One of the questions I get asked most is, “How much should I pay myself in my business?” The honest answer: there’s no single clear-cut number. But there is a simple, repeatable method for figuring out your number — and this post walks you through it.
First, a pet peeve I have to get off my chest. You’ve seen the online entrepreneurs posting about how much money they “made” — but that figure is almost always total sales, not the cash they actually kept. They rarely mention expenses or take-home pay. Worse, some use those big numbers to sell you a program promising you can do the same thing (and the program often just teaches you to advertise how much you made so you can sell the same promise to someone else). A lot of people desperate to make money end up wasting it that way.
So before you decide what to pay yourself, you need to know what your business is actually making. If your business is your full-time income, you need to pay yourself enough to cover your personal bills — so your first job is to find the bare minimum you need to cover both your personal bills and your business bills. That number is the minimum your business must bring in. Just remember it does not yet include taxes, savings, or money to reinvest.
Where do you start with paying yourself?
Start by deciding the minimum you want to receive. What salary do you want to pay yourself for the whole year? Then break it down to a monthly figure.
For easy math, let’s say you want a $60,000 salary for the year. That breaks down to $5,000 a month. This is before taxes — it’s the base salary you’ll pay yourself, the amount you can’t imagine going below. If the business is your only job, make sure it covers your personal bills with maybe a little left over.
There are other ways you’ll add to your pay throughout the year (we’ll get to those), but this base salary is the foundation. Once you’ve set it, you can move on.
How to split the money in your business
Now you have two key numbers: your base salary and your minimum monthly business expenses.
- Base salary: $5,000/month
- Minimum business expenses: $1,000/month
That means your business needs to bring in at least $6,000 a month just to cover the minimum bills. But if you’re also reinvesting and saving for taxes, you need to be making considerably more than that.
Let’s use a fuller example — plug in your own numbers as you go. Say your business typically brings in $20,000 a month:
- Pay expenses and your base salary first. From the $20,000, cover your $1,000 in expenses and your $5,000 base salary.
- Set aside money for taxes. Save 30% of total revenue — and probably closer to 40-50% once you’re consistently making more than $30,000 a month. On $20,000, that’s $6,000 into your tax savings account.
How to split what’s left after expenses and taxes
After setting aside $6,000 for taxes and paying $6,000 in expenses and base salary, you have $8,000 left over.
My recommendation, from a professional accounting standpoint, is to split that remaining amount in half — keep half in the business and take half for yourself:
- $4,000 paid to you as additional salary
- $4,000 kept in the business
You can use the money that stays in the business to invest in resources that keep it growing, or save it for something down the road. And don’t forget your business emergency fund — keep that well funded, too.
Why put so much away for taxes?
Many business owners don’t increase their tax savings as they start making more — and then tax time arrives and they’re stressed, unable to understand how they owe so much when the money isn’t in the bank.
When you save consistently before you spend, the money is already set aside when the bill comes due. (And don’t forget to make your quarterly estimated tax payments.) Paying taxes is simply far less stressful when the cash is already waiting for it.
A six-figure business doesn’t equal six figures in your pocket
This is exactly why it grates on me when people advertise how much they “made” in a month, week, or year — they aren’t showing the whole picture. As you can see from the example above, not even half of the income ends up in your pocket. Total sales and take-home pay are two very different things.
Do I have to follow these exact percentages?
No — you absolutely don’t have to use these percentages. But they’ll help set you and your business up for long-term success. You don’t have to pour every dollar into more courses, masterminds, coaching, and shiny objects.
I’m an accountant, and I’m sharing these percentages to help you pay yourself a decent salary and save for taxes. Use your own numbers if these don’t fit — just know that all of this is part of running a business that most people never talk about. It can be hard to accept that you won’t take home as much as those big “I made $X” posts led you to expect.
Paying yourself: the bottom line
It always starts with a base salary you commit to paying yourself. From there, split each month using the percentages above — pay yourself, save for taxes, cover expenses, and reinvest. Adjust the percentages as you see fit, but these come from a professional accounting standpoint and they really do help.
The more your business grows, the more you’ll have for both the business and your own pocket. And if you start with this structure early, it’s much easier to stick with as you scale.
All information here is for general educational purposes only and may not reflect recent changes in federal or state law. It is not intended as legal, accounting, or tax advice. Always consult a tax or accounting professional about your specific situation before taking action.
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