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My favorite thing about this show is the different perspectives. On this podcast, you hear worlds collide and we don’t hold back.

Matt and I have very different perspectives, but we let them play out here and everyone benefits.

I’ve never operated with a budget—personal or business. Matt swears by them.

We talk about the purpose of a budget, who it’s for, when you might want one (and when not), and how to make sure you’re controlling your money and not the other way around either way.

Regardless of your approach, you’ll get a lot out of this episode on controlling business spending and accounting for your finances.

Highlights, Takeaways, Quick Wins
  • The purpose of a budget is to make sure you’re spending money on the right things.
  • Figure out the difference between what you need and what you want.
  • Budget for a little more than your needs in case you need to buy something to help you be more efficient.
  • There’s a difference between having a budget for something and setting money aside for something specific.
  • Your values determine what you spend your money on, and budgets are a tool that help some people align those things.
  • Live “poor” now so you can live well later.
  • When making decisions about money, start with your principles and let the spending logic flow from that.
  • Try to make each of your ventures self-sustainable.
Show Notes
  • 06:13 Matt: This month, I projected us to make a quarter of a million, because we’re going to shut down the company for the months of December and January so everyone can get a break. Everybody’s literally running on fumes right now. Once we do some completions, we’ll feel a lot better. We’re doing good, and I think we’re going to make it. My managers don’t think we will, but this is why I run the company. I’m an optimist, and they’re the one’s making everything happen that I say. As far as the Lambo Goal, I’m on track for two years.
  • 07:09 Sean: 2017 you think? I’m hoping for 2017. I’m not anywhere near that. On my end, we’re building up the foundation. Everything right now is about surviving while we build things out. We’ve got some courses coming out, we’re growing the Community, we’re doing seanwes Conference next year, and a lot of things are in the works. The money we have right now is all just runway to pay people for however many months until the money runs out. We need to be bringing money in to replace that, and eventually we grow beyond it. Right now is a weird time. I don’t think of myself as having money, because it’s covering our payroll while we work on getting recurring revenue up.
  • 08:11 Matt: If we do make the $250,000 this month, I don’t count that as $250,000 toward the Lambo. I have overhead, employees to pay, and bonuses to pay. Like Sean said, we’re laying this foundation to make sure it’s solid. We made $1 million a month ago or something, and we invested pretty much all of it. We saved a little bit for our runway for payroll. I could have put that toward the Lambo Goal, but it doesn’t make any money just sitting there in a bank, so we reinvested it into some of the businesses and then bought more assets to give us more recurring income.
  • 08:50 The day we decide to do Lambos, I will sell these assets and use that money for the Lambo. That’s my plan as of right now. We’re putting in the hustle to make the money for our runway, plus some extra money to put toward buying assets, and once we get to that point when we’re ready to get to our Lambos, I’ll sell those assets and we’ll have that bulk cash.

Should You Have a Budget?

  • 09:13 Sean: I have personally never used a budget, and this always shocks people. I did an episode on the seanwes podcast on how I prevent unwanted spending without ever using a budget (Related: e091 How I Prevent Unwanted Spending Even Though I’ve Never Had a Budget). I’ve never used a budget personally and I’ve never used a budget for my business. I know this is kind of crazy, but I have a weird way of thinking about it. It’s not that I think that budgets are bad.

The purpose of a budget is to make sure you’re spending money on the right things.

