Building a Business from Scratch & Budgeting Insights w/ Jesse Mecham (MI146)

Building a Business from Scratch & Budgeting Insights w/ Jesse Mecham (MI146)

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Clay Finck (02:21): Hey, everyone, welcome to the Millennial Investing Podcast. I'm your host, Clay Finck. And today, I'm joined by Jesse Mecham.

Jesse, pleasure having you back on the show. Jesse Mecham (02:31): I'm very glad to be back. Thanks for having me, Clay. Clay Finck (02:34): You were previously on the Millennial Investing Podcast a year ago, back on episode 80 with Robert Leonard, for listeners that would like to check out that episode.

For this one, I wanted to dive into your journey, starting with your company, YNAB, or You Need A Budget. I think the listeners and the audience will enjoy learning about your background as you have a very humble beginning. What led you to starting YNAB all the way back in 2004, which was now over 17 years ago? Jesse Mecham (03:04): Yeah, that is crazy to think how long ago it is. Honestly, my main motivation, to be super frank, was money. My wife and I, we've been married just about 19 years now, but we had just gotten married and we were both working student jobs at the university, super low paying jobs, like nine, $10 an hour in that range. I still had three years of school to finish a master's degree in accounting.

And Julie, my wife, was wrapping up a social work degree where her job prospects were like 11 bucks an hour or something like that. So I just knew that things were going to be super tight. Jesse Mecham (03:37): So I had built a spreadsheet for Julie and me to use just to make sure we were monitoring our own spending.

And after using that for about a year, I could see that it was working, but we just still didn't have enough. We had saved and saved and saved and we were living so, so cheap, and we weren't going to have enough to be able to do two things that were really important to us. One was, a baby was on the way and Julie wanted to be able to just step out of the workforce and focus on being a mom.

So that was number one. So we would lose her full-time, albeit fairly meager full-time income. We would lose that. Jesse Mecham (04:11): And the other non-negotiable that we had is we did not want to borrow money for me to finish school. And so place between those two hard places, I had the thought, "Well, maybe I could just sell this spreadsheet that we've been using and that would get us through." So we needed about 350 bucks a month to ride us through to where we'd just end school, I'd be able to go off and get an accounting job, and we'd have a full time, real income and we'd be set.

The whole thing was, we need an extra $350 a month. Clay Finck (04:40): Incredible story. And it's crazy to think now today you have a podcast, you have a book, you have a YouTube channel, you have all these things going on top of this You Need A Budget website. Could you talk about your journey running the business? How has the business changed and evolved over the years? And could you talk about that experience a little bit? Jesse Mecham (04:59): Yeah, that could be a two-hour long episode.

But one thing that's important to remember is you learn slowly. So when you compare now versus 17 years ago, it's this big jump. I think now we have maybe 160, 170 employees around there.

We didn't start there. If you would've thrown Jesse 17 years ago into leading that, I would've just failed miserably. The website was simpler, the app was where, product decisions were simpler, branding was simpler. Competition was less back then too. So among all of those things, you have to recognize that while it looks like it's this big jump, it really is just very small steps one to the other, to the other. Jesse Mecham (05:37): And day to day, nothing looks terribly insurmountable, nothing's terribly confusing.

It looks like, "Okay, I think we know the next step and we know the next step from here, and we need to hire this person and we should take the product this direction." One of the big takeaways though that I have learned is, it really is people. You really have to make sure you are working with the right people that resonate with the core values that the company has. And then obviously, you've got to get product market fit. But you can have product market fit without the right people and then it's a recipe for disaster.

Jesse Mecham (06:06): So of all the things I've learned over the years, that lesson just keeps coming back home over and over again. Clay Finck (06:13): I love that you put such a big emphasis on working with the right people, because we spend so much of our time working and you want to spend that time with people you really like. So you started YNAB part-time, as you mentioned, you were even a student when you started it. And then you worked a full-time job as an accountant, which is a very busy career, especially when you're working at a big four firm. When did you know that it was the right time to make the jump and quit your job and go full time on your business? Jesse Mecham (06:41): I had two things that happened.

One was, I was ashamed as a dad, fairly new. We had a two-year-old and a brand new baby, and I wasn't seeing him at all. We were working 80 hours a week at the accounting firm. It was 80 hours a week. I would leave around 6:40 in the morning and I would get home around 10: 40 at night.

And it just kept going and going. If we didn't work Saturdays, it was a dream. It was a lot. And I was working on YNAB from about 4:00 to 5:00 AM in the morning, and then I'd go to the gym, and then be gone. So I'm not seeing these two little boys, I'm not seeing my wife.

