Using Profit First in Your Personal Expenses

You know that Profit First works in your business bookkeeping. Pulling out your profit and owner’s pay from the start has helped ensure that you’re actually getting paid each month. (And thank goodness for that!)

But even though you’re pulling a regular paycheck, your personal finances are still a hot mess.

Something always comes up: a car repair, a vet bill, a birthday gift for a family member or friend. On the one hand, you know these expenses are going to come up. They always do. But on the other hand, because they’re not part of the regular bills you pay each month, you often forget them.

(I talked about this recently in a Facebook Live in our Profit First for Wellness Business Owners Facebook group. You can watch it here!)

So, like most of the population, you don’t save for them. You spend what’s available to you in your personal checking account–and then feel surprised when Molly needs braces or the water heater breaks.

Unexpected expenses are going to come up. They’re going to happen, just like Tax Day. But you don’t have to feign surprise every time someone or something wants a little extra piece of your paycheck. Instead, Profit First your personal finances.

And if you’re already using Profit First in your business, it’s really simple to implement it in your personal life too.

There are two ways to Profit First your personal finances; I’m going to share with you both. The first is the easy, no-frills way; the second is a little more involved (but is truly the way to do it).

Down-and-Dirty Profit First Your Life

The easiest way to begin implementing Profit First into your personal finances is to look through your expenses over the last year. How much did you spend on things like vet bills, car repairs, birthday gifts, holidays, etc? Any of those “unexpected” expenses that come up over the course of a year. Be sure to include all the things your kids needed money for–school expenses and such.

Once you have a good list of all of these expenses, add them up and divide them by 12. The result is how much money you should set aside each month into a separate buffer account for these expenses.

If you’re feeling ambitious, you can set up a buffer account for each big expense. So maybe a buffer account for each child, each car, each pet.

I’ve been doing this with my own personal finances for years and it’s helped so much with budgeting. And when one of my kids’ accounts runs dry, it’s time to have a conversation with them about needs vs. wants.

Mike’s Profit Firsting Your Life

Of course, Mike Michalowicz has his own way of implementing Profit First into your personal life. It’s in chapter 10 of his book, but I’m going to give you a quick run-down here.

As in your business, establish five separate bank accounts to ensure you’re only spending your allocation. The accounts are Income, Vault, Recurring Payments, Day-to-Day, and Debt Destroyer.

Your paycheck will land in your Income account twice a month. Before anything else happens, before you do any allocations, a percentage of that income needs to automatically go to a retirement account. If you have personal debt, make that retirement contribution 1%. If you’re not in debt, you can contribute more. But make sure you contribute something.

Just like your business Income account, that account is only to hold your paycheck when it’s direct deposited. You’ll do all your distributions from there.

Your Vault account is your “oh crap” account, the one where you have your emergency fund. Have at least one month of expenses there to start and grow it from there. This will become easier after you destroy your debt.

Your Recurring Payments account is just like it sounds; it’s where all recurring payments will be paid–hopefully automatically. Figure out how much all your regular monthly payments are, add 10%, and transfer this amount from your Income account to this account every month.

Life is full of day-to-day costs, like groceries, date night, toiletries, Amazon purchases, cleaning supplies, clothes, school supplies, gas, and the like. Determine how much you’ll need for purchases like this on a monthly basis and set up the transfer to your Day-to-Day account. You may not get this right the first few months, but with some practice, you’ll get the distribution amount close.

Finally, if you have personal debt, make sure you have a Debt Destroyer account. This is where all your extra income goes until you’ve destroyed it all.

Of course, there may be big things in life that you’re saving for, like paying cash for a new car, a child’s wedding (or yours!), college, etc., you might want to open another account for this. This isn’t essential, since there are a lot of financial programs out there that can help with this. But it’s worth a thought!

Profit First has saved my family so much frustration and overwhelm over the years–because my business finances are under control (so I’m not stressed about it) and now because my personal finances run through the Profit First method. Sometimes I honestly wonder how I lived without it!

If you’re ready to get started with Profit First in your health and wellness industry, let’s talk! Book a free consultation today!

Shannon Simmons

Shannon has been consulting with small businesses for over 10 years. After 2 years in public accounting she saw a need to work for small business owners to teach them how to grow financially healthy businesses. She has built on her Master of Accountancy degree from Manchester University by becoming a Certified Profit First Professional and a Certified QuickBooks ProAdvisor. When she’s not meeting with entrepreneurs or assessing their businesses, she enjoys time with her husband and 2 children serving in their community, playing and watching sports, marveling at nature or reading a good book.

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