And as a result, we have generation after generation who take a long time to get a handle on how to do something as simple as creating a budget or managing their expenses. It isn’t rocket science.
Advantages Of “Profit First Accounting System”
You can use simple frameworks to set up your finances to work for you instead of working to survive. One of my favorites is the “Profit First Accounting System” approach, popularized by “Mike Michalowicz.“
Using the “Profit First Accounting System,” you can simplify your finances and start building a secure financial future, and in this article, I’m going to lay it all out for you. Are you ready? Let’s get to it!
What Do You Understand By “Profit First Accounting System?”
The “Profit First” is to give entrepreneurs a simple cash flow plan that clarifies their business finances and gives them more control over them. It is a system that helps you build your business in a way that will last and make you successful in the long run.
Here’s an illustration: Suppose you have five plates for dinner, One plate for income, the second for taxes, the third for Owner’s pay, the fourth for operating costs, and the fifth for Profit.
You put money aside for your Profit, Taxes, and Owner’s pay. What’s left is what the company has to spend on its operating costs. Simple as that!
How can we use the “Profit First Account System” to Save Money at Home?
Remember that every family’s way of saving money is neither right nor wrong. And getting out of Debt is not as easy as we think. It’s a step-by-step process, and one of the things that can help you reach your money goals is learning about Profit First Accounting System.
Have More Than One Bank Account
Your first step is ensuring you have more than one bank account. Let’s say the first account is for money that comes in. This bank account should hold your monthly earnings or capital from a side hustle.
I’m going to use the same ideas to help you with your own money. So, with Profit First adjusting to your finances, I think this is a very flexible way to reach your financial goals.
You should also do this if you own more than one business, have more than one source of income, or work as a contractor. It is a great way to handle your money at home.
#1 Fun Account
The following account is called a “Fun Account.” Well, this one is my personal favorite. So this is the profit account that you can reward yourself with. I like to call it the fun account, where I set aside money for fun things I want to do. It can be for your wants like clothes, makeup, or even beach gateway. Anything that can make you happy is not part of your basic needs!
#2 Debt Account
Even though the following story is not for everyone: You’re lucky if you don’t have Debt. You can keep your Debt in a separate account. And here’s a simple piece of advice:
If you did a big job or got a bonus, it’s best to put that extra money in the Debt account so that you can pay off your Debt faster. If you don’t have any debt, you can use this account to save for things like a house or wedding.
#3 Tax Account
Again, not everyone will need the following account, which is a Tax Account. You probably don’t need this account if you only get a W2 and your taxes are taken out automatically. Instead, put that money in a Savings Account that pays interest so you can make a little money off it.
You’ll feel a lot better at the end of tax season or when you get your tax bill, and the money is already in your account.
#4 Investment Account
If you don’t need a Tax Account, this could be an Investment Account. Maybe you’re focused on investments and put 5% of your income into that account every week, and that’s your investment fund. Again, this can be tailored to your own financial goals.
#5 Monthly Account
The following account, I call the “Monthly Account,” but you can call it whatever you want. These are our monthly bills, like rent, phone bills, insurance, and car payments. Before I set up this system, I would look at our one bank account and think, “Okay, it says we have this much money, but our big rent check is still out, so we really have this much money.”
And it was just too much brain power. Almost everything is set up to be taken out automatically, and I know that if I put that much money in every week, I won’t have any problems.
#6 Daily Account
And we are down to the last account, which I call a “Daily Account,” so these are daily expenses. After you pay for groceries, eating out, and gas, whatever is left goes into a daily account.
It is excellent or maybe not so great because if you have a good income week, you can use the money in your account to eat more. If you have a terrible income week, you might eat at home more or not go out as much.
We’re not going to overhaul the education system overnight. Kids today are still not graduating with common sense financial education. But that doesn’t mean we can’t keep learning and improving. The “Profit First Accounting System” is a great way to start on the road to financial responsibility. And this is just the tip of the iceberg.
Also Read: Best 5 Steps To Build Wealth in 2022
Check out the book “Profit First,” when you have a chance. Budgeting and paying yourself first is a great way to ensure you can save for the future, but it doesn’t mean you might not spend what you have on things you shouldn’t. If you want to avoid some expenses that might keep you poor, check out our article where I get into the top 6 you should know.