Was listening to a young couple the other day. They were discussing spending money. The financial side of the partnership said, “we are spending too much money, I need to track our bills more closely.”
Ouch, I thought. They are talking about spending $12 – or so it looked to me, at the grocery store. Sure, every buck counts, but I remembered some lessons from my friend Steve. Now Steve ran a tight ship, and he figured he needed $500,000 (or so) a year to live his lifestyle.
That might sound like a lot, but Steve was a sales manager and he figured that if he sold 200 orders a week; that was 10,000 orders a year; and if his cut was $50 an order, that was $500,000. Now this was about 20 odd years ago, and you could buy a very nice house for that kind of money.
Anyway, Steve looked at it like this, budgeting was not only about saving money but about earning money as well. So, Steve worked all the time, until he decided that it was family or social time, and then he would switch off. But as a serial entrepreneur, he never seemed to switch off completely.
Anyway, Steve was a visual guy. He budgeted like this, 3 piles:
- Pile three to pay his overheads – what the office did not cover, taxes, and taxes.
- Pile two to cover his lifestyle – home, cars, kids, spouse, and that included food etc. He would put as much as he could on his Amex so that he had a record and people would see that he had a platinum card, when that meant something. $150,000 or $10,000 a month.
- Pile one, for his savings. And he was not the type to just save in the bank. It might be to buy a boat or a piece of land. It might be for a chalet or a vacation for 10 to African. He wanted to visualize what he was saving for. He wanted to benefit what he was saving for. He did not just want to put it in the bank or in stocks or bonds or in life insurance. He could have portfolio, but it would usually hold cash, real-estate, and loans receivable. Hey to each their own.
He also rounded down. For instance, each pile would be for $150,000. He would have separate accounts that his secretary would deposit funds into – or pay off his credit card. He would keep a $50,000 reserve for emergencies. And with his lifestyle he seemed to have a fair share of emergencies. His solutions when the emergencies ate up more than the $50,000? Well, most people would cut back. Not Steve. He would think up some promotion to increase sales. More sales, more $50 a sale for him and that was how he wanted to solve his problems.
Success for Steve was having fun; hitting his goals was part of the fun. He felt that by having the goals and writing them down so that he could visualize them, that he was halfway three. Good approach.
