Our interview with Michelle Waymire, Founder of Young & Scrappy was so well received, that we invited Michelle back to share more advice! The following is a guest post from Michelle!
Keeping The Money Magic Flowing: How to Pay Yourself as an Entrepreneur
Guest Post from Michelle Waymire
When it comes to managing your finances as a business owner, there’s nothing more fundamental and exciting than actually paying yourself what you’re worth. And yet, many of us struggle with this. There’s often a tendency to put our own needs aside in order to support the business, grow it, or invest back in our work.
Makes sense: it’s totally natural that you want your new business baby to succeed… but I would argue that paying yourself is the most critical part of making sure that your business works for you and remains a sustainable part of your life.
So how can we do this? What’s the best way to make sure you’re actually getting the hard-earned dollars that you deserve?
Here are some of my favorite tips.
- Make the commitment.
It’s important to start with your mindset first, because that is what ultimately motivates you and gets you excited about making this big step. So the question is: why do you want to pay yourself? What important parts of your personal life are you supporting by doing this work? How do you feel when you know that your business is designed to support you, not the other way around? Is there anything you’ve been putting off buying or doing because of your lack of income? Really dig into your “why” here and get excited about making that money!
- Figure out how much you need.
I believe this first starts with a thorough understanding of your personal budget. Take the time to outline everywhere your money goes on a regular basis. This can include highly consistent and necessary things like your rent, utilities, debt payments, subscriptions, and anything else that you need to survive. Then, make a list of everything that you would spend your money on if you had extra. This might include dining out, entertainment, savings, and anything else that adds value and joy to your life. Add all of these numbers together and you’ll have a sense of what your business after-tax take-home pay will need to be in order to survive AND to thrive.
- Compare your personal needs with your business income.
If you’re at a place in your business where you’re fairly established, you might find that you can already afford to pay yourself what you want to be paid. On the other hand, you might not be able to fully meet all of your personal needs from your business just yet, and that’s okay. Don’t forget: it’s a PROCESS. Even starting to pay yourself a little bit from your business will be an important first step in getting to a more abundant place later on.
- Consider adopting the Profit First methodology.
The Profit First system, created by Mike Michaelowicz, is a great cash management system that allows you to mindfully allocate your income to all of the areas that are important in your business: Owner’s Pay, Business Expenses, Taxes, and Profit. By using the system, you are carving out a bank account for each of these items; every time you get paid, you then divide that payment into those separate accounts.
Profit First is also a great tool for giving yourself parameters about what you can afford for each bucket, because Michaelowicz gives some great recommendations about what percentage allocations might be right for businesses of various sizes. For example, a business making less than $250,000 per year might allocate 50% for Owner’s Pay, 15% for Taxes, 35% for Business Expenses, and 5% for Profit. That way, when you go to make a business decision, such as how much to pay yourself or whether to invest in something for your business, you can see what’s actually in that account and make an informed decision based on the money that is actually set aside for that purpose.
- Remember that you have control over your paychecks.
If you think about previous jobs you might’ve had, one thing that we business owners often take for granted is that paychecks that are highly consistent, with the same dollar amount each time. But if you’ve ever had an employer miss a payment or give you a late paycheck, you’re probably familiar with the ensuing rage spiral. Some good news for you though: you have the opportunity to be the best boss you’ve ever had, so taking care of yourself as an employee means making sure you’re paying yourself in a timely and consistent manner.
You may want to set a conservative number if you’re just getting started, but I definitely recommend you give yourself a system to pay yourself the same amount on the same date(s) each month. If you have a good month, this can also help you avoid the dangerous trap of overspending, because you’re used to timely and consistent payments. Good months will become less of a free-for-all, and more of an opportunity to allow money to build up in your Owner’s Pay account as a buffer. That way, if you do have a slow month later on, you’ll be able to dip into those reserves and maintain the consistency of your transfers. Say goodbye to that income rollercoaster, baby!
- Have fun!
I firmly believe that paying yourself can be one of the most joyful and abundant things you can do as a business owner. It’s a sign that all of your hard work has come to fruition and that you value your own time and expertise. Allow yourself to feel that deep sense of gratitude and satisfaction each time you pay yourself, and that will help keep you high vibe if things get tight.
What other tips do you have for paying yourself consistently? What other tools and hacks do you recommend for people looking to do the same? Leave us a comment below so we can all share that good money magic!
Michelle Waymire is a fiduciary financial advisor and financial coach, as well as the founder of Young & Scrappy, a specialty practice geared towards serving young professionals, entrepreneurs, and LGBTQ+ folx. Michelle holds her MBA from the University of Tennessee, is a Chartered Financial Analyst (CFA) charterholder, and has been quoted/featured in US News, Glamour, Bustle, local NPR, and many more. You can read about her work at www.youngandscrappy.com.