The Science of Flipping - Pay Yourself FIRST

Starting point is 00:00:00 Now, most of you guys are operators that listen to me, and I understand that, but I want you to start thinking as an owner. The hustle days can make you a lot of money, but the CEO is what makes you personally a lot of money. Yo, yo, welcome back to the Science of Flipping podcast. I am your host, Justin Colby. On this episode, we are going to be talking about paying yourself first to make sure you can pay the bills. As always, this episode is brought to you by our main sponsor, MinutePages. about paying yourself first to make sure you can pay the bills as always this episode is brought to you by our main sponsor minute pages go to minute pages

Starting point is 00:00:51 calm if you are looking for an incredible website with all the SEO capability that you need to build credibility influence and authority for your real estate investing business this This is the websites I use, and it is incredibly affordable. Not only that, any homeowner, agent, contractor, they want to know that you have some authority in the space, that you're not just a newbie with no presence. Make sure you go to minutepages.com to get your website now. All right, guys, let's jump into this because I think it's something super, super important. As I have coached thousands of real estate investors, I'm part of several masterminds,

Starting point is 00:01:32 and I actually just came back from a mastermind, the boardroom mastermind, as a matter of fact. It's incredible. And one of the things that was somewhat of a common theme were people were making a lot of money, I mean a lot of money, but not exactly paying themselves what they wanted. So the first thing I would make the argument for is you have to understand and believe that you need to be able to pay yourself first.

Starting point is 00:01:57 There's an incredible book out there called Profit First by Mike Malkowitz that in general talks about how an entrepreneur should be able to profit first, meaning pay themselves first. And there's a whole system to what he lays out. Well, I'm not going to go through that whole system, at least not right now on this episode, but I will talk to you about the basic fundamentals of what I believe you need to be doing as a business owner. Now, the first thing is I wanna make sure you understand

Starting point is 00:02:26 there is a difference between an operator and an owner. The operators negotiating deals with the sellers, selling deals to your buyers if you're wholesaling, meeting with contractors, accepting real estate or rehab bids, I should say, that is an operator. You are doing the functions of a business. An operator, a lot of times doesn't think or act as an owner. An owner is the type of person thinking and acting to figure out numbers, profitability,

Starting point is 00:02:56 etc. Now, most of you guys are operators that listen to me and I understand that, but I want you to start thinking as an owner. The hustle days can make you a lot of money, but I want you to start thinking as an owner. The hustle days can make you a lot of money, but the CEO is what makes you personally a lot of money. Now, I hate to see it and I myself have gone through it where I've had years, multiple seven figures, and I quite literally paid myself $90,000. The business made multiple seven figures and I personally made $90,000. That's just insanity, right?

Starting point is 00:03:29 In that case, I should have just went and got a job and not dealt with all the headache and heartache that comes along with being an entrepreneur. So this episode is about the very fundamental basics that you need to be thinking about and changing right now. First things first, you need to know personally what your expenses are. I don't mean expenses like vacations and really expensive dinners and bags for your wife or a car for your husband.

Starting point is 00:03:59 I'm talking about literally every month, what are you paying for? Your mortgage, your car payment gas car insurance homeowners insurance all of the normal monthly expenses in your life an allocation budget for food grocery shopping maybe you go out to dinner every other week but it shouldn't be excessive this is a need not a want that's the first point here. You need to know your personal finances. For some, you might have a personal budget every month. That's roughly $6,000 all in, right? Others may have a little bit of a bloated number. They have three or four kids. Maybe they

Starting point is 00:04:39 have more cost in their life, private schools, et cetera. I'm not here to judge anything. I just want you to understand what is the actual number. The best way to do that, my accountant forced me to do this, which is not fun, but I had to go through all my debit charges in the bank statement, as well as my credit card charges every month. So I added that up for about six months,

