S2Ep21: 4 Keys to Successful Budgeting

On today’s episode, Allan welcomes finance expert, Jesse Mecham, founder of You Need A Budget (YNAB). Jesse is a Wall Street Journal best-selling author of, You Need A Budget. Allan and Jesse discuss why budgeting is so important for entrepreneurs, and how budgeting can be used as an important strategy for your business. They also discuss how budgeting can create a road map. And Jesse explains his four keys for taking control of your money. This is a must listen!   Try YNAB free for 34 days https://www.youneedabudget.com/

For additional information about You Need A Budget, please visit https://www.youneedabudget.com/

Allan has started and grown several multi million dollar businesses, his mission is to help you do the same. Welcome to The Business Growth Pod, building the future one entrepreneur at a time.

Your Money is your strategy. And so the more proactive you can be about where your money is going, the more thoughtful you become about what your strategy is, and then should be. And then you go right back to camp optimism where you can just kill it.

Hey, everyone, welcome to the show. I’m Allan. I’m a family man and attorney and an entrepreneur. Each week, we provide resources and advice to help build your business. Are you ready? Then let’s go.

Welcome to the show today. I’m Allan Draper. I’m your host. I’m very excited about our guest today because he knows a lot about money. And I love talking about money. It’s kind of this taboo topic for a lot of people, especially kind of the older generation. But I’m learning that the more we talk about it, the more we learn about I talk about it with my kids all the time. Our guest today is Jesse Mecham. He’s a personal finance expert speaker and business leader. And he’s the founder of You Need A Budget or YNAB for short. And he hosts The You Need A Budget podcast. And he has also checked us out he is the Wall Street Journal best selling author of You Need A Budget. Welcome to the show, Jesse.

Thanks for having me. I’m glad to be here.

So tell us a little bit about your background and what got you interested in talking about money.

Money, as a topic is always interested in me. I remember when my dad, I was 14, and he handed me a few books. And he said, Hey, you know, you should read these books. They’re about money and getting rich. You know, it was like Richest Man in Babylon was a book that I had read. And as a 14 year old, I read the Millionaire Next Door and realize that a Ford F 150 was the vehicle of choice. It was interesting, as a kid, you know, you kind of take everything as just true, almost without question. And that’s what I did. So I took to the topic. And then when my wife and I were both newly married, and I had about three years of school to finish a master’s degree in accounting. And she was wrapping up a degree in social work where her prospects were like, you know, 11 bucks an hour as a licensed social worker in the state of Utah. And so we weren’t planning on making a lot of money and things were pretty tight. So that was where I had, you know, just had the thought, like, hey, Julie, you know, my wife, I said, we’ve got to watch our money closely. And she’s a natural saver. So it wasn’t too hard for her to get behind that. And we just started really watching things closely and developed a method of budgeting for just the two of us that worked well for that first year of marriage. And then she wanted to be able to stay home and jump out of that workforce. Once our baby came, you know, our first baby. So with her income now gone, I thought, well, maybe this little budgeting spreadsheet that I built for just me and Julie, you know, maybe other people would want the spreadsheet as well. And that’s how the business was born was just me trying to shore up a $350 per month shortfall to be able to finish school without going into debt and going that route.

I love it. You know what’s funny is so I read a lot of those money books too, right? I read the Millionaire Next Door, the wealthy Barber, the rich, Rich Dad, Poor Dad, like all those kind of classic books. And one thing that I think I’ve learned is that there are laws that govern money, just like there are laws that govern our physical world, right? If I go to the roof of my building, and I reach over and drop a pin, Ben’s gonna fall. Yeah. And I tell people this about money, hey, there’s laws, right? There’s certain laws, and there’s certain things that I’ve done for a while. And I know budgeting is a very large part of that type of mentality. Right. But man, is it annoying? Right? Isn’t it difficult? It’s difficult for us. Why is that?