  • 09:53 You’re allocating funds to the right things, you’re not overspending, and you’re not spending on things you shouldn’t be. I’ve never had an issue with that. I haven’t needed a budget because I haven’t found that I spend on things that I shouldn’t, but I’m very interested in hearing Matt’s answer to the question, “Should you have a budget?” What does that look like for you on an average monthly basis, and if you have a big month, how does it look different?
  • 10:33 Matt: I like some of the points Sean said, that he doesn’t have a budget because he feels like it’s in place to give him limits and a ballpark idea of where he needs to stay.
  • 10:47 Sean: I certainly know my expenses and my payroll and that kind of thing. I know about how much is going to go out each month.
  • 10:55 Matt: The reason we use a budget is because I use a lot of partners. A lot, but not all, of my partners come from a background where they’re not used to staying within limits. They’ve got money, they just charge it up, the accountant is going to send the money over to pay for the orders. I have other partners that think they’re high rollers, making $250,000 a month, and they just charge it up. It’s coming out of the business? The business is making money, and we’ve got to have a deficit. I’m thinking, “Where did you get this thinking? A deficit? We’re here to make money, not lose it!” We have these budgets in place for different reasons.
  • 11:38 Some budgets are a little more itemized and detailed, depending on the person. As an example, let’s say Sean and I were going to start a tiling company. We started this tiling business because I own homes, he owns homes, and we thought, “We’re paying this other tiling company a ton of money to come put tiles in as opposed to us just hiring a crew and sending them to all these other ones.” We can start this, make some money, and save some money on our current projects. Before starting this tile company, we’re going to project ideally from the project we have right now. This is how we do this, because we’ve already got jobs in place before the business even starts.
  • 12:35 Knowing Sean as a person, I know that he’s really good at staying within his means. He’s not trying to keep up with the Jonses, and yes, he buys expensive equipment, but it’s for the business as opposed to him just wanting a nice Mac with multiple screens. I wouldn’t be too worried about Sean having to stay within a budget, but we would still have it.

Budgets give you a ballpark on what the business can afford.

  • 13:05 In past episodes, you may have heard that I like to think of my businesses as babies. They get more mature as they grow, and they can afford to spend more and do more. In the beginning, it is so crucial to monitor everything that you’re doing. At the end of the day, what do we all do business for?
  • 13:26 Sean: You want to make a profit.
  • 13:29 Matt: One of my mentors is always telling me, “Matt, you’re working so hard. At the end of the day, when all the dust clears, is that number really what you want to be making?” I say, “No, but we’re growing.” With a budget, you can really keep an eye on where your money’s going. With Sean, I wouldn’t need to worry about it. We wouldn’t even need to use the whole budget, because Sean’s so good with money, as opposed to someone else who’s not the greatest at staying within budget and who likes to buy things.
  • 14:17 One of my partners will say, “We’ve got to buy the best, Matt. We only do the best,” when I want to buy some equipment. I say, “Do we really though?” You cut where you can. Obviously, if you need to buy good equipment for certain stuff, do it, but I like to tighten up the seams, especially at the beginning. Now, if we need equipment, we can go buy the best. We need it. We can afford it. In the beginning, you have to be careful. I have seen multiple businesses where my partners didn’t follow the budget and didn’t care, they were charging it up, and guess what? Those businesses either failed or I had to buy them out, get them out of here, redo the budget, pick it up and get going again.

What Should You Budget For?

  • 15:06 Sean: Charli asks, “How do I work out what’s worth spending money on or budgeting for?” What are the things you should budget for?
  • 15:17 Matt: In the very beginning, we line up in Excel every single thing that we need. Here’s the problem with budgeting—people get confused with adding items that they want. This is the thing that’s going to make or break you.

Figure out the difference between what you need and what you want.

  • 15:38 Whenever you look at an item you’re going to put on that Excel sheet that you need or want, you have to think about it. Do I really need this $4,000 or $5,000 piece of equipment, or could I just get a $2,000 or $2,500 piece of equipment that will do the same thing and will get me through for the next three years?
  • 16:02 Sean: If you have a budget with different categories, what if you say, “We’re going to allocate $300 to such-and-such expenses?” My concern is that then you think, “Oh, we’ve got to spend $300 on this stuff.” What if I found something for $150? As someone without a budget, I think, “Great, I just saved money.” We were just watching the Office recently, and they were trying to explain to Michael that they have a budget for this stuff, and if they don’t spend the budget, then they won’t get as much next year.
  • 17:01 Matt: For some of our government contracts that we do, the same thing applies. If we don’t use the whole budget, at the end of the year or close to tax time, they’re like, “Matt, I’ve got $15,000 and I need you to build me something. I don’t care if it’s a barbecue pit next to our building.” That’s different. It sucks for us as taxpayers. Don’t think of your budget like that. A lot of my partners think the same thing. They say, “Matt, we have $1,500 for food. Let’s go spend $1,600!” We just went over a little bit, but that’s okay, right? I tell them, “Go to HEB, get some food. We don’t have to spend the full $1,500. $1,500 is our limit. We can’t go over that, or we’re going to have to pull from somewhere else, and that’s less profit at the end of the day.”

