A conversation with the founder and CEO of Mint.com and vice president of Intuit’s personal finance division.
Question: How did Mint get started?
Aaron Patzer: I’ve actually started a number of businesses in my career. I’m 28 currently, but when I was about 16 I started building websites and that’s how I put myself through school. I went to Duke with a degree in electrical engineering, computer science, computer engineering and then to Princeton. And during that time when I was building Websites and putting myself through school, I was sort of comingling my person and my business finances, so I was using Quicken and Microsoft Money since I was about, well, 16 or 17 years old, so it’s been almost ten years or so.
And I was pretty religious about it. I would manage my finances as it were every Sunday afternoon for about an hour each Sunday, made sure all of my accounts would balance and then I was involved in another startup where I was working 80 to 100 hours a week and I didn’t open Quicken for probably five months or so. And the problem with a desktop tool is if you don’t open it up, it’s not updating your finances. It’s not pulling in the information. And once I did that it downloaded about 500 transactions and they were all uncategorized and it asked me to reconcile all of my account balances and it just seemed very tedious, like, why would you want to balance a checkbook in this modern day?
And then I decided there’s got to be a better way, an easier way, a faster way to manage your finances than spend an hour every Sunday afternoon doing it. I want a tool where people can get in and out in five minutes a week or less and it takes, like, ten minutes to set up instead of an hour to set. And that was the genesis of Mint.
The first thing that I did was come up with a categorization algorithm so that instead of seeing a big pie chart where most of the things are uncategorized, this algorithm knows that Safeway is a grocery store and Starbucks is a coffee shop and it’s smart. It actually knows about 20 million US merchants. And then I realized, “Well, that’s a nice feature, but it’s not a business.” And so, if the user knows where their money’s going that’s great because they spend less time. They can set budgets, they can see a nice pie chart of their spending, but as a company it means we know where their money is going and we can help them out. We can find better prices on the things that they buy most. Like, you spend $180 on phone, TV and internet. You could bundle it together. You have $20,000 in an old checking account that you opened when you were 17 and it’s just lying around not earning any interest. You’re paying all sorts of fees on it. There's a better offer out there.
And so, Mint’s business model became we’ll go for free and then we’ll find these savings opportunities for you. You know, better interest rate on your credit cards, when should you consolidate your student loans, when does it mathematically make sense to refinance your mortgage and Mint figures all that stuff out for you.
Question: How did you market Mint initially?
Aaron Patzer: Well, between the time that I created the alpha version and we actually launched, it was about a year and I did build up a team. So, I got financing and got some more engineers and some real professionals working on this. But, the marketing plan was whatever we can do, basically, for cheap or for free. So, probably nine months before the product even launched we started a blog, a personal finance blog, and we had some of our own content. So, we did this thing that we called train wreck Tuesdays. It was, like, people’s worst financial disaster. And somehow reading about other people’s financial mistakes makes you feel better about, you know, the mistakes that you’ve - you know, like, “Oh, other people really don’t get it either.”
And then we did sort of a “What’s in your wallet?” We would talk to either Silicon Valley sort of tech celebrities or personal finance bloggers and ask them, “What credit cards do you carry? What brokerage accounts do you have? Why did you choose these?” And that was an interesting segment. But, most of our content came from other personal finance bloggers and we would just simply crosslink back to their site. We got a lot free content.
And so, by the time we launched we had more traffic to our personal finance blog than our competitors who had beat us to the market, who had launched before us, actually had to their entire Websites. And then we added, you know, a “Send us your email and we’ll put you on the beta” because we building demand for nine months. We got about 20- 30,000 emails during that period which was too many. We couldn’t let that many people in all at once. So, we actually said, “Okay. We’ll give you special access to the beta if you put up a little badge on your blog or your Facebook page or wherever, that says, “I want Mint.” Just a very small, little badge and then we looked at all the people who had those embedded and what that did was it gave people sort of exclusive VIP access. Sort of like, you know, the velvet rope treatment at a club, but it got us free advertising on 600 different blogs and not only the free advertising, in some sense we got the boost in search engine ranking because Google actually looks at how many people are linking to your site in order to determine your relevancy and your popularity. And so, the more people who are linked to your site, higher its page rank and the better you’re going to do when people search for things like personal finance tool or budgeting software or whatever it may be.