Well, I think it is difficult to change the way we think about how we should manage our money. So behavior change is difficult. And we’re trying to actually change people’s behavior. Because their behavior is that kind of incendiary bit that gets when you’re dropping the pen and you’re expecting a result. Well, in the financial world, when you’re spending less than you earn, that’s the start of like, Hey, I’m executing on a law, and you cannot increase your wealth, whether you’re trying to go from you know, $100 to 1000 or 10,000 to a million you cannot increase your wealth, unless you are living on less and we want to be able to get to that changing behavior. And what happens is, there are probably two things that are really rough. One is people say you need a budget and we naturally hear that word and we think That means you cannot have fun. All the fun you ever have known is now gone, you know. And so you’re like, Whoa, you have this natural reaction to that. It’s like going on a diet and someone says you will never be able to have a piece of pie again, Jesse. And I’m like man pies, my favorite food, you know. So that is one bit. The other bit is, we think we have to be perfect. When we start. And budgeting is a process of deciding what we want our money to do. getting new information, making changes to our plan, changing the plan is part of budgeting. And so if we can drop the reductionist mindset of budgeting means restriction and deprivation. And if we can also withhold the idea that it needs to be perfect, then we have a pretty good starting point.

I love that. And I think that’s one of the issues that people have with budgets is they’re kind of scared to look, right. Yeah, they’re a little nervous about what they’re going to find. And a lot of people think, okay, you know, I have a monthly deficit. But I’m just going to earn my way past that. And one of the laws that I’ve learned is, unless you’re deliberate about where your money is going, the more you make, the more you spend. And the easiest way to control how much money you have, is to control how much money you spend, and is a lot like that in business. Most of my listeners are entrepreneurs, business leaders, people trying to grow their company. And something that I preach all the time is, you’re so focused on top line revenue, right? You’re so focused on increasing that top line, which is something that you technically don’t have a ton of control over. Because if somebody else has to make a decision, now you can persuade them and things like that. But one of the first place you should look to control bottom line revenue to increase your net profit is the stuff in the middle, right? Those are the things that you have control over. Now, what do you recommend to somebody that has no idea where to start? They’ve never budgeted in their life? they’re terrified of it. What do they do?

Yeah, whether someone has budgeted before, whether they have $30,000 in their checking account, and that’s the way they roll or whether they have 303 100, is to be frank, it’s the average of $300 balance in a personal checking account. It’s high, but it drops fast, because usually there’s a pile of bills just waiting, they’re ready to pounce on the paycheck, you know, so people are dealing a lot of times with a fairly small amount of money when they’re starting with us. Not that they don’t earn, okay, money, we’re not dealing with people that actually, I should say this, just as an aside, people that really live on very little, are brilliant at stretching, $1, it’s all of us that are in the middle, we’re the ones that don’t get creative, and we have so much room for improvement. So setting aside people that truly are living in rough situations, I’m not talking to those people. I’m talking about people that are making an okay, income, we start them off at the same spot, and we just say, How much money do you have on hand right now? And if they’re an entrepreneur, if they’re a little wired for, like, projecting and being very optimistic, then they’ll be like, Well, yeah, it’s only 300 today, but in two days, there’s this client, and they said, they were gonna send me a check, or they said, they’re, I mean, they’ll tell you a story. And it very well may be true. But we will reel them back in and we’ll say, No, no, no, no, just on hand right now, like literally, if all of the money in your bank account was in your wallet, you would open your wallet up and show me we laid on the table and counted your like 300 bucks. And then we just asked one question, and this is the question, we ask, what does this money need to do? Before new money will arrive? And they’ll be like, well, when the new money comes in, they’ll immediately jump to the future and start Yeah, Rosy forecasting were like, not stop. We’ll handle that when it comes now. And when you get an entrepreneur who is bless their heart, so optimistic, right? When you get them to embrace the scarcity of the moment, I don’t mean like abundance, mentality, growth mindset, I mean, straight up scarcity, dollars are finite. And that is all you have. If you can get the entrepreneur to embrace the scarcity as a good thing. Not that something you run from like you hug it, then you say, okay, brilliant entrepreneur that is super creative. What do you do now? Because now your brain doesn’t just go to the easy route of Oh, well, money will come later, and it will solve my problem. Now you’re actually having to get creative in the moment and say, No, no, it may not come. What will we do now the brain will solve it. Like we very rarely allow our brains the moment to do that dance with scarcity, where it’s like, well, are you going to figure this out or not? And swiping a credit card? Or saying our money Oh, come later, so I’ll throw it on a line of credit or whatever. That is not what we want at all. We want to embrace scarcity and really flip it on its head.

