The Money Habit: Breaking Entrepreneurial Poverty with Mike Michalowicz

[00:00:00] Introduction to Financial Worries

[00:00:00] Mike: The Money Habit is to alleviate worry.Now, I'm not saying that alleviates all your worries, but it is so foundational if you don't know if you can put food on the table or pay the mortgage or something like that.

[00:00:15] Mike: That's a constant worry and money addresses that. But the other worries with money is, you know, will I ever be able to retire? Is this my lot in life? I just have to work every day like an animal? That can be addressed too. The interesting thing to what we're discussing, it doesn't come with more money. It comes with financial understanding and control.

[00:00:36] ​

[00:00:41] Guest Introduction and Business Insights

[00:00:41] Allan: Welcome to the Lean Marketing Podcast. I'm your host, Allan Dib. Today I've got with me a recurring guest, a special friend an incredible author, someone who's made an incredible impact on the world of business profits. He's the author of the smash hit Profit First, and this is a book that you [00:01:00] know, I've heard the praises of this book from people who are billionaires down to people who are just starting startups and it's helping them make more money in their business.

[00:01:08] Allan: And the reason I asked Mike to come back on the show is because He's now doing for personal finance because a lot of the time as business owners, we find ourselves, "Hey, we are making what looks like good money on the front end, and it's not reflected often on the back end in our personal finances." We look at all this money and what filters through is sometimes not enough, sometimes even negative. So welcome to the show, Mike. How are you?

[00:01:34] Mike: thanks for having me. You, you started off with like the heartbeat of what's going on. These entrepreneurs are making money at work sometimes, but the home is leeching off of it and it destroys the business. In turn. It's something that needs to be fixed.

[00:01:48] Allan: Well, ask me how I know that.

[00:01:51] Mike: I don't want to because I know it too.

[00:01:53] Allan: yeah.

[00:01:54] Mike: don't ask me.

[00:01:55] Allan: Look I remember the first time in my IT business we hit a million [00:02:00] dollars in top line revenue and we were, we were all like on top of the world and everyone's congratulating us and all of this. And then, you know, I log into my personal bank account and it looked pretty sad and I'm like million dollars sounds like a lot, but even now, people talk about becoming a millionaire, becoming a multimillionaire. But it's very different making that in your business and making that on the top line and it filtering through to business profit and then it filtering through to personal income and that personal income growing to your personal wealth. What's the disconnect? Where is it all going wrong?

[00:02:32] Understanding Parkinson's Law and Financial Behavior

[00:02:32] Mike: There's a thing called Parkinson's Law. So Parkinson's Law is a study of the utilization of resources originally studied time. So basically the idea is if you and I are discussing a contract and I say, Hey Allan I'll get you that contract in six days, it will likely take me six days.

[00:02:50] Mike: 'cause I set that timeframe. His name was Northcote Parkinson. What he argued was that the more time we avail to something, the more we'll consume of that time. [00:03:00] On the flip side, back in university. You may have been like me. It was when I got close to the exam, when I really started the study.

[00:03:08] Mike: And I would argue, you know, I'm really great at cramming, but the reality is everyone's great at cramming. When there's less of a resource, we become more efficient in this utilization. Well, the research went beyond just time. It's all resources. So one of the classic kind of funny things I talk about is a tube of toothpaste.

[00:03:27] Mike: Just watch when you consume toothpaste, a brand tube, how much you use. But when you have an empty one, the lengths will go through to keep extracting value or toothpaste from it.

[00:03:36] Mike: Well, money falls in this same category of Parkinson's Law. Here's what's uncanny. When your business was growing and you hit that million dollars in revenue, chances are like most entrepreneurs and myself included, you were logging into your bank account and seeing more cash coming in, more deposits, and they were growing. At the same time, you're like, oh, we can invest in growing the business more. I can hire [00:04:00] that tech. I can get those in-house servers, or whatever it is. And so as we see more cash flow, we immediately see more spend opportunity and the money disappears. it's so subconscious. It's such a natural behavior that we're like, where's the money going?

[00:04:14] Mike: I had it yesterday and it's gone today. But this is true for our bank account. Our lifestyles ratchet up extremely quickly to match what we see in our bank accounts. What's interesting on the opposite side of Parkinson's Law is this thing called loss aversion. And loss aversion is once we possess something, we have an aversion to losing it.

[00:04:33] Mike: So while our lifestyle will amplify very quickly to the money that we see flowing in when the money slows down, we're not gonna ratchet back our lifestyle, and then the gap happens, and that's where debt comes on board and people go outta control. So the funny thing is what you experienced, what I experienced, what most entrepreneurs experience is they're not managing money well, it's because that's wired into us that way.

[00:04:55] Mike: But there are simple ways to use our wiring and optimize it with little tweaks [00:05:00] so that we never have that experience again.

[00:05:02] Strategies for Financial Clarity and Control

[00:05:02] Allan: The other thing that I've found myself over many years finding is that like when you've got cash sitting in the business. There's a temptation to keep reinvesting in the business. Reinvesting and because you know, if I buy more equipment or hire that extra staff member, whatever, that actually reduces my taxable income essentially, right? So I pay less taxes.

[00:05:23] Allan: Whereas if I filter that through personally, now I'm paying tax. And so, there's a temptation to say, you know what, I'll just keep reinvesting in the business and then, I'll figure out the personal wealth thing down the track. So I found myself kicking the can down the road.

[00:05:37] Allan: I'm like when I make 30% profit, or when I make 40% profit or whatever it is. Because there's kind of like this thing where, hey, this way I get to reinvest in my business versus just paying it out in personal income tax.