Jesse Mecham (07:11): And I remember one time, I feel like we were maybe helping someone move on a Saturday, I don't remember exactly where we were, but my two-year-old did something that made me mad. And he is two at this time. And I got mad at him in a over the top way, I really just blew up at him for a two-year-old infraction. And my wife, Julie, just pounced on me. She turned to me like claws out, just laid into me, "You have two hours with this kid a week, and you're going to spend any of it yelling or getting mad or losing it at all?" And I don't remember the details of why I got mad, I don't remember how mad, I don't remember what I said.

I just remember that she just checks me on that. It's like, "You have got to be kidding. You never see him, and this is what the relationship is like." Jesse Mecham (07:59): That a moment for me.

I thought, "Okay, one, I'm so stressed and so tired and so just overworked that I have no fuse left." Anything would set me off. I was just emotionally spent. And the other bit is, my time was so precious that I thought, "Do I really want to have that situation where I'm counting on one hand the number of hours I have with my brand new little kids?" And it didn't work. The other one, in a quick way, a quick story.

I chatted with a very successful business owner as I was starting to think maybe I could make the jump. And to give you an idea, Clay, of how conservative I was or how naive I was about the idea of you need a stable job in accounting, they had just drilled that into us, like, "You work, you work, you get that stable job." Jesse Mecham (08:41): And the idea of working for myself and providing for my family just seemed very risky.

So I had that in my head and had been trained on that. And I went and chatted with this successful business owner that I knew through my church. I said, "Hey, I'm making more money from my side business than I am from my accounting firm." I probably shouldn't say the name of the firm, but it's one of the big four, they're all the same, it's like, change the name.

Anyway. So I'm working there and I'm making like 45 grand a year. At YNAB, I was making like 90 and Julie and I were just setting it all aside to buy a house, because it was '07. That was '07 at the time, so everyone was saving for houses back then.

And we were planning on getting that house. Jesse Mecham (09:20): He asked me three questions that I think are still instructive for anyone. His first question was, "Do you have any debt?" That was number one. Then second question was, "How old are your kids?" Which is another form of debt.

It's like, how much are you bound to a situation? And older kids would probably bind you a little more. So I said, "There's zero and two." So he's like, "Okay, that's basically no bounding at all." And then his third one was, "Would your wife be on board if you were to jump ship and do this?" And I said, "Yeah, she would." And then he just said, "Jesse, you have nothing to lose."

That's it. Jesse Mecham (09:51): So his advice along with that personal failing moment where Julie corrected me quickly and decisively, they both really helped push me like, "Okay, I can give this a go." Clay Finck (10:03): To be working 80 hours a week and building something on the side is just like an incredible feat in itself.

And you were just so successful at it just putting an hour or so a day into this YNAB business, and you're making more from that. So to think about how much more you could be making if you were to commit to it 40 plus hours a week is pretty incredible to think about. And you knew it was pretty likely that if things were to go south with the YAB part-time business, then you could try and go back to the accounting gig because you had those marketable skills. So was the transition difficult for you to go from that employee mindset to being an entrepreneur? Can you talk about that transition a little bit? Jesse Mecham (10:45): Yeah.

I don't think there was honestly much of a transition, at least not one that I'm noticing in hindsight. You've got to be careful with hindsight, but I think I had practiced running the business, I had practiced it on the side with a fairly low stake situation where it was just me, and I had a contractor named Taylor who's now my business partner, but it was a simple operation. And so I was getting my reps in of like how things work, how quarterlys work with taxes, what it means to incorporate or not, and what it means to process payments and just like the nitty-gritty things that frankly now are much easier than they were back then. Jesse Mecham (11:20): There's so much more available for you to spin something up and get started, the tools, the frameworks, just a little easier to get things rolling. Even like buying a domain back then was a little weirder than it is today, just a little more like, "Wait, how does this go?" So you just learn the ropes.

But I think that the idea of working something on the side, it's just a great way to have very low stakes practice where it's meaningful practice, but you're not going to lose something over it, you're not going to fail, you're just going to get some reps in. I don't think the transition was terribly hard. Jesse Mecham (11:50): As we've moved from 10 employees to 30 employees, there's been transitions along there, but those are more just plain vanilla organizational changes that you have to make. There's no secret there, you just need to read books and then reread them and keep trying.

