what takes loved ones away. Death might always be expected, but it is often a surprise. And that was the case with Ana.

We can never know for sure when death will come, but we can prepare. The phrase “hope is not a plan” applies here, as does the phrase “hope for the best, but prepare for the worst.” A 30 minute conversation, uninterrupted, is all it really takes to understand whether there’s a need for life insurance. Another 30 minute conversation would suffice for most in determining what that need exactly is.

Related:Your Family’s Future Financial Security: A Dream Worth Planning For

Of note when considering your life insurance plan: “he/she’d sell the house” or “I’d move in with my brother” are not plans. They are wishful thinking at best, because it assumes the following:

  1. The housing market will always be a seller’s market
  2. Your brother is alive
  3. Your brother will always welcome you unconditionally for an indefinite amount of time

These common objections to life insurance are not bad ideas. Nor are they implausible. But I have never once seen a someone with a notarized, mapped out, legal, step-by-step agreement to execute these ideas. Not only that, they are not fully forward-thinking, because they only consider the immediate next step after death – not the years and decades to follow.

So what’s the bottom line? Do you need life insurance? I don’t know you, so I can’t tell you the answer to that – but what I can tell you is what questions to ponder so that the answer comes to you.

  • If I died, would someone I love suffer?
  • If they would, do I care?

If the answer to both of these questions is yes, then you need life insurance. What kind? How much? Consider the following questions:

  • If I died, how would my loss impact my loved ones financially?
  • What kind of life do I envision for my loved ones if I don’t die?
  • Can my family continue to live their current lifestyle if I die? If not, what sacrifices would they have to make?

September is Life Insurance Awareness Month. The term ‘life insurance’ can bring up many misconceptions. I encourage you to set aside any preconceived notions you may have on life insurance and find a trusted advisor to help educate you and look at your personal situation. No one can predict the future or when your time here is finished, but an advisor can help you prepare so when that time comes, your family can take the time they need to grieve before having to make any major decisions. It’s not morbid to think about your death but rather practical and your family will appreciate your forethought. I’ve never had a client say to me, ‘wow, I wish you hadn’t told them to buy so much life insurance, that’s really more money than I need right now.’

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.

Edited with contributions from Lindsey Ciarrocca. lmciarrocca@1847financial.com

How to be Honest with Your Partner about Money

Talking about money isn’t easy. When it comes to relationships, money is a topic with unique challenges.

Don’t get me wrong – relationships have plenty of other challenges. But we can all agree that money is one of the biggest of them – and certainly at the center of many of the others.

Here’s three common pitfalls to avoid when talking finances with your significant other.

Avoid covert contracts.

What is a covert contract? Think of it this way – it’s rule of engagement that one partner sets, while silently expecting reciprocation. When it comes to relationships, money is not tit for tat. Consider having separate fun money accounts so that you can each enjoy your respective hobbies without restriction.

Decide what money is going to fund your fun money account. $20 per month? Money from a yard sale? Whatever is easiest for you. Personally, I keep the revenue I earn selling books online. I use it to buy a bucket of balls at the driving range, pick up a snack or soda, or have a beer on the weekend with friends.

Talk about boundaries – don’t set invisible ones.

Sometimes, financial boundaries in relationships are like invisible fences for dogs: you don’t know it’s there until you’ve crossed it, and by then you’ve already been shocked.

To avoid these kinds of surprises, talk to each other regularly about your goals. Are you working towards the same ones? If so, then listen to what meeting them means to each other. Finding a common perimeter will become much easier.

Knowing the budget is your responsibility, too.

I joke sometimes that my girlfriend is the budgeter in our relationship. It’s not to say that I don’t keep track of what I’m spending. But by contrast, Lindsey is on our personal favorite budgeting tool, YNAB (You Need a Budget) multiple times per day.

To stay in the loop, Lindsey and I sit down a few times per month (we aim for weekly budgeting dates) to talk about what the next month of expenses look like. I can’t stress how important it is to do this: you need to know who’s getting paid, and when – not just what’s in your account today. The direct path to deep debt is paved by checking your bank account balance and thinking you have that money to spend. Avoid mental accounting – there’s software to do that for you! (Hint: it’ll do a much better job – I’m speaking from experience.) Bottom line: the money might be there today, but it’s both partners’ responsibility to make sure it’s properly put to work before being frivolously spent.


About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC. He is a CERTIFIED FINANCIAL PLANNERTM practitioner. His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached  by e-mail at scot@providersandfamilies.com