[00:05:50] Mike: And we are fostering a behavior of ineffectiveness and inefficiency and saying that's acceptable. I did the exact same thing. So my business grew and I called my [00:06:00] accountant and he said, "You know, if you have any expenses you can incur right now, you should do it because that'll reduce your tax expense, your tax liabilities." I didn't really have much, but I was like, "Well, I'm not profitable anyway, so let me spend a little bit more to reduce taxes."

[00:06:13] Mike: But what I was doing was I was growing by diversifying, saying, well, we can add this equipment, we can add these services, we can add products, and next year I'll be more profitable.

[00:06:22] Mike: But the reality is the more diverse we are as a business owners in our offering, the more diluted we are. I literally, right before this had a call I invested in a company that sells window coverings. And then they do $3 million in window coverings. I thought as I was talking to him, I said, "Well, let's go through the numbers." And he goes, "Well, 1.8 window coverings."

[00:06:42] Mike: I'm like, well, hold on, "1.8? Where's the other 1.2?" He goes, "Well, we also do garage renovations and we do cabinet installations."

[00:06:50] Mike: I'm like, "Oh my God." So then I said, "Well, how efficient is that stuff?" He goes, "Oh, the garage installations are a nightmare. People are so particular."

[00:06:59] Mike: What was [00:07:00] interesting, I said, "Well, then how do we get into this?"

[00:07:02] Mike: He said, "Well, we had a grow man and we had a captive client." So I asked him what else they need, and they said they need garage installation. So I tried to figure it out. Well, what happened was also interesting. I asked him, " Well, let's go through your numbers."

[00:07:15] Mike: We went back over two years. His window coverings that he did 1.8 million in two years ago, sold 2.3 million. So he's actually declining in window coverings. That's all he did two years ago. He sees his revenue increasing. So he is like, but my revenue's now 3 million. No, your core competency is declining.

[00:07:33] Mike: And uh, he's in a cash flow struggle. And that's what we're trying to fix right now. And we're gonna ditch the things that diversified him to facilitate growth to get back to a core competency of what we're really good at, be really efficient at it, drive profitability, and then address his home finances. Because the only way he's been able to bridge this business this far along, refinance his house, pulled money out of his personal assets.

[00:07:55] Mike: And that's another trap for entrepreneurs. When our business is [00:08:00] struggling and cash flow, we become the sole source of money.

[00:08:03] Allan: Um, It's so true. Like, every time in my business, and I mean we work with a lot of clients across a lot of industries, the big unlock has been subtraction, not addition. Often we think, oh, let's add another service, another product, another type of client, another whatever. And like you say, it can add to the top line.

[00:08:21] Allan: But now. You've diluted your marketing, you've diluted your focus. You've now got staff who are chasing three rabbits in three different directions. And every time I've subtracted and every time I've reduced the number of options, and every time I've simplified, I've made way, way more money because I'm just much more focused.

[00:08:40] Allan: The team is much more focused. The product line is simpler. client doesn't have to make a thousand decisions. Should I go for this one, that one or that one? It's such an unlock. And you know, I was talking to someone else who's in the coaching industry and like one of the things we were discussing, I mean, the least valuable part of coaching is information like, because you can't [00:09:00] beat Google, you can't beat Wikipedia for information. Often, it's the negative information. It's the stuff that you shouldn't do. It's the taking the scissors outta the toddler's hand and saying. Don't do this. Like, don't go down that track. Don't diversify, don't add that. And certainly not when you are early on in, in that stage. So I kind of think of it as like a no man's land when you're between say, one and 10 million in revenue.

[00:09:23] Allan: In the TV show succession, Greg is about to inherit $5 million. And he's like, I've got it made, you know, I've got $5 million coming my way and they're going $5 million. That's a nightmare. You're the richest poor person and the poorest rich person, right?

[00:09:37] Allan: You're, you know, you're the tallest dwarf, you know? Um, so, $5 million's terrible. Like, and I feel like one to 10 million is kind of that in business. You're like, I should keep reinvesting. You know, it looks like you're rich, but it doesn't feel like you're rich personally. And you know, not a lot is filtering through your expenses are skyrocketing 'cause now you're hiring managers and things like that. And it's [00:10:00] just such a difficult period in most businesses.

[00:10:02] Mike: most businesses it is, but I'll tell you 'cause those are the businesses that I invest in. And what I find Allan is we call them at risk businesses because they are in this purgatory state. They're trying to grow to be profitable or maybe the decisions ratchet back to how it used to be the good old days when it was a one person operation or whatever. And we have found a solution. And some businesses may wanna stay at this stage, that one to 10 for the life of the business because the owner can still be integrated in the business. They can still do stuff. if you're a $10 million business and I, I'm in some of those businesses the owners better not be doing any work inside the business.

[00:10:38] Mike: They're overseeing it. So how do you stay in the state? Well, what we do is we call it the PPF. The first P stands for present. We ask ourself in the present state on a day-to-day transaction, is this business a healthy business? So the game we play is we pretend, say there's no debt, there's no accounts payable.

[00:10:55] Mike: All we're gonna do is run this business every single day as a brand new business. [00:11:00] Today, if we do the same number of transactions today as we did yesterday, and we don't have any of these past responsibilities, are we healthy? And that's the first test in some businesses. No, they're not. And it's like, okay, we can't even worry about paying off debt and fixing this business until we get the present tense of this business properly set. and that's usually margins, efficiencies, growth by subtraction, removing unwanted stuff.

[00:11:24] Mike: Once we get that installed, then we say, okay, what are all the past mistakes we've made all the loans and so forth, and lot of these businesses that I'm in. My God, they have credit card debt, which is ridiculously expensive. They have even payday loans factoring stuff that's hammering them. We're like, okay, we gotta get our hands around this debt.

