MI Rewind: To Be A Successful Investor, You Need A Budget w/ Jesse Mecham

22:25So we want to get people to a point where the dollar that they earn today, they won't use that dollar for at least 30 days. And if you follow the first three rules, you'll get there. It almost can't help but happen. But it's really a situation where it's like when you earn that dollar, the first day, it's like a baby dollar and you don't want to send it out into the world. It's like, it's not ready yet. But you wait a little while and you let the dollar age. And then pretty soon you're like, okay, well, yeah, let's go out. Let's use it. But we tend, I mean, honestly, people even spend money before they've, I mean, they're using credit cards and they're actually spending money they don't even have on hand yet at all.

23:03I mean, they're pre-spending future money. And so what we're saying is, no, no, let's flip it all around. Let's have you spend money that you earned at least 30 days ago. And the software that, you know, the YNAB software calculates that, but it's really a mindset for people. So it's about just saying, oh, I'm going to wait a little bit. So at the beginning of February, I'll be able to fund my entire February budget with money that I earned in January. And then during February, you're spending that money, but you're also earning February money that you'll use in March. And that cycle just continues.

23:33Once you've hit it, that doesn't take any extra work. You just maintain being one month ahead of your paychecks. And man, the sleep is better. The stress is less. Conversations with a spouse where you're sharing finances are easier. It just dials back the decibels a little bit. And it's like, okay, yeah, we've got time. I mean, you know how the value of options, right? One of the ways you value an option is with time. Time is a large input on the value of an option. And you think about that in personal finance, all we want is just to buy ourselves a little bit of time so that we can make sure that when we do need to make some changes, roll with the punches, something happens, we can make a good decision.

24:11A rush job where you aren't prepared, where you just got to react, it's never as good as being able to have a little bit of time to say, okay, here's my new situation, what do we do here? And go from there. So just separating yourself from that financial edge by 30, 40 days, it makes all the difference in the world. I actually just got off another podcast interview with Tom Sosnoff, who is the founder of Thinkorswim and also Tasty Trade, which he's one of the pioneers of options trading. And we talk a lot about how time is such a valuable input and bottle or input value in the Black-Scholes model for pricing options.

24:47So that's funny that you mentioned that as well. I want to talk about two things. I want to talk about implementing this strategy tactically outside of the software. And then I also want to talk about doing this with a spouse and getting them on board. I've used the software, I've used the YNAB software, and I like it a lot. What I have a little bit of a hard time with, and I think maybe some other people might as well, is how do we match up what we're doing in the software with our bank accounts? Maybe we have this money in different accounts. How do we align our bank accounts with what we're doing in the software and this philosophy?

25:19Is there a way to kind of make those two work together well? The easiest way is with the simplest example is someone with just a checking account, and then they're seeing that their checking account, and then their budget categories, total balance are the same. So you're like, oh, okay, that makes sense. It's like you have your checking account, and then you're kind of overlaying a budget on top, and you're saying, okay, here's how it all works. If you were to say, well, I'm maybe sharing finances with the spouse or not, but you're like, I got a savings account and a checking account. it's the same thing where you're saying, well, we're just going to overlay a budget over both.

25:50What happens is a lot of the time people will organize their categories in ways where they're saying, here are my savings categories, and they know that belongs in a specific savings account. But YNAB proper doesn't really care physically where the money is, as long as the account balances are accurate and correct. So once YNAB knows, okay, in checking, we've got a thousand, and in savings, we've got 10 ,000, we have$11 ,000 of budget. And you can break that down on your categories to tell you, oh, they're physically in these different spots, most people end up just saying, I don't really care about the physical location of the money.

26:23I just care about my category balances. And instead of making decisions about spending on how much is in my checking account or how much is here, they just look at how much is in my restaurant's category, and then they're deciding what they should spend there. It's the same with credit cards. Credit cards operate the same way. We do some tricks there where if I spend on a credit card, I actually will, let's say I bought some groceries on a credit card, I'm getting points or whatever. I swiped the credit card. We actually move money from the groceries category into your credit card payment category.

26:53So we're just saying, oh, well, you didn't actually spend cash, but you did say this cash is now going to be sent to a credit card. And so it's moved out of groceries into this payment category. And then from there, you just wait until you pay your credit card and it goes out there. So it's tough for people to sometimes wrap their head around. But when you swipe a credit card, no cash has changed hands. Behind the scenes, your credit card company paid the merchant, but your cash situation is exactly the same. And so we represent that in the software. But at the end of the day, kind of high level, YNAB doesn't care physically where the money is.