Clay Finck (12:05): Although I don't run my own business, I'm responsible for many of the steps around this podcast, so sometimes it feels like it. For me, it's much different than my typical corporate 9:00 to 5:00 job since I'm doing this full time now. In a corporate job, I'm given these tasks and these deadlines, and it's fairly simple and straightforward what I need to do. And the challenges I've ran with running the podcast is, I'm responsible for a number of different things, and outside of recording and editing, I have to figure out, "Okay, what's the best way for me to allocate my time? There's just like countless things I could be working on to try and grow the podcast or expand the reach and things like that." Jesse Mecham (12:45): Yeah.

Deciding what's useful or how one could use one's time, that is tricky, like in life. You want to make sure that it's well invested. But we have to be careful with spinning something up or starting a new business. I think I was given a great gift by not having so much information available to me as I started.

So now, someone wants to launch a podcast, instead of figuring out what their podcast will be, or instead of starting to pitch guests, or instead of starting to record, they'll read how to launch a podcast. They spend so much time consuming the ideas behind the creation that they really don't create very often. Jesse Mecham (13:28): And I feel like I was blessed by not having Hacker News or not having YouTube, in its form now at least. Like I will want to go on YouTube and fix my swing or something in golf, and I'll be like, "Oh, I want to look and see how I do this." And then you find yourself 40 minutes later just down the rabbit hole, and you're thinking, "Oh my word, what am I doing? We do that where we feel like we use busyness as an indicator of production, where it's not, we're just spinning our wheels. So, one question that I often ask myself, and it's not a question I invented, but just, "Will this move the needle? Will this move the needle?" Jesse Mecham (14:02): And you'll find as you're trying to grow a podcast or market a book, or build a blog or whatever it is, you'll find that what moves the needle is you doing uncomfortable things like asking for things, asking for the sale, asking for advice, asking for a link, asking for someone to come onto your podcast, asking for someone to promote your book.

And it's not around tweaking this or that little nook or cranny in some deep corner of your podcast. It's really the heavy lifting, the relationships, the meaningful, actual value creation that's happening. And a lot of that doesn't exist on the end internet.

It exists outside the internet, the internet just facilitates it. Jesse Mecham (14:41): It's a little bit of a warning for people, just make sure that your creation over consumption ratio is proper. Even this podcast, listen to it and then go and do like 10X what you're listening, or the amount you're listening in. Otherwise, we end up just always consuming and never creating and never building that value we're looking for. Clay Finck (14:59): I love that advice. Let's transition to talk more about budgeting and what you're doing at YNAB.

I think that now is a great time to have this conversation since we're currently seeing higher inflation and some people might be seeing strain on their expenses relative to what they're earning. They probably need to take a look at where their money's actually going. And since you know budgeting as well as anyone else, I'd like to ask you, what is a budget? And maybe more importantly, what is not a budget? Jesse Mecham (15:28): A budget is simply your truest of intentions laid out in some meaningful way so that your money can do the work of realizing those intentions. That is in an abstract way. And I say it abstractly because everyone else thinks of it totally incorrectly. So it's really about you figuring out what you want most in life.

And that means like what you want most in life right now, and saying, "Okay, this is what I want the most." And then you make sure that your money will help you realize what you want. That is a budget. A budget is not spending cuts, a budget is not necessarily spending less, a budget is not restriction, it's not any deprivation, a budget is not a bludgeon that you use against your financial partner to guilt them about something, a budget isn't some kind of strict, stringent, inflexible, external thing that you then blame when life just normal life happens.

Jesse Mecham (16:24): A budget is just you intending with your money, and that's it. So any other definition that someone has is totally wrong? No, I'm just kidding. But it's you, it's your money. Your money's just an extension of you. So it's just you again. It's just maybe on paper or in an app or whatever, but it's just you.

And I think that's why it never gets old to talk about it, because we're talking about people and life and their energy and their work, all doing things that are supposed to make their life and make them better. So I don't get tired of talking about it. Clay Finck (16:54): Yeah.

I think the intentional piece is important. When I was looking up your name, I found you on Twitter and I saw that you're really not active there at all. And that just tells me right there, that you're just so intentional with everything in life, whether it be your money or how you're spending your time, you have a very busy life with your own family and things like that. So I knew that you are someone that's just very intentional. And I think the restrictions piece that you mentioned is also important too.

A budget isn't something that's meant to restrict your life and tell you can't go and spend money, you can't go and do fun things. It's just being intentional with, "This is how much I'm earning, and this is how I'm going to save for these events in the future and ensure that my money's going where I've really wanted to go." Jesse Mecham (17:39): And if I were to asterisk that I would say, it's your intention, but it is your intention butting up against reality, cold, harsh, absolute reality. So I can intend all day long, but if I don't make enough money to realize that, then that's reality.

