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Seven Principles Of Money Management

Top-tier Ohio business college,, presents the following transcript featuring Clay Clark, US Small Business Administration Entrepreneur of the Year, and Tim Redmond discussing business finances.

Clay:                            OK, Tim, now principle number 4 is called “Close the circle”.  What are you talking about when you say “Close the circle”?

Tim Redmond:            Well it’s a term that I got from a friend of mine, Earl Pitts.  He wrote a book called “Wealth, Riches and Money“.  And he used the term “Closing the circle” as answering a question, a very important question in Cash Management which is answering the question which is “How much is enough?”  So if we have the circle that’s open, that means when we have more income coming in, we’re just going to spend it or we have a tendency to spend it.  When we close the circle, that means we say “Listen, if I get more income than I have over the budget, I’ve got a purpose for that to go into a certain savings account or wealth investment account.”  There’s a purpose for that.  There’s a destiny for that dollars that I’m going to put aside and that way, I’m not going to be all over the board and allow my lifestyle to go ahead of my income like it does so frequently.

Clay:                           And I think a powerful example of this would be Warren Buffet where he currently actually lives in the same house that he bought in 1958 for $31,500.

Tim Redmond:           You think he’s got it paid off?

Clay:                           Well apparently he drives the same Cadillac that he’s had for quite a while.  He doesn’t have a computer at his desk.  He doesn’t really use his cell phone and I think some of those things might be things that maybe wouldn’t be practical for you if you’re watching this to not have a cell phone or maybe not but the principle here is that he bought a house a long time ago that serves his needs.  He feels very comfortable with the house and so now he’s on to doing other things.  Which with his money, he’s blessing a lot of people right now with a lot of his charitable things.  But I think he decided at one point that he was going to cap his income and I think I’ve read where he’d capped his income at about $175,000 a year which is still a very high amount for a lot of people but he’s capped it there and that’s a very unusual for people because I think he has a value, or a net worth of billions of dollars but yet he’s capped his income of $175,000 so it seems like he’s really closed that circle like what you’re talking about.

Tim Redmond:            Yeah, and this is really, really important for our thrivers here.

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Clay:                            So if you’re a sales position and your income is going up and down, month after month, how does this principle apply?

Tim Redmond:            Yeah, this is in your sales, you’ve got a business that’s all, you’re starting the business or let’s say you’re starting to use some of these marketing sales strategies that we’re explaining in these videos, you begin to apply these best practices and in the process you may have a month and you make $25,000 and another month you lose $4000. You’re all over the board so what we want to do is not have you live a boring life.  We don’t want our thrivers to live a boring life but what we want to do is we want to create stability for growth and so closing the circle is saying, “Listen, I’m going to live by this much money”.  Let’s say it’s $5000 a month.  So let’s say it’s $5000. Let’s say one month I make $8000.  Okay, so what you do is you take the $5000, you’ve already got it allocated, great.  You put that to work just the way you’ve got that set up.  The $3000, you put it aside into a savings fund and let’s say the next month you maybe only make $3000.  Okay, but you want to live on $5000 so you’ve already got stash on that, so you take $2000 out of that to put in there.  You think “Yeah but I’m just not that disciplined.”  You can be disciplined.  It’s very simple by taking the mandatory expenses, you’ve got your discretionary expenses, then you’ve got your desired expenses and then you’re living within that particular amount and you’re not stuck there forever, Clay.  Somebody goes “Oh I just don’t like living that bondage.”  Well what’s the other bondage they live in?  They live in the bondage of living from hand to mouth, living from month to month.

Clay:                            There’s three things that I heard you say that I want to hammer that, is one, it requires making the decision and you have to start to say that you are disciplined.  You have to start to say, you can’t just say, “I’m not that disciplined.”  We need to start to say right now, “I am disciplined.”

Tim Redmond:            Thrivers are disciplined.

Clay:                           I am disciplined and I can do it.  Disciplined.  Disciplined.  Disciplined

Tim Redmond:            Disciplined

Clay:                           Disciplined.  Disciplined

Tim Redmond:            Disciplined

Clay:                           Disciplined.  Disciplined

Tim Redmond:            Disciplined

Clay:                           Disciplined…  And the second is you have to, we have to look at savings as actually a form of freedom and I guess the example would be, you have time freedom when you save.  So as an example, whenever my wife and I move, and we have five kids and growing businesses and so we’re always moving, and every three or four years we move and when we move because I’ve saved money, I can pay a builder to move and I pride myself on not packing a single item.  I just am like “Move that, move that, move that” so I can’t stand it and so I was able to save time by saving money and I can pay, I can basically get time back by paying people to do things that I don’t want to do necessarily.

Tim Redmond:            You’re paying for a hassle-free life.  You’re paying to not have to think about stupid stuff you don’t want to think about.

Clay:                           But that’s because on a daily basis I decide to not buy things I don’t need.  I don’t put things in my house that I don’t need or buy new TV’s every week.  I just get what I need.

Tim Redmond:            You’re disciplined to plan the work and then work the plan.  You’re disciplined to follow a plan. Closing the circle and saying, “Listen, I’m going to live within these means right here and when I’m all over the board, I’m going to stabilize that.”  This is very, very important to build a platform for growth that’s very important for you watching this right now, and what we’re saying here is we’re going to create that stability: when we go over, we put the money aside and at any time we can say, Listen, I want to move from living on $5000 a month to now we’ve been topping over $10,000 a month, every month, month after month.  I’ve got all this money in this savings account.  “I follow what you’re saying, Tim” and so now we’re going to move from $5000 to $8000.  And so you rearrange those mandatory expenses and those discretionary expenses.  You set up a plan and you follow the plan.


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