[00:11:44] Mike: And we have strategies to do that. We reduce our debt and then, we'd be so successful in the present that we can pay back for the sins of the past. So we gotta make super margin and the only way to make super margin is to be elite in your market. I consider like a, like an [00:12:00] Olympian, you know, no one knows the silver medalist.

[00:12:01] Mike: Everyone knows who won the gold. And the gold medalist won by 0.01 seconds. So you don't have to be radically better, you just have to be notably better AKA, the best. And when you are, you can dictate a gold standard as opposed to silver, bronze, or the no namers. So we elevate the business in their category by refining their category, get them very efficient and good at it.

[00:12:23] Mike: Build the reputation there. Now we can charge margins that will help us cover off the past debt. Only once the present's strong, the past is being taken care of. Do we start thinking about the future? Is it growth? Do we wanna just have a joy ride? And we're having a lifestyle that we like, but most entrepreneurs simply say it's all about the future and the past and the present will fix itself and it just won't.

[00:12:44] Allan: Yeah, I agree. So, Profit First at a very high level overview is we're setting up business bank account that collects you put money in for taxes, so you're not freaking out a tax time.

[00:12:56] Allan: You're put putting away you know, money for payroll. You're putting [00:13:00] away money that you're gonna pay yourself. You've got money that, for subscriptions and bills that, you know, you have to pay software, all of that sort of thing. And so, that way, you've kind of got things organized.

[00:13:09] Allan: You don't have this one bucket that you're just drawing from that looks, you know, very tempting to just pull from anytime you wanna buy a new toy or, or whatever. Have I got that roughly right or

[00:13:19] Mike: Yeah, yeah, yeah. It's as at the bank level as you said. And it's the envelope system effectively, but it's been translated to banks. I think the mistake people make is they say, well, I, I can just do this on a spreadsheet. You could, but you won't enforce it. 'cause the other part of Profit First is it's a behavioral intercept, meaning it's where you naturally go.

[00:13:39] Mike: So whatever your natural path is, we must put something in there that interferes it and derives us to where we want to go. My saying is, don't change your habits. That's very hard to do. Channel your habits. I know, Allan you're an exercise freak. I'm trying to keep up with you, and so I'm like, Allan Dib, which is like near impossible.

[00:13:57] Mike: So It's true though. It's [00:14:00] true, man. I saw you flex it out. I was like damn. You and I are going to a pool party in NashvilleI'm afraid when you take your shirts off, everyone's like, what the hell's going on? I'm like, Ugh.

[00:14:10] Allan: And then my now gonna be self-conscious.

[00:14:13] Mike: But here's what I did, because I wanna be committed to exercise like you are too.

[00:14:17] Mike: What I did, and I did this years ago, and I've reinstituted it, I put my sneakers on the toilet seat in my bathroom. The reason I do that is it's very easy for me to say, I'll skip the workout today, but when I wake up, the only way now to use the toilet, which I always do. Is to grab my sneakers. It's the intercept. I need to say, no excuse. Get back down, walk down to the gym and get the exercise. And today, and I've been, you know, pretty religious about it. Five, six days a week. Never less than five. And it's been transformative. Before I used to try to use discipline, and that's why people try to use their finances.

[00:14:50] Mike: They're like, ah, I'll just do it. No, you won't. You'll fall back to your old ways. You're human. We're all human. So we do this at the bank because most people log into their [00:15:00] bank accounts to see how much money they have. Now, before you spend a dime, you know what money's allocated to what purpose?

[00:15:07] Allan: Yeah, so discipline is you're trying to slay the dragon every day, and that, gets old, that gets hard. And so you're removing the dragon so you don't have to slay it every day, right? So, it's setting up your environment.

[00:15:17] Allan: You know, James Clear says, you know, don't swim, swim upstream. Just set up your environment so that it's conducive to the. Goal that you want to achieve. So whether it's fitness, whether it's finances or whatever. And that's what I love about Profit First, sets up that environment. You automatically, you know, how much is allocated. Taxes. You don't have to think, ah, I'd bet it transfer some for taxes. Oh, well maybe I might use it for something else. I might buy this machine or a laptop or whatever, right?

[00:15:44] Allan: So now you are essentially doing something similar for personal, right? So you've got a new book coming out soon and this is essentially to set up your environment for your personal wealth and your personal finances, so you're not.

[00:15:58] Allan: Having that situation where your [00:16:00] business is doing okay, but now your personal finances are struggling because again, you haven't set up some of those disciplines and some of that environment.

[00:16:07] Mike: That's exactly right. Now, the book It's called The Money Habit, and the reason I call it The Money Habit is because we, to James clear's point to your point, is we need to do something that triggers a habitual response to drive the outcome we want. Well, here's how the The Money Habit came about.

[00:16:24] Mike: I got a call from a business owner who installs garage doors. He did Profit First. He goes, my business is profitable. And he goes, I've actually found a way to do this for myself at home and my life is profitable. There's a bigger problem financially going on with my business than I've ever thought of.

[00:16:41] Mike: And I'm like, what could it be now? He goes, it's my employees. He goes, they're not sustainable. They're not experiencing or working toward financial independence. He goes, as a result, they have constant worry. They come to work and they say to me, you know, can you gimme a raise? I'm not ready for it, but I need it so badly.

[00:16:58] Mike: He goes, the problem is [00:17:00] mine. And if I can't afford them a raise, if they can go elsewhere. And get more money. They have to and they will. And if they can't get money anywhere, they're not worried about doing the garage door installation. He says they're worried about bringing home enough money to pay the mortgage.

[00:17:14] Mike: That's their focus. So he goes, their worry is my worry. So he goes, can you teach them? And I'm like, yeah, by all means. And I've always been thinking like, man, I should write a book about this. I'm like, how many folks? You got five or six, you know, small business. He goes, no, I have 900. I'm like nine. I'm sorry.