Then you say, "Well, you need to fix your intentions inside your reality." And people, they come into this life in all kinds of situations and upbringings, and my word, the dynamics, we couldn't even begin to discuss all of those dynamics. But at the end of the day, you are dealing with reality, and then reality has deal with you a little bit as you decide what you want out of things. And I'm not saying that we can totally change reality, but I do think that we can start to realize more than we thought of what we want as we marry those two together. Jesse Mecham (18:21): So it's not that we pretend that, "Oh yeah, I can have whatever I want." You can't, you can't.

I can't buy an island no matter how much I intend one, I just can and buy one. Now, do I really want one? There's another question entirely. So we have to be real about what our situation is and then what our true intentions are. Most people end up having a lot of the same intentions. They want to live comfortably, they want to have shelter, they want to have food, even fairly healthy food, they want to provide for their kids.

And then from there it starts to get a little it more varied, but they're still all same colored, different stripes where people are saying, "Well, I'm really into this sport, or I'm really into this hobby." Jesse Mecham (18:57): You're like, "Oh, okay. You're self-actualizing a little bit, that's fine. Everyone's trying to do that."

What we don't want to do is pretend that there's some cookie cutter way that this is supposed to work. It's really more an introspective exercise than it is, again, going back out and Googling, "How much should I," or, "When should I," and all of that, it's really about you. And that's hard work to figure out what you really want. Clay Finck (19:18): I'm trying to put myself in some of the listener's shoes. Say, if someone makes a high income or if they're just like a natural saver, do they still need to use a budget or would a budget help them with their finances? How do you think about that? Jesse Mecham (19:34): Yeah. Again, a budget isn't meant to just help you save money, nor is it meant to help you spend money.

It's just meant to have your money, realize your intentions. So I would just go to a high income earner, an anesthesiologist that pulls down 800 grand a year, and you're like, "Well, what do you intend?" And there's like, "Ah, I don't want to work maybe always. I don't want to work 60 hours." I have a friend that's a very successful surgeon, he just doesn't want to be on call, that's a big deal for him. He's like, "Man, if I could get rid of this pager," I think it's still a pager, actually, "If I could just get rid of this and not have it potentially ruin a weekend, that would be a big deal."

Jesse Mecham (20:08): And so his financial goals were lining up to where it was just like, "Okay, I just want to be able to say, 'Hey, I don't need the on-call hours. We'll let someone else take those hours.'" And it's a pay cut, but one that he finds worth it.

So his budget was just him saying, "Well, what do I want out of life?" And someone that's earning a high income, do we really want to have that person be aimlessly wandering around with all those resources at their disposal? A high earner has been blessed with high income, so let's not squander that and not be intentional with it. Let's make sure that the gates of the world and everyone in between me and Bill Gates are all saying, "What would make this world better? Or what would I love? Or what would make my life richer, truly richer?" Jesse Mecham (20:50): And I want to have my money do that. And in that sense, everyone needs that. And if you want to call that a budget or a philanthropy plan, you can call it a whatever you want, but it's you intending something with your money.

And high income earners have a great shot to do good and really make things happen in a way that others don't. I think they should jump on the opportunities. Clay Finck (21:09): Yeah. I recently had a conversation with Derek Kenny, who just wrote a book that was all about giving, and someone that's earning a lot of money can really do a lot of good.

I encourage listeners to check out that episode. Now, you started YNAB all the way back in 2004, just selling a simple spread sheet. And today you have this online tool where you can link in all of your accounts and do all these fancy things. So why did you end up extending the online tool and what additional benefits does it provide? Jesse Mecham (21:40): Well, I'll say this, and I always say this anytime we're promoting the software, maybe promoting it.

If someone already is seeing their money do what they need it to do, if it's just clicking and they're spending a very reasonable amount of time making sure it all clicks like an hour a month or something like that, then don't change a thing, don't change anything. But if you're saying, "Oh, what Jesse's saying sounds good. I do feel a little out of control or I feel like I just don't have quite as much intention packed behind my money as I would like to," that's when you can maybe analyze the actual system that you have in place. Jesse Mecham (22:11): That being said, the spreadsheet was just terribly inhibiting on what you could do technically, even back then. And then we originally rolled out a desktop app where you'd like paste in a license key. And some people don't even remember, know what I'm talking about, but that was the thing.

