TMT007 - When Things Get Scarce

Listen to Episode 7 of The Matt Trick in the player above or download it.

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*UPDATE* If you purchase YNAB on my recommendation, support The Matt Trick by using my referral link for a $6 discount!

The Matt Trick

You Need A Budget
(who doesn't, right?)

For the Matt Trick, I introduce the budgeting tool Megan and I use called You Need A Budget, or YNAB for short. I go through the four rules that make YNAB so great:

1. Give every dollar a job.
2. Plan for bigger less frequent expenses.
3. Roll with the punches.
4. Learn to live on last month's income (stop living paycheck to paycheck). 

I am not affiliated in any way shape or form with YNAB (beyond referral credit) and I don't personally know Jesse Mecham, the founder and president of YNAB. I just really like his software. You can learn the basics of how to use it by watching the videos on his YouTube channel, get some other good tips listening to the YNAB podcast, and download a 34 day free trial at the YNAB website.

If you purchase YNAB on my recommendation, support The Matt Trick by using my referral link for a $6 discount!

Also checkout the YNAB apps for iPhone and Android.

Goal Line

In order to effectively use YNAB, you have to regularly input your purchases and check your categories. Lately I've been getting to YNAB and syncing things about once a month...maybe. So my goal this month is to visit the budget at least once a week on my phone and check the budget categories before making purchases to avoid overspending.

Matt-spiration Moment

I’ve gotten into economics as a hobby over the past few years. And not so much economics as in GDP, labor and money in a nation, you know, economics of how an economy works. But in a more personal, behavioral way. And generalized from not just money, but the ways we allocate all kinds of resources. And this is, at its heart, what interests me about econ. It is understanding the underlying incentives of how people behave in a world of infinite human wants but only a finite amount of resources. And economics is how we rationally prioritize those resources and wants so that we get the most net fulfillment out of life.

This idea of limited resources in economics is called scarcity. Scarcity has the connotation of being a bad thing. It sounds like we’re going to run out of something like in a food shortage or energy crisis. Or that something is difficult to find like the spotted purple wood finch needs to be on the protected species list. But really, the idea of something being limited and finite is not a bad thing. In fact, it makes us more efficient and innovative in the use of our resources. Think about your kids, or when you were a kid. Because they don’t pay the electric or water bills, they leave the lights on and the water running. To them, the resources are never ending without limit or price. And I was the same way. Until I went to college and had to pay my own bills and my money was very scarce. Then I very much learned to make wasting electricity in my college apartment scarce as well.

Speaking of money, scarcity is what make rule #1 work in YNAB, giving every dollar a job. When you first get your paycheck deposited, there’s a ton of money in your account and it seems as though it were unlimited. So you do the shopping, go out to dinner, maybe make a few splurges. But then when it comes time to pay rent, light, heat, and whatever else, the paycheck just doesn't cover it. By giving every incoming dollar a job in your budget before you spend it, you know exactly how much money you have to spend on each item, including fun stuff. And when the money for a category is running low, that scarcity drives you to innovate and get creative to make things work, or realize that you can go without. And by doing so, you aren’t left eating dog food to help you make it the next paycheck, or worse, racking up credit card debt.

Debt can be a scarcity trap of its own. When you have the so-called “freedom” to spend on credit, the spending can seem unlimited with the time for payment due too far away to seem real. Similarly student loan debt continues to rise as universities have figured out that they can charge whatever they want without innovation or cuts to keep their operations efficient, because students will simply borrow more money from a seemingly endless supply of student loans. But the money is not in endless supply and it must be paid back over time, along with interest.

Perhaps the most interesting personal resource of all we have to allocate in this life is our time. I say interesting because each person in this life, rich or poor, has the same 24 hours in a day. But we each choose how to spend that time. When the deadline of a big project is far away in time, why is it so hard to get started? Perhaps because the seemingly limitless amount of time makes it easy to push off to another day, while we can spend today looking at Facebook and videos of cats. But you can bet that when time becomes scarce, we are suddenly able to complete an amazing amount in the last minute. After all, if it weren’t for the last minute, nothing would ever get done, right?

To avoid this scarcity trap with time, we need to do something similar to what we did with our You Need A Budget budget. That is, give every dollar a job, or make a plan to do the things you need to get done. In Steven Covey’s 7 Habits of Highly Effective People, he presents a four quadrant diagram of Urgent vs Important activities. The four quadrants of the diagram are urgent and important, not urgent but still important, urgent but not important, and not urgent nor important. Our activities can fit into these four quadrants. Urgent and important things might be something like a looming deadline, a crying baby, or some other crisis. Important non-urgent activities could be personal improvement, exercise, long term projects or goals, financial planning, or recreation. Non-important urgencies are interruptions like text-messages, phone calls, facebook updates, emails, and other time wasters that give an illusion of us getting things done, but really don’t move us toward any of our goals. I have to be careful not to trick myself with these, because it feels really good to compulsively get these things done. And then the non-important, non-urgent brain vegetating activities like television, video games, YouTube, The Simpsons, Mega Man, Doctor Who reruns, etc.

If we have the impression that time is not scarce, we’ll spend too much of it in those non-important quadrants and only get to the important things as they fall into the urgent category, getting them done at the last minute. Our goal should be to schedule time (or give those minutes a job) to get those non-urgent yet important things done. I mean, that personal memoir of yours isn’t going to write itself, right? I’m finding this especially true with my miracle mornings and my long runs. If I don’t wake up early to make time for my personal time  to pray, meditate, read, and write, it’s not getting done. And if I don’t schedule my long runs for 4:30 on a Saturday morning and tell my wife and running friends about it (you see what I did there with the commitment device) that’s certainly not going to make time for itself. By creating scarcity for the non-urgent activities, or setting up a finite time where we can focus on them without distraction, we’ll find ourselves more productive, happier, and running around less like a chicken with its head cut off.

The time we have in this life is precious and finite. Don’t we want to fill it with the best things possible? By utilizing scarcity to our advantage, we can be better stewards of our resources-- of our money, our time, and our energy. We can obtain the greatest amount of utility from what we have, that’s econ speak for get the biggest bang for our buck. And in our lives where it seems like time is only ever speeding up, this should be our ultimate goal: to do the most good and to get the most out of our time here on earth.