[00:17:29] Mike: What? He goes 900. I'm like, oh, it's a, it is a nationwide, called A1 Garage Door Services and the guy's name is Tommy Mello. And

[00:17:38] Allan: Yeah.

[00:17:38] Mike: Tommy, you know him.

[00:17:40] Allan: Yeah, I do. I did.

[00:17:41] Mike: so is Tommy. It was Tommy. And he goes, can you just, so we did a beta deployment with the, I think four 30 to 40 folks. And they've instilled it now as one of their teachings they,

[00:17:52] Mike: uh, have in their

[00:17:53] Mike: organization. Yeah, and it's been amazing. I learned so much in that process. Here's what I wanna share [00:18:00] is financial independence only comes about in stages. You first have to have financial clarity. You have to know where you stand, and by using the same system of accounts at your bank people who are not entrepreneurs or are entrepreneurs, we all log into our bank accounts.

[00:18:17] Mike: So now you see what money's available for a purpose. And now the purposes isn't like, you know, operating expenses. The purpose may be groceries or rent or mortgage. The second thing is once you have financial clarity that asserts financial control, now you can make decisions around it. I'm not saying you're gonna make decisions that make you feel good in the moment, like all of a sudden you're rich.

[00:18:37] Mike: But with clarity, you do have control. So one example is one of the people I was working with was concerned they couldn't pay their mortgage. They were always against the wall. And I said, okay, is that your biggest financial concern? They said, yes. I said, okay, here's what I'm gonna do. We're gonna step only one account to get started.

[00:18:52] Mike: We're gonna call it mortgage and every payroll check, you're gonna put enough money in to ensure that at the end of every month, your mortgage is always [00:19:00] covered.

[00:19:00] Mike: And they say, great. I said, how does it make you feel? They said, great about my mortgage, but I can't do other things. I said, well, what can you do?

[00:19:06] Mike: They said, I can't go to dinner every night. I said, that's called financial clarity. And now you have the decision is going out to dinner every night more important than covering your mortgage. I said, the mortgage more important. I said, okay, now we know we have to throttle down something. But before it, 'cause it's all blended, you actually don't know where the money's going.

[00:19:24] Mike: So with clarity, they have control. And with control ultimately comes financial independence. They also have the choice to say. I want to go to dinner every night and I wanna pay my mortgage. The only way for me to address this is by addressing other costs or by increasing my income. So I have to work harder or work differently in some capacity.

[00:19:41] Mike: But they needed that clarity without, it was all cloudy. Yeah.

[00:19:45] Allan: Hey, it's Allan here, ready to dive deeper into today's marketing insights? Head over to lean marketing.com/podcast. To get a full summary of today's episode, including all of the resources mentioned, go to lean [00:20:00] marketing.com/podcast. Now, back to the show.

[00:20:01] Allan: So is The Money Habit for people who are maybe working for someone else and you know, your income is fixed, it's coming into, your personal bank account or whatever. Or is it for entrepreneurs as well, where you've got some discretion you're deciding, okay, how much should I pay myself?

[00:20:17] Allan: How much should I reinvest into my

[00:20:19] Mike: great question. So I wrote it for both, you know, originally when I started it, it was originally just for the entrepreneur, and then Tommy opened my eyes to something radically different. Because the system is a percentage based system, it works in what's called variable income, including commissioned employees who have variable income or predictable income, which is more of that static.

[00:20:39] Mike: So it works in either scenario. But I did find that people who enter The Money Habit enter in a different, what I call season. So this is something I didn't talk about in Profit First 'cause it wasn't relevant. But some people come in and they are under such financial stress. Our primary focus has to be to resolve actually the financial debt and problems they [00:21:00] have because it's destroying their credit.

[00:21:01] Mike: It's destroying them in a lot of ways. Other people come in and maybe they wanna save for the future. I call that the fund season. And some people come in, in what I call the activate season, meaning I wanna spend more right now deliberately than I'm making because it's important for my life experiences.

[00:21:17] Mike: And historically that used to be you know, retirement but it's not, you know, my kids are turning 18, they're gonna leave the house forever. I wanna do one big family goodbye trip. And I'm intentionally gonna blow the money this year because of the experience it's gonna bring about. So we can volley between these seasons very quickly.

[00:21:38] Mike: The other thing I wanted to point out as you're, as you were saying, that is one thing that was interesting I'm working with one of these individuals. They happen to be an employee at Tommy's company. And he says, exasperatedly, he goes, gosh, if I could just win the lottery, that fixed everything.

[00:21:53] Mike: I'm like, I get it. And you know, kind of your $5 million story. I looked it up and the average lottery win was $2 million. [00:22:00] So I said, Hey, how would it feel? to win 2 million? He's like, game changer. I said, great. I said most people take it in installments over 20 or 40 years. Would you take in installments or would you want it all in one shot?

[00:22:11] Mike: He's like, probably installments, because I'm not that disciplined. I said, okay. I said, I want you to know something. If you're gonna take $2 million in installments, you are actually already achieved that. You already are gonna manage a million dollars in or $2 million, and here's why. The average income globally on US dollars is $50,000 on an individual.

[00:22:31] Mike: This is in first world countries, $50,000 annually. The average person works for 40 years in that lifetime. So 50,000 times 40 years is $2 million. So the irony is all of us, if you're doing the average or more, are making millions of dollars now. Over our lifespan. So the question isn't, how do we generate millions?

[00:22:52] Mike: You already got it. How do you control millions?

[00:22:55] Allan: So true and I mean, we've all heard stories of people who've won incredible amounts [00:23:00] in lottery, and their life has gotten much worse after the initial win. Okay? They bought the crazy stuff, the crazy house, gave it all away, but because they never learned how to manage that level of money, they just blew it.

