A few weeks ago, I shared a presentation on Profit First for Real Estate Agents.
Afterward, a woman that I’ll call Joanne approached me and thanked me for my presentation and then asked me how to set up Profit First for her personal finances.
The ultimate goal of Profit First is to create your financial independence.
Very few people start their lives off financially independent and have most people have no idea what financial independence means.
I define financial independence as having the money to do what, when you want, how you want, with whom you want.
I believe everyone can achieve financial independence.
In America, we have the greatest opportunity to create businesses that will secure our financial independence.
In my mind, the best opportunity to secure financial independence is by building a profitable business.
Sure, there are other paths to financial independence.
- You can inherit the wealth.
- You could win the lottery.
- You could climb the corporate ladder.
Each of these methods of wealth generation works, yet there is one major shortcoming of each of these paths.
You are dependent on someone else to drive the bus down that path.
When you own a profitable business, you are in the driver’s seat, and you have the most control over your financial destiny.
With your profitable business being your greatest source of money, I have to stress how important it is for you to implement Profit First now in your business.
Having Profit First working properly in your business will protect the Goose that lays the golden egg for you and your loved ones.
Now I’m going to share with you how to establish Profit First for your personal lifestyle so you can reap the same tremendous benefits in your personal life as you do in your business life.
Step 1 Turn the Lights on the Money Monster
The first step you must take is to get real about your money situation.
Many people may avoid this because they are scared of what they may find.
They may be like my seven-year-old son Levi who yells in terror out to me every other night about the monster hiding underneath his bed.
When he yells out to me, I go upstairs, turn on the light, and we both get on his floor to examine what is hiding underneath the bed.
“Oh, look, Levi, it’s only a stuffed kitty cat. Now that you see what’s under the bed, you don’t have to be scared of it anymore.”
Lots of people struggle with money.
Most people are living paycheck to paycheck in America.
It doesn’t have to be that way anymore for you.
Let’s turn on the lights and look at that scary money monster that has been haunting you every night.
To complete step one, you need to take an inventory of all your bills.
First, make a list of each of your monthly bills.
Next, make a list of your annual bills.
Next, make a list of all your debts.
Step 2 Establish A Debt Freeze
The law of holes states that if you find yourself in a hole, your first action is to stop digging.
If you continue to dig that hole, you will make it deeper, and with every shovel full of dirt, you make it harder to get out of the hole.
You must stop incurring more debt.
If you can’t afford a purchase without going into debt, then you cannot afford that purchase.
Figure out a different solution or go without.
Step 3 Establish a Personal Profit First habit.
The main reason why Profit First has helped so many people is that it works to establish good money habits.
The first habit you need to establish in your personal life is a savings habit.
Set up an automatic transfer into your retirement account. Start with one percent of your owner pay and do that for three months.
If you have any debt, keep your retirement savings at one percent until you pay off your debts.
Paying off debt first gives you a guaranteed return on investment.
If you have a credit card that charges 18% per year, you get a guaranteed return on investment of 18% when you pay off your debt.
Nothing in the world will get you that high of a return on investment that is guaranteed.
Step 4 Set Up Your Personal Profit First Accounts
Here are the Personal Profit First bank accounts you need to set up.
- Income account – This is the account where all your deposits go. The only purpose of this bank account is to make money deposits. Don’t pay any bills from this account.
- Vault account – The vault account is your rainy day fund. You want to build up savings in this account for times when income gets lean. Your first goal should be to have enough money in this account to cover your mortgage or rent payment. Over time you’ll want to build up this account, so you have three months of living expenses in this account. Think about how calm you will when you can go for three months without getting paid.
- Recurring Payments Account – Every month, you pay monthly bills like mortgage, car loan, student loans, utilities, etc. In Step 1, Turn The Light On The Money Monster, you calculated your monthly spending. These are your monthly fixed expenses.
- Day-to-Day Expenses Account (multiple if needed) – This account is for the Day-To-Day expenses you incur to keep your family running like groceries, clothes, school supplies, gasoline, date nights, household supplies, etc.
- Debt Destroyer Account – This account receives any remaining funds you have each month and is used to eradicate debt. Use the snowball debt payment method where you pay the minimum payment on each credit card. When you have extra money in the Debt Destroyer account, apply that payment towards the smallest debt.
There you have the five main accounts to set up Profit First for your personal lifestyle.
Now that you have the bank accounts set up, you want to establish a rhythm of moving money from the income account to each of the other Personal Profit First accounts.
On the 10th and 25th of each month, you will transfer money from your Personal Income account to each of your Personal Profit First accounts.
The Personal Profit First method will provide you the same benefits you get from Profit First in your business.
Additionally, you will know when money is getting short and be alerted when you need to make adjustments.
Keep with it, and you will be amazed at how much money you have one year from now.