Vita's Tip in 10: Do you use this tried-and-true strategy?

Hello, hello, friend! Welcome to a new episode of Vita’s Tip In Ten. Today’s episode is another “easy” one!  I’m not asking you to develop a new habit, create a complicated spreadsheet, there are no formulas involved today, and your mindset is just fine as it is.  Today’s episode is another example of, “if it happened to me, maybe it happened to you, too.” It’s also another topic that has been discussed by many people, in many different circles, on many different podcasts.  But what I’m sharing today is my take on it and what I did that is slightly different (in Vita’s true fashion) from the approach you may have heard from others. 

This podcast idea was inspired by a conversation I had the other day, during a discovery call with a business owner interested in booking a VIP Day with me. But while talking with her, I realized that it would be a better experience for her if she had certain things in place prior to working with me for her to really have the full benefit of the program, specifically, her finances. 

And one of the things I shared with her is something I have very recently started doing myself. Something I had heard of, that I was familiar with, but something I had never before utilized. 

And that is opening multiple accounts for your business so you have a “rainy day” fund. If this sounds like Profit First to those of you familiar with it, you are absolutely right. It is very similar.  

The idea behind Profit First wildly populated by Michael Mackalowitz, is that you have multiple bank accounts, typically 5-7 accounts, that you utilize for your business and stash your funds. You may also think of it is multiple envelope systems in the good ol’ days.  I have to tell you though, while I have always respected this method, I’ve never really used it before. 

Finances, math, financial management, it’s all always come very easy to me, because of my work experience and educational background. When I graduated college, I worked as a buyer for Burlington Coat Factory and became familiar with what’s called open-buy budgets.  Then as the Marketing Director at Lenox I was really able to hone in on and develop my skills at reading and understanding a P&L. 

So, managing finances and understanding numbers has become, over my 25 years of experience, almost second nature, and very intuitive. I can look at my bank account and know that I don’t have the full amount sitting there at my disposal, and how much of it is needed for expenses and taxes and payroll. 

So, the idea of having 5-7 bank accounts just seemed unnecessary. 

However… 

3 months ago, I opened 2 additional bank accounts for my business. One for taxes, and one as a rainy-day fund. Every month, I transfer a sum of money into each account.   

And can I just share something here with you, friend? It has been absolutely liberating. 

Why didn’t I do this sooner?!   

Perhaps, I don’t need 5 extra accounts, but these 2 extra accounts have brought such a feeling of freedom that I didn’t know I was missing. Yes, I did always know in my head that a certain amount needed to be reserved in the operating account for taxes, but to have it already deducted and separated…I can’t believe it took me this long to do this! Me, of all people, who is always telling you to get things out of your head and store it somewhere else….I’m not being dramatic when I say this was a long overdue gamechanger! 

Having these separate accounts allows me to have a more clear picture when I look at my operating account of the funds available – without having to do the mental math.  

I have an account where I can set aside the money that will go to taxes, and I have a rainy-day account – which if you live in an area where business has slowed down, will provide a great cushion and peace of mind.  

And for me, and my bank account, the way my online portal works is the newest accounts are at the very bottom of my list of accounts. So they really are out of sight out of mind. Every month I transfer the funds, and then when I look at my operating account it is a much more accurate representation of the funds available for operations. Then, I scroll to the bottom of the list, and the cash that is stashed in these two new accounts, and it’s like an instant shot of happiness to see that “extra” money there. 

So, if you were already a Profit First practitioner – yay you! I finally get it! I understand what all the hype is about, and why it is so widely utilized by people in the know. 

And if you are not a Profit First adopter, and you, like me, always thought it was unnecessary, that because you have a good mental grasp on your financials and what is truly available to you – reconsider. Perhaps, like me, you will come to find that it eliminates a mental burden that you didn’t even know was there.  

And as a lesson to us all, this is a reason to stop the next time we hear advice and immediately brush it off with a “that doesn’t apply to me”, or “I don’t really need that”. Because even if you don’t need it, what if it makes a difference and an impact that you couldn’t have foreseen? 

As someone who has been in this business for 18 years with tons of financial experience, and just learned the benefits of advice that I have been hearing for years – you can bet I’ll be thinking twice before dismissing a new – or even an old – idea or strategy! 

And that is today’s tip in 10, my friend! Thank you so much for listening today! I really hope you find this tip to be useful, and that it makes a difference in your financial planning – give it a try and let me know if you have the same “aha” moment I did! 

As always, I would LOVE to hear your feedback!  Email info@luannnigara.com and tell us, how are you feeling? What tips have you tried? Have they helped you overcome a particular challenge? Do you have question or problem you need help with?  And in the meantime I’ll be looking forward to bringing you a new episode of Vita’s Tip in Ten next Thursday. See you next time!