The second account or the second bucket that you will distribute money in after you put money aside for profit is paying yourself. The idea is that you take a percentage of your income and pay yourself straight away from it. The more money you make, the more money you take, the less money you make with your business, the less money you take.
Now that you have a profit on the side already waiting for you and you’ve paid yourself, it’s time for bucket number 3: taxes. You need to work the percentage out based on where you live and your situation, but that’s where you want to be putting money aside for taxes.
Finally, the last bucket is your operating expenses. That becomes a budget for your business expenses. So, for example, let’s say you made $100. Out of that $100, you decide on percentages you want to allocate to each bucket. Let’s say it’s like this:
- Profit – 2% = $2
- Your salary – 40% = $40
- Taxes – 30% = $30
- Operating expenses – 28% = $28
The beauty of this system is that not only you’ve already made a profit and you’ve already paid yourself, you’re also going to create a business that’s very lean and that’s never really going to be bankrupt because you know that what is in this expense account is the maximum money you get to spend to run your business. That forces you to not get shiny object syndrome and starting to hire for this service and this service and try to subscribe to this product and this tool if you can’t afford it.
It’s really a neat little system and I probably didn’t do it justice as well as those 200 pages so I would really, really recommend that you read this. It’s not just if you’re already making a gazillion dollars, you can get started even if you only put $1 aside each month to pay yourself. The idea is to really get used to paying yourself and writing yourself a check. I don’t want you to wake up three years after you started your business and go: “I’m tired. I’m not making enough money” because you didn’t build that system to pay yourself in the first place.
I hope this was useful. Let me know if you’re going to get the book or if you read it already and if you liked the concept of it.