Old vs. New

I couldn't help but think about aging your money when I saw this. Enjoy!

https://youtu.be/5hIOwi5Mv8E

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  • If you think about aging your money, you're doing it wrong.

    Like 2
    • nolesrule what’s your take on Rule #4?

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      • dakinemaui
      • dakinemaui
      • 11 mths ago
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      • Reported - view

      Someone pass the popcorn... 😂

      Like 7
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 11 mths ago
      • 3
      • Reported - view

      Chris Jacobie Rule 4 as reintroduced with nYNAB is not an actionable rule. It's a byproduct of good budgeting, and of course, saving money for future expenses. It will also sometimes go down by virtue of spending the money you saved to spend.  I think it's a joke, and how they relate it to the AoM metric as some sort of benchmark or measure is absolutely off the mark. That's all that really needs to be said, though I could go on forever in more detail.

      See the Classic YNAB Rule 4 for a good, actionable Rule 4 that was essentially "next level" budgeting, and had functionality built into YNAB4 to manage it.

      dakinemaui was that a reasonable response?

      Like 3
      • dakinemaui
      • dakinemaui
      • 11 mths ago
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      nolesrule Most excellent!

      Chris Jacobie The Rules in YNAB exist to direct you to do something; follow the rules and good things happen. In the case of Classic Rule 4, very good things happened, as the intricacies of your particular income arrival time vanished. "Next level" is an excellent takeaway.

      Like 1
      • jenmas
      • jenmas
      • 11 mths ago
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      Chris Jacobie let me give you a concrete illustration of why the current Rule 4 is not a helpful rule. I was laid off effective September 30, 2015. On that date my AOM was 246 days. On Oct 10 I received my paycheck for Sept 16-30, and on October 23 I received another check with a leave payout of 11 days, and severance of 2.5 months. I did not have another income event (other than monthly interest) until April 8, 2016 for a consulting gig that I started in March 2016. On March 31, 2016 my AOM was 400 and in April 2016 it went up to 410 (I had one more consulting invoice paid in April). I started a new full time job in May 2016 and at the end of that month, having received payment for my last consulting invoice and one paycheck that covered May 9-15, my AOM was 428. June was my first month receiving 2 full time paychecks. AOM up to 447.

      The way that YNAB presents it, a climbing AOM is a great thing and the higher the numbers get, the better off you are. But that isn't what was happening to me. There was no information that AOM was giving me to indicate what I might want to do to improve my situation. I was doing just fine because I am not a profligate spender and stretched out my leave payout and severance through the early part of March before I even touched my Income Replacement fund. But the sad fact is that I didn't have a job and didn't know when I would get one. I was fine "for now" but with no income it could have gone down hill at any second.

      Like 1
      • Herman
      • herman
      • 11 mths ago
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      jenmas thank goodness you noticed you were unemployed and didn't take that age of money seriously!

      Like 1
      • dakinemaui
      • dakinemaui
      • 11 mths ago
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      Herman You're right, no one should take AoM seriously. It goes up when you get ahead (budget into the future), when you stay even (make True Expense contributions), or even when you fall behind (increase CC debt). It really is quite worthless beyond motivation (for those who don't realize it's a gimmick).

      Like 1
      • jenmas
      • jenmas
      • 11 mths ago
      • Reported - view

      Herman Obviously I knew I was unemployed. But if increasing AOM can be an indicator of both getting ahead financially or being in a situation where you are falling behind because you have no income coming in, it is a waste of space.

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      • Herman
      • herman
      • 11 mths ago
      • Reported - view

      dakinemaui the thing is classic rule 4 pretty much falls apart under the same scenario.  You can be living on last months income and still be behind on true expenses.  If you lose your job, classic rule 4 vanishes.  I'm a fan of classic rule 4 and it was a game changer in changing my view of money and stress level.  I also agree with many of the stated limitations of "age your money" but the dogmatic love of one and hatred of the other is ludicrous.  It's a measurement that can be used in conjunction with what else you know to be happening in your world to evaluate your situation. 

      Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 11 mths ago
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      Chris Jacobie One other thing to add about the rule is it's a spending rule, not a budgeting rule. A spending rule that basically says "hold onto your money as long as you can". Well, your budget is your plan for your money. If you plan to spend it, it should be okay to spend it.

      The metric called "Age of Money" which is the in-house measuring system for this rule, is another beast entirely. The others have touched on some of the issues with it, but the biggest thing of all is that it behaves differently over time for different people, because it is highly dependent on income cycle and expense cycle.

      1. Ignoring small income events like bank interest or your mom grandma giving you $10 on your birthday, someone paid once a month will have the AoM metric increase more than someone with a shorter paycycle, because the period between paydays is larger.

      2. Expense cycles make a difference too. Do you pay monthly for auto insurance or every 6 months? Are property taxes quarterly or annual? Do you pay a monthly car loan or do you buy a car in cash? What's the frequency of utility bills? Are people you buy birthday gifts for bunched together or spread out during the year. They can all be the same payment in aggregate, but the cycle is different, and so the effect on the measurement is different.

      3. Using a credit card for purchases counts the outflow not when you make the purchase, but when you make the payment. So think about what happens with the measurement when you take on new debt instead of just paying off your purchase.

      4. Washing money through your budget accounts counts as an expense event to speed up the consumption of your money. Real world example... in August I sold a house, deposited the money and 3 weeks later bought a new house. Between the beginning and end of the month, the total money in the budget stayed the same. My AoM dropped by 43% because I had an outflow equal to about 1/3 of the money in my budget, even though the money used for that outflow all came in during the same month. I wasn't even saving money for a down payment. So loaning money to friends or even reimbursable work expenses are going to have a similar effect.

      Like 2
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 11 mths ago
      • 3
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      Herman 

      Herman said:
      You can be living on last months income and still be behind on true expenses.  If you lose your job, classic rule 4 vanishes. 

       But that's why it's the fourth rule. It's something to work toward after you have 1 through 3 under control and you have the means to get ahead.

      The reality is if you lose your income stream, Rule 4 doesn't even have to be the first to go. First you pare down your expenses, then you might cut Rule 2 funding on the expectation that you'll make it up. Then you'll use Rule 3 until there's nothing left to WAM.

      The entire concept falls apart if your expenses exceed your income, and eventually exceed your ability to make up for lack of income.

      Herman said:
      It's a measurement that can be used in conjunction with what else you know to be happening in your world to evaluate your situation.

       As I outlined in a post a moment ago, it's a measurement that lacks any practical use, because it's not benchmarkable. What does any particular milestone number actually mean? How do you determine, based on the number of variables that affect the outcome, what the milestone numbers actually are? If we can so easily shred the oft-stated 30 or 60 days, we can shred any other number as being non-indicative.

      Like 3
  • Chris Jacobie I wasn't expecting a love story, but I'll take it! 😂 Thanks for sharing!

    Like 1
  • Herman said:
    You can be living on last months income and still be behind on true expenses.

     If I budget 1/12 of my true expenses every month and I'm living on last month's income, how can I be falling behind on my true expenses?

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  • Herman said:
    If you lose your job, classic rule 4 vanishes

    It didn't when I lost my job. How you reallocate when money stops arriving is an individual choice. I chose to give up other things before I lost the benefits of budgeting in month sized chunks. In fact, I would intentionally ride the CC float and probably even carry interest-bearing debt before giving up the buffer. (Interest is merely the price of clarity and convenience. I wouldn't pay $100/month, but I'd probably pay $10. Everyone has their own threshold, of course.)

    So no, it doesn't vanish unless you make that choice.

    Herman said:
    You can be living on last months income and still be behind on true expenses

    Perhaps, and Rule 3 says to correct that as soon as you realize it. Whether that means you unbuffer yourself or you give up something else is a personal choice.

    Being buffered is simply another priority that provides value, just like having money in the Rent or Grocery or Vacation category.

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