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4 Simple Rules for Teaching Money Management: An Interview with Jesse Mecham

November 6–10, 2017   |   Vol. 132, Week 9
Previously aired:   September 26–30, 2016   |   Vol. 128, Week 7

Want an easier way to teach your kids about budgeting and finance?

Entrepreneur and money guru Jesse Mecham has taken the art of budgeting and boiled it down to four simple rules. Find out what they are on today’s Homeschool Heartbeat.

In this podcast, you’ll learn:

  • A fresh approach to budgeting
  • An important principle for teaching money management to your kids
  • 4 simple rules for money management
  • How to avoid the most common budgeting mistakes people make
  • Great ideas for teaching your teens about finance

“[When] you approach [money] from an idea of abundance instead of restriction, it turns it all on its head. It turns out to be fairly motivating.”—Jesse Mecham

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Want an easier way to teach your kids about budgeting and finance? Our guest Jesse Mecham has taken the art of budgeting and boiled it down to four simple rules. Find out what they are on today’s Homeschool Heartbeat.

Mike Smith: My guest today is Jesse Mecham. He’s a former homeschool dad and founder of the popular budgeting program You Need A Budget. Jesse, welcome to the program today.

Jesse Mecham: Thank you very much for having me. I appreciate it.

Simple money management [0:28]

Mike: Jesse, most people don’t leap for joy when they hear the word “budget,” and I have to admit I didn’t really leap when I heard this. But we need it, don’t we?

Jesse: We absolutely do.

Mike: But we all know that managing your finances is very important. You say it doesn’t have to be like pulling teeth. Now what do you mean by that?

Jesse: When people hear the word budget they think about dieting, or torture, or death. And so it’s all about restriction. And we’re talking about having people rethink budgeting as “How do I get my money to get me what I want?” And you approach it from an idea of abundance instead of restriction and it turns it all on its head. It turns out to be fairly motivating.

Mike: Well, what motivates you to do this “why You Need A Budget” thing?

Jesse: You know, I was broke and I realized that we needed one and I was about to be married and things were tight. And so when things are tight you have to be really careful with how you prioritize your money. And that was what the original start was. And then as my wife and I were fairly successful with it early on, we realized that other people were also having money struggles and things, and we thought it would be helpful to teach people this method which we’ve been using—kind of unique. And from there we built a little business and it has slowly grown over the last twelve years.

Mike: Prior to that time, Jesse, had you ever done anything like this before, like start a business or teach people how to do things?

Jesse: No, absolutely not. I was in the accounting program, I was getting my masters in accountancy and still in school and I was naive enough to think that people might want to buy it, I suppose.

Let them feel the pinch [1:55]

Mike: Jesse, as the founder of a popular budgeting program, how do you approach teaching your children about the responsibility of handling money?

Jesse: You know, I’ve gone through all sorts of different permutations. I’ve done things like, “You only get money if you work for it.” I’ve done things where “I manage the money for you, and I just tell you [that] you earned the money and it goes into a separate account.” And I learned something recently from Ron Lieberman—he’s a New York Times columnist—so I’m stealing this idea from him. But he taught me, he just said, “No, no. You separate chores and being a part of the family and doing work that way, you separate that from the earning of money. And you provide an allowance.”

And I bristled at that. [I said], “I don’t want to do freebies; I don’t want my kids to think, ‘Oh, I’m owed this.’”

And he said, “No, no. You provide an allowance purely so that your kids can experience receiving money and managing it well. It’s a very cheap way for them to learn a lot of money management lessons.”

And we’ve been doing that the last six months and it’s done wonders for us. So they get their allowance no matter what, and I have them use my budgeting program, obviously, so they don’t get their allowance if they don’t record it—that’s one of the stipulations. But they’ll go on, they’ll sit in front of the budgeting program, they’ll allocate for their giving, their saving, and then their fun stuff. Usually, the fun stuff is candy at the gas station. But whatever they want, I let them pick. So that’s worked very well, not having strings attached to the allowance and using that as a tool to teach them how to save, how to give, and how to spend happily.

4 simple rules for budgeting [3:23]

Mike: Jesse, your budgeting program, You Need A Budget, is based around four simple rules of money management. What are those rules?

Jesse: Alright, the first rule is what we call “give every dollar a job.” You prioritize. And it is easier to say prioritize but it is a lot harder to actually do it. You really have to sit down and decide what is most important to you.

And then the next three rules are all about, basically, helping you stick to that prioritization. So once you determine your priorities and you give every dollar a job (you can’t have some of them escape that), the second rule, we’d say “embrace your true expenses.” It just means we want you to look ahead and anticipate larger, less frequent expenses and make them monthly expenses. So, if you’ve got a vacation that is 300 dollars three months from now, that is monthly bill for 100 bucks. If you want to do some holiday shopping and that’s 12 months from now and it’s going to be 1,200 dollars that’s a 100-dollar monthly bill. And so in that way, as you’re doing that prioritization of rule one, you’re still considering those future obligations, those future desires, and you’re making sure you’re prioritizing with all that information, all together, right there. It helps people make really good decisions.

The third rule is—I can’t believe we have to make this a rule—but we tell people, “You can change your budget if you’d like.” So, if you get new information, if you find out the in-laws are coming and they have a big family and they’re going to eat you out of house and home, then you would adjust your grocery budget. And as things come up we have to be able to roll with the punches, so that’s that third rule, just “roll with the punches.” A budget is only as firm as you’d like to make it, and you’ve got to adjust like a coach doing half-time adjustments in the basket-ball game. You do the same thing with your budget.