27:26We just want to make sure that the accounts you have in there are all accurate. What the bank says you have, what YNAB says you have, they're the same. And then from there, it's a matter of you saying, okay, I'm going to put all this money, regardless of where it is, I'm going to put it into different categories. And you can organize your category groups in ways where you say, okay, here are all my savings categories if you want. We land on more personal preference as we get onto that side of things. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message.

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31:08That's theinvestorspodcast.com slash TIP-finance. All right, back to the show. Robert Leonard How often does somebody need to stay up to date with this type of strategy? Is it something they need to check in with every week, every couple of weeks? Robert Leonard I've experimented personally. I've experimented with just monthly. I have the wiggle room personally to do that where I can be like, well, nothing's going to blow up on me. We've been doing this so long. We have a pretty good cadence. I've also experimented in 2019. I did all daily, a daily manual entry. I didn't connect it with my bank.

31:41I didn't do anything fancy. I wanted to see what it was like to be in it every day. I actually like that more. If you're just starting out, you should lean toward more frequent. And then as you get your feet under you and you get kind of a rhythm, you can maybe back it off a little bit. A lot of people do it. It's like a Sunday routine, a Saturday morning routine. They get kind of their rhythm. But when you're first starting, more frequent is better just to establish that habit and kind of that muscle memory of like, okay, when I spend money, I'm going to pull out my phone and check before I actually spend that kind of thing.

32:10We want to reinforce that when you're just getting started so that you can get that behavior change we're looking for. How did you get your spouse on board? I know you mentioned you got married early. And so it sounds like you both might've agreed to it, but if you didn't, how did you come to the same place? And if you did, was one person the brain child behind it and you kind of convinced the other person to come along or did you both just mesh well or how did that work? We were in the honeymoon phase, literally honeymoon phase. And so when I said, hey, let's use this budget and follow it, she was just like, cool.

32:40Because I could do no wrong in that little window of time. She's like, man, you're the best. And I'm like, okay, cool. We got it. But over the years, we're still evolving. And I've noticed that there are budget categories that she cares a lot about. And then there are others that she just couldn't care less about. She doesn't do the reconciliation. I do that. I do kind of the heavy lifting, like the tedium. I like to be in the software and clicking and doing. And all that I asked her to do is, hey, when you spend money, can you record it on your phone? She's like, yeah, I can do that. And then I'd reconcile it.

33:11If I'm not doing an experiment, we're usually on kind of the weekly train. So in that instance, she cares a lot about how much we put in toward our next family trip, how much is in groceries, because she loves to cook. It's a huge hobby of hers. And clothing for the kids. If they were naked, I don't even know if I would notice, but she's pretty on the ball with it. So she's like, oh, so-and-so needs jeans. I would have never noticed. So she's kind of aware of those categories where I'm much more focused on what's our savings rate and what are we doing here and how we optimize this. I tried years ago to optimize grocery spending on her behalf.

33:45I mean, it just blew up in my face. She was like, man, my grocery trip is a success if the kids, we have seven kids. She's like, if the kids, at the time, I think we had four. She's like, if they don't melt down in the grocery store and I'm in and out as fast as possible, that is success. There's no couponing. There's no price shopping, matching, checking. she's like in and out that is grocery success and that helped me realize like oh i was prioritizing minimizing spend and she was prioritizing ease of the trip and they're completely different things but when it's it was because we had conversations about it where i'm like i feel like we keep overspending groceries and she's like because i'm not trying because i don't care you know and i'm i say that in you know a 30 second soundbite but that was three years of me kind of being like what's going on?

34:32To myself, and then friction. I'm like, hey, why can't we? And she's like, oh, I'll try and do better. But then she realized and I realized, oh, we thought about those things completely differently. And then I just bumped up the grocery budget and had to move some things around permanently though. I was like, oh, she wants wiggle room there. She wants to not know how much the price of a can of corn is. The girl I married, I'm like, what's the price of this? She just boom, boom, boom, just rattled it all off. Her priorities shifted. we're always evolving the most important thing about that is talking you got to talk about it so you budget together you allocate money and you find out like what do you care about and it's not clean but if you recognize like we're in discovery mode here how does this other person tick how are our priorities shifting when you approach it that way and not why do you do this why don't you do that goes a long way so i mean we're in like straight up just relationship communication territory now, but you got to make sure that the budget is this common ground where you say, well, what do you really care about?