Yeah, that’s an interesting point. Because entrepreneurs they have to be forever optimist, right? Absolutely. Deal with crazy things. I tell people, hey, if I knew what it was like to start and run a business before I did, so I wouldn’t done it right? So it’s nice to be naïve, as we’re talking about entrepreneurs a little bit, what benefit is it to them? Besides I love that line of thinking, right? These are your finite assets. What are you going to do? I love that, in addition to kind of going through that thought process, what are some other benefits tangible benefits for an entrepreneur or business owner to create budgets, both personally and in terms of their business assets?

Just one quick drive by on the personal side, if an entrepreneur has their personal finances well in hand, they’re under control, doesn’t mean you’re deprived. It just means the money is doing what you intend it to do after some thoughtful process. He’s around, what do you care about? That’s rule one, we’re giving every dollar a job. And those jobs are things we care about. So if an entrepreneur is doing that they’re following the wind method, then personal issues don’t encroach on business strategy, and then send the you aren’t making short term poor business decisions? Because you have a personal emergency. Hello, that should not have been an emergency at all. So when you’re like, Oh, well, my fridge went out like, well, fridges do not last forever. If they ever saw one that does, I’m buying it. You know, like, literally today, I’m hoping the plumber calls because I have this little tiny jet stream of water, you can’t see. But if you walk past the water heater, it shoots you in the side of the head, and water heaters don’t last forever. So those aren’t emergencies, that’s just normal life, the way you can get your personal finances in order, you know how much you need to live, you know that everything’s lined up and feeling good there? Then it unleashes you to be like, Alright, that’s good, you know, and maybe you’re sharing finances with a partner. And you guys have figured out who does what, and it can be 9010, it doesn’t matter, but you figured it out. Both are clear on what needs to be done. And you just go to town, the business. Now on the business side, I said that was a drive by but it was on the business side, a budget is your strategy, as expressed through dollars. So when we say what do you want this money to do? Again, I’m talking about you saying, Well, I’m going to hire somebody to help me run my podcast. So I can do more, right? I’m going to double my podcast output by hiring someone. And that means in the budgeting process, you say, Well, how much will that person cost, and you start putting money aside into that podcast, producer category, whatever it is, but your money is your strategy. And so the more proactive you can be about where your money is going, the more thoughtful you become about what your strategy is, and then should be. And then you go right back to camp optimism, or you can just kill it, you know?

Yeah, I think that’s fantastic. And I think that’s true. A few years into my first business, I hired a full time accountant. And she was a stickler for company financials and budgets. And so every October, we start making budgets for the following year. And it gives us this roadmap, like you were saying, it creates kind of this guide, and our budgets are never perfect. Okay.

Yeah, absolutely.

I know they’re going to be off. I don’t know if they’re going to be too much or too little. But they give us these kind of guideposts. Will you do us a favor and walk through your four rules of taking control of your money?

