In 2018, I landed several amazing new clients and literally DOUBLED my sales in one year. They were one-off clients (i.e. not reoccurring) and the injection of cash allowed me to purchase new equipment to fulfill their orders. I still have this equipment today and it’s cut my production time for all my work by about 10 times. A worthwhile investment for sure.
Because my sales doubled, the amount of my “pay” also increased (as compared to prior years). I remember seeing these amounts in my bank account that I had never seen before. It was great. Really great. We went on a couple of great family vacations and did some home improvement projects. But in doing all this, I learned a valuable lesson and learned a new concept. It’s called Parkinson’s Law. Parkinson’s law is the adage that “work expands so as to fill the time available for its completion”. I had listened to a podcast where this adage was applied in a monetary sense: your expenses rise to meet your income. This was true. The more money I made, the more money I spent.
At the end of year, I had barely increased my savings and I still had “the average amount of debt held by households in the USA”. Despite a measurable increase in the amount I earned, I had not been a wise steward of this money. Yes, I had enjoyed the fruits of my labor, but I was left frustrated that I hadn’t used the money wisely (paying off debt, saving for the future).
It’s coming up to July 2019 and I’m growing increasingly uneasy that I’m still struggling with the same issues. My income isn’t as much as it was last year, but I’m still maxing our what I earn. This leaves little to nothing to reduce the burden of debt, implement a retirement plan or increase our level of giving. My cash-flow management in both my business and personal “lifes” is poor; something has to change.
I’m still getting the same results ’cause I’m still doing the same things. Worse yet, I sometimes find myself pulling back on business investment (marketing) to cover personal/family expenses – dumb!
About a month ago I read a book called PROFIT FIRST by Mike Michalowicz. In a nutshell, it’s kinda like an envelope system for business. Money goes into a main account and then it’s split into small accounts (envelopes) and used to fund various outlays: namely payroll, profit, operating expenses, taxes, etc. You split the money based on percentages and it forces you to treat each account like an envelope of money in that once it’s gone, it’s gone.
It also occurred to me that I could probably implement a similar system for my personal financial management. Split the incoming funds into smaller envelopes.
Over the next couple of weeks, I’m going to implement this Profit First system for both business and family. The hallmark of this system is setting up multiple checking accounts. For example, for my family, I’ll have two checking accounts: primary (where the money goes in and is used for fixed expenses such as mortgage, utilities, etc.) and a spend account (where money is used for eating out, groceries, clothes, etc.). The idea is that a fixed amount is transferred weekly (or bi weekly) from the primary account into the Spend Account.
I have been banking with Chase for more than a decade (both business and personal). Chase even processes my credit card orders. I went to see them the other day to talk about opening up multiple accounts. I was told that each account would incur fees of about $12 – $15 each. Since I was looking at creating six new accounts (1 additional family and 5 additional business), I’d be looking at almost $100 in monthly fees! No way.
I then took a walk to a bank – PNC Bank – that is literally 200 steps from my office (no, I haven’t counted but I will count and then update that number). They have much lower fees and I may be able to lower my credit card merchant fees too.
I’m going to make the switch. Switching banks seems to be a huge pain in the a$#. I have to update dozens and dozens of automatic payment schedules. But, I do understand that pain (of moving) is a byproduct of growth so I’m just going to do it.
I’ll check back in a couple of months and let you know how it’s going. I’m excited to be starting something new and looking forward to systematizing my financial management strategies.