Question: What are the logistical barriers to saving?
Aaron Patzer: As far as the logistics of saving, I think most books, if you read them on setting a budget and learning to save and learning where to cut back, do it all wrong. They sort of suggest you start out with your income. Okay, I earn $4000 and here’s how much I’m paying in taxes, here’s how much is rent, insurance, coffee shops, childcare, clothing - they make you list sort of 30 different categories. Most people don’t know what they spend in those categories anyway, so it’s an impossible task. It takes you, like, three hours to list all that stuff out and then you're supposed to come up with, okay, and here’s my savings goal at the end after I’ve tweaked all these categories.
It’s just really impractical and it’s also hard to track because they sort of tell you to write down everything that you buy. What I suggest instead is to use a tool like Mint or like Quicken which will pull in all of your transactions automatically, categorized them automatically and then set a budget against just probably the two or three problem areas that you have. I mean, most people know what their real issues are. You know, maybe you shop too much. Maybe you go out with your friends too much to bars and, you know, you need to set a budget on alcohol in bars. Maybe it’s restaurants. Maybe you’re a foodie. Maybe it’s too many video games or too many DVDs or something like that. People know sort of where their problem areas are typically. Too many coffee shops.
And so, you just set a budget in two or three different categories. Use a tool like Mint or like Quicken that will pull in your credit card and your debit card transactions. So, put everything on a credit or a debit card if you’re deeply in debt and a credit card - you're afraid you're going to get yourself into worse trouble, use a debit card then. But, the important thing is those allow you to track your spending in a way that cash doesn’t.
And so, all of a sudden you’ll realize, “Oh, I went to Starbucks 36 times last month. Oh, I spend more on shopping than I do on rent.” People have written in to Mint and said, “I just had no idea that I spent more on this than I do on - I spend four times as much on restaurants than I do on groceries?” My press agent, Martha, said the first time she used Mint she realized that she didn’t have anything in her groceries category for the past month. She literally hadn't bought any because she had been going out so much.
And so, you find these patterns. You set a budget in those problem areas and Mint will show you how much you’ve actually spent historically. So, if you’ve spent $300 a month on restaurants, don’t set $100 budget. You're just not going to make it. You’re just going to frustrate yourself. Set a budget of $250 or $225. Maybe 25 percent less and then if you make that then cut it back each month. And a tool like Mint or like Quicken - Quicken 2010 is actually - it’s really good. They use a lot of the budgeting features that I think that they got from Mint. It’s funny because I’ll be owning both of those brands now going forward.
Question: What are the psychological barriers to saving?
Aaron Patzer: You know, it’s funny. When I look at the biggest areas where people have been cutting back, 40 percent of Mint users say they spend less on restaurants and cook more at home and a full, I think, 90 percent of people say they’ve actually changed their spending habits. So, I think at least for people in their 20’s and early 30’s the biggest problem area is probably restaurants, coffee shops and sort of your going out budget. Getting lunch every day, getting coffee in the morning or the afternoon every day, those sort of daily habits that maybe you don’t realize.
So, sometimes I wonder from a psychological perspective if people have a food and beverage addiction. I’m typically a just drink water kind of guy. I was a bodybuilder in high school, so I used to - food to me was, there are this many grams of carbohydrates and proteins and I need these micronutrients in order to grow and be fit and I ate in order to live and not live in order to eat and I think most people are the opposite.
And so, I know it sounds weird, but the food that I eat, it doesn’t make a big difference and it never has. So, I’ve saved a ton of money not buying a lot of alcohol, not going out to restaurants too much. So, I think it’s part of our culture and it’s part of a social activity more than anything else.
The other thing is I think we’re in a very consumer focused culture where you’re almost taught that in order to be happy or satisfied you have to spend on the latest clothes, gadgets, whatever and I think half the time it’s in order to impress other people. You know, the way you dress or the car you drive or what you spend is to impress other people with how, I guess, successful and rich you are. But, you're not and you shouldn’t and who gives a damn what other people think anyway. So, that mentality, I think, is very destructive. It’s the mentality of being a secondhander; of caring too much what other people think. I know that’s an odd thing to say, maybe, when we’re talking about, like, psychology of saving, but I think it - that has more to do with it than anyone imagines.
