{"id":24444,"date":"2020-06-30T10:40:00","date_gmt":"2020-06-30T14:40:00","guid":{"rendered":"https:\/\/www.nevharris.com\/?p=24444"},"modified":"2020-08-31T22:12:21","modified_gmt":"2020-09-01T02:12:21","slug":"pay-yourself-first","status":"publish","type":"post","link":"https:\/\/www.nevharris.com\/pay-yourself-first\/","title":{"rendered":"HOW TO PAY YOURSELF FIRST (NO, REALLY)"},"content":{"rendered":"\n

When you look at the money your business has earned over the course of a month, how do you decide where to spend it? <\/p>\n\n\n\n

You probably start by paying off your monthly expenses, move on to chipping away at debt, and hope there\u2019s something left for you in the end. Even then, you might be tempted to spend that leftover cash on something you\u2019ve been needing to buy \u2014 like a new software subscription or tickets to an upcoming conference. <\/p>\n\n\n\n

A smarter money management strategy would be to pay yourself first. <\/p>\n\n\n\n

I realize that may seem counter intuitive since a personal salary doesn\u2019t keep the office rent paid or your website online. But if you make this shift and prioritize storing away your earnings before you pay your bills each month, your financial stability will actually improve. <\/p>\n\n\n\n

Let me show you how. <\/p>\n\n\n\n

How to Pay Yourself First <\/h2>\n\n\n\n

This finance management strategy is going to look similar to what you\u2019re probably doing now. The key difference is the order in which you do these steps. <\/p>\n\n\n\n

Step 1: Know Your Numbers <\/h3>\n\n\n\n

Before you do anything else, you need to know: <\/p>\n\n\n\n

  1. How much money you earn each month. <\/li>
  2. How much money you spend each month. <\/li><\/ol>\n\n\n\n\n\n

    In the beginning, it might be difficult to estimate your earnings if the influx in business isn\u2019t quite predictable or even yet. But that\u2019s okay. Pick a good average to work with. <\/p>\n\n\n\n

    If your spending varies, however, there\u2019s something wrong. Your expenses should not change much from month to month. If they do, rework and stabilize your budget<\/a> before you do anything else.<\/p>\n\n\n\n

    Step 2: Decide How Much Money You\u2019re Going to Pay Yourself <\/h3>\n\n\n\n

    Next, use this formula: <\/p>\n\n\n\n

    Monthly Earnings – Estimated Monthly Taxes – Monthly Expenses = Profit Margin <\/p>\n\n\n\n

    This formula will help you determine how much of a profit margin you realistically have to work with each month. <\/p>\n\n\n\n

    Let\u2019s say these are your actual numbers:<\/p>\n\n\n\n

    $10,000 – $2,500 – $2,500 = $5,000 <\/p>\n\n\n\n

    So long as you\u2019re confident in your monthly income, it would be safe to assume that you\u2019d have roughly $5,000 to pay yourself as a salary each month. It\u2019s okay to start with a smaller amount, too, especially if you\u2019re looking to scale your business soon and you know your expenses are about to grow with the addition of employees and enterprise software subscriptions. <\/p>\n\n\n\n

    Whatever you do, pick a consistent amount to pay yourself each month and commit to it. <\/p>\n\n\n\n

    Step 3: Set Your Savings Goals <\/h3>\n\n\n\n

    Your personal salary is not to go towards the paying of taxes and other business expenses. These are your earnings to be spent on things outside of the business. That said, this isn\u2019t monopoly money that you should be using to buy all the things you need and want for your life. <\/p>\n\n\n\n

    You still need a plan. <\/p>\n\n\n\n

    A good rule of thumb is to divvy up your personal savings as follows: <\/p>\n\n\n\n