And then these phones came out and my first thought was, "Oh, these are cool, especially like GPS, that's cool." And then you say to yourself, no one would ever want to manage their money on their phone though, that's clearly a computer, a real computer's job. And then you're wrong, so you're late to the phone party.

Jesse Mecham (22:39): And then Alexa comes out, the Amazon Echo thing. And now today I think, oh, no one would ever want to manage their money just talking to some assistant. And I'm wrong, I know I'm wrong, or no one's going to want to manage their money with an Oculus VR headset on. And I'm just like, "No, I'm wrong. They're going to do it."

People are going to do it. And so it's really just us moving with the times. If we were still a spreadsheet today, we'd be a nascent little tiny thing and we wouldn't just be able to have the same impact that we have today. So you move with the market, you adjust with the demands.

Jesse Mecham (23:07): With connecting to the banks and getting all that sense data in, that's not something that you love as a business owner to think, "Oh, okay. We got to make sure that's all perfectly buttoned up." But at the end of the day, customers are demanding it, and so you say, "Okay, we need to make this happen."

While all the while trying to say, "Okay, listen people, just because we're grabbing your transactions, doesn't mean you can just say, 'Oh, this is all done for me.' We want an active user that's engaged so that they're money and their behavior are really lining up." Clay Finck (23:34): In our previous episode, you and Robert covered your four money rules at YNAB, for our newer listeners and to refresh the longtime listener, could you walk through those four rules for us? Jesse Mecham (23:46): Yeah. The first rule is to give every dollar a job, and it's just intention. Again, we're saying every single dollar you have, it needs to have an intention.

A lot of it is super simple and it's not like, intentions are a lot of the time just pay the electricity bill. And so a lot of it's just reality, you're just paying bills, you're doing your thing. But as you recognize that you do this with just money you of on hand, we start to fix a common budgeting error where people will forecast their money and then they'll say, "Okay, I'm going to earn this much and so I will spend this." We don't want you to do that at all. Jesse Mecham (24:14): You only ever are allocating money to jobs that you actually have in your checking account.

That's key. We want you to fill the scarcity, we want you to run out of money virtually where you're allocating it to the different jobs, so that you then feel like, "Oh, if I put it here, I can't do this. And if I want to do this, maybe I can't do that." That's a zero-based budget.

And that tension, the scarcity like reality butting up against your intentions helps you realize what priorities you actually have, what you really care about. And that's where the magic starts to happen. Jesse Mecham (24:45): So one is to give every dollar a job. Number two is to embrace your true expenses, meaning, as you're giving every dollar a job, you're also looking ahead to larger, less frequent expenses like Christmas, vacation, property taxes, quarterly taxes, whatever, or car repairs even, something that you wouldn't know the amount of, you wouldn't know when, but it's going to happen. You consider those future expenses as well, so now when Clay's sitting there and he's like, "Uh, should I do this or I should do that? You also have like future Clay there that's like, "Well, what about the car? What about the tires you're going to blow in three weeks?" Jesse Mecham (25:16): And then if you're married or you're sharing finances with a spouse, then it's like four people. I have future Julie and current Julie, future Jesse, current Jesse, and all four of us are discussing things.

Future Julie's like, "What about the spring break trip with the kids," where maybe current Jesse is like, "We need to deal with this right now." That tension is, again, it's just all of the correct parties at the table making decisions around the money. It works really well. The third rule is, we call it rolling with the punches, but it just means you need to change your budget as needed.

That's it. Jesse Mecham (25:48): So you're like a coach making halftime adjustments. You're not a savant, you're not someone that can predict the future. You've just seen, "Okay, life did this. So I'm going to bounce back and I'm going to change things a little bit."

Budgets that are flexible, last, budgets that are rigid, they break. And so we want to make sure that we stay very flexible. The fourth rule, we call it aging your money. And Clay, for someone like you, it's probably not that meaningful, but for a lot of people that are living paycheck to paycheck, they live right on the edge financially.

So everything about money is stressful. Jesse Mecham (26:18): It's like, if you and I were on a road trip and we're on like this windy canyon road and it's snowing, you and I both will be on heightened alert. You're driving, but I'm watching.

This is not a time where I'm going to be sleeping. And when we talk to each other, we're speaking in a way that's a little more intense, a little more like, "Okay, this is a risky situation," because we're right along an edge. A lot of people live their lives like that with their finances, and so it's no surprise that when a husband wife are chatting and one person says, "Oh, you bought a new shirt." Well, then that suddenly means something entirely different than just, "Oh, you bought a new shirt," because they're walking right along a financial edge.

