The 5 Core Accounts You Need
I learned this from the book Profit First by Mike Michalowicz.
Phenomenal book.
Here are the five accounts:
Account #1: The Income Account
This is where all the money comes in.
But you never actually spend money from here. It’s a distribution account.
Money comes in, then gets distributed to the other accounts that actually spend the money.
Account #2: The Profit Account
This ensures a percentage of your revenue is set aside as pure profit.
If your business can't run while putting some profit aside, you don't have a business.
This forces you to operate more profitably. It forces you to think about your spending and expenses more intentionally.
Target allocation: 1-20% of revenue.
If your business is running on thin margins and you're barely paying yourself, start at 1%. Build the discipline, then scale up to 20%.
You can distribute this quarterly. Take 50% of the balance out to yourself as owner distributions. But leave half so the business has its own reserves.
(I've had businesses before where I had to put money from my personal account back into the business. It's typically a bad sign. Don't do that.)
Account #3: The Owner's Compensation Account
This is not the same as profit. It's salary or wages for the owner.
Make sure the owner gets paid fairly. Too many business owners don't pay themselves regularly or pay themselves too low.
Target allocation: 10-50% depending on business size and revenue.
If you can't pay yourself this, you have the wrong business. Start small if you have to, but force yourself to figure it out.
Account #4: Tax Account
This prevents the tax season surprise.
You're setting aside money for taxes so you don't have penalties and you can make your quarterly payments on time.
Target allocation: 15-40% based on your tax obligations.
(I'm trying to keep mine under 10%, but wherever you land, those funds in that tax account should not be used for anything other than paying taxes.)
Account #5: Operating Expenses Account (OPEX)
This is where all business expenses get paid from.
Rent. Salaries (non-owner). Utilities. All of it.
Target allocation: 30-60% depending on business efficiency.
This forces the business to be lean by limiting available funds.
Here's why: we spend what's available. It's Parkinson's law. Any task will swell to the amount of time allotted for it.
If you have money in the account, you'll spend it. That's why we take it out. That's why the government takes their cut first on W-2s.
The Accounts Nobody Else Talks About
Now there are a couple additional accounts I set up that most people don't.
A vault. This is where I store cash reserves for financial stability, debt payoffs, and big moves I don't even see coming yet.
When you have money in your business, you start thinking about its growth and longevity differently. You can buy bulk inventory. You can acquire a competitor. You can seize opportunities.
A marketing account. I'm a marketing guy first. We should all be dedicating ad spend to marketing. Put money aside to run promotions throughout the year.
And then lifestyle accounts. This isn't in the Profit First book, but this is important to me.
I want to automate my ideal life…
How To Automate Your Ideal Life
Would you like to take your family on a vacation once a year? How much would you spend? $5,000?
Amortize that through 12 months. That's $417 per month. Set up an automatic transfer every pay period. You never have to think about it again.
Want a new car every five years? A $50,000 car with $10,000 down? That's $167 per month into a car account.
Want to buy a house? Real estate investments? Same process. Write down what you want. Figure out the cost. Amortize it. Automate it.
Goals are nothing more than dreams unless you build systems around them. If you want to achieve them, you need to create daily non-negotiables.
So figure out what you want in life, set up an account, and start funding it every month no matter what.
Now Here's Where It Compounds
Let’s say your business generates $50,000 a month.
The old way: All of it sits in one checking account at 0.4%. That's $20 a month in interest.
The new way: You keep $10,000 in your operating account for immediate expenses. The other $40,000 is spread across high-yield accounts such as STRC at 10.5%. That's $350 a month.
That's $4,200 a year in passive yield.
From money you were already making. You just placed it smarter.
You Don't Need Any Tools To Do This
You can sit down with a piece of paper and a pencil and write down all these accounts. Think through what lifestyle accounts you want. The car, the house, vacation, whatever. Write down the amounts.
Set up these accounts with your bank and then turn on automatic bill pay or automatic transfers.
Don't let "I don't have time to get around to it" get in your way.
Optional: There's a tool called GetSequence.io that lets you create and automate bank accounts drag-and-drop style. I don't have an affiliate link. I just think it's cool. But you don't need it.
Here’s the best part about this. It’ll only take you 20 minutes to get it all set up. But as soon as you log into your app and see these accounts, you’re going to be so motivated to start filling them up.
When you see that tax number, it’s going to give you peace of mind.
When you see that marketing number, it’s going to give you drive and creativity.
When you see that vacation number, it’s going to give you excitement and joy.
And you’re going to get addicted to watching those numbers get bigger and bigger.
This is such an easy thing to do, but it adds so much fuel to the most important buckets of your life.
Want to see how this fits into the bigger picture?
If you want to learn how to fill those buckets up even faster, check out WealthOS. That’s where my students and I build wealth engines that put your financial goals on warp speed. You can learn about it here.
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