Profit Shouldn’t Pay for Your Life
My favorite part of the Profit First system is the Profit Celebration. Every quarter, you get to enjoy the results of your hard work. But don’t take this article’s word for it: We have a video on this. In that video, I discuss a question that I get asked all the time: “What do I do with this?” It turns out most people don’t have a plan for “fun” money. I think it comes down to the strange relationship business owners have with personal money. We are used to our businesses paying for our personal lives.
In a way, our personal funds are business funds. But Profit First doesn’t allow us to spend our Profit Celebrations on our business. Now, I have already discussed which accounts should directly interface with your profits in a prior article. Today, let’s discuss a framework for how we should think about our personal money management.
In The Money Habit, Mike Michalowicz talks about different money seasons: Recover, Fund, Activate, and Balance. These seasons are exactly what they say on the tin. In the “Recover” season, you are focused on debt repayment and building an emergency fund. In that case, it is valid for our Profit Celebration to be used primarily on the Fix/Fund account. The reward is knowing that our goals are closer than ever.
In the “Fund” season, we are focusing on our Dreams account. This is how we pay for that massive cruise or the new car we want. It’s funding for your dreams. This is when Profit directly correlates to actual fun money.
In the “Activate” season, we are fully deploying our Dreams account to take that big cruise. I don’t expect most business owners to take a Profit Celebration during this time, but if they do, I would be inclined to say, “Hey, spend this on your wants.” Typically, I wouldn’t advise that, but you’re already living out a dream. During this season, we want the Profit Celebration to feel even better.
Finally, the “Balance” season. This is when you know you’ve made it. You are actively making dream purchases while saving for the next dream purchase. During this season, I would suggest dividing your celebration between the “Dreams” and “Fund” accounts. This ensures peace of mind each time you make a big dream purchase. During this season, you should expect to feel the most direct link between Profit Celebration and Profit Party.
Using the seasonal framework, we have an intuitive way to figure out what the heck to use our celebrations for. Which means, of course, that the only thing you need to actually decide is material. If you want to purchase a dream car and you’re about to hit an Activate season, you know what your money will be spent on… you just actually need to know what your dream car is.
At Sooter Consulting, we are working with small business owners to turn their businesses into efficient organizations that fund their lives and relieve stress. We aren’t personal finance experts, but we can help you figure out how to bridge the gap between business and personal. If you’re interested in learning more, consider reaching out for a Discovery Call today!