If you are running your own business you need to set a salary for yourself, not to just draw from the business as needed. It may be hard when first starting out but you need to set a pay level for yourself and stick to it. Its all part of the business. You should have your cost of goods, overhead, SALARY, and profit. To many think that the profit is where your money should be coming from. I was one of those, lets start off how I have been doing it (I cringe as I write it)
a long time ago, in a galaxy…
well ok not that old, but since I started doing photography full time in Jan of 2010 I really havent kept things too separate. I do have a business account separate form my personal but didnt really differentiate the money from business to personal. I figured since it is all lumped together (sole proprietor) for the IRS then its fine for me. I would just use the company debit card to buy groceries, gas or whatver. At the end of the month I would transfer some money to the personal account to take care of the mortgage, car and other auto payments. As you can guess this made it quite difficult to track items when it came time for tax purposes and the biggest headache was if I didnt transfer money in time I would often become over drafted and face fees.
Another big issue is all this money sits in a non interest bearing account. You see I had this weird thing going that I liked to see large amounts of money in the business account, made me feel successful. I would once in awhile look at it and decide that I could move a bit over to my money market but I didnt like seeing the account below 15 or 20k.
I also was not worrying about taxes until they were due, which if have done that you know how much of a sticker shock it is when that time comes. This includes sales tax which is due quarterly.
In this manner I was only paying myself the scraps left over from the business and not putting the money to work for me efficiently. This would cause late fees that work against me and money just sitting around. Something had to change.
The New Style
So here is how I do things as of Oct 1st.
[div class=”approved” class2=”typo-icon”] Each Friday I transfer from the business to personal checking $950. This is a bit over what is needed to cover the personal side of my budget. This may change upward a bit in the near future as I refine the budget. From this I transfer the following to sub savings accounts:
- $25 into Property Tax account (wife also contributes $100 a month)
- $100 into Income Tax account
- $35 into a Medical account
- $25 into a Pre-Investment account
- $25 Cash Savings/emergency account
- $25 House Improvement account (wife also contributes $100 a month)
[div class=”approved” class2=”typo-icon”] Each Friday I also transfer all sales tax collected that week from the business checking into the business savings.[/div]
[div class=”approved” class2=”typo-icon”] All bills have been placed on auto payment to eliminate late fees.[/div]
[div class=”approved” class2=”typo-icon”] At the end of the month I will evaluate how the business did, making sure all its bills and budgets are covered (creating virtual buckets for capital expenses, props, etc) and any left over money will be distributed between back into the business, savings, investments and accelerated debt pay off.[/div]
[div class=”approved” class2=”typo-icon”] All income from secondary sources will be diveded 25% into income tax account, 25% accelerated debt and 50% pre-investment[/div]
Once I get my Simple IRA moved to a brokerage that I can once again add to it easily I will also add $96 a week to it. This will max out my $5k contribution by law to my IRA.
Thats it! I hope this will provide for easier tracking of where the money goes as well as budgeting and being better prepared for how it needs to be spent.
If the current amount falls short I’ll just ask the boss for a raise 😉
Are you self employed? If so do you pay yourself (a real salary)?