Starting With Values

  • 17:55 Sean: I want to zoom in here, because the title is, should your business have a budget? I want to live up to this title. If the show is about, “Here’s why your business should have a budget,” then we need to change the title. I want to dive in on whether it should have a budget, and I want to play out this dichotomy a little bit, which is me not having a budget. The analogy I’ve given on the seanwes podcast before is this—a budget is like a house in the middle of a property. You’ve got a fence that’s a square all the way around, and the fence is like your budget. You can’t go past this point, these are your limits. The house in the middle is like your values and what’s important to you. To me, it feels like a budget is going all the way up to the fence and saying, “Okay, I can’t go any further.”
  • 18:49 The goal is, “How far can I go to where I would be breaking the budget and stay short of that,” but I want my goal to be, “How can I focus on the things that I value, that I should be spending on?” My focus is on how close to the house I can be, which negates the need for a fence, because I’m not trying to go to extremes. Let’s say I need an email service provider that solves this problem, this problem, and this problem. My goal is to find the best value, something that can solve my problems but makes sense monetarily. Whereas, if my budget for an email service provider was $300 or $500, it feels like the goal is to spend that, to get the best bang for that buck, even if we didn’t need to.
  • 19:46 Matt: A lot of the time, I tell my employees and my managers, “The fence is there to let you know where the limit is. This does not mean that we need to run from the house all the way to the fence. The more grass we leave between the house and the fence, the more grass we can put in the next area. The more grass we have extra at the end of the year, we can do a rolling in the money party, and everybody gets bonuses.” At the very beginning, I didn’t want want to give bonuses because I wanted to save the money. Screw that. Now, I bribe them. Let’s call it what it is.

If my employees save money for me, I give it back to them or I replace something they need for their jobs.

  • 20:42 Now, they understand why the fence is there, first off. Secondly, they understand why they need to save where they can. That doesn’t necessarily mean that we’re trying to buy crappy supplies or equipment, because we need to buy something that’s going to allow us to work as efficiently as possible. A lot of the employees still have what I call the “ball out” mentality. We can “ball out,” no problem, and spend a bunch of money. We have budgets in place for certain things where we can do that, but do we really want to? Is it really necessary? Could we use that extra money for something down the line?
  • 21:33 Sean: How can you afford yourself the ability to ask those questions if you have it in the budget? Everyone’s going to say, “Yeah, we have the ball out budget. We’ve got to do it, Matt.” There’s no question.
  • 21:44 Matt: This is why the budgets are in place, because of people who have that kind of attitude. They say, “We’ve got $1,500 or $2,000, so let’s spend it!” Hold on, tiger. The reason that’s there is because it’s your limit. If they spend inside of that, awesome. If they don’t, there’s that limit. For the budgets we put into place, we always leave a little bit in play. The managers’ employees don’t know this, but they actually could go outside of their budget. What kind of fool would I be if I didn’t expect that? The point is, first, to fix that mentality of instant-Amazon. Everybody gets this mentality where they want to buy this and buy that. I say, “Did you look at the price?” They say, “We’ve got the money.” Yeah, we have the money, but is it really necessary?
  • 22:50 Sean: I’m not talking about the guy who wants to swipe his card and do $1,600 because it’s not a big deal. I’m saying, what if you really only needed to spend $1,000? Wouldn’t you be more inclined to go up to $1,500 because the budget’s there?
  • 23:06 Matt: Going back to the grass, wouldn’t you rather save that extra $500? It just depends on the personality. I’m at the point now where I understand. I don’t really even operate within the budgets because I’m doing a lot better, whereas before, Matt was ball-out king. We’ve got $1,500? Let’s spend $1,500! Let’s go over $1,500—we can pull it from some other places. That messed up the budget and didn’t leave me any extra money, any savings at the end of the year to buy nice things for friends, family, or myself, or to have in case of an emergency, like large equipment breakdowns.
  • 23:45 We do savings and stuff, but a lot of people don’t even incorporate that into their budgets. When a big thing happens, they’re shut down. They call me to to take over, and I tell them, “I put money away. We didn’t use our full $1,500 for our lunch budget.” You have to admit it. If you’re struggling to stay inside the fence, you have to put up that budget. It’s not to confine you into this space, it’s to help you grow and push that fence out so you have more area in-between the house and the fence. Once you get to a point where you’re a beast like Sean, you don’t need to have that. We live in a society now where everyone’s in credit card debt, buying whatever they want, and when they look at their statements they think, “How did I wrack up all that?”