Jesse Mecham (26:56): So every conversation, every little tiny nuanced thing is about money, and that's just like catastrophic. So we back them off from that. Aging your money means you're going to spend a dollar today that you earned 30, 40, 50 days ago.

And if you follow the first three rules, then you're aging your money naturally. Our software tracks it, it's a metric that we track. People brag about it. But at the end of the day, we want people to get away from that financial edge. You make better decisions, you sleep better, your health improves, you consume fewer calories, and your conversations with your significant other are not so emotionally loaded.

So it's a win for everybody and everything all around. That's a recap. That's about as fast as I can do it. Clay Finck (27:36): I really appreciate that.

I think the most difficult thing for me at least, around some of the things you mentioned is setting us side money for future me. I typically just keep an emergency fund for any unexpected expenses, say, if my car tires go out, then I need to go to purchase new tires or whatever unexpected event comes up. Another example is that I'm currently a renter at my apartment and don't own the home I live in and I'm not 100% sure when I want to buy a home, but I know I do at some point. There's just this uncertainty on what my expenses will be in the future. So it makes it difficult to know how much I should be saving each month for that purchase. Jesse Mecham (28:18): Yeah.

I think where you'd want to check is you could start setting aside money for specific events like car repair, and they're not super specific. You wouldn't necessarily have a car tire category and a car oil change, that starts to get a little, not a lot of value there. What you'll find is as you start to break things out, like house down payment, I would probably look more at like timing and I would say, "Well, about how much house do I want to buy? About when do I think I'd want to buy? And then you could probably back into that one pretty easily. Jesse Mecham (28:44): But the car repair one, home repairs, medical stuff, maybe you want to save up to your deductible amount or whatever, that can all belong in one big emergency fund.

What we find though is a pile of money without specific purpose tends to get rated. And so people will often be good savers, but they aren't good at keeping the savings. And so it's a little bit of a revolving door where they're like, "Oh, I'm doing really well, I'm saving," until they have to draw on the savings. And they maybe have to draw on it because they're buying the new tires, totally legitimate, but they feel like, "Oh man, my savings." Jesse Mecham (29:18): So we want savings to have purpose as well. What happens is I had an old Honda Civic for years and years, and years, and we would put 150 bucks a month of maintenance into this Honda Civic.

And at one point I looked at the category and there was like $6,000 in that. Bless that car's heart, it never broke down. And I go to Julie and I'm like, "We have $6,000 in repair money for a Honda Civic that is worth $4,500." And that's a little late to the game as far as my realizing that, it was on autopilot, we just put it in there every time. But I guess what I'm saying is you can start to separate your emergency fund out more mentally or on paper, I would recommend on paper, to be able to give it more jobs. Jesse Mecham (30:01): And you'll find that you maybe are over saving or you'll find that there's maybe a blind spot in a specific situation.

What [Wine Abers 00:30:10] find is that old emergency fund that everyone has sitting in one pile, I would probably say, well, Wine Abers, if you look at their budget, that emergency fund is just spread out across all their categories. And so we're getting to the same spot, except you have one person that can choose to spend that emergency money on the new HVAC system, no one likes to do it, but they do it feeling better about it than the person that has to raid their fund, that also has to cover these other unknown things. Jesse Mecham (30:37): So one lets you say, "I can do this and I have everything else covered." The other one is saying, "Well, yeah, I can do this because I have the cash.

I hope I have everything else covered." So it's a slight difference. But Wine Abers also claim that they don't really have emergencies crop up anymore because they've given so much purpose to those dollars where car tires blowing out for someone else, they're like, "Oh my gosh, why me? Why does this happen?" And for a wine Aber, they're like, "Well, yeah, I wish it didn't, but it's okay."

Jesse Mecham (31:00): I like the savings, the emergency fund to have more purpose because I feel like it gives people more information to know if they need to make adjustments or if they can feel good, dropping a bunch of money on some stupid HVAC system. Clay Finck (31:14): I wanted to talk a bit about your finances and how you approach your investments and your financial situation. I've heard you talk a lot about making your finances as simple as possible.

You've kept a lot of cash to save up for say, buying a car or for other larger expenses. And I was taken away by that because a lot of the people I associate with say cash is trash, you have to invest, you have to make the most out of those dollars. And with the much higher inflation we've seen recently, has this changed your approach at all? And why do you take this approach of having so much cash? Jesse Mecham (31:53): Yeah. It hasn't changed my approach as far as our day to day. If I'm going to need the money in less than three years, less than four years, gosh, even five years, I'm just like, "Ah, it's not that big of a deal." It's not a lot of money that I'm missing out on by not investing in, that's one, or not a lot of money to me.

