The author describes how his mother always sorted money into different envelopes to meet different needs, such as the mortgage, food, vacations, savings, and community donations. This practice meant that she was always prepared for variations in work hours and unexpected emergencies. Michalowicz claims that this approach is a sound way to manage finances, and his Profit First system is essentially a more modern day version of this method.

The author instructs the reader to set up five checking accounts: Income, Profit, Owner’s Comp, Tax, and Opex. All deposits should go to the Income account, where the funds will be sorted into the other accounts as needed. The profit account must never be used to operate the business, and the tax account must never be “stolen” from, since it is a necessity. Michalowicz recommends having a separate bank for profit and tax accounts, just to make it even more inconvenient to access those accounts and spend that money. This serves the “resisting temptation” step of profit first.

The author’s detailed banking instructions provide the reader with a concrete first step to implement the Profit First system. His instructions to never misuse profits or taxes help the reader understand the legal importance of paying taxes, while also developing equally stringent habits around protecting their own profits. Michalowicz’s excitement for this step comes through in this buoyant passage: “You have the momentum; now it’s time to kick Profit First into gear and experience the simple, yet powerful transformation for yourself. I won’t say it works like magic, but it is pretty friggin’ amazing” (57). By encouraging the reader to start now, the author makes his book an actionable how-to guide rather than a textbook economic theory.

Chapter Lessons

• Always sort income into different categories for clarity and easy tracking
• Ensure that profit and tax money are never used for other purposes
• Never try to manage money from the same accounts or a spreadsheet

Reflection Questions

• Will you create the five recommended accounts? Why or why not?
• Growing up, what financial systems did your parents use? How has this influenced your perception of money and your own financial habits?
• Which part of the Profit First accounts system do you feel most doubtful about, and which part inspires confidence or excitement? Why?