SELF EMPLOYED? PAYING YOURSELF TOO MUCH OR TOO LITTLE?

I love talking with people who are self-employed. Its amazing to hear the various reasons they chose to move away from the security of a pay check to the uncertainty of an income.

For some self employment is because they are so passionate about something, they can no longer sit in the passenger seat and let someone else drive the direction, others it is the long-term goal of having a sale-able entity that will provide financial security at retirement. I really get inspired by those who know that what they do makes a difference to the lives of their clients.

In business, to achieve our goal we are often challenged to change the way we do things and it is in these times we need to ensure we understand our goal. Without a clear understanding we often change our plan and get distracted by chasing something new and shiny, something that doesn’t fit with our plan but becomes attractive because it seems better than what we are achieving right now.

So what does this have to do with money?

Here’s 3 simple questions to ask yourself

  1. Do you take cash out (drawings) on an as you need it basis or are you paying yourself a set wage?
  2. With either option do you have a clear understanding of exactly how much your business can be paying you without compromising your business goals?
  3. Have you established a clear understanding on your personal finance needs to ensure what you are paying yourself (through drawings or wages) works?

Not having a clear understanding on what you need at a personal level may be compromising your goal.

Taking too much out of the business may have you thinking you don’t have the cashflow for growth or new opportunities, taking too little often causes stress which compromises your ability to stay focused on your plan (often why we bounce form one plan to another).

Removing stress and providing clarity at a personal level with your finances is essential for anyone newly self employed or wanting to continue growing their business.

If you don’t have a personal budget my challenge to you is to set aside some time and put one in place. You may be quite surprised at the outcome. Think of the opportunities you could chase if you are paying yourself move than you need and could leave capital in your business, more importantly gain clarity on how much your business needs to generate to pay you and cover the business needs.

Here’s a budget template you can use if you don’t have one.

If you have a personal budget in place when was the last time you reviewed it to ensure it was still accurate, particularly if you currently take drawings as you need it. You may be robbing yourself of the opportunities for growth in your business. Review it today!

How to understand the 4 levels of debt and where you are right now.

Also includes the three pillars needed to maintain a successful budget.