And I got to caveat that a little bit. Everyone has an amount of money where they say like, "That doesn't matter to me. It's immaterial."

Bill Gate's number is bigger than my number, and my number is bigger than my number was when I was 20, significantly bigger. Jesse Mecham (32:23): So we have to recognize everyone has a material, like a threshold for what matters. And a lot of times I'm just optimizing for something else. I'm just not optimizing for more money, I'm optimizing for less headache, less mental overload or overhead, less to think about, less to track, fewer emails to get that say, "Your statement is ready this month." Things like that.

I was just like, "I don't want that noise. I want things quiet and pretty darn tranquil." It's less for me to communicate with Julie about when she and I are sharing all these finances. Jesse Mecham (32:51): And if I introduce all these moving parts, that's just one more thing that we'd have to communicate.

And heaven forbid she and I both meet our demise and the kids would have to untangle all that, I just, simpler is better. But I'm optimizing for simpler, someone else might optimize for money, and that's totally okay. We both just nod at each other and be like, "Oh yeah, you're right," because we're both optimizing for what we're wanting. So I don't lose any sleep over that. I used totally do it differently. As a 25-year-old, it was like, "I'm going to get my high interest savings to account, I'm going to get all that money in there."

Jesse Mecham (33:20): But now you look at what we get paid, it was bad back then, it's way worse now. And inflation will do what it does. The stock market is pretty good hedge on inflation, real estate's a pretty good hedge on inflation, but what else do you do there? Working is a good hedge in inflation, wages are pretty good hedge. So as a business owner, I'm watching wages go up and I'm thinking, "Okay we've got to stay competitive in a market." So wages are a pretty good hedge there.

I hope it doesn't last, it seems a little hot, but I'm out of my expertise there. Clay Finck (33:49): I'm curious, what has your investment strategy been over the years and how has that maybe changed? Jesse Mecham (33:56): I used to follow really standard advice like, have as many percentage of bonds that are your age. So if you're 20, you should have 20% bonds, 80% stocks, and you do that. At around, I think I was probably 32, 33, I realized that I was watching the market a lot, and I'm a passive investor guy through and through, well with one caveat we can get to, but I realized that I was stressing me out. And I realized that my allocation, my risk tolerance was way different than how I was actually invested.

So I pulled way back, I went a ton into bonds, bond index funds, TIPS, basically those two were big. Jesse Mecham (34:36): And so I think I'd have to look, I'll bet I'm like 10% in equities, probably 50% in bonds, and about 30% in real estate, the rest is in cash or Bitcoin actually. And then I realized that my risk was all in my business. I actually hold like 99% equities, really.

And it's all in one company. So it's extremely risky. And if you were to be like, "Hey Jesse, I have this idea, I'm going to invest in all in this one stock." I'd be like, "Man, you're crazy. You're crazy.

Don't do it, Clay. Don't do it." But we all do invest in the thing.

We know the best, which is usually ourselves and our career. And so I've done that. Jesse Mecham (35:10): I'm actually heavily weighted in a single company and my job is to make the rest of it that I can pull out every once in a while safe, so that if the company were ever to just totally crash and burn all my fault, that at least I'd have something to land on. So that's why I'm allocated that way.

If I didn't own a business, I think my risk tolerance would shift, not entirely the other direction, but quite a bit more onto the risk side, tremendously risky what I'm doing now. Clay Finck (35:39): I think it is important that you've adjusted your strategy to you despite whatever these financial rules are suggesting that you do. It reminds me of one of the founders of TIP, Preston Pysh, he is heavily invested in Bitcoin. And some people might look at that and say, "Hey, that guy's heavily invested in Bitcoin, maybe I should be too." But they might not consider that he has ownership in a cash flowing business that even if Bitcoin happens to not pan out, he would likely have everything he needs taken care of financially because of that business, and many people aren't in that type of position. Clay Finck (36:15): So it's important to look at their whole financial picture and their situation to really understand it fully.

Someone might look at your portfolio and say, "Jesse is very conservative with his finances. He's such a crazy guy with all this high inflation and everything." But they might totally ignore that a lot of your net worth is in YNAB, your business, which that in itself adds risk to your portfolio and has that upside potential as well. I think looking at the big picture when looking at someone's finances is super, super important. Jesse Mecham (36:45): Yeah. It's the only one you can look at.