[00:23:11] Allan: Like I, I saw a TikTok the other day and really hit. It said, imagine I clicked my fingers. I gave you the perfect body, the body of your dreams, you know, your muscular or whatever. Would you know how to maintain it? How long would it stay that perfect body? You know.

[00:23:23] Mike: Oh, that's such a good example

[00:23:24] Allan: You know, isn't it incredible? Like, would you know how to eat?

[00:23:27] The Reality of Financial Control

[00:23:27] Allan: Would you know how to work out? Would you know how to, whatever. So, you know, you only get to keep that stuff once you've got the skills. And once you've got

[00:23:34] Mike: that's right brother.

[00:23:34] Allan: you'll,

[00:23:34] Allan: you'll get to there. So I

[00:23:35] Mike: You know what's so funny is I've done this too. I watched someone else that's blown their money, you know, someone's successful. Oh my God if I had that money, I wouldn't screw it up. And that's a total lie. I think it's true. And the reality is when we feel that way in the moment, it's right.

[00:23:51] Mike: Because we do know how to work with, many of us kind of just paddle water and tread water with our current income. But our income or the money we have is [00:24:00] so much less than that person. We're like, I can get by with my X dollars and they're getting by with, they're not getting by with a hundred X. So clearly if I can get by with X, but the reality is once you're thrust in that scenario the Parkinson's Law theory kicks in and we expand our lifestyle instantly, uncontrollably.

[00:24:18] Mike: And the fact is, if you, to your point, if you can't control it now, you will not be able to control it then. So we have to assert control now.

[00:24:26] Allan: So how do you calibrate if you do control your discretionary how much you pay yourself for your income? You know, I could, let's say I've made half a million dollars in business profit. I could take the whole half a million pay to myself you know, invest in something or I could reinvest in the business. And a lot of my thinking in the past has been like, okay, if I take this profit, I'm gonna pay a whole bunch of tax on it, then I'll put it into the S&P 500 and make 7% or 8%. But if I reinvested in my business I'm not paying tax on that, and I'm then [00:25:00] making whatever my margin, 30, 40%, whatever it is, and it feels way more attractive to kind of invest in yourself than, you know, this boring post-tax

[00:25:10] Mike: totally, totally.

[00:25:11] Allan: whatever it is. So, so how are, how are you thinking about that?

[00:25:14] Mike: yeah, so what I'm thinking is.

[00:25:16] Innovative Business Strategies

[00:25:16] Mike: I think we have a misperception of what investment is. I don't think investment in my business is putting money in as much as is putting innovation in. I'll give a story to back it of the Savannah Bananas who now have international notoriety.

[00:25:31] Mike: This little team, they did this method, Profit First. I personally walked them through it. This goes back to when they were getting started. I met with Jesse and his wife and spent time in that little apartment they had where they started their business. They were on an air mattress back in the day, and they did Profit First. Jesse said when we were doing Profit First, we didn't have enough money coming in. They were such a startup to even pay for a scoreboard. Like they have a scoreboard for the games. He goes, we can't maintain it and we can't electrify [00:26:00] it. We're taking our profit. But what happened then, and this isn't because of Profit First, this is 'cause Jesse and Emily are amazing innovators.

[00:26:08] Mike: They said, how do you put on an entertaining game without a scoreboard? He's like, oh, you have the audience come in like between rings and a boxing match rounds and a boxing match. You have them hold the numbers up and how do you entertain an audience if you can't afford entertainers? You have the audience entertain.

[00:26:24] Mike: So you started the Grandma Bananas, the Nana bananas or whatever these old mamas dancing. They're 80 years older and people lose their mind. The lesson is innovation makes businesses stand out. And Savannah Bananas is so massive now they're selling out in the US American football stadiums, because baseball stadiums are too small.

[00:26:42] Mike: I mean, this place is bigger than national major league baseball leagues teams. The point is innovation. So he, going back to your question. $500,000 in your business may not yield a 10x return. It rarely does. It usually is a one time return because we do more of what we do.[00:27:00]

[00:27:00] Mike: Oh, we're gonna do 500,000, hire more people, run some ads. But if I say, if I'm not putting money in, how do I get people on board? How do I get new customers? Now I gotta start thinking outta the box. The cash in your own personal wealth, that's a cash reserve. And when, and life oscillates and change. When life goes down or business goes down. Sitting on cash is one of the smartest things you can do. And when you have no cash, you enter a desperate mode. That's why I'm investing in these businesses. These were businesses that kept on investing in themselves and they have no cash and they, literally hit a bad month, and the business now is in such dire straits because they're living check by check.

[00:27:39] Mike: So I work with these businesses. One of the biggest things we do is we're gonna reset we're gonna innovate. We're gonna get better than anyone else, and we're gonna do it without spending money because we're gonna save money. So we have a cash cushion.

[00:27:50] Allan: It's interesting how constraints, especially budget constraints turn on that innovation gene,

[00:27:57] Mike: Yeah, dude, China just kicked America's [00:28:00] butt. US in our infinite wisdom say we're not gonna send the highest end AI chips to China because we don't want China winning the AI race. And so what does China do? They say, okay, give us the crappy chips, or we already have them. We're gonna figure out AI in the system.

[00:28:16] Mike: So they leapfrog the US and that are doing it for one 100th the cost. And the US is like, what do we do? Plus we declared AI war. It's like, oh my gosh. Necessity is the mother of invention. Restrictions trigger leapfrog in innovations. The funny thing about money is the easy way to do what you already know very quickly, which is nice.

[00:28:39] Mike: Innovation and constraint of money is the hard way to redefine industries. And those are the businesses that win.

[00:28:45] Allan: An old mentor used to say, you don't need more resources. You need to be resourceful.

[00:28:49] Mike: Yes. Oh, I love that mentor. Yep.