Budget for the Right Things

  • 25:21 Let’s say Sean starts his own business designing icons and apps. There’s the initial, startup expenses. Like Sean talks about in seanwes, you have to have an extra bulk of money to get started, whether it’s savings, money from other businesses that you have, or from a day job. He calculates his expenses initially to get started, and he does this to see what it’s going to cost him in the beginning. Over time, he can look back and say, “Oh look, I only spent $1,000 in January, and in February I had to buy a piece of equipment, so it jumped up to $3,000.” Even though he’s pulling this money from his extra money that isn’t going to be part of the budget that’s going to be consistent, he’s thinking, “I have to make up this money, because I want to put this money back in my savings.”
  • 26:41 If Sean used $1,000 of his savings money, just as an example, he wants to replace that. He’s got to make $1,000 from his icon business in January. Let’s say he only makes $500, so he still owes the savings fund $500. In February, he spent $2,500, so he’s even deeper in the hole. Without monitoring, it’s not even a budget, it’s just the accounting. If he’s not monitoring it, he’s already in the hole $3,000. He only made $500 in January, and that’s okay, because for the first two years you’re usually the hole. In February, Sean lands a nice big contract with some magazine company. They want him to do some icons, and they pay him $2,000. He’s still $1,000 in the hole going into March.
  • 27:36 He knows that in March, his overhead is going to be about $1,000. He gets to see where his expenses are, and once he gets the income, he can say, “Okay, I’ve got $1,000 still in deficit, which is okay because we’re still in the savings. We paid back some of it. We still have a deficit, but we’re going to be okay. We still have extra money to pay for overhead for the next month.”
  • 28:00 Sean: I want to bring in a question to go a little bit deeper here. Terence says, “How do you know if you’re spending too frivolously for your business—or worse, not enough?” If you’re doing this icon business or whatever, how do you know that this budget that you’ve set is spending money on the right things, not the wrong things, and it’s spending enough on the things you should be spending it on?
  • 28:24 Matt: One of the things I’m always telling my guys is that we have to get the stuff that we need. I always like to do at least 15% more, because then, just in case a big job comes through, we have that extra equipment, manpower, or whatever it is to get that job done. We’re not going to be stretching ourselves so thin that we’re not actually going to be able to complete it. Let’s say Sean is doing his icon business and he has a Mac Mini or a laptop that is just not going to cut it. He leaves that extra money in the budget to buy a better computer that will allow him to be more efficient. He’s working on that $2,000 icon job, and another $5,000 job comes up. If his computer isn’t being efficient, he needs to get a more expensive one.

Budget for a little more than your needs in case you need to buy something to help you be more efficient.

  • 29:31 The budget is there so you don’t dig a deep hole that keeps you from succeeding and making money in your business. If your overhead is $1,000, you want to at least make over $1,000 to pay for that, keep some extra for the business, and pay yourself.
  • 29:49 Sean: I like the idea of setting aside or saving 15% extra.
  • 29:53 Matt: It’s just a 15% buffer that we like to keep in the business account, just in case we need anything.

Budgeting In the Beginning

  • 30:03 Sean: Emily asks, “How can a business have a budget in the beginning when so much is unexpected? What are some ways to plan ahead without knowing?”
  • 30:12 Matt: For us, it’s a little bit easier, because we kind of know what jobs are going to be done, so we always do a 12 month projection. This is all guesswork, it’s not set in stone. I spend at least 72 hours planning, because I want to make sure that this isn’t just something where we’re going to do ten jobs and then shut the business down. We’re here to stay and we’re here to grow. We spend that time planning our minimum expenses, that 15%, and then we have a ballpark of how much we’re going to make per job, and we figure out how much we can make by bringing in other jobs per month. We loop that all together and say, “Our budget is x amount, based upon what we need and what we’re going to make.”
  • 31:10 Sean: Cory, do you have or use a budget?
  • 31:15 Cory: No. I’m glad you asked, Sean, because I have some thoughts. I feel like you should get a piece of paper and have a line down the middle, needs and wants, necessities and nice-to-haves. You fill out that entirely. You have a list of everything. I wonder if a budget is lazy, if it’s throwing out a number because of a lack of research. If you dug in and did research on everything you need or want, you would have that number.