35:33What do we want? It's not really about money at that point. It's about what you value, what you're trying to achieve. And sometimes you take money out of the conversation and it becomes a little easier. So yeah, don't give up, but figure out what makes your spouse tick and also what drives them crazy and just recognize you're not going to change them. And that's okay. Julie's never going to be the one in the software cranking away. And that's okay. She just won't be. And I also won't ever know if my kids need new shoes. It's just the way it is. Everyone kind of falls into those natural division of roles.

36:08And you just figure out what works for you, the couple. It's funny, you and I are so similar in that respect, because I'm a CMA, not a CPA, but very similar. We both have the accounting background. My MBA is in accounting. So So I'm the one that's in the software. I'm the type of guy that's always, I love checking the apps every day, doing all of the spreadsheets even, and all that type of stuff. So I definitely fall on the same side as you. You mentioned that you asked her to just track the expenses in the app when she spends it. Is that something you have to do every time you spend money with this type of strategy?

36:42You should do it. If you want real behavior change, change, you should have a moment with your money every time you spend. And every marketer is going to try and not have you have that moment. So eventually we'll be able to drive up to a gas station and some robot's going to come out and pump the gas and you won't even know. It'll be like, oh, okay. You just wave you on through. Everyone wants to have you on a tab. Everything needs to be easy. One-click purchasing, wave your RFID chip, whatever it is. Everyone, every marketer, anyone that's ever trying to get you to spend money is trying to have that transaction be as smooth and seamless as possible.

37:16Apple pay, double click, face ID, boom, done. Little bing, little happy, little sound like, oh man, I'm accomplishing things. Well, you just spent money. All of that is engineered to have you feel less of a connection to the money. So we need to fight back a little bit and just recognize I want to have a little money moment. And that is you pull out the phone, you're at Home Depot, you're like, I'm buying a drill. Well, check beforehand, like how much is in my tools category. And you see there's enough, that's step one. Step two is when you check out, you hit add transaction, it recognizes you've been in Home Depot before, it recognizes it was the tools category last time.

37:52All you're doing is saying, here's the amount, it's done. It's super fast, but it's a little moment where you can say, okay, I'm spending this money and I like this, I want this, I'm intentional. Then on the backend, you do all this fancy stuff to make sure that we grab bank data, we match it up. We're like, oh, we grabbed the bank data. You manually recorded it. We sync those up. Those are a match. It's like, we're good. If you miss one, we pick it up off the bank's website and you just categorize it. So there's a little bit of that manual intention that I really love, especially for people that want to see a change in their behavior.

38:25That's important. If someone's like, I'm hitting all my goals. I just really want a tidy place to track things. Okay. Maybe you just let the bank do the work and why not we'll do all that heavy lifting. But if you're looking for really changing the way you think and really making sure that your spending is in line with your priorities, make it as manual and intentional as you can. We don't make you do that, but I highly recommend it. You will see a shift in your mindset. It's worth it. That's one of the reasons why I've stuck with a spreadsheet for so long. I use a combination of mint and a spreadsheet, to be completely honest, but I've been using INAB the last couple of weeks to prepare for our conversation so I could have a good conversation about it.

39:05And I love how easy it is. But like you just said, I like the manual aspect of it so that I'm really being conscious of what I'm doing and what I'm thinking. And I'm thinking about it every time I spend money that way. Everything about money and marketing is built to do the opposite. So we got to fight back a little. One of the things I want to ask you, And I'm not saying by any means that you shouldn't be doing this, but I've wanted to ask this of someone such as yourself or even Dave Ramsey or anybody that charges money for a budget software, mostly just because I'm curious. But we talk about minimizing expenses.

39:39We talk about making sure people spend as little money as they can on X, Y, and Z and really spending it where they want. And then we charge for a budget software. I think yours is totally affordable. I think the value is there for the$84 a year that it costs. But do you ever get people that push back on that? oh yeah, why would I spend money on a budgeting app? Like, well, why'd you spend money on sushi? You spend money, hopefully, where you find value. What's interesting is the value that we bring is that people realize they were spending money where they didn't have value. It's bizarre. But they'll say, oh my gosh, I feel like I've gotten a raise.

40:13And like, well, you aren't making any more money. Or they'll say, oh, I can't believe all this extra money. I mean, we take people that have their overdrafting regularly in their account. Average checking account balance, $300 average. So you know it's high because they get these deposits and then it just plummets. So it's like these highs and lows and it's a totally stressful situation. Within six months, we can get them to thousands in their savings account. And within a year, we're usually around the nine to$12 ,000 mark. This is not for people that make tons of money. This is pretty plain vanilla.

