Hey there, it’s Abby Johnson from Matterhorn Business Development, and I’m excited to share with you today how to effectively implement the Profit First system in managing your personal finances. At Matterhorn, we are certified Profit First professionals, primarily focused on assisting businesses in optimizing their cashflow. However, today I’ll show you how these principles can be tailored to your personal financial goals. Whether you’re a business owner, have multiple income streams, or simply want to gain better control over your finances, this approach can work wonders. While the Profit First book by Mike Michalowicz offers insights into applying this to personal finances, I’ll provide a customizable perspective. There’s no one-size-fits-all approach; you can adapt it to suit your unique needs.
Setting Up Your Profit First Personal Finances
To begin, you’ll want to set up multiple bank accounts, each serving a specific purpose. The first account, your “income account,” acts as a central hub for all your earnings, just as it does for businesses. Direct deposits, checks, and any other income sources should flow into this account. Accumulate your income throughout the week or month, depending on your preference, before allocating it to other accounts. This flexible approach can be particularly beneficial for individuals with multiple revenue streams or business owners with varied income sources.
Embrace the “Fun First” Approach
Now, let’s talk about the “fun account,” which is similar to the profit account in Profit First for businesses. However, in personal finances, I like to call it the “fun account” because it’s all about setting aside money for enjoyable experiences and activities. This is where you allocate funds for vacations, hobbies, or any other pleasurable pursuits you value. It gives you a clear structure for allocating money for leisure pursuits, enabling you to make priceless experiences without worrying about going over budget.
Managing Debt or Saving for Goals
Depending on your financial situation, you may want to set up an account dedicated to paying down debt or saving for specific goals. If you have debt, allocate a percentage of your income that covers your minimum payments. Any extra money might go toward quickening the debt payback process.
If you’re debt-free, you can create an account for savings, such as a “home account” if you’re saving for your first house or an “investment account” to bolster your portfolio. This adaptability ensures the system aligns with your unique objectives.
Tackling Taxes with a Dedicated Account
If you’re self-employed or earn income through 1099 work, setting up a tax account is crucial. This account enables you to set aside money for taxes systematically, ensuring you won’t be caught off guard when tax season arrives. Consider placing this account in a separate bank to resist the temptation of using these funds for other purposes. High-yield savings accounts can provide a bit of extra growth while keeping your tax money safe.
Simplify Monthly Expenses with a Dedicated Account
The “monthly account” is your solution to simplify your recurring expenses. Instead of mentally juggling bills and trying to figure out how much you can truly afford, set up a separate account for these expenses. Calculate the total of your monthly bills, including rent, utilities, insurance, and car payments. Determine how much you need to deposit into this account each week or month to cover these costs. Most expenses can be set on autopay, reducing the need for manual intervention.
Simplifying Daily Expenses
The “daily account” is where your day-to-day expenses come into play. After allocating funds to other accounts, whatever remains goes into this account. This setup encourages conscious spending as you can see the available funds for groceries, dining out, or other daily necessities. It keeps you on track with your budget and reduces the mental effort required to manage your daily expenses. Plus, it empowers both you and your partner to make spending decisions without constantly consulting each other.
Incorporating the Profit First system into your personal finances can bring clarity, sanity, and efficiency to your financial life. This customizable approach ensures that you’re effectively managing your income, rewarding yourself, addressing debt or saving for goals, staying ahead of taxes, and simplifying your monthly and daily expenses. It’s a comprehensive strategy that promotes financial well-being and minimizes stress.
Remember, there’s no one-size-fits-all approach to personal finance. Feel free to tailor this system to align with your unique financial goals and circumstances.
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About Abby Johnson
Abby Johnson, is Matterhorn Business Development’s Chief Mentor, resident organizational genius and Certified Profit First Professional, helping our clients grow and organize their businesses. With a passion for empowering businesses to thrive and extensive experience in helping clients grow their revenue and manage their finances profitability, she’s committed to making a positive impact on your business.