Relax! I’m not talking about prioritizing the pursuit of profits ahead of social and environmental considerations. I was just teasing you with that title 🙂
What I am referring to is how we view profit in our financial planning.
Is profit simply what is left over at the end of the year once all expenses are paid?
Building on the principle of Pillar 1, I propose we shift our paradigm and put profits first when we start working on our budgets for the coming year. The first step in crafting an empowering budget is to declare what profits (salary) you want for the coming year. In a certain sense, profit is the first ‘expense’ to be planned in a budget.
Before: Income – Expenses = Profit
This year: Income – PROFIT = Expenses
There are two things that come out of this shift.
Firstly, we realize that we have a greater degree of flexibility in terms of our expenses (and our incomes, but we already tend to think about acting on income). This is a key element in moving towards greater financial mastery. It is easy to think we have no control over our expenses, but the reality is quite to the contrary. This flexibility exists both at the planning and the execution phase.
- At the planning phase, the act of planning profits first opens the possibility to use our human creativity and ingenuity to see ways of modifying both our income and expenses in order to achieve our financial goals.
- At the execution phase, we are able to keep our expenses in check by making conscious spending decisions by comparing each month how much we have spent in a particular category versus how much we had planned for. Given how passionate farmers are, it can be easy to spend too much when we don’t take a moment to pause and see how much money is actually left in that budgetary category.
FREE TOOL: Here is a spreadsheet that I have found useful on my own farm to track the evolution of my income and expenses on a monthly basis (using color coding to help me see the current situation of each expense category at a glance)
Secondly, this shift allows is to tap into the power of declaration. When we declare what net income we are willing to earn in the coming year, we set to work the immense power available to us when we focus our mind on a specific outcome. The mind is like a super-computer, it will work instantly to find answers to whatever questions we consciously or unconsciously ask it. If we want better answers, we need to ask better questions (aka, more conscious questions).
With the traditional way of seeing profit as what is left over, we are asking our mind to solve for the question ‘How can I have enough left over at the end of the year to scrape by and make it through another year?’. When we shift our thinking to ‘profits first’, we are asking our mind to solve a very specific question: ‘How can I manage my business so that I can pay myself an income of 30 000$ this year?’
The final element in this approach is to actually set up automatic monthly bank transfers from your farm bank account to your personal bank account. This way, you are actually paying yourself first. Start out at least with a baseline salary… 1000$ per month, 2000$ per month or whatever is authentic to you. The idea here is, once again, to prioritize and attribute your resources to what is most important to you first.
What do you see for yourself about this shift in mindsets?
What net income are you willing to earn in 2019?
By what date are you willing to complete an empowering ‘profits first’ budget for 2019?
Happy New Years! May health, prosperity and love reign in your life in 2019!