In this episode, we talk about In this episode, we talk about a system that shows you how to budget your money.
As a six percenter entrepreneur, I love to spend money and I know you do too because we overspend in pretty much everything that we do as soon as we get some money, we want to do some big things with it, right? So we'll have some kind of huge revenue deal coming in, we'll use that as an excuse to get that bigger office and we'll go get a bigger office so we can feel prestigious and feel like we have the status and feel like we're doing things because now we have a bigger office, but eventually, this stuff can come back to hurt you and I'm pretty sure you know that I know that that this money is going to go away, but what we tend to do is we kept, we keep on thinking that the money is going to come because we are awesome entrepreneurs, right?
And as awesome entrepreneurs, like as long as we're grinding that money will still come and we'll figure it out and we usually do. However, sometimes we don't, and so I was looking to fix this particular issue and this is my budgeting issue. So I was speaking with my business manager, my business manager, he was telling me he was like, Robin, will you need to put aside some money for some rainy days? Um and I don't know if rainy days is the right word, I want to call it drought, right? Because rainy days, like you wanted to make it rain. So I wanted to rain money, but this is a period where it's not raining money, it isn't a drought and I would need to have some money set aside for business continuity and I'm trying to find the best type of budgeting process. And I discovered this book called profit First by Mike McCalla Wicks. This was suggested by a group of entrepreneurs in a forum that I'm in. And I picked up this book, and immediately as soon as I started reading the book, I was like, Wow, this book is meant for 6% of entrepreneurs, because everything that Mike is talking about in this book is something that I went through and I know it's something that you've likely gone through as well. So Mike has a system on how to budget your money and the way he uses the system is it's not on Excel spreadsheets, it's not doing any kind of fancy calculations or anything like that. It really is just like how humans behave and the way that humans behave, the way that you probably behave as an entrepreneur is. You look at how much money you have in the bank and based on how much money you have, how much can you spend for you to be able to get to that next level. Because the hope is, if you can get to the next level then you will have even more money coming in and that cycle actually continues. So what happens is we never reach profitability. We are always just spending that money to grow Mike in his book profit 1st, as the name suggests, is he wants you to focus on profit first. So he changes the entire business formula that you would learn in an NBA program which is revenue minus costs equals profit. And what he says is when you have your formula this way Parkinson's Law comes into place. So a quick review. Parkinson's Law is any time you are given a resource, you will utilize the entire amount of that resource for you to be able to meet your objective. So I'll give you an example if you have 10 hours to do a job or you have one hour to do a job, you're still going to get that job done and you're going to use the entire amount of time. You're likely going to procrastinate for nine hours and then just do it in one hour anyway. So it ends up being the same. But what happens is when we have money in our bank account, The resources that we have, if we have $10,000 and we have $100,000, we're going to spend it right because it's there, it's available to us. So what mike does, mike suggests that you set up five different accounts and make two of these accounts really difficult to access. And you pay yourself in this way. So five different accounts. The first account is your income account. This is the account where you have all your deposits coming in. And as you have each transaction coming in you will divvy this deposit amount into your other accounts. And your other accounts include your profit account, your tax account, your owners account like your owners pay account and your operating expense account. So what you're doing is you're taking your income account. Let's say you get like a big check in for $10,000 out of that you allocated to your profit account. Some to your tax account. Your profit and tax account are the two ones that you do not touch. And then the rest of the money gets divvied out to operating expenses and whatever you're paying yourself and other equity holders in your business. And what this does is now when people are doing mental accounting, the mental accounting that people are doing anyway, they'll look at the bank account and see how much money they spend. Well now it's all portioned out and if you are looking strictly at the operating expenses for your business, then you are going to be a lot more disciplined because now you have this certain amount and you will not spend the entire amount which is supposed to go for other things like taxes and you're actually baking in profit for every single transaction. I love this idea. I actually love this book, Mike McCalla Wicks, he's a really um, he's a, he's a funny guy. I would definitely recommend checking out the audio book if you are interested in this audio book. I think he has a podcast out as well. And yeah, I'm also going to try to reach out to him to see if I can bring him on as a guest on my Girl Tax Secrets podcast because this guy, he really knows what it's like to be a 6% or entrepreneur and how to manage your money In a way that a 6% of entrepreneur can actually manage. So I hope that helps. This is Robin Copernicus, boom bam, I'm out.
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