[00:28:51] Allan: Very true. I mean, as soon as you've got some money coming in, it feels like the easier path than new hire. Instead of being more efficient, the [00:29:00] new, machine or whatever, instead of figuring out a way to make do with what you've got.

[00:29:04] Allan: So, I totally agree with that. And I know a well-known billionaire, he's got a HoldCo and one of the things that he does, even when he has a CEO and they're generating a lot of cash, he'll remove the money out of that main

[00:29:16] Allan: business's bank account and move it to the holding company's account and he'll leave them just, I think three months worth of cash or something

[00:29:23] Mike: I love it.

[00:29:23] Allan: that, yeah, because CEO sees a bank account full of cash.

[00:29:27] Allan: What are they gonna do? Right.

[00:29:29] Mike: Oh yeah, exactly. There's always a justification to spend it.

[00:29:33] Allan: That's it.

[00:29:33] Mike: It's funny with my own children. My wife and I were just talking about this last night. My oldest son who was the first one to get a car, and we had moved into a neighborhood where parents were buying their kids cars.

[00:29:45] Mike: So my son's like, okay, I need to get a car you know, for my birthday or something. They're like, no. You have to buy your own car. So he worked for four years in a deli. He made just a enough money, made like two or $3,000 in savings. He bought the biggest junker car. It's the [00:30:00] ugliest thing one light was out. We couldn't get repaired, and he was embarrassed, but he bought it and he drove this around when everyone else was driving around the new BMW or whatever. I asked him, like two or three years later, I said, how proud are you? He's like, I am so proud of myself. I'm so capable. This kid now was a kid who was a little bit introverted, uncomfortable.

[00:30:22] Mike: The kid is the king of confidence because he did it. And that's the effects of money. And if it happens with our kids, it happens with us. It happens with our businesses. Reserve the cash for your future to care for you. Don't just keep on inserting it to try to grow there.

[00:30:38] Mike: there's a better way

[00:30:40] Mike: inevitably.

[00:30:40] The Power of Compounding and Investments

[00:30:40] Allan: One of the things I regret not doing sooner is looking for long-term investment vehicles. And so where I live in Australia it's called superannuation. In the US I think similar thing is 401Ks. And in Australia at least, they're a very tax efficient vehicle. And I remember decades ago, I'm [00:31:00] like, why would I put money in into that?

[00:31:02] Allan: I'm gonna, you know retirement feel felt like forever away, right? You know? So now it's like, and not that I'm planning to retire or anything like that, but I'm getting, you know, closer and closer to the age where you can access that and you, that is meaningful. And from a tax efficient perspective, it would've been a good thing to do much earlier, right? So.

[00:31:25] Mike: And, and the compounding effect is so powerful. In The Money Habit I wrote, if you save a dollar a day when you're 20 years old. How much money you'll have. And what I did was I compared it, putting it under the mattress versus putting it in a low yield, say four or 5% account.

[00:31:42] Mike: And the first like five years, like a dollar a day, seven bucks a week over, it's three $50 roughly a year. You know, after five years you're talking maybe $1,500 under the bed mattress. If you did a bank, you're talking maybe $1,600. Like there it is not that big of a difference. The [00:32:00] compounding effect, which means the interest you gain also gains interest when you get to year 40.

[00:32:05] Mike: The difference was, and I don't remember the exact numbers, but say 50,000 under the mattress and 200,000 if you simply compound it. So it's the old thing, you know, when's the best time to plant a tree? 40 years ago. The second best time now for all of us. Get your money in some kind of interest bearing accounts and compound it. Keep putting it in.

[00:32:27] Mike: I studied all of like the financial experts of modern times, like the Warren Buffets and Anthony Rogers has this whole book on money. I looked at day traders, all of it. At the end of the day, there was two things that consistently outstripped everyone's performance was one compounding.

[00:32:43] Mike: Second was dollar cost averaging, meaning every day just keep putting money in. It doesn't matter how the stock market's doing, if it's up or down. Put it in those index funds. Index funds are the best funds for the average person. Actually, most day traders, like, I think it was only about 2% day traders ever be index funds.

[00:32:59] Mike: That gives you a [00:33:00] good hint. Just keep putting a dollar a day or whatever you can afford into an index fund or some other interest bearing account if you feel more conservative and doesn't matter where it is, just keep doing it. And those things, compounding and dollar cost averaging meaning just keep participating no matter what.

[00:33:16] Mike: Has yielded the best returns for people by far.

[00:33:20] Allan: All right.

[00:33:20] Implementing The Money Habit

[00:33:22] Allan: So, let's say we're all convinced The Money Habit's the way to go practically. How do I get started? How do I get implementing. Obviously we need your book.

[00:33:29] Mike: Yeah, Yeah. Read, right, read the book. It will serve you available at your favorite book score. There's two things. There's the full deployment, which I'll just give you a quick tease run, but then there's a simple, and I would start with the simple, the full deployment is. I found there's six key accounts that we wanna start with.

[00:33:43] Mike: One is an income account. That's where money flows in. This is at your bank, all your deposits for your household income go there. The next count is needs. These are essential needs for living. You know, we all need food, water we need a roof, shelter, overhead, basic clothing, and so forth. [00:34:00] so to support that, the next challenge wants, and the difference between wants and needs is, wants are the mini luxuries.

[00:34:06] Mike: Yes, we need food, but do we need caviar? Probably not. So

[00:34:11] Allan: We need nachos.

[00:34:12] Mike: We need nachos. Yeah, we need, yeah. And it's funny when, when considering it's something, a want or need, if you don't know it's inevitably the higher level. It's definitely want, like I need nachos.

[00:34:23] Mike: Well, maybe you want nachos, but you definitely need protein. So, that's just something that we need to distinguish. So once we're small luxuries.

