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Understanding why managing money doesn’t come naturally

Humans have been exchanging things for items of perceived value for tens of thousands of years.  According to, the earliest known form of currency, the Mesopotamian shekel, emerged nearly 5,000 years ago. Coinage has obvious advantages over exchanging things like cows.

But once we started relying on coins there also arose an opportunity for someone to make them. This then led to someone controlling them and with that scarcity was created for others while they created wealth for themselves.

Managing money is not a natural concept, even though we think it should be

Early humans didn’t exchange money for their basic needs – they hunted and gathered, and built their own shelters, or used naturally occurring shelters like caves.  In the modern age, if you want food or shelter, you need money to pay for it.

This has simplified the exchange process for goods or services but creates the new problem of how you get more money.  You can no longer simply breed a new cow or grow some more grain (unless you are a farmer and that’s how you make your living).

For most people, managing money isn’t a natural process.  Studies of winners of big lotteries have shown that the same 5% of people who managed their money well before their win are the same 5% of people who still have money 5-10 years after their win.  The rest have returned to their former money position, or worse, because they have developed new, big spending habits. They go on to maintain these habits that they can’t meet. The cycle of money overwhelm and mismanagement continues.

Most of us have never been taught to manage money well

The first place we learn to manage money is at home, from our parents or other carers.  If they don’t manage money well, you probably won’t either.  It is not a given that you’ll be like the first people who showed you about how to relate to money, but frequently we pick up our money habits unconsciously and just live them without thinking, even when things are not working for us. We also pick up the habits and the fears and attitudes towards money that come from our money role models as children.

The other challenge is managing money is not regularly taught in schools.  There may be programs run by banks that claim to teach money management, but often they are just collecting information so they can offer the student a credit card as soon as they are legally old enough to have one.  This is how I got my first credit card around 18.

My money story

My mother talked to me about money.  I knew her mother used the envelope system, to put money aside for each important purpose, such as rent, food and electricity.  I love that I get to teach the modern way of the envelope system to motivated business owners.

I also knew my grandfather took a third of his pay to feed his 60 cigarette per day habit and my grandmother had to manage on what was left.  I also knew how much this upset my mother!  But they put their four children through tertiary education on a bus driver’s wage, which was an amazing achievement for the time.

I also learnt about my parents’ business – they were both GPs and ran their own medical practice.  I knew that it ran at 60% expenses and every time the bank manager was happy that they had nearly cleared the overdraft, the tax bill would come in and they would be straight back up to the limit.  These days most GPs work in group practices because of the economies of scale.

It’s not surprising then, that when I first read “Profit First”, the book by Mike Michalowicz, that it made so much sense to me.  It’s about setting up bank accounts as the new envelopes, for every important purpose in your business, and allocating a percentage of income to each purpose.  That allows you to easily observe the patterns in your business, identify the areas that most need attention, and gradually adjust the percentages to create a more profitable business.

If you would like to receive the first two chapters of Mike’s book, “Profit First”, click here or click the button below)

If you’d like to access my free guide The Profitable Business Plan for Creative Thinkers to support you to gain clarity about how to build a thriving relationship with money you can access your free copy, click here or click the button below.

Woman business owner overwhelmed by money | Profit First professional | Caroline Smith | business profitability | make more money in my business | Profit First Australia

How Kate got her business out of debt in 6 months

When Kate came to me, she was behind on her business rent and had borrowed money from her mother to pay her staff in advance of getting the Jobkeeper supplement.  Plus she was paying her staff more than she was paying herself.

Kate felt deeply ashamed she had to borrow money from her mother and was motivated to take back control. She was adamant that this experience was never going to happen again and inspired to take action to do something about her circumstances.

Kate demonstrated key traits of a creative thinker. A creative thinker is someone who desires to make change and knows that the ways she has done things in the past need to be different. She is open to new ideas, wants to be challenged and is interested in finding the right strategy for her unique challenges.

A creative thinker wants to feel confident and in control, knowing she’s doing things to maximise her profitability.

A handful of small changes isn’t enough. Profitability transformation is needed!

I took Kate through my 5 Step Profitability Transformation process to take control of her money, create value for her effort and maximise her impact.

First, she unburdened herself of the story of her business, so we were both clear on where she was now and what her goals were for the future.

Second, we analysed her finances to see where her money was really going.  One of the things this highlighted was that the admin staff hours were gradually increasing, while the amount of income generating work wasn’t.  So Kate learnt that this was an area where she needed to take more control.

Our next step was to plan what Kate needed to do to achieve her goals.  We designed a plan of what Kate needed to sell, at what price, and what her expenses would be, making sure it worked on paper.

Because if it doesn’t work on paper, it isn’t likely to work in real life by accident.

Then we put it all together and implemented her new strategy, using the Profit First cash flow and money behaviour management tool.  This uses bank accounts to separate money into buckets for every important purpose in the business.

And finally, Kate learnt how to review and adjust the plan, to keep everything working for her.

Six months on, she was up to date with the rent and had paid her mother back.  She was determined never to get behind in the rent again, so she opened a bank account just to put aside money for the rent, so she would always have enough.  In addition, she knew she needed two full time income earning staff to break even and a third (and more) would give her the income and profitability she desired to support her lifestyle.

You too can achieve these results. An inspiring first step to support you to have the same kind of experience Kate had is to download your copy of The Profitable Business Plan for Creative Thinkers to help you.  To access your free copy, click the button below.