You’re tired of not having a handle on your money. As an entrepreneur, you know all too well the consequences of poor money management—on you and your business. So you took a leap and set up Profit First, which is a step in the right direction. But you’re still overspending. You still have your hands in the proverbial cookie jar, and it’s time to stop.
But how do you remove the temptation of spending your revenue, in particular your growing profit and tax account? They look so tempting and full of money, but their whole purpose is to accumulate money. So let them do their job. Set up smaller plates, and limit your spending to your operating expense account.
Are you not completely sold yet? Then, let’s take a look at some other ways to remove the temptation of spending your sweet, sweet revenue early and (possibly) on the wrong things.
Okay, but I want to take a class.
That’s great! You’re a person who cares about personal and professional development. You’re constantly investing in yourself because you love to learn and know that the more you learn, the stronger your business will become.
You don’t have to sacrifice that important part of yourself because you use Profit First, but you need to plan for it. If you know you want to incorporate personal development into your business, set up an additional account for it.
Once you have all of your other accounts on target, start your personal development account. You don’t have to save much, but as you continue to put a small percentage away, you’ll be ready when you’re ready to pull the trigger on that course you’ve been eyeing—and you didn’t have to compromise your other accounts to participate. Score!
Okay, but it just looks like SO much money is just sitting there.
Well stocked profit and tax accounts can look pretty tempting. They are the glistening oasis when you’ve been walking the financial desert for weeks on end. Andrew Jackson and Benjamin Franklin are waving at you as they sip frozen cocktails by the pool, and there you are, begging for water, dragging yourself through the hot sand. But I have four words for you: Snap. Out. Of. It.
Those accounts aren’t just sitting there trying to tempt you. They serve a purpose. A very important purpose that you know you need. If the temptation is too great to ignore, try moving your profit account and your tax account into different banks. Restrict your access and temptation. Trick yourself into honoring your desire and need for financial security if that’s what it takes.
Okay, but I’m not sure I can do it alone.
If you’re having a hard time holding yourself accountable, that’s okay. But did you know it takes more than two months to create a new habit? And not to mention the new behavior patterns needed to overcome decades of money mindset habits.
But old habits or impulsive spending don’t mean that your Profit First journey is a total loss. Find an accountability partner. If you are struggling to create accountability within yourself, find a friend or biz bestie who you can call with you are a step away from clearing your account and heading to the sale on the gym equipment.
Make sure your accountability partner understands your financial goals. In addition, this person should be supportive of the place you’re in emotionally and the challenges you’re facing.
Creating new behavior patterns is challenging, even on a good day, so be compassionate with yourself. If you are struggling to keep your financial promises to yourself, think of new ways to make it really inconvenient for you to access your accounts. Maybe you don’t sign up for online banking or have an obnoxious password you hate typing in.
The important part is to keep your commitments to yourself and realize you committed to spending out of certain accounts when you set up Profit First, so you need to keep it that way. Future you will thank you for it.
Debt feels suffocating. Your financial walls are closing in on you, and you’re ready to get rid of your personal or business debt once and for all. But how exactly? We can and will help you with this. But before we get into our recommendations for conquering debt, we need to lay some ground rules.
What does Profit First say?
First things first, you cannot pay off debt unless you are profitable. So how do you get profitable? By setting up Profit First, of course. Before you create your plan to pay off debt, you need to make sure all your Profit First pieces are in order. This way, your business will continue to run smoothly while you achieve your financial goals.
What pieces do you need? Take our Profit First Assessment and get a list of what accounts to set up!
Getting started with your debt
Step one to taking control of your finances is to control spending. By running and analyzing an expense report, you will fully acquaint yourself with every financial transaction in your business. You’ll gain a deeper understanding of where the money in your business is going and how you can control your spending.
The next step to paying off debt with Profit First is to understand the intention behind your accounts and allow yourself some grace. This is true whether your debt is in your business or personal finances.
The minimum payment of your credit cards, loan payments, or whatever type of debt you find yourself in comes from your operating expenses. Your bill is covered at its minimum each month. Any additional payments to the principal come from quarterly profit distribution.
Here comes the “grace” part. Just because you are laser-focused on paying off your debt, don’t forget to take some of your quarterly profit and have a little fun. You work hard. By allowing yourself some wiggle room to have fun once in a while, you’ll stave off burnout, so you’ll stay strong for the long haul.
Now that you have the Profit First debt-busting basics down let’s look at a couple more “must-dos” when managing your money.
Why would I save to a savings account if I’m trying to pay off debt?
Let’s get real for a second. Debt comes from spending too much before you have it. So make sure you don’t make a similar mistake by aggressively paying your debt down before you have other financial safeguards in place, i.e., an emergency savings account.
For many clients, the tendency is to put all of their profit toward debt as quickly as possible. We like where your head’s at, but what’s the point of paying off your debt if you are one big emergency away from creating more?
What happens when you’ve paid off all your debt (without emergency savings in place) and your HVAC breaks? You’re right back where you started, except this time, you’re more frustrated and in debt than you were previously.
Creating an emergency savings plan does prolong your journey to becoming debt-free, but it’s the only way to ensure you stay that way once you get there. Unfortunately, emergencies do happen—and usually when you least expect them.
What can you do in the meantime?
Your small plates are in place, you’re paying minimum payments from operating expenses, and you’re building your emergency savings account. Here are four debt management basics you can implement while you’re saving. (These aren’t Profit First principles, just good old-fashioned best practices.)
Managing debt is a beast. But the struggle toward financial freedom is underway. You’ve set up Profit First and created emergency savings. Now all that’s left to do is stop blaming yourself for being in your current financial position.
No matter how much you might hate your debt, realize that it gave you experiences that have brought you to where you are today. Your debt afforded you opportunities, but now that you are making a profit, you don’t need it anymore. So leverage the income you have, say thank you to debt, and show it the door.