Absolutely. Yeah. So I mentioned just briefly rule one. So you’re giving every dollar job, you’re clear on what you care about what you want your money to do. And then you’re assigning money to that. So if you want to go to Maui, then you are putting money in a Maui category. And if you want to build a tiny house, you’re putting a category in there, right? Whatever, if you want to donate to charity, water, like money’s going there, like whatever you want, whatever your intentions are, money should be going there. Some of them are easy, you know, like, well, you got to feed the kids and stuff like that. But others, you know, you got to really think about it. What do you and your partner, what do you care about? That’s rule one, it’s just about giving every dollar a job rule two, we’re saying we want to embrace our true expenses. And I mentioned the water heater, the appliances, any of those large, less frequent expenses, whether it’s a known amount, or an unknown amount, like a car repair, you look ahead, and it’s like, there’s future Allen that’s on the side of the road with like a blown out tire talking with you now current down, and it’s just like, Hey, we will need new tires, like four new tires for the car. And then current Allen’s like, okay, I’ll start putting a little money in there. And there’s a negotiation between like future you and current you, as it relates to priorities. Some priorities are for right now, some priorities for when your kid goes to college or whatever, their longer term retirement is a massive, massive, large and less frequent expense. Rule three, we call it rolling with the punches. And it just means like you kind of alluded to before, it just means you’re changing your mind. You’re like a chess grandmaster, you know, you see how your opponent’s playing and you respond to the opponent’s play. That’s what life does. I mean, we just had 2020, right. So right, it’s like, oh, that was an interesting move of life, you know. And so we have adapted, we have adjusted and budgets need to be flexible, rigid budgets break and flexible budgets, stick around, you can keep working them The final fourth rule is to age your money. And I’m not much of a drinker at all. But the idea of wine getting better as it ages, it’s kind of like that with money, we want the money to sit for a little while. And we’re talking about the number of days from the day that dollar comes into your system until you have to spend that dollar. And we shoot for 3060 for an entrepreneur, 90 days, it’d be nice, you know, build up a little bit of some buffers so that that personal stress doesn’t encroach on business strategy. So those are the four rules in a nutshell. And I basically have written a book and podcasted. And we run workshops, all just teaching those rules over and over again.

Those are fantastic. I wanted to mention something really quickly about Rule number two, embracing your true expenses. So my thing is, I help businesses scale, like, I feel like that’s one of the reasons I was put on this planet was to grow my own and other people’s businesses. And I was chatting with somebody today that his business is growing like crazy. He had a key employee that went down with some type of injury can’t work for a period of time. But he is not in a position financially to hire the help that he needs to keep up with that growth. And so recognizing with that type of expense, a key personnel or a salary fall into something like that for an entrepreneur.

Yeah, yeah, I mean, for some entrepreneurs, like it could be a year, if you’re fast growth, then that’s just volatile period. And so the more volatile the income is, the faster the growth rate is, they’re all the same thing. It’s just like, there are more unknowns here. And that just means that there needs to be more padding. And it could be something where you can’t predict injury to a key employee. And so we’re gonna carve out this line, you might just say, this is our volatility fund, or this is our hair’s on fire fund, you know, we’re gonna stick money here regularly, in a disciplined way, it will keep growing. And then every once a while, you might say, you know, this fund has gotten excessive, we haven’t needed it, and you maybe skim a little or whatever. Or you might say, Man, I’m glad this was here, when something happens. But the fast growth rates, and heavily seasonal companies, and then highly volatile companies for any other number of business reasons, they all merit, more cash on hand, just as a general rule, and cash. Sometimes people will speak to cash, if you’re not being savvy, if you’re not optimizing and leveraging to make cash is code for options. The more cash you have, the more options you have. And I’ve never seen someone say, Oh, my gosh, I really wish I wouldn’t have that extra cash, you know, things would have been so much better without it. So avoid the risk of being like, Oh, I’m really savvy, I’m operating at this super efficient, high leverage spot, I wouldn’t go there.

Yeah. And you hear that sometimes from people that Grant Cardone talks about that, he talks about how if he gets five bucks in his account, he’s going to go spend it somewhere, to some degree, I understand the concept. But I think you’re shortchanging yourself by not having any liquidity. Because like you mentioned, having money gives you options. And you may be shooting yourself in the foot. If something comes down the road, and you don’t have any cash, right? Because it’s gone, you’re highly leveraged, you don’t have those options. What are some of the key mistakes with budgeting that businesses and individuals make?