Question: What are the three tenants in the field of personal finance?
Aaron Patzer: So, there are always exception to the rule, but the reason that I came up with those three tenants is the field of personal finance is, I think, very confusing and overwhelming to people. If you look on Amazon - if you do a search for personal finance, there are literally 20,000 books written on personal finance and there's no real reason for it. I mean, personal finance is pretty simple. You see content on the Internet, whether it’s CNN Money, the Motley Fool, even, you know, the Mint blog in some ways and fundamentally it can all boil down - all those books, all those articles - to three basic principles which you named. Spend less than you earn which means basically save money, make the money you have work for you which means invest it and then be prepared for the unexpected which means, you know, protect your downside with the right types of insurance, with diversification of your investment.
And so, the first aspect is save it and the best thing to do there is to set a budget on your problem categories. If you’ve lost your job than saving money shouldn’t be your primary concern. It should be finding another job and making ends meet. The other thing that you can do to save money without really changing your behavior is to optimize your financial accounts. So, most people seem to have the checking and savings account that they set up when they were 16 or 17. You went into your local bank with your mom and you set up a checking account and you’re not being paid any interest and if you have a savings account from City Bank, Wells Fargo, Bank of America, and of the big name banks, I guarantee that right now you’re being paid between 0.1 percent and 0.2 percent interest which is ridiculous because you can make 2 percent interest right now and if interest rates go up, the Fed changes the rates, you could make 3, 4, 5 percent interest. You’re going to be earning a fifth to tenth as much at most of the big banks as you could either get at a credit union or an internet bank like ING or HSBC or Emigrant Direct Bank or Ally which is the old GMAC actually pays the best interest rates around right now. I’m a big, big fan and they have accounts without any fees.
So, if you optimize your financial accounts, get a high yield savings account and put your deposits in there. Get a credit card that, if you're paying interest on your credit card, is at a lower rate. If you pay your credit card off every month, get a rewards card. One that gives you airline miles or that will give you 1 percent cash back at least on every purchase. Some of them will still give you 3 to 5 percent back on restaurants or groceries or gas or whatever that type of card is. I use an American Express Blue cash card and after you’ve spent about $6000 on that card it’ll give you 5 percent on gas and restaurants and I mean, it’s - I've made so far this year about $500 cash back. It’s great.
And then, you know, consolidating your student loans or finding even a brokerage account if you're an active trader that you’re going to spend less on your cost per trade. All of those things don’t really require a change in your day to day behavior; they just require being a little smarter about which financial accounts you should have.
Question: What has been your biggest spending mistake?
Aaron Patzer: My biggest financial mistake was probably, you know, in terms of scope it was probably, you know, not cashing out in the 2000 tech crash, but on a more personal note, I was 19. I had moved to Silicon Valley to work there for the summer. Apartments were really expensive. Since it was the first move I had made, I didn’t account for the cost of getting TV, Internet, power set up, all the furniture, all of the cleaning supplies and food and spices and cooking stuff that you need when you first set up an apartment. Overspent - it was a first and only time that I ever had my account overdraft. Got hit with a fee. The part of the mistake that I made was I thought I had enough saved up, but I didn’t realize that your first paycheck often takes not two weeks to get, but four weeks until, you know, payroll kicks in or until your direct deposit kicks in or if you open a new bank account, sometimes to prevent fraud on their part, they’ll hold your check for four or five days or ten days to let it clear when you think, “Oh, well I’ve got the check in hand,” or, “This is my pay period right now.” No, you don’t actually get to use the money for a couple weeks beyond that. And so, that sequence of timing and ill planning was just a bad combination and I was very, very depressed and very mad at myself for making that mistake.
Question: What is your weakness?
Aaron Patzer: As of late my the big surprise was I spend a lot more on travel and hotels and airfare than I ever thought. That’s probably my biggest area of spending. In fact, it’s probably, at this point, more than rent. You know, I just sold my company. I’ll have good proceeds from that. I’ll have plenty of money to do as I please, but I won’t. I’ll still live in my one bedroom apartment and drive my used cars and not go out too much, but the one thing that I won’t curb any more is, you know, good travel and good experiences with friends and family. And so, that’ll be an area where I increase my mid-budget.
Recorded on November 2, 2009