It's fun to get into the details and to think, "Oh my gosh, that person's crazy." That's good entertainment, but it's not good for guiding investment principles. Matthew that works for YNAB, he's one of our support specialists and used to be financial advisor in a formal life. And he often will tell people, "You need to have an investment plan written down and revisit that, why are you invested the way you are?" So often we forget why, and we just get caught up on looking at someone that is a Bitcoin millionaire or whatever. Jesse Mecham (37:11): And it really throws you off because you have this serious FOMO, and FOMO is not a guiding investment principle. So have it written down, revisit it often, if you need to make a change, make a change, but you're doing it with a little more rationale behind it and not just reaction to CNBC or whatever.

Clay Finck (37:30): Now that you've been a successful entrepreneur for many, many years now, is your focus still on YNAB or have you stepped back a bit now that you're more financially secure and the business is doing very well? Jesse Mecham (37:42): I have not stepped back. I'm no longer CEO, so I did step back from that. I didn't want to have the management of it. I handed the reins to Todd Curtis, who's a more capable CEO and he's been with me for 10 years and he grew up in the whole business, but I wanted to focus more on evangelizing, like what we're doing right here. And I want to focus on convincing businesses to buy YNAB for their employees as a benefit.

And so I'm on one little team inside YNAB and it's been fun just to be back, kind of smaller little bit of the company instead of worrying about the entire thing. Jesse Mecham (38:13): Of course, I worry about the whole thing, but it's in capable hands and I get to focus on this one little thing. It feels a little bit like it did back in 2006 or '07, where I could just like go, go. I'm still very much in it.

I work normal hours and still love it. So until I stop loving it and/or stop learning from it, I'll just keep doing what I'm doing. Clay Finck (38:33): Very cool. And it's really cool just hearing your story of the humble beginnings and how far you've come over the years. Before I let you go, can I ask you, what are some of the books that have had a huge impact on you? And they don't have to be financially or budgeting related.

What are some of the books that have had a big impact? Jesse Mecham (38:52): Business book wise, I can rattle off a lot. I've really gotten a lot of help from a book called Traction. It's a good basic business book. There's a really good book called The Goal That's So Fable that I loved. And I really like Andy Grove who was the Intel CEO, High output management is excellent. Ben Horowitz, The Hard Thing About Hard Things is an excellent business book.

I just love those. Finance books, I love Your Money or Your Life by Vicki Robin and the late Joe Dominguez. That book, it just does such a good job of framing what money really is, it's a representation of your energy in your life. I love that. Jesse Mecham (39:27): The Richest Man in Babylon, I read when I was 14 and I was like, "This is a good idea."

So I'll always be grateful for that book. I love anything by Taleb, like Antifragile. I love that book. That concept of something antifragile is really, really useful in all things, not just money, but it is tremendously applicable with money. And then lately, I read a book called Four Thousand Weeks that I really enjoyed.

It's supposedly about time management, but it's really about confronting how finite we are and having it frame our ambitions to have them maybe be a little more right sized or human sized. Jesse Mecham (40:02): So it's time management but philosophical. I read it, liked it and then restarted it immediately to dive back in. So that's a recent one that I've gotten a lot of mileage out of, but I could go on and on.

I have a whole laundry list of books, but those are a couple that are top of mind. Clay Finck (40:16): Yeah. Those should be some good starters. I'm going to have to dive into a few of those myself. So I'm going to be pretty busy over the next few weeks probably.

Before I let you go, Jesse, where can the audience go to learn more about you and YNAB? Jesse Mecham (40:31): As you mentioned, I'm not really on any social media by design, but people can email me, if they have a question. I'll answer through Monday or Thursday. And then they can obviously go to and check us out there. We're on YouTube.

We're heavily active on social media as a team, we do great there. Even if people just follow us on Instagram, we have a Friday fines that's super funny. Some people don't even go to us for the budgeting, they go to us just for the Friday fines.

Hopefully eventually we'll get them to come over to the budget side, but we're on all the social stuff and you can follow us there. Jesse Mecham (41:02): We want to convince people, persuade people that budgeting is just about you really wanting money to continually have a positive impact in your life and have it really line up with your intentions. And if you do that, you'll feel that you have a financial piece that didn't come from more money, it just comes from alignment of your priorities and your money. Clay Finck (41:20): Awesome. I'll be sure to link all those resources in the show notes for anyone that's interested. Jesse, thank you so much for coming on.

Jesse Mecham (41:28): Thanks for having me on, Clay.

2022-03-03 13:26

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