There’s a difference between having a budget for something and setting money aside for something specific.

  • 32:01 It’s going to cost $279 to do this. That’s a good way to approach it. You do want to have some kind of safety net, and I think that will vary from person to person. I don’t know what the safety net looks like, but that’s my thought.
  • 32:19 Sean: That’s kind of what I do, and I don’t have a name for it. I don’t call it a budget.
  • 32:26 Cory: Sean’s conservative, he’s always been with everything. It pays off though.
  • 32:38 Matt: No doubt. What Sean’s told us about buying his Mustang is a perfect example. He worked hard and figured out a way to get it with no debt. He bought it in cash. For his age and what he was making, that’s pretty impressive. He didn’t have a budget, right? He just did this, he put so much aside.
  • 33:04 Sean: I was a teenager at the time, so I had insurance, gas, food, and my phone bill. I knew what that was, and everything else I put aside until I could buy the car.
  • 33:17 Matt: Sean automatically got that extra money and put it aside. A lot of people I know spend their money on movies, video games, at bars with their friends, so they’re dumping their extra savings. For people like that, you’ve got to bring that fence in.
  • 33:40 Sean: I think that’s what it is. I literally do not spend any money on something I don’t need. Even the things I want, the nice thing is that because I’ve spent all these years doing what I like to do as a job, even the things I want are the things I need for my business. I want a microphone, a camera, and to pay for Infusionsoft. I enjoy those things so much. I really wanted to go to the mountains, so I ended up going on a business retreat to the mountains that gave me a lot of great things to think about. It’s about aligning those things.

Knowing how thoroughly your work aligns with your passion determines how much overlap there is between your needs and your wants.

  • 34:41 How many of your wants can be considered needs? Or, better—you know the things you need. How many of the things that you need do you actually want? I’m so excited that I get to pay my phone bill. I’m so excited that I get to pay for Infusionsoft. I’m so excited that I got to buy that camera.
  • 34:59 Cory: It might be what Matt was saying earlier. In the beginning, you want to be putting money aside for not quite the best equipment, but now you’re at a point where you can say, “Give us the best,” because it’s going to let you do your best work.

Budgets Are a Tool

  • 35:20 Matt: A personal budget and a business budget are two totally different things. One is predictable, one’s not as much. In my personal opinion, your personal budget isn’t quite as unpredictable, because you have recurring things you know you’ll have to have. You’ve got to have a roof over your head, AC, the electrical bill. You’ve got a ballpark on what you’re going to spend. These different categories in your personal budget will stay pretty consistent. Here and there, like Cory said, he might want a $2,000 or $3,000 camera. That’s going to come out of the savings, the surplus you’re leaving there. If you don’t use something out of one of the categories, that gets put on top of that extra buffer.
  • 36:11 That’s something I’m always telling my employees. In case we don’t spend some of the money in the budget, don’t think that we have to spend it. If we don’t spend it, then it goes into our little pile of gold that we get to use whenever we want or when we need it.
  • 36:31 Sean: Budgets are a tool. They are not a solution to all of your problems. Your values determine what you spend your money on, and budgets are a tool that help some people align those things. They aren’t going to determine your values for you and they aren’t going to prevent all problems. It’s a tool you can use, and it works better for some personalities than for others. Going back to the house in the middle of a property with a fence thing, if I’m so focused on the house, focused on my values, only spending money on the things I absolutely need, the byproduct of that is that I have plenty leftover.

Without a budget, I can have thousands of dollars leftover because of my focus.