Starting point is 00:05:01 and then I took that total and I divided by six and that was my number right now obviously within those numbers there are some wants and if you're not watching this on YouTube I encourage you to is this a good video go to youtube.com forward slash Justin Colby make sure you subscribe make sure you like this video and if you're listening to this on iTunes give me a five-star review. I'd greatly appreciate it. So I had to make sure I wasn't adding those wants, which were nicer things and maybe some purchases. I wanted to remove those because those weren't really my monthly expenses. So I removed

Starting point is 00:05:36 all the things that really were outliers, whether it was a vacation or whatnot. And then I added those up for six months and I divided by six. And that was my monthly expenses, like what I actually needed to make every month. Now, once you do that, you realize I want to make more. Everyone will. Like, I don't care if you're making $100,000 a week, you're going to want to make more, right? That's just kind of human nature. So now I want you to understand what is your want? What is your want of income, right? I need, let's just say $6,000 a month. What do I want to make? Well, the easiest way I would look at that

Starting point is 00:06:13 is to just 2X your need. So in that example, you have $12,000 a month is what you want to make. Now that number's not like super thrilling and you're kind of eh about that number. Maybe you wanna. Now that number is not like super thrilling and you're kind of about that number. Maybe you want to three X that number, right? So instead of 6,000, maybe it's 18,000. Now you might get excited, but you need to know what you want to make. Cause very hard for me or anyone to help you get to a number that you want without actually knowing

Starting point is 00:06:42 the number, right? Don't just just give me i want to make as much as possible great that's irrelevant i'll never be able to help you no one can help you when you do that now you know what you need you added up all your credit card statements all your debits and your mortgage payments your car notes all the auto debits that come out of your bank account you added them up for six months you divide divided by six, now you know what you need. You 2x or 3x that, now you know what you want. Now you need to start thinking like a business owner and make sure you're profiting or paying yourself first. As someone who came out of a business partnership, this was a conversation at length many, many years, right? About making sure that my business partner at the time, I was single. I had no wife, no kid, no nothing. I was able to live a lot leaner than my partner

Starting point is 00:07:32 could. He had a child, an ex-wife, a current wife, et cetera. His living expenses were higher. So for him to work effectively and efficiently, he needed to make sure at minimum his bills were paid. And that's what got us down the path of Profit First, the book, to make sure that we understood that. But before that, I had no recognition of profiting first, paying myself first. And so that's why I bring up this episode. You need to be. Now there's an equation, sales minus expenses equals profit. Well, so flip it around a little bit. Go sales minus profit equals expenses. You need to pay yourself that $6,000 every single month.

Starting point is 00:08:14 And then the operator, not the owner, the operator needs to go do whatever it takes to make sure at very minimum, there is $6,000 a month profit every single month. If you start there, it'll change the way you think, which will start changing the way you act. This isn't the want, this is the need. So we need to start by making sure every single month you pay yourself $6,000 a month, period, end of story. There is no not paying yourself. One of the mastermind members, great guy, very successful as a matter of fact, but

Starting point is 00:08:45 he's able to live pretty lean. So he doesn't pay himself right now. And he hasn't for months because he hasn't quote unquote needed to. Well, that's still not the right way to run the business. So my point to him was what I'm making to you now, make sure you put yourself on a payroll, something that maybe you need is maybe not a want. You don't have to live lavishly, but make sure you're running the business on the right fundamentals. So I encourage you to do that first. So that is step number one. Know what you need to make. Need. Literal need. Make sure you pay yourself that every single month. Know what you want to make, which is usually 2x or 3x what you need.

Starting point is 00:09:30 And then I can help you structure the rest. But end of story, make sure you're paying yourself first. Sales minus profit equals expenses. That's the formula I want you to be thinking about. And that's how you can go about creating income right away, not just waiting until you have massive paydays. I hope this finds you well. I hope this was helpful because I know that several people are living lean and not paying themselves. That is the wrong way to run and start a business. Make sure as revenue comes in, you are paying yourself each and every time. Again, if you have not yet subscribed to my YouTube channel, go to youtube.com forward slash Justin Colby subscribe. Also make sure you give me five stars on iTunes and, uh, I will see you guys on the next episode. Peace.

The Science of Flipping - Pay Yourself FIRST

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