• Jorge Diaz

Applying the Profit First System in Personal Finances

I want to share my experience using the Profit First (PF) system on my personal finances. I have used it both for my business and family banking for a while now and I love it.

The System

As conceived/presented by Mike Michalowicz, PF is basically the same thing as the old "envelope" approach, but more from a banking POV. Nowadays, most transactions are digital, so cashing out and putting the money aside is not a good idea. The PF system works as follows:


  • All earned income (salary, self-employment, non-reg dividends...) goes into a single "income" account and then gets distributed under pre-defined % across different accounts.

  • Allocation percentages % vary with time to optimize the budgeting towards increasing savings and reducing unnecessary expenses.

  • Once everything is distributed, all non-operational funds get transferred to a separate bank account to make it harder to use.

  • Distributions should be done once or twice a month to reduce transaction fees.


That is roughly overall, for those who want to get more into detail, just Google for Profit First, it is a crazy top-selling book at Amazon since it was published in 2017. It is originally conceived for businesses, but I started to apply it on my personal side in 2019.

How I set it Up with TD & Tangerine


I had a TD Chequing account with two more savings where I used to put all my funds with a specific "purpose." Now, this is how I labeled these:

TD Canada Trust


  • Regular Chequing Account - TD MINIMUM CHEQUING ACCOUNT (12 free transactions per month - $3.95 monthly fee): LABEL - OPEX (65%)

  • Mid-term Savings - TD EVERY DAY SAVINGS ACCOUNT (1 free transaction per month): LABEL - MIDSAV (15%)

  • Long-term Savings - TD EVERY DAY SAVINGS ACCOUNT (1 free transaction per month): LABEL - INVEST (20%)


Tangerine


  • LABEL - OPEX 65% setup in a TANGERINE REGULAR CHEQUING ACCOUNT (Unlimited Transactions). I do not transfer the 65% of Opex funds here as I operate everything from the TD Account.

  • LABEL - MIDSAV 15% setup in a TANGERINE SAVINGS ACCOUNT (Unlimited Transactions)

  • LABEL - INVEST 20% setup in a TANGERINE SAVINGS ACCOUNT (Unlimited Transactions)


Each TD account has a Tangerine match, but funds move between the two SAVINGS, indeed. I manually "disappear" all savings from my sight at the TD account once a month and leave only the 65% target I defined at the beginning of 2019.


Results after one year.


  • The first "indirect" result is how it shaped my mindset. Each time a single dollar lands into my chequing, I do a split across the different accounts. Although the system is known as Profit First, I would call my use of it now to be more "Investment/Retirement/Savings First" and it damn works.

  • I'm impressed with how much available funds I had for my TFSA and RRSP after doing this. From Tangerine, I use to fund the respective Questrade accounts.

  • Next year I intend to move 10% from the 65 to the 20 of the Long term Savings. 2020 allowances of TFSA (6000) and RRSP (18% on my 2019 income) combined would be at that level and I'm young enough to top these up with this change.

  • I feel I have more control of my budgeting and my income. After all my investments and savings are distributed, I focus on living the month with a friendly budget.I operate every month with a tight but enough budget on my TD account, avoiding the temptation of having (and seeing) more funds every day sitting there. If somehow a transaction seems scary, I double think everything before making any decision.

  • I manage this "kind of like" my investment portfolio (doing 90% stock / 10% bonds). I now top up as much as I can from the registered accounts and, in the next few years, would probably allocate more for the mid-term/travel/leisure account.


I hope it helps and I could get some feedback to optimize it!



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