When a small business owner starts using Profit First they are commonly very satisfied with the results. And, when this happens, we often get this question. “Does Profit First translate into my personal financials as well?”
The answer is that it does! Developing the habit of putting money aside for savings, financial freedom, and fun (the profit account) is a good way to get our personal financial house and life in order. And, developing the habit of doing so is self-reinforcing as it leads to success in home finances just like it does in the world of small business. If your business is successful but your home finances are a mess, let us help you.
The same Profit First principles that help you budget and manage cash flow in your small business work equally well at home. Here is the setup, in a nutshell.
Profit First account and corresponding personal financial account
Income account: Income account, deposits only
Profit account: financial freedom account
Owner’s pay: fun account
Large Item Savings Account: Big purchases, savings account for car, home, etc.
Operating expenses: Ongoing household and living expenses
Designated spending budget 1: Family member one expenses, with debit card
Designated spending budget 2: Family member two expenses, with debit card
As with Profit First in your business, money comes into the income account, which is a checking account, and is allocated to the other accounts on the tenth and twenty-fifth of the month.
This is the basic setup. We hope that this helps you with your personal finances as much as it helps with your business. But, remember, that you are in charge of how this works so you can adjust percent distributions, set up extra accounts, and make other changes that make the most sense for you.
But, the bottom line in using Profit First for personal finances as in using it in your small business is to always take out your profit (financial freedom and fun) before allocating money from the income account to expenses.
It takes a lot of work and discipline to start and run a small business. Profit First is part of that picture of financial discipline and using this approach leads to financial success. But, there is always risk when we immerse ourselves in our work to the exclusion of other things in life. We may let the discipline of the workplace control our home life as well. This can be great on the financial side as it keeps us out of debt and helps up create a stable financial life. But it can also ruin a marriage, distance us from our children, and leave use rich but isolated.
You will notice that the plan for using Profit First in your personal finances includes money for fun and money allocated for each family member. We strongly suggest that you set it up this way and that you use the money for the things of life and not just more savings and more work.
Although we specialize in Profit First for business, we will be happy to talk to you about how Profit First can help your personal finances as well. Life needs to be balanced. You need to keep control of your finances and you need to allocate money and time for the things that give life meaning, purpose, and fun!
If you still have questions or are interested in implementing Profit First in your business, visit our website at Exigobusiness.com or contact us at (816) 394-6818).
Click here to watch the YouTube of How to Use Profit First in Your Personal Finances