  • 37:25 For other people, they tend more toward the side of, “I have money, so I spend money.” You need to corral that. If you’re buying a new camera every month because you can, because you have the money, you’re digging yourself into a hole. You might want to have a “gear budget,” a certain amount that you can spend on gear. I focus and I don’t spend money for a super long time. When I bring my head up and look around, I think, “You know what, we can improve the business with this gear.” We’ve got a bunch of money laying around, and I just buy it. I don’t even think about it.
  • 38:07 Matt: A couple of months ago, a customer came to us and wanted his entire back yard completely redone, brand new everything. He wanted brand new flagstone, pool, grass, trees, everything. It came out to be almost a $100,000 job, but we needed a couple big pieces of equipment. We could afford it, but I’m so all about the runway and keeping it nice and long. Growing up, we didn’t have a runway. We were living month to month, paycheck to paycheck, and I hate that. I like to keep plenty of money in the business, so even though we could afford to buy the equipment for this $100,000 job, I made us save from the time he told us “ok” until the time we were supposed to start for this equipment.
  • 39:07 It didn’t come out of any of the extra money that we had, it came out of the extra money we made from the time he told us and the time we started the job. By doing that, I saved extra money as opposed to pulling from what I had. A lot of people don’t think that way. They think, “I’ve got $20,000 in the bank, so I don’t need another $20,000. I’ll just pull from what I have and we’ll figure that out once we make $100,000.” Do you see why a budget is important?
  • 39:35 Sean: I’m realizing the difference. For me, saving is a default. My default is to spend money on what I need and everything else is savings. That’s why I don’t need a budget on this and then budget the savings, because that’s my default mode. I realize now that there’s been a disconnect for me.
  • 40:04 Matt: Another example is my carpet business. We do these college turns, where college students live with three rooms per apartment and three different kids staying in them. At the end of semester, they all move out. Usually, this is about September. It’s a mess. It’s a ton of work. We have multiple apartment complexes, and we do housecleaning, painters, and carpet cleaning. We make a ton of money doing this, but it’s a lot of work. The business was going to make $23,000 that week, so at the end of the month, we were going to clear a little over $80,000. In the mind of one of my partners in the carpet business, we’ve got money. Let’s go to the beach, Vegas, and he was listing off things.
  • 41:10 I said, “Woah woah woah! We’ve got a budget!” He said, “Screw the budget. We’ve got extra money.” I said, “Yeah, we do, but remember, we have an idea how much we’re spending per month. We have to have that to pay the employees and cover the certain things we have to have, like gas, cellphones, and maintenance of the vehicles. We know what that number is, ideally, per month. Then we have our buffer, and then we have other numbers. We have an average number. That $80,000 could carry us clear for the next six months. We could take a break for a month, get back to work, and we’d be okay.” In his mind, we’re going to Vegas.
  • 41:58 He’s planning on buying his wife rings. I said, “Woah, what’s going on here?” I thought everybody was like Sean, that in the back of their mind they were thinking about runway, savings, taking $10,000 out of the $80,000 for a new piece of equipment to give the old one a break. This guy in particular was thinking that way, and that’s okay because he wasn’t trained. He’s willing to learn from me how I run all these businesses and how I afford it when I came from nothing. This is how I do it. I’m constantly thinking of runway. I’m thinking, “How can we stretch this runway?” At the same time, somebody brought up not just having a super cheap, tight budget where there’s no room for expansion and your equipment is barely running. You don’t want to do that. Your budget has an ideal place to be, overkill, and not enough. You have to find a happy medium for your own budget and for your business.
  • 43:28 Sean: I don’t use a budget, but a lot of people do, and I understand exactly why. It’s these runway vs. run away mindsets.
  • 43:36 Matt: It goes back to something we’re always saying on the podcast, the one thing that truly makes an entrepreneur successful, and that’s the mindset. You’re thinking of the future, not just the pleasure of the here and now. You’re not just thinking of what you can do with this money. I know for myself, personally, I know what my month to month expenses are, I leave a little bit extra, and that’s it. My wife hates that every month we only get a certain amount for our stuff and then a little bit extra. She says, “You’ve got all this money coming through!” I tell her, “That’s not ours. We work for the business.” We do that because we’re not here to keep up with the Joneses and live the good, happy life now. In my opinion, right now we’re working hard so later on, we don’t have to.
  • 44:27 Sean: Which means, like Matt always says, you have to be poor right now.
  • 44:34 Matt: Growing up, my parents told me, “Matt, you have to make a choice. Do you want to work hard now, or do you want to work hard later, when your body’s going to be a little bit more iffy? You can still do it, but it’s going to be harder.” It’s just a true fact.

Some people don’t want to live poor right now so they can live well later.

