I recently read (okay listened to on Audible) Profit First. I had two immediate reactions.
First, this book is SO Good!
Second, why didn’t I write this book? I’ve been managing my money basically that way since my first job out of college a really long time ago!
And then I decided there was nothing stopping me from sharing with you my work from home woman’s review of profit first and my own experience.
No One Talks About Money
Money is a touchy subject. Do you know which of your friends has a solid savings account and who is really living off credit cards?
We talk with our friends about our favorite new weight loss strategy, we ask for recommendations about SUVs and we beg for potty training tips.
But friends don’t talk about money.
Friends, I AM going to talk with you about money.
But first, let’s talk about Profit First.
Profit First A Simple System to Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz
Mike Michalowicz kicks off Profit First A Simple System to Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by telling you about his entrepreneurial rise and fall. He has a great work ethic and an early respect for money.
But along the way successes goes to his head.
Mike frivolously spends through all the money he makes selling his business and ends up going bankrupt.
After his young daughter offers him her piggy bank he realizes he needs to do things differently. While putting his finances back in order, he stumbled upon his now famous money management system that flies in the face of traditional business accounting.
And if you are anything like me, this is where his story will start to really grab you.
Instead of giving into traditional business accounting he stuck with this new system that was working for him.
As a work from home woman how many times have you had to ignore all the well-meaning advice givers in your life and develop your own systems for success?
That’s just what he did.
The Secret to the Profit First System
Core to the Profit First system is separating the money you earn into different “buckets.”
As I mentioned at the beginning, I’ve been doing something similar with my income for most of my adult life.
I think Mike’s plan is a little over complicated. But if you are the type of person who spends every penny you have then his full system will be good for you.
He advises having two separate banks. Not just two bank accounts but two banks.
All of the money he puts aside as savings he puts in bank number two, separate from the incoming money earned.
I think you could keep all of your money at one bank and still succeed.
But Mike knew if he could access the money he had in savings that he would spend it so he put it in a second bank with no debit or credit cards attached to the funds
Buckets of Money
The fundamentals of the Profit First system include creating a number of different savings accounts, or “buckets” as I like to call them, for different types of funds to be separated into.
When you get paid you immediately put your taxes in the tax bucket. This is an extremely important step. If you do nothing else, please do this!
For the rest of the money you earn, Mike provides a great formula of percentages to begin dividing those dollars up.
Among other things, he gives you a bucket to operate your business from and he provides you with a salary.
If your business is operating a deficit or you have loans he has recommendations for paying those off as well.
How I’m Implementing Profit First
I learned a number of new things listening to Profit First and I will be implementing a couple of his recommendations that I hadn’t previously considered.
I usually wait until I pay my taxes and then figure out what I have left for a year-end type “bonus.”
I have been giving myself what we have been trained by traditional office jobs to expect. A once a year bonus. But Mike suggests something completely different that I am excited about trying.
Mike recommends a bonus or profit payment every quarter. He recommends rewarding yourself more often and on a shorter timeline.
This bonus is determined by a number of inputs he provides but the point is that you get to enjoy profit from your business, from your hard work, every three months.
I will also be trying Mike’s schedule for when you should review your bills, bank accounts and transfer funds.
Like most people, I am haphazard about this. I get the bills paid and funds transferred but not on any particular schedule. And I do bookkeeping on an even more random schedule.
A friend recommended to Mike he do all of this just two times a month on a set schedule. He implemented it and discover it worked great.
Scheduling two times a month to review and transfer funds was a light bulb moment for me. I’ve always smushed it into one day dread it every single time.
It’s much more inspirational when Mike explains it.
If you struggle with bookkeeping I highly recommend listening to this chapter (it’s toward the end of the book) when you are somewhere you can take notes. I was on a walk when I first heard his explanation and replayed it when I got home.
My Savings First Story Then
Remember when I said I was going to talk with you about money? Well, here it goes.
Many years ago, after graduating from college I moved to Washington, D.C. for my first real job.
I was paid the equivalent of peanuts in one of the most expensive cities in the US. Somehow, I found a little rent-controlled apartment that I could just afford.
Everyone kept telling me I needed an emergency fund. And even though I was just getting by, after every paycheck was deposited, I would leave a little bit of money in my savings account.
That little savings grew until one day I realized I had one month of my expenses covered. That motivated to get to two months of my expenses in savings.
I was pretty excited when I reached that goal. I was also ready to get rid of my student loan.
I reduced the amount of money I set aside in savings each month (but didn’t stop setting a little bit aside) and started focusing on my Grad School loan.
I put every extra dollar left at the end of the month, every birthday money gift and every Christmas bonus toward paying off my loan early.
It was an amazing feeling when I paid that loan of many years early!
And once I had my grad school loan paid off once again every extra penny went to my savings account.
You might be thinking sure, that’s easy when it’s just you at the beginning of your financial journey with no spouse and kids.
And you are right. But stick with me a little longer.
My Savings Story Now
Today I have a husband and child AND I’m self-employed. This method is even more important now.
The principles in Profit First guarantee that I don’t spend money that I don’t have. And if I want something bad enough for my business I will figure out how to get it within my budget or wait until I have saved enough for it.
For this blog, I set up a cap on my per month reoccurring expenses and gave myself a quarterly budget to spend on extras like education and stock photography.
If one quarter I want to sign up for a year’s worth of stock photography and it eats the whole quarter’s budget, then I don’t purchase any new courses or other extras until the next quarter.
The Profit First method teaches you how to be in charge of your money and stay out of debt.
And following this system, you will ALWAYS have enough money available to pay your taxes.
The big deal about Profit First is three-fold. If you follow the system you get paid, the IRS gets paid AND your business operates without debt.
I’ve been following a similar system my adult life and learned a number of new tactics from Mike that I am excited to implement.
Talking about money is important. There is no reason to not talk about money.
Grab a copy of Profit First for you and your businesses BFF and start working through it together today!
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