So you run your own business which means you are the head honcho in charge of all those dolla dolla bills, y’all. I know numbers and finances can make some a little hivey, but honestly, it gives me such a thrill to dig into that data because there’s SO much freedom when you’re the one calling shots and cutting checks. It gives you all kinds of autonomy for choosing where to grow, invest, and plan. But I realize there’s this sorta major detail that may be causing you to wonder “WHAT THE HECK?” as you navigate it on your own, and that’s figuring out your salary as an entrepreneur.
Woof. Where to start? And how do you know what number is right? That’s what we’re talking about today because no matter if you are a side hustler, solopreneur, or you sell services or products, or anything in between… You deserve to feel confident about where your money is going and how to plan for the future without feeling like your head’s going to explode. Here are my rules to live by.
1. Determine your monthly needs.
Okay, maybe you’re like: Durrr, Jenna. This one’s a bit obvious. But maybe not! Because until we dig into our expenses and look at where we’re spending our money, you may not really, actually know how much money you need to live on to get by. What are you spending money on that is actually a necessity? Your bills, your rent or mortgage, your groceries, your debt payments, like car payments and student loans, and your health and wellness costs are all necessary, right?
Then look at your less-necessary, but still important (and maybe easier to cling onto with white knuckles) expenses: eating out, shopping, travel, extras, entertainment. I mean, I’m sure that Ariana Grande concert you went to and a few stops at Chick-fil-A were super life-changing, but necessary? Probably not…
Now, I’m not saying you need to just STOP spending money on the things you love, but determining a limit in those areas is really savvy because then you won’t be derailed from your money goals every time you see a sale or “need” to book that next girls trip just because you have the cash to do it.
One super helpful way to monitor your necessary and unnecessary expenses is with a budgeting app, and there are SO many. You can try Mint to track and manage your money, You Need a Budget to give every dollar in your account a job, Wally to easily navigate your expenses, or dozens of other options out there. The important thing: find the one that works for you.
2. Pay yourself enough to fill your “enough.”
Now that the cut-and-dry rule is done, let’s get into more of the feel-it-out-as-we-go rule that I think is almost more important than understanding your expenses. And this is knowing your worth and knowing what your “enough” is. To find this, you need to take a good, long look at your values. No matter what type of business you run, no matter what kind of money you bring in, knowing your enough will help you to navigate your own salary during seasons of bounty and dryer seasons alike.
What matters most to you in life? If your most core-level value is freedom, then look at ways to fund your freedom: it could be setting aside 5% of your money for travel. It could be actually paying yourself less to be able to invest in your business and team more, so that you don’t have to spend every waking minute slaving over your business’s tasks.
If you value balance, you might pay yourself enough to afford a nanny or another quality childcare option so you don’t feel like the full-time job of parenthood is outweighing your desire to also be a good business owner. Or maybe, you value health above all, so you build margin into your pay that allows you the ability to pay for your favorite workout studio membership, or to shop for local, organic, non-GMO foods at your favorite quality market (which somehow is always more pricy than the big chain supermarkets — they don’t call Whole Foods “whole paycheck” for nothing).
These extra, value-centered lifestyle choices that fund your core values — they’re nearly as important as your bills and debt payments. Even if you’re not making a huge amount, find small ways to fund your values and fill your enough, because when you prioritize those things, you’ll find that you always have MORE than enough.
3. Project your salary.
Wanna get nerdy with me for a hot second? Let’s actually get into the numbers of planning your pay. It starts with building a personal financial statement that documents your living expenses, credit cards with outstanding balances, and all loans short- and long-term. Let me prep you here — this might take some time, but it’s important. After all, this is your SALARY we’re talking about!
On your personal balance sheet, be sure you include all the small and large items that go into your monthly expenses, including the items that directly fund your core values. If you use one of those budget trackers, this should be fairly stress-free to add up.
Once you have everything listed and cost out — and I mean everything; don’t forget the things you pay for only quarterly or annually — add them up to see your individual, overall cost of living. Now if this number is eating up a lot of the money your business brings in, and you don’t feel comfortable paying yourself that much, you can do a couple things.
- Look at how much you lived on before being an entrepreneur. This is super helpful for those new in business, especially. When I became an entrepreneur, my marker for allowing myself to leave my full-time corporate job was when I made the same amount of money in my business a year as I made from my job salary. If you’ve already made the jump to entrepreneurship or you’re on your way, consider using this as your marker. What you made before being your own boss is likely still enough to live on for now, given that you didn’t have any other major expenses pop up since then.
- Look at where you can cut costs. Oh boy, I know, the old “B” word. Budget. It’s not a fun one for many of us, but it’s important if your biz is in the early growth or slow season days right now, because the last thing you want to do is overpay yourself when your business can’t sustain it. After you look at your mandatory expenses and your values, where are some areas you can cut back on costs? It can even be the smallest things, like not getting your nails done every week or choosing Trader Joes instead of a luxury store for groceries.
4. Crunch the numbers and check ’em twice.
Once you have a bottom-line total of your annual expenses, then comes the fun! Divide that total number of your yearly expenses by 12, and that’s how much you want to pay yourself every month. That amount is how much you NEED to make to survive and still prioritize the things that matter to you.
If you make way more than that in your business, then that’s awesome! Just remember: you’ve already determined your enough, so you don’t necessarily need to pay yourself any more money. You have all that extra cash to invest back into your business, outsource, and continue to grow on and on to the next level.
And no matter your level of entrepreneurship or income, I always, always, always recommend working with an accountant to get the best guidance for where to be spending, keeping, and investing your money.
We don’t know what we don’t know — so investing in the guidance from someone who’s literally studied the best practices for money management is invaluable. I can only give you my tips from what I know and have learned, but an accountant will be able to give you personalized advice on how to make your money work for you.
A few more things to remember as you’re figuring out your salary as an entrepreneur:
- Taxes! Depending on the type of business you run and your income, your business and personal taxes will look significantly different than when you worked for somebody else. Make sure you are setting aside the right amount of money to stay on track because getting in trouble with the IRS is not something you want to mess with.
- Insurance! Health insurance is a tricky topic to navigate when you’re self-employed. We found an awesome program that happens to fit with our family’s priorities (read all about it here), but do your research and find the best cost and option for your own goals. It’s okay to shop around a bit until you find the right fit for you.
- Retirement! When you’re first starting out your biz, you probably won’t have a 401K (although, talk to your accountant). Investing in your future is so crucial, so find the best retirement savings plan for you, whether that’s a traditional 401K, IRA, Roth IRA, or another retirement account. I know we’re all hustling out here and retirement seems ages away, but you want to be saving NOW to make the most of your investments later on.
So, how do you feel? Does navigating your salary seem more approachable now that you have steps to take to make it easier?
Crunching the numbers and evaluating the data will always be the best way to manage your money and see what the right fit is. And keep in mind, too, that this can and likely will change over time, as your needs adapt, business grows, and values become more apparent.
But don’t fall into the mindset of more money, more problems… Money is a blessing and something important to explore and become more knowledgeable about, if you let yourself. Just keep coming back to what’s important to you, and how you can find ways to fund that strategically.