[00:34:31] Mike: I think common for many people is need, is eating at home. Want is eating out as an example. Then the next level is dreams. So this is the fourth account, right?

[00:34:42] Mike: Dreams are for the longer term, large visions. So a dream for someone could be, I wanna go on vacation. A dream for someone could be, I wanna go out to dinner. It's all depending on our lifestyle. A dream for someone could be, I want a house or someone could be, I want a second house.

[00:34:55] Mike: So a dream are the longer term, big impact moments that you're looking for or [00:35:00] things. Then we have what I call fix or future. The account name changes. Fix is when we're eradicating debt. Future is when we're preparing for surprise. The future, the last account is emergency. The one predictable thing when it came to money and all my research was everyone had an unexpected event.

[00:35:17] Mike: Labeled an emergency and was not prepared for that. So we're gonna prepare for that. Always accounts, and I have it in the book, based upon the income you earn, I'm making 75,000 a year or making 175,000 a year or whatever. There is everything up to millions of dollars a year. You determine where you are on your income tier and it matches up to your season, and I tell you how to pick it.

[00:35:39] Mike: Are you recovering from debt? Are you preparing for a future? You know, we have that, and then I share the percentages that are the optimal percentages to be allocating to each account. And then you do that and you can see, is my lifestyle fitting in with this? And if it doesn't, what changes am I willing to make in my lifestyle?

[00:35:57] Mike: Or am I not willing to change my [00:36:00] lifestyle? Am I willing to compromise a different component of my life

[00:36:03] Allan: Hmm.

[00:36:05] Mike: But that's the advanced stuff like that, for some people it took months to get there when I was helping them. There's one thing you can do overnight. That's the game changer, and I already revealed it, but this is how you go about it.

[00:36:16] Mike: Ask yourself right now, every morning when I wake up, or every month, what is the thing that I think about most financially? What do I worry about most? Do I worry about the mortgage? Do I worry about the rent? Or what do I wonder about? Do I wonder if I can go on vacation this year? Can we really afford it?

[00:36:32] Mike: What is the thing that you think about most financially? Whatever that thing is, only set up one account at your bank and name it that. So if I worry about paying my mortgage, I'm gonna set up an account that says mortgage. If I'm wondering, can we afford to go on a nice vacation this year, I'm gonna set up an account that says, nice vacation. Then determine what's the amount you need. If it's a mortgage, perhaps every month, a vacation, maybe it's this year, but how much money do I need when that event happens, when that bill is gonna be stroked? [00:37:00] How much do I need in that moment? Then you back calculate today, and you start slicing up every paycheck, the proper amount to cover that.

[00:37:08] Mike: Now what it does is it assures that thing will happen, but also it puts a squeeze on the rest of the money. So money comes your bank account, we're transferring over to the mortgage account. Your mortgage. You'll see the rest of your deposit. Of course, now is reduced by that allocation. Can you live off of that or are you willing to live off that?

[00:37:27] Mike: Same thing with my vacation. My tour vacation, I see the net of now what's available for my income, and I have to make decisions. Can I live the rest of my lifestyle this way? And sometimes it's like, yeah, everything's fine. Other times it's like, oh, I'm living a little too large in these areas or maybe in some cases I'm not living large enough, like guys have money piling up and it's great.

[00:37:47] Mike: The day I die, I'll be the richest person in the graveyard. I'm not living life now. And so by saving just one account, you start bringing, I call it a clarity account. You start bringing clarity to how your money's working, and then this is [00:38:00] natural over time to open additional accounts and really step into the full system.

[00:38:05] Allan: I'm a bit of a freak for Reddit. You know, someone

[00:38:07] Mike: Oh, I love Reddit.

[00:38:08] Allan: A bit of a geek, but one of my favorite subreddits is it's called Fat Fire. So FIRE stands for financially Independent, Retire Early and Fat Fire is like doing it at a large level. And often one of the most common conversations in Fat Fire is, Hey we've got a net worth of $15 million. We've got, you know, monthly expenses like this, that and the other, and they've built up a massive reserve of wealth or whatever, and they're scared to spend money.

[00:38:37] Allan: Like they haven't developed the skill of how do I allocate and spend money, so they're worth sometimes 40, $50 million. And I'm like, you know, I hate I hate the business I'm in, or I hate the role I'm in or whatever, but, you know, I'm kind of worried about retiring or whatever and you know, a lot of people will go, come in there and go, bro, like you, you know, just from interest you're gonna

[00:38:56] Mike: Yeah, Yeah. You're gonna make it.

[00:38:58] Allan: Yeah.[00:39:00]

[00:39:00] Mike: But there's two things that happen. So I looked into this too. It's the Ebenezer Scrooge Syndrome.

[00:39:04] Allan: Yes.

[00:39:05] Mike: That we get so into a routine habit of preserving that we go into, well, I just need it for one more day, just one more day of this and then I'll be fine. That day comes and you're like, just one more day tomorrow.

[00:39:19] Mike: And it's says forever, tomorrow syndrome and becomes so wired into us. So of course I share the extreme story. I can't remember the person's name. He was a British guy who's the source of Ebenezer Scrooge he was worth in today's standards, hundreds of millions. He was eating rotting, spoiled food because he didn't want to pay for food.

[00:39:36] Mike: He was pulling out the garbage and stuff. You know, it's a mental disease ultimately.

[00:39:41] Mike: But another story is I'm in a group of entrepreneurs that we started meeting almost 30 years ago now, and we meet every year. We decide to be a group into perpetuity. It was a hundred of us and some of these business, there's some very successful businesses people listen to the show, they'll know those companies.