  • 44:52 Sean: Every month, they’re thinking, “How can I spend the extra that I have to live a little better than I do right now?” Matt’s thinking long term, simplifying down and getting runway rather than running away.
  • 45:28 Matt: My parents did really well in the beginning. Everything I do now, they did back then. They had real estate, they worked for the airlines so they traveled a ton. The problem is, because they worked for the airlines, they wanted to travel so much and they were making good money with real estate, so they said, “Let’s have fun. Let’s hustle, but let’s have fun.” There’s nothing wrong with that. Sean and I still watch Netflix.
  • 45:57 Sean: My wife, Laci, and I watch TV shows while we have dinner, so two birds, one stone.

If you want to be a successful entrepreneur, you need to change your mindset about money right now.

  • 46:20 Matt: This guy is a beast. That’s incredible. Just think about it. The budget is not there to tell you that you need to use all of this money, it’s to help you. It’s like analytics. I love analytics because I love numbers. I like that I can text my accountant and say, “What are the numbers for this month? I want everything. I want a report on everybody. Who’s slacking? Who’s getting bonuses?” I get that text and I start giving out bonuses. If someone goes over budget, I have to put more time into that business with that manager and those employees. I have to say, “What’s going on here? I thought we were all here for the Lambo Goal? That’s why the budget is important.

Always Re-evaluate Your Budget

  • 48:07 Sean: I like the two worlds colliding. We give people a lot to think about, and that’s the most important thing, even if you come away from this thinking, “Sean and Matt have two different ways of looking at this. Which one do I choose?” Think about it. That’s the point of this show. Right now, the value of this show is not that we’ve given you the answer. We don’t know your personality, your default. You are now thinking about budgets. Maybe you have a budget and you need to improve it, maybe you don’t have one and you need to have one, or maybe you don’t have one and you’re thinking, “Everyone’s telling me to have a budget, but I’m doing fine.” Maybe you’re fine.

Be purposeful about money and think about how you’re controlling it.

  • 49:29 “Things can change a lot in a business in a year’s time. Is it ok to reevaluate your budget mid-year?”
  • 49:37 Matt: This is why I like budgets. I like to look at the numbers because I want to make money and get to my Lambo Goal, and the only way to do that is to see if I’m spending money where I need to be or where I’m not supposed to. Are we just spending too much in certain places, do we need to cut? Do I need to give more to that certain business based on what we’re making? Every month, we have a whiteboard meeting, and I sit down with the accountant and go over all the numbers. We adjust where we need to. We’re at the point right now where we’re growing very rapidly, so we’re having to put more money into payroll. We have money to do that because we’re growing.
  • 50:31 If you’re just starting out, it’s a totally different situation. You can throw more money into different categories of your budget, but that means that you have to be more cautious when you’re spending. Sean’s little devil is always on my shoulder, telling me to think about long-game.

Whenever you’re buying stuff or allocating budget items, think long-term, short-term, and mid-term.

  • 51:09 If you put money toward something that’s only going to last you a little while, would it have been better to spend a little bit extra? You’re not trying to limit yourself so you can only get by for a short time. You can think about these things and figure it out for your situation and what’s going on within your business.

Saving For Bigger Expenses

  • 51:29 Sean: I want to bring in Robert’s question, “How do you budget for a large capital investment, like a big piece of equipment that could improve your efficiency and quality control? Set money aside monthly to build towards it, or carve out a bigger chunk of one month’s budget to pay for it?”
  • 51:48 Matt: With that $100,000 job we needed that $20,000 piece of equipment, and we probably could have pulled that from the savings, but if we have time, I would rather save the money we’re making and put it towards that. I don’t want to pull from my savings if I don’t have to.
  • 52:11 Sean: This is similar to advice I got from the guys I went on the business retreat with recently. They said: you should try to make each of your ventures self-sustainable, not pulling extra money from other places. If you want to do something with one of your pursuits, let that thing build the money, save it up, and then invest in something.
  • 52:35 Matt: You hear me talk about borrowing money, and I’ve tried it all. I wanted to see what works and what doesn’t, what pays out and what doesn’t. At this point in time, if I need to buy a piece of equipment and I don’t have time to save, I will borrow it if I need to from another business of mine. This is where I’d like to turn the tables to Sean. Let’s say you needed to buy a $10,000 computer to do some courses that will make you $100,000. If you had time, would you save? Or, how would you turn around and buy that $10,000 worth of equipment if you don’t necessarily have that money?
  • 53:37 Sean: I wouldn’t borrow money, because that’s one of my principles. I don’t go into debt, so I don’t spend money I don’t have. Right now, there’s a lot of things I want to be doing, and we’ve got a lot of money. We’ve got around $100,000 in cash set aside, and I want to be able to do certain things, but I’m not touching that money. To me, that money is set aside for payroll, it’s runway.