40:45We aren't talking about the truly poor that can stretch a dollar in ways you and I can't even imagine. And we're also not talking about people that are making half a million dollars. We're just talking about people make good money. It's just slipping through their fingers. So at the end of the day, we charge for something that we want people to basically go through the same calculus they do with everything else. We want to say, is this worth it? And we get people that'll push back, but it's a little bit like, I'm so used to that at this point. And we get so many other people that are saying, I can't believe how much I've saved it during my trial, that it's very easy to let that just slide because we're always evaluating whether something is worth it.

41:22A new pair of shoes, something new for the bike, I mean, name your thing. And this software purchase or a candy crush or anything else is the same deal. It's like, is this worth it? Now, the marketers would have you not really ask yourself that, where we'll send you, before your annual subscription comes up again, we'll send you an email like, hey, we're going to charge you in a week. Don't be one of those schmucks. I don't think we say that in the email, but don't be one of those people that forgot that you were buying this and then you pay for it automatically. And you're like, oh, we don't want to take people's money if they aren't really getting value out of it.

41:56So there's that side that I'm like, come on, don't be lame with your money. But at the same time, recognize you got to be always asking yourself, is this worth it? Is it really worth it? And if it is, go for it. And we find it's worth it. Absolutely. Hundreds and hundreds of thousands of people can attest to that. But if I'll say this caveat as an anti-sales pitch, if you've got listeners that are hitting their goals, you're one of them, right? You're hitting your goals. You're aggressive. You've got a good thing going. Don't mess with it. Don't switch to a new tool just because you get this feeling that you're making progress.

42:30Don't fool yourself. You're not. Stick to the plan if it's working. Trey Lockerbie, shiny object syndrome. Yeah, do not do that. And YNAB could be a shiny object for someone where they're saving a great amount of money, they're investing well. It's like, man, don't mess with it all. Go watch the Netflix show or something. What's one piece of advice you'd leave the audience with after they listen to this episode? It can be about personal finance and budgeting. It can be about business, entrepreneurship, even just life in general. The way we live, the way we do money is to teach people to be intentional.

43:01and you really have to take that intention further up the chain. And you got to be intentional about your day and really have a plan for each day. Because what we're talking about with money, I'm just kind of saying, use your time well. It doesn't mean exhaust yourself. It doesn't mean maximize, but use it well. Use it with intention. And then when your time is converted into money, continue to use that money with intention. But everything we should do, whether it's parenting, a new relationship, a relationship we need to salvage, a job. Everything should be done with a level of intention that you're saying, this is worth it.

43:40And I think we need more of that and less of just the new shiny, the whipsawing, the fad. Be genuine and honest with yourself, introspective, and be like, where should I be most intentional and how do I go about it? and money's just one aspect of it. Ramit Sethi was one of those people that really got me to think about that. In his book, he talks about really spending lavishly on things you care about and not on things you don't. And for me, I couldn't care less about food, honestly. I don't really like going out to eat. I try to keep my grocery bill as cheap as possible. I don't really care what I'm eating.

44:15I mean, I like healthy food, but it doesn't need to be anything extravagant, but I love spending money on dirt bikes and that's expensive. So extremely tight on food and I'll spend a lot more money than I think people think I should on dirt bikes. And so it's just one of those things. It's a balancing act. Yeah. My woodshop's the same way. Someone's like, I can't believe you bought another clamp. It's like, you can't have too many. Yeah. I feel the same way. Well, Jesse, thanks so much for joining me today. I really enjoyed our conversation. Where can everyone listening go to learn more about you and what you're working on?

44:45The best thing to do is just go to youneedabudget.com. And if they want to see the method applied in the software, they should definitely do one of our 20-minute workshops. They're live, you can ask questions, and they really help connect where we were talking about theory quite a bit to actual practice. I think it's 20 minutes well-spent and totally free. Just hop on and check that out. We have great instructors that run those. They must run 150 a week. I mean, they're running them all the time. So I recommend that. I actually jumped on a 20-minute webinar last night at 7.30. I can attest that they are high quality and they answer a lot of questions in a short period of time.

45:20So I'll put a link to those in the show notes if you guys are interested. Jesse, thanks so much for joining me. Thanks for having me, Robert. I appreciate it. All right, guys. That's all I had for this week's episode of Millennial Investing. I'll see you again next week.

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