[00:39:57] Mike: One of the guys stands up he goes. I just [00:40:00] surpassed a hundred million dollars in wealth. And he goes, and I've never felt so scared in my life. He's like, I'm so afraid of losing it. All of a sudden, people are popping outta the woodwork saying, they're my cousins, they're my friends. I owe people. He goes, I don't trust people because I don't know if people are trying to be my friends because they want access to something outside of me and they want access to my money or my influencer network, and I can't even trust people anymore.

[00:40:23] Mike: He goes, it's been terrifying. He's like, I always wanted to be financially independent. And he goes, now I'm financially trapped. It was shocking. And there are ways to navigate that. But it is also a real challenge. So that's common too for some people.

[00:40:39] Allan: It is a real challenge and I mean, I can't remember exactly when it happened, but I definitely had an inflection point where, you know, time is now starting time is way more valuable than money, right? So early on it's like you'll spend whatever time to save money. You'll drive across town to save some dollars on this, that, or the other, [00:41:00] or, Hey, I'll do this myself rather than hire someone or whatever.

[00:41:02] Allan: And then, it flips and there's an inflection point. And, you know, time becomes way more valuable than money. If I can save an hour, I will spend them the huge amount.

[00:41:13] Mike: Yeah, yeah, yeah, yeah, yeah. Exactly. I, myself, I actually mentioned in the book I'm on this almost like teeter-totter of time, money right now. And there's the moment that comes when time's everything. And it happens for all of us. Some of us, unfortunately, it may happen in the last minutes of our lives, that we realize that others hopefully sooner.

[00:41:32] Mike: And I have absolute clarity on that now too.

[00:41:34] Allan: So the big vision for Profit First was always, you know, being able to, and, you know, I'm kind of paraphrasing, correct me if I'm wrong, but it's like, having business owners kind of be have successful businesses that pay them a profit.

[00:41:48] Mike: Exactly.

[00:41:48] Allan: That's the bigger vision. What's the big vision with this book? What are you aiming to do?

[00:41:52] Mike: Yeah. So for the entrepreneurs, it was, it my mission, I have a statement to eradicate entrepreneurial poverty. Which is this perception of what [00:42:00] entrepreneurial success is and the reality of what people are doing as entrepreneurs. The struggle and it's deep, and it's not just financial, it's time and so forth.

[00:42:07] Mike: What I'm trying to do with The Money Habit is to alleviate worry. And it's literally that simple. When I went through my interviewsand it was over a thousand people now that we surveyed or talked with informal surveys or formal. And the biggest worry is financial. Now, I'm not saying that alleviates all your worries, but it is so foundational if you don't know if you can put food on the table or pay the mortgage or something like that.

[00:42:39] Mike: That's a constant worry and money addresses that. But the other worries with money is, you know, will I ever be able to retire? Is this my lot in life? I just have to work every day like an animal? That can be addressed too. The interesting thing to what we're discussing, it doesn't come with more money.

[00:42:58] Mike: It comes with financial understanding and [00:43:00] control. And so listen, it's not gonna bring about world peace. I think it's a step in the right direction when people can be worry free. So that's what I'm trying to do.

[00:43:09] Allan: I totally agree. I mean, the getting rid of the worry, but also I think there's a self-esteem component. It's like you know, I think of money as thank you notes, right? And so,

[00:43:18] Mike: I love that.

[00:43:19] Allan: If you're getting lots of thank you notes you're creating value in the world. And, you know, a lot of people are recognizing that value.

[00:43:26] Allan: I mean, it's two things. One is to create value, the other is to actually capture a piece of that value. So they're that's a totally different discussion. But when you ask people why so often I'll have the discussion with an entrepreneur. He's like, I wanna get to 10 million in revenue.

[00:43:39] Allan: Why I wanna make $2 million in profit. Well, what if we got to do the $2 million in profit and we didn't do the 10 million, we it 5 million or whatever. Like, oh, well, but I also wanna get to 10 million because it, you know, there's an ego thing.

[00:43:51] Mike: There's an ego thing.

[00:43:52] Allan: And that's totally fine, no problem.

[00:43:53] Allan: Like, but let's get to the root cause of the thing. And often when you ask why enough, it's like, it comes [00:44:00] down to a few things. It's really, you know, I wanna be a hero to my family. I don't want my wife to worry about money, or I don't want my kids to, you know, struggle like I struggled or whatever it is.

[00:44:10] Allan: So a lot of times the why, you know, we talk about money and depending on how you were raised, you know, some people were raised to say, Hey, we just don't talk about money or those kind of things. people have a lot of hangups about it, but a lot of times it comes down to. You know, having an amazing lifestyle, being able to live the life that you know you should be living or wanna be living and have freedom. So, I love having discussions about money be and getting rid of all of the sort of taboos around money. And, people have more hangups about money than sex or

[00:44:41] Mike: It is totally true. totally true.

[00:44:43] Allan: Mike thanks very much. You've been really generous with your time. So the book is The Money Habit. Everybody should get it. It's the spiritual successor to Profit First, which has had an incredible impact like I said. I basically can't go to any conference with any number of successful people. Not [00:45:00] hear about Profit First. I listen to a podcast, someone's recommending it. So yeah, you've really made a huge impact and I know you'll do the same with The Money Habit.

[00:45:08] Mike: Allan, thank you so much. I appreciate you. You're a great friend.

[00:45:11] Allan: My pleasure. Thanks, Mike.

[00:45:12] Allan: Thanks for tuning in to the Lean Marketing Podcast. This podcast is sponsored by the Lean Marketing Accelerator. Wanna take control of your marketing and see real results with the Accelerator. You get proven strategies, tools, and personalized support to scale your business. Visit lean marketing.com/accelerator to learn how we can help you get bigger results with less marketing.

[00:45:36] Allan: And if you enjoyed this episode, please leave a review or share it with someone who would find it helpful. See you next time.

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