And then finally, the fourth rule is fairly unique for us but we say we want you to “age your money.” So you want to get to a point where you’re spending money that you earned at least 30 days ago. It just gets people away from the financial edge it helps them not be so stressed, helps them sleep a little better, and it helps them avoid that nasty cycle of timing bills to paychecks and “When does this payday come in? When will that bill be paid?” You get rid of all of that stress and you just live a month ahead, essentially. So the age of money is a concept that we’ve introduced, and it’s shown a lot of promise for people.

So that’s kind of the four rules in a nutshell.

Embracing reality [5:38]

Mike: Jesse, what are some of the most common mistakes that people make when it comes to managing money?

Jesse: There are two: they are afraid of scarcity and they are not honest with themselves. Scarcity is the idea of when we are teaching everyone “give every dollar a job,” that means it’s zero-based; if I give to my one priority I might have to take away from another. And that idea of always balancing things, it introduces this idea that our money is finite—it runs out; and that scares people. And you really have to embrace that idea and know that “Hey, money’s going to run out,” and it’s all about the decision-making process, the prioritization process.

And embracing reality as well. So if you’re spending 800 dollars a month on groceries and you keep telling your budget it is going to be 400, you’re not being honest with yourself. So, we just say, “Embrace scarcity. Recognize that it will fuel your creativity, it will fuel your drive. You’ll see your unconquerable will pop up. And also be really honest with yourself and the reality you are dealing with as you are making your spending decisions.”

Mike: Good points. How can parents help their children learn how to avoid some of those pitfalls that you’re teaching others?

Jesse: You have to let them feel that scarcity, that’s the big one with parents. Parents can remove that scarcity by just solving their money problems for them. “Oh Dad, I just need a little bit more, a little bit more, a little bit more.” And pretty soon your kids have never really felt the pinch. And it’s hard because your kids are cute—well, my kids are cute, right? They’re all cute, and you want to make them happy but you’re doing this in the moment where you are satisfying that one little need and you’re maybe doing them a disservice long-term. So let your kids feel that, and let them kind of come to grips with that, that’ll serve them well when they’re older.

Treat your kids like adults [7:11]

Mike: Jesse, as kids grow up, they have to start handling things like some tax issues, insurance, maybe even a student loan. So how can parents help their teens learn how to juggle all of these different financial responsibilities?

Jesse: You know the biggest one—it’s not a specific captive to any one thing like taxes and insurance or maybe even student loans, but it’s the idea that as your kids become older, you can become more and more open with them about what you are doing as running the household, you and a spouse maybe, and you’re being really open about “Oh, we’ve got car insurance.” “What’s car insurance?” “Well this happens if someone hits your car . . .” And you explain everything. “Here’s taxes.” And they say, “Wow, Dad you make pretty good money.” “Well, you know, we have to pay a good chunk of it in taxes.” You just start really treating them like they’re getting older and having conversations like you would with older kids.

And there are certain things you have to judge as far as what’s appropriate to share with kids because they sometimes don’t have a filter and they might share that when you didn’t intend it with someone else. But as they get older you can share more and more and just be really open about how you manage things and answer their questions, tell them the common pitfalls, the “gotchas” that maybe you learned when you were first starting out and they’ll pick that up. And then as they get a little older they can start to bear some of that responsibility. You know, when you sit down to Turbo Tax, have your 16-year-old sit down next to you, walk through the program; it’d be pretty fascinating. And I think we sell them short sometimes on what they’re capable of understanding and learning. So that would be my bit—just keep it open.

Mike: I couldn’t agree more. Now, big question: What’s the most important thing young folks (and old folks) should know about money and money management?

Jesse: You know, I’ve been kind of racking my brain on this one because at different stages there usually ends up being different things. But for young kids in my opinion it would be that you must, must live within your means. And it’s so short it sounds trite. But if you can learn at an early age that you only spend money that you actually have, you will be set for life. That’d be what I’d leave people with.

Mike: Well, you’d be putting the credit card business out, wouldn’t you?

Jesse: Oh, wouldn’t that be great if we could?

Mike: Oh, you believe that?

Jesse: I mean, let them make money some other way but preying on college kids that don’t know what they’re doing, to me it’s not very honorable. But you’re striking a chord with me I’ve run into way too many kids that have way too much debt way too early in their lives that didn’t know what they were doing. So I feel like they were preyed on. I’m all about personal responsibility but there’s balance there between predatory practice and then that responsibility and we need to do a better job there.

Mike: I’m with you on that, Jesse, and thanks so much for sharing these principles of finance to us and managing money for our kids. And until next time, I’m Mike Smith.

Jesse MechamPhoto of Jesse Mecham

Jesse Mecham is the founder of You Need A Budget (YNAB). He teaches individuals, families, and business owners Four Rules for thinking about their money in a whole new way.

While broke and a newly married college student, Jesse launched his original software as a spreadsheet . . . and it made money. (The software has come a long way since then.)

When not teaching people how to budget, Jesse loves gardening, CrossFit, marksmanship, and travel. He also spends a good bit of time with his wife and the five small people that live in their house with them.

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