April 2, 2020
How to Pay Yourself When You’re Self Employed

How to Pay Yourself When You’re Self Employed

Hey guys, Bridget from Money After
Graduation here to talk to you about how to pay yourself when you’re
self-employed. I’ve been self-employed for more than a year and a half now. I
incorporated Money After Graduation in March 2015 and six months after that I
actually quit my full-time job as a consultant or early-stage startups to
run my business full time. I’m sorry to admit that many of the lessons that I
learned about managing my business finances and paying myself were learned by making mistakes. However, I am excited to spare you from
making the same mistakes I did by sharing what I’ve learned and some of
the strategies in this video. The first thing I want to encourage you to do
whether you’re freelancing or running a blog or running some other kind of
business is to pay yourself 50% of what your business earns. A lot of
people don’t think that this is possible for entrepreneurs because it seems like
entrepreneurship kind of goes with that I’m so broke running my business that
I’ll just pay myself later. This is a terrible way to live your life and it’s
super stressful, especially when you’re in charge of your entire income and
that’s what you’re relying on to pay your bills.
I didn’t start paying myself 50% of what I earned until the start of 2017 and
honestly that was more than a year of too late. As soon as I did, not only did I
have enough to pay my personal bills, I also had enough to run my business
because I was leaving 50% of my income in the business for business expenses.
This 50% rule is one I’ve heard from one of my favorite podcasts called Being
Boss, and I also got it from this excellent book called Profit First. And
I’m going to link that book in the description below. If you’re
self-employed now or you’re thinking of becoming self-employed or starting a
business it’s an absolute must read. It completely transformed how I run my
business finances and changed how I pay myself as well as I how I pay all those
other expenses. One of your biggest concerns when you are paying yourself is
your income taxes. An easy way to manage these is if you’re not calculating them
with every payday is to simply set aside about
30% what you bring in to allocate towards income taxes. Now this
might seem like a lot of money or not enough depending on how much your
earning, but I find 30% is usually a good starting point. It’s
more likely than not you’ll a less so you’ll have a little bit left over for
yourself. Or if you do for some reason owe slightly more it’s not that much more
that you have to catch up on. When you are paying yourself, you really need to
be organized about your business finances and I don’t just mean your
payroll I mean all your expenses and whether you’re collecting sales tax and
so on. The software platform I use to track all of this is called Freshbooks,
and they didn’t sponsor this video I’m really just sharing it because they are
so awesome. It’s totally worth the price to pay for a software that will do a lot
of your bookkeeping for you. Obviously if your business is small you can do all
the tracking in a spreadsheet but as it grows larger using a software platform
like Freshbook is great just because it connects directly to your bank
account and it will actually import all those expenses and organize them for you.
The other software I use and again not a sponsored mention just really a great
tool, is Wagepoint I issue myself my own payroll through Wagepoint because I
treat myself like an employee of my corporation,
and Wagepoint takes the onus of all those personal income taxes I mentioned
earlier off of me calculating them and they calculate them and remit them to
the government for me. This has saved me so much of a headache
overall in not having to worry about contributing to my provincial or federal
income tax or even to the Canadian Pension Plan. All of that’s taken care of
automatically and all it cost is like $25 every time I run
payroll. Depending on the stage of your business and what kind of business you
run you can decide if you want to pay yourself a salary as an employee like I
do or if you want to pay yourself in dividends. There’s benefits to both, I
generally find paying yourself a salary is better when your income is lower
because you want to get that RRSP contribution room. Really the most
important thing is just that you have a record of how much you’re earning in
case you need it for things like renting an apartment or getting a mortgage. Paying yourself from your own business is
awesome, it feels so good and it’s such a great feeling of accomplishment
especially when you can issue yourself a bonus but it is super important that you
keep track of where every dollar is going so you’re not missing important
things like taxes. I hope you guys found this video helpful and feel inspired and
encouraged to pay yourself 50% of what your business earn and keep track of
every penny. If you enjoyed it, please give it a thumbs up and subscribe to my
channel and I will see you next week.

23 thoughts on “How to Pay Yourself When You’re Self Employed

  1. Love the info! Just starting out with my biz and what I would like to know is, what should I charge for my labor, is there a standard for this? Thanks again 😊

  2. so….if you pay yourself..50%. how does this work, as you do for contact labor do you need to send out yourself a misc.1099 –???? how is this show on your taxes?

  3. How’s it going Bridget loved the video but I’m still confused lol. Last month my business did $17,450 in revenue. Pretty much going by the standards I usually go by id take $7,450 of that off immediately to pay company expenses and restock my inventory. With the 10k left over should I just pay myself that? I know you said the 50% which I like that would be approximately 8.7k but there’s really no room for tax after that. I know my question is pretty confusing but if you could just tell me what you would do that would be great. again the numbers are 17.45k revenue , 7.45k goes back into the business automatically. How do I split up the rest 🙂 thanks.

  4. Thank you for the video. I'm the financial manager of my husband's business and I too put around 25-30% of each paycheque into a 'savings account' specifically for taxes. He recently asked me to leave money in the business account, to not spend it all and to show money is kept in the business. This makes me question… since the money is being transferred to my account, literally to pay all of our bills (utilities/mortgage/kids/etc…), there's not a whole lot left. I'd like to save for a vacation or a replacement vehicle (or emergencies), and not just make the company look like it's keeping money. This money does not earn interest in the business account, either. If this makes sense, would you be able to guide me. I'm not sure what it is meant to 'keep money in the business' when there are bills to be paid? Thanks so much. Congrats on your business and I wish you all the best!

  5. Sorry guys but 50% that's too much the first year if you take 15% or 20% but 50% way too much

  6. Screw taxes. Who was there for you when you were sitting in your room and dealing with 53 fahrenheit? Nobody helped me build my empire, nobody shall rest it's hand on my kingdom. All dearing to do so, should face serious consequences.

  7. Do you take the 30% off of the gross earnings from the business for taxes or from you 50% paycheque? Thanks so much in advance!!

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