If I want to do things, I work hard to make the money to be able to spend it.

  • 54:18 That’s what I’m focusing on right now. I’m focusing on the things that are working best, the 20% of my efforts that will produce the greatest result. It’s Pareto’s principle, the 80/20 rule. 20% of the things you’re doing should be producing 80% of the results. If you can multiply those things, focus in on that 20%, and forget the rest. Go all in on those things and do more of that. That’s essentially what I’m doing. I’m doubling down on what’s working, so I can make that money. It won’t take very long, but that way I make money that I can afford to spend investing in the business without touching my cash reserves.
  • 55:06 Matt: So, Sean, you would save over time for that large piece of equipment?
  • 55:11 Sean: If the piece of equipment was mission-critical, it was the next thing I wanted to do, and I didn’t have the money allocated toward that, I would work really hard at the best thing that’s working right now to make that money to spend.
  • 55:24 Matt: Let’s say you had a really big job and you needed some help, you needed an employee, and you needed to buy them some equipment to get the job done, let’s say you had the option to push the job a little bit. You told them, “We’re kind of busy, but we can take care of you in the next six months.” That gives you six months to save for this. Would you save over that six months to get this employee and piece of equipment so you could tackle this project? For example, you might need $10,000 for overhead, but you would make $50,000.
  • 55:59 The alternative would be to use savings, if you have it. What would you do? Honestly, I would pull money out from somewhere, but I’m okay with business loans. I don’t like personal loans. I would use business money, because even though I’m paying a percentage on that, without that money I wouldn’t be able to knock out this job, and without the job I won’t have that kind of money.
  • 56:37 Sean: I just put this out a seanwes tv episode on debt recently that gets mixed responses from people (Related: tv068 Don’t Go Into Debt). People have their own opinions and decisions they’ve made, and that’s fine. My principle, which is where I always start with things, is that I don’t go into debt, spend money I don’t have, or buy things I can’t afford. This is a principle thing for me. As much as I love logic, principles trump logic for me. Principles are the source of my logic. A lot of people will say, “It makes logical sense to go into debt, borrow money, spend money you don’t have, buy things you can’t afford, it makes sense because of these percentages and this amount of time. As long as the market’s good, you get this money back, so at the end you’re in a good place.”
  • 57:32 People argue that logical route and I don’t discount their logic, but I say, “This is my principle.” I have to come back to the principle. I am conservative. What’s interesting is this balance between my conservative mindset on money and business and my long-term thinking. The reason I can be so long-term with everything I do, the reason I think 2016 will be our first seven figure year, the reason I think 2017 will be the year of the Lambos, and the reason I think we’re building an empire, and we will get there is because I’ve put in so much work ahead of time. Back to this property-house thing, I’m so focused on the house that all of the byproduct is purely saved and invested back into the business for returns I won’t see for five plus years.
  • 58:32 This conservative mindset affords me all of that long-term investment, so I’m in a similar position to the hypothetical Matt proposed to me. I want to hire someone, and I’ve got nearly $100,000 in the bank. I could hire him. I could pull the money and hire him and shorten the runway, but I want to have six months runway with payroll. That is the number one thing to get to, so I need to take care of my people. I also have this principle of not spending money I don’t have, so the goal is, if I don’t have the money because we need to build this runway even though I want to pay this person who could make me more money in six months than I do now. I get it, but it’s my way of approaching things.

When making decisions about money, I start with my principles, and logic flows from that.

  • 59:38 Matt: I want people to feel, no matter which way you choose, you can still be successful. You have to see what’s for you and where your values are, what you feel comfortable doing. Sean’s plan is to hire this person, but not to use what’s on his runway right now.
  • 1:00:02 Sean: Yes, so all the focus is on doing what works best now to make the money to be able to spend it on what I want.