Profit First is a different way of looking at your profits. Traditionally, people deduct their expenses from their sales to see how much they made in profits. In Profit First, you would subtract your profits before paying for expenses. Using this method can be challenging at first, because you will need to change your mindset. However, it is amazing how much more money you will have once you make this one small change.
Using Profit First in Your Personal Expenses
How Profit First Works in Your Business
Utilizing Profit First in your business ensures you always have money to pay the bills. Since your money is divided between at least five accounts, you can easily withdraw the money from a specific account to pay a bill, obtain your pay, or even access your portion of the profits.
If you don’t have Profit First set up in your business yet, you can start by opening multiple bank accounts. Those accounts will include income, profits, operating expenses, owner’s pay, and taxes. I understand it seems like a lot, but it’s not.
Once you have those accounts, you can allocate specific percentages of your money into each one. It may take time to reach your percentage goals for each account. This is more of a marathon than a sprint. It takes time.
Easiest Way to Implement Profit First Into Your Personal Finances
As amazing as Profit First is for businesses, it is even better for personal finances. If you are like many people, you have unexpected expenses pop up from time to time. The ones where you need to figure out where the money is coming from.
If you can’t pay the expense outright, you likely use a credit card and say you will pay it off later.
But what if you didn’t have to do that? What if you could pay for all of these unknown expenses out of a specific account you have set up specifically for that?
You can once you implement Profit First in your personal finances.
The easiest way to begin implementing Profit First into your personal expenses is to simply start saving a percentage of your money automatically with each paycheck. When you do this, you will be paying yourself first. Just like taking the profits first in a business, you will be taking your ‘profits’ from your paycheck.
Implementing Profit First Into Your Personal Life
Paying yourself first, by automating your savings, is only one step of implementing Profit First in your personal finances. You should also open multiple accounts for different spending categories.
Your main account will be where all of your income goes. This includes any other money you receive that you need to deposit into the bank. You will then distribute money from this account into your other accounts. The recommended dates are the 10th and 25th. However, you can choose your distribution dates according to your pay cycle.
For example, if you get paid on the 15th and 31st, you may want to distribute your funds on the 1st and the 16th of each month.
The number of other accounts you open will vary, depending on your circumstances. You will definitely want a savings account. Some people will use this account as an emergency fund, as well as a savings account. Other people will actually create two different accounts, so they have savings for things like vacations, as well as an emergency fund.
Other accounts can include money for recurring expenses, day-to-day expenses, and debt expenses. Simply use the money in each account to pay for those specific personal expenses.
By allocating your money in these specific accounts, you won’t use money from one specific category to pay for something else without thinking about it. This is what happens to many people each month, which is what creates the issue of not having enough money to pay for expenses, let alone anything unexpected.
It is going to take time to relearn how to pay your personal expenses using Profit First. Especially if you have a lot of debts that will need to be paid off. However, by paying yourself first and adding money to your savings, you will finally stop the cycle of using credit cards. That means once your debts are paid off, you can live the life of financial freedom you have been dreaming about.