My Simple System to Paying Yourself
When you first started building your business and someone gave you your first 50 bucks, were you like, “Oh my gosh! Now, what do I do?” A lot of times people just put this in their bank account and then it’s used somewhere else. Well, I want to make sure you are getting paid, so here’s my simple system to paying yourself.
I have a friend, Lisa Funk, who asks me every time I reach a business goal or sell a business product, “What are you going to do to celebrate?”
Too often we plow through the good parts instead of taking a moment to breathe in that success and tell ourselves that we did a good job.
Part of rewarding yourself is paying yourself FIRST. Yes, I pay myself first and it’s probably the best thing for my business. I’m able to see my business grow and see the money increase and how it’s blessing my life rather than wondering where it went.
My simple system to paying yourself is key for anyone with a business. No matter how much money you make, you need to be taking care of your money.
I learned my money management habits for my business from the book “Profit First” by Mike Michalowicz. I recommend this book to anyone building a business. The practices he teaches are just so amazing and now I’ve seen how it’s helped grow and sustain my business.
To help you get a better idea on my simple system to paying yourself, I’m going to list out my five different accounts and how I use them and what I do to maintain them every month.
My Five Business Accounts
1- Operating Account
This is my account where money comes in and out every month that helps my business operate. I use this account whenever I pay my bills, subscriptions, my contractors, etc. This account makes money whenever someone buys one of my courses or products or when I get paid from my clients.
2- Savings Account
This is where I build up a 6-month fund of operating expenses. In other words, I make sure I have enough money in this account that if I needed to use it, I could still operate my business for at least 6 months without getting paid.
3- Tax Account
This account is important to have because it’s a place for you to build up your money over time to get ready to pay your taxes when that time comes around. No one wants to be scrambling last minute to gather their tax amount due!
4- Personal Pay Account
This is exactly what it says–my account where I pay myself (first). At the end of every month, I pay myself, all my bills, my contractors, etc. I pay myself first because I want to make sure I am getting paid for the work I am doing. I’m a firm believer in paying yourself every time you do something for your business.
I keep this account separated from my family account. I like to know how much I’m making from my business separate from my overall family income. That way, if I want to make a purchase and need to know if I can afford it, I can come to this account and know right away rather than guessing because the money is mixed in with other income and expenses.
5- Investment Account
I have money automatically transferred from my operating account to my investment account every month. If I had to go in and think about how much money to invest, I’d probably never do it because I’d never think I had the money to do so.
Once your business is making a good amount of money, setting up an investment account, and setting up the auto pay to it, is a huge contribution your future self will thank you for!
How I Use my Accounts to Pay Myself First
In my operating account, I have a maximum threshold. Any money I make that is above my maximum threshold is money I transfer to my savings and tax accounts. I transfer about 25-30 percent of the extra amount to my tax account and I transfer the remaining 70 percent to my savings account.
I determine my maximum threshold number by knowing how much money I want in my operating account at all times. For me, I want at least one to one and half months of operating expenses in the account. I chose this amount because I don’t want any surprises. If there’s an automated payment on a bill or subscription I forgot about, I don’t have to worry about there not being enough money to pay for it.
Here’s an Example:
Let’s say your maximum threshold is 10 thousand dollars (meaning the amount you always want in your operating account). You got paid for your business and now there’s 20 thousand dollars in your account. Now you have an extra 10 thousand dollars (20k-10k) to transfer to your tax and savings accounts. 25 percent will be sent to your tax account, so about $2500. And your remaining 70 percent, $7500, will be transferred to your savings account.
I love my simple system to paying yourself! I keep my revenue organized and I’m able to actually see where my money is going. I’m able to make plans on how to save and spend my money, when to give myself a raise, and more because I keep track of my money.
And biz sister, I want this for you too!
Do What Works for You
I want you to be able to adjust my system in a way that works best for you and your business. I have a set amount I expect to make every month, but if your profit widely varies every month it’s OK to make adjustments.
I have five accounts, but maybe you will only have three or four. It’s up to you. I would say, an investment account should be added last. First, you want to focus on building up your savings account and once you start to see more money come in then you can think about an investment account.
The best way to set this up is to go to your bank and add the accounts. This doesn’t have to be a hard or confusing thing. Setting up these accounts will help you feel so much better about the money you’re making and tracking where it goes. You’ll be able to pay yourself first and still meet your money goals!
If you have questions about this, feel free to ask me on Instagram @iammichellegifford. I’d love to help. I’d also love to hear about how you paid yourself too! If you are doing something to reward yourself, like getting your nails done, take a picture and tag me in your stories!
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