¹ Five weeks ago I dusted off my favorite budgeting software and resolved to use it as prescribed for the first time in a while. Sure, I’d kept all my financial data current in the software, tracking my spending and periodically doing some light forecasting, e.g. will we have the money for this or that when we need it?

But that’s not the YNAB way. The YNAB way says we decide what to do with the money before we actually do it. We spend the money “on paper”, and we acknowledge the tradeoffs inherent to those choices.

Sometimes people dismiss the YNAB way, claiming it reduces their sense of freedom and enjoyment. This is wrong, and I’ll prove it with (my interpretation of) science.

Locus of control theory explains the impact of our sense of control over the outcomes of our lives. People who believe they have a high degree of control over outcomes are described as having an internal locus of control; those who claim a low degree of control show an external locus.

A high internal locus of control correlates with desirable outcomes in work, health, and relationships. A high external locus of control can correlate with medium and high levels of depression and hopelessness.

(I’m being very lazy with my citations. This is a casual newsletter, not a peer-reviewed study. Google will help you decide whether I’m being reasonable.)

The good news is we can move from an external to an internal locus of control through practice, and YNAB creates the perfect practice environment.

How? By creating a positive internal locus feedback loop:

1. You get some money (paycheck, distribution from your business, tax refund).

2. You consciously decide what to do with the dollars, signaling to yourself that a) you have a choice (you are powerful, not powerless), and b) you can trust your choice (you are smart and self-aware).

3. You spend the dollars, unlocking a double benefit. First, you enjoy the thing you purchased. Second–and less obvious–you enjoy the satisfying confirmation you were right about the tradeoffs you chose. You’ve reinforced your sense of being a wise agent in your own life.

This increased sense of agency strengthens your belief in your ability to control outcomes and voilá --you’re happier (according to my hand-wavy science).

Thanks, YNAB.

-Mark