This chapter argues that using the Profit First system will relieve financial stress and make you feel less restricted financially. Instead of always worrying about fluctuating finances, Profit First business owners can enjoy their lives and the profits their business generates. 

Michalowicz claims that this system will also help people achieve financial stability in their personal lives and reminds the reader that the ultimate aim of Profit First is to achieve financial freedom: People’s success in business and their personal wealth are intertwined. To become personally financially healthy, people first must face and fix issues in their business.

Michalowicz reiterates the steps to becoming a Profit First business. Firstly, face your problems through an Instant Assessment. Next, establish your necessary accounts at your bank and implement a debt freeze if needed. This should include either cancelling credit cards or putting a lower spending amount on your cards. Focus on paying off debts and getting rid of them completely, but while doing so, still allocate some money to your profits and celebrate as your debt decreases. Debts like car payments and mortgages are also financially burdensome and should be paid off as soon as realistically possible.

If you are living a lavish personal lifestyle, as Michalowicz once was, cut back as much as you possibly can. While this might feel upsetting or embarrassing, the author assures the reader that no one is really judging them and that their long-term financial health is more important. He revisits the phenomenon of Parkinson’s Law, explaining that typically, the more money people have, the more they spend. People can resist this tendency by only allowing their lifestyle spending to increase incrementally in comparison to their salary increases and living well below their means. This way, their lifestyle moves forward, but their savings do too.

Kids can learn to manage money responsibly through an easy envelope system. After earning money through chores, kids can sort it into four categories: emergency savings, fun, community, and goals. Adults can also benefit from such categorizing, such as having separate accounts for “Needs,” “Wants,” and “Dreams” (176). The author encourages the reader to review their salary and separate it into these three categories, and then consult with their family about it, always being accountable to their plans and promises.

In this chapter, the author’s advice on frugality and celebration is somewhat paradoxical. He maintains that being cost-conscious is essential to building long-term wealth in one’s personal life and business, yet also encourages the reader to take and spend their profits on enjoyable experiences. He explains, “And when it comes to Profit First, we implement a lot of (good) restrictions to make the business profitable. But when the money comes out and it’s reward time, the restrictions, within reason, come off” (163). By emphasizing the fun and freedom that profit can bring, the author makes his financial system feel less dour and punishing.

For the author, this reward-oriented mentality should apply even if people are in debt. For instance, he instructs the reader to use 99% of their profit allocation to pay off their debt, but use the remaining 1% to treat themselves: “No matter what your disbursement is, cherish it…Rewards are an important feature of Profit First. We must celebrate” (171). Michalowicz’ approach may seem illogical to some, while others will find it more realistic and motivating than complete austerity during hard times.

Chapter Lessons

• Frugality makes long-term wealth building possible
• Celebrate and enjoy debt reduction to stay motivated
• Apply Profit First methods in your personal life by distinguishing between needs, wants, and long-term goals

Reflection Questions

• Michalowicz reflects on how he created unnecessary financial strain by spending too lavishly. Do you struggle with overspending? What strategies might help you cut back?
• The author encourages the reader to celebrate debt reduction. Create an image or plan of how you will celebrate when your debt is completely paid off and keep it somewhere accessible to motivate you.
• How might you pass along your healthy financial habits to your children? Do you agree with Michalowicz’s approach?