on the individual side, if you’re sharing finances, which we’ve talked about quite a bit, and a lot do, one of them is to assume that both participants are willing, right to the same level. And my wife and I have very different roles as it relates to the money for the household. I do the budgeting the reconciling, I do all the work in the software, it helps to eat your own dog food in the software world. And then Julie, we’re 5050 on decision making, we come together and I can show her the information. And she uses it and we discuss and we’re of one mind on goals. But as far as her desire to get in there and do any of the heavy lifting, she does not want to. And there are things that I don’t want to get involved with and do heavy lifting on. So we’re 18 years of marriage, you start to get those things kind of clarified. So that’s one is the participants, these partners that are sharing finances, it needs to be talked about, and it needs to be open. And you just got to kind of figure each other out like Well, what do you want to do? What should I do? and be willing to iterate on that over a lifetime? And then you don’t ever have this perfect, you know, weird ideal you’re somehow falsely pursuing. That’s one on the personal side. That’s huge. on the business side, one that I’ve seen, that’s more of a misconception is people think that the budget will somehow make them more conservative. And it actually will do the opposite. Instead of just looking at a bank account balance, like what a business owner will do. They’ll put their finger in the wind, they’ll check their phone and be like, okay, that’s how much money’s in the bank account. Can I do this thing? They don’t have good information. And so if you can lay out that pile of cash that’s in your business checking account, and you can have all those dollars assigned to jobs. Some of them are like hey, big company retreat in five months, and Others are quarterly taxes my word like people stay on top of them. And if you can set those aside, then you can look and say, Oh, I thought I was being, you know, it actually unleashes you to take risks, right? Where I thought I was being super conservative back in the day when I was just checking accounts. And can we hire I don’t know, because it feels like you’re getting married, and you’d go in and debt when you hire somebody and, and I was so worried about that. And when I saw that there was so much extra, I mean, all relative, I said to myself, Oh my gosh, it would be irresponsible for me not to hire this person. But it took the clarity of the dollars all assigned to their jobs. In order for me to say, Oh, it’s dumb, you know, not to step on the gas a little bit, I was actually pumping the brakes, and didn’t even realize it. So a budget will give you the clarity to really go for it. You know, when you can?

Yeah, and I think this is huge with small businesses in terms of marketing. In order to really scale you got to invest wise dollars into marketing. And I think this kind of phenomenon happens where if you don’t have a budget, your foots hovering over the break, because you’re scared, you’re spending too much money. And I’ve had a marketing manager come to me and say, Hey, Alan, we need to slam on the gas, because we have this entire budget. And we have this opportunity. So I love that concept. Jesse, this has been fantastic, man, where do people find out more information about you and your company.

So it’s easy, because we’ve been talking about this so much. But it’s just you need a budget calm, I’m not really on the social stuff at all. I just kind of stay doing the work in the business, but www.ynab.com or on Instagram or even on TikTok Allan, which kind of blows my mind, because I’m too old to really get it, you know, but we have smart, younger people throw a stereotype out there that are nailing it. And it turns out, people go to tick tock for financial advice, as well. So we’re there. We have great communities all over the internet that are just passionate about getting their money. It’s not about spending less, it’s not about spending on things that Jesse thinks you should buy. Like, nobody wants to do what Jesse wants to do, except Jesse, you know, but it’s just about having your money line up with what you really care about. It just feels good. And that’s what we’re trying to get people to do. It’s just like, have your money, do what you want. And it feels fantastic. So that’s where you can find us. You need a budget calm. Take one of our free workshops, we run about 150 a week. They’re all live and it’s a live teacher, they’ll answer your questions, we just want to teach like crazy. And then if you love what we’re teaching, and you’re like I could do this, know that you could implement it with your own spreadsheet the way I built it. Or you could check out our software, we do a free 34 day trial. We don’t ask for your credit card, because the last thing we want is we’re like Hey, be careful with your money, then we’re sneaking, grab it, you wouldn’t want to do that thing. So anyway, we try and make it really easy for people to give us a shot and see if they liked what we’re doing.

Love it. Alright, everybody, he’s Jesse Mecham. He is the budget guru. Thanks for joining us today. And you know, appreciate the advice. Money really is one of the most valuable resources that we have to grow our companies. So keep that in mind, create those budgets, and we will talk to you next time. Thank you.

If you’ve enjoyed today’s podcast, please leave us a rating and for daily inspiration and business tips follow Allan on Instagram. Until next time, remember we build the future one entrepreneur at a time.

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