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Personal Financial Management with Profit First

Can Profit First apply to personal financial management? Uh, yeah, totally.

Look, Profit First as a system, like the guidelines that it offers, is really about spending money first on paper, setting aside money, and putting boundaries around your money, before you’re actually tempted to use it on other things. If you need a refresher on the basics of Profit First, download this free overview of the system.

For the sake of this post, what you need to know is you’ll open a number of separate bank accounts, each with a specific purpose and operation. You’ll have one main account that receives your income and is also used to pay for the basic expenses of your home and life. The others are more for saving for specific large important expenses. The separate accounts are critical for creating protective boundaries around your cash.


Must Have Accounts


When it comes to your personal finances, your main spending account would be OPEX (Operating Expenses), but for your household. So maybe you’d call it HOPEX (“Hop X” or “Hope X”, however you want to pronounce it). Pay all your bills and do all your general spending from this account. It’s also generally the only account you’ll have a card for.

If you aren’t using a TAX account with your business, (because the tax account from your business should cover your income tax burden), or you don’t have a business and you’re just running profit first for personal stuff, you want a separate account for taxes to make sure that come April 15th when you owe taxes, that you have the money to pay for it.


Strongly Recommended Accounts


We recommend two other common Profit First accounts. RETIREMENT, because you should be contributing something every month towards something so that you can retire. I’m deliberately vague on what type of retirement plan you should have, because there are way too many options to discuss here and frankly, if you don’t have anything set up now, just about anything is better than nothing. Just start.

And then CHARITY. Well, it’s optional, but a lot of our clients, including myself, and I suspect you as well, like to be charitable. So, there’s two more buckets that are pretty common for people to have.


Optional Accounts


Outside of that, really any big thing that happens in your life, you could have a separate account for. For example, if holiday shopping stresses you out, like what can you afford and what kind of gifts you want to give, set up a HOLIDAY SHOPPING Profit First account. That way you’re putting a little bit in it every single month. It’s going to give you a lot of control and clarity over what you can and can’t do affordably when it comes to holiday shopping and generosity and giving gifts to others.

If you’re someone who loves to travel, maybe have a TRAVELING bucket. So you’re just putting a percentage of your income away every month into your travel bucket.

Say you want to buy a NEW CAR. That could be a bucket that you use.

Maybe HOME IMPROVEMENT PROJECTS. That seems like a never-ending list in my household. I don’t know how it is with you guys but setting aside a certain amount of money every month into that account makes it easier to then determine what kind of home improvement project you can do. And it lets you work towards something.


Allocation Percentages


For the official Profit First system created for business, there’s been a bunch of studies that have led to established percentages, both if you do Mike Michalowicz’ version and you’re looking at his original table of target allocation percentages, or if you’re a gym owner and you’re looking at the table I created for gyms and fitness businesses. There’s not really established percentages, in my opinion, that you can rely on at this point when it comes to what amount of your monthly take home income should go into each of these accounts. That’s going to vary widely based on who you are, the quality of life that you want, how much your life costs, those types of things. But you can play with the percentages. Whatever you establish as a percentage, if it doesn’t work, you can change it.

But Profit First absolutely will work for you. On a personal level, have your HOPEX account, TAX, if your business isn’t doing it, RETIREMENT, CHARITY, and then as many other accounts as you want for the bigger things.

The benefit is just like with the business. You’re being intentional about your money, so it gives you a sense of control, of knowing what you can and can’t do in your personal life. That relieves a lot of stress, and it also makes it so you’re personal spending is much more directed and contained because of the boundaries the separate bank accounts create.

You will find by adapting Profit First to your personal financial management, that growing your wealth happens a lot easier.

Check out our wealth building page for more tools and resources to improve your cash flow management, bookkeeping, taxes, and more!






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