Paying yourself a regular salary is an important part of your financial plan as a small-business owner. It helps you keep your personal and business finances separate and provides a steady income that you can count on. It’s also a way to recognize and reward your hard work. Here are a few reasons to start paying yourself first: 1. Build savings and wealth.
Increased Savings
Many people know the personal finance adage “Pay yourself first.” This approach suggests that you set aside money for financial goals like savings, debt payments, retirement, and investment accounts before you spend any of your income on other expenses. This popular budgeting method can help you build up savings over time. This budgeting technique can work well for small-business owners who want to improve their savings rate and build up wealth over time. However, it’s important to consider your unique circumstances before deciding on this strategy.
When deciding how to pay yourself as a business owner, you must consider your personal and business expenses and any debt or investments. In addition, you’ll need to calculate your net income – your total revenue minus all costs and payroll deductions. You’ll also need to factor in any tax savings you have and any reinvestment savings. Once you’ve determined how much to save, you can set up an automated system to transfer funds into your savings and investment accounts immediately after each paycheck. It can help you stick to your budget and maximize potential returns from investing your savings. It’s also a good idea to create a budget-tracking app to see exactly how much you’re saving and where your money goes each month.
A Better Work-Life Balance
As a small business owner, you’ve likely put a lot of time and effort into your business. While it can be rewarding to see your business grow, taking care of yourself and having a balanced life is important. Paying yourself first is one way to do that. You may ensure you’re saving money for emergencies and retirement by setting aside a certain percentage of your salary. You can even use this money to pay down debt or to achieve other financial goals. Putting the Pay Yourself First strategy into action is relatively easy. You can either open a savings account for this purpose or arrange a regular transfer from your bank to your preferred accounts once a month or once each pay period. You can then dedicate this money to emergency savings, retirement savings, or even paying down debt and investing in your business. Before you commit to this method, review your spending habits and credit card debt to see if it would be beneficial to get these under control before proceeding. You also want to make sure that the amount you’re putting into savings is manageable; it could potentially stress your business’s finances in any way. If so, consider paying yourself based on profits instead of a salary.
Increased Self-Esteem
Paying yourself first is the easiest way to build up savings, but it can also help you with other financial goals, like building an emergency fund or paying down debt. To do this, you’ll want to set aside a portion of every paycheck before spending it elsewhere. Making a split direct deposit transfers a portion of each check to a savings account, and the remainder to your primary checking account is an excellent idea. Alternatively, you can use a budgeting app to divide your money into virtual Jars for expenses such as ‘Groceries,’ ‘Rent’ or ‘Tuition,’ and then spend from each Jar only with a debit card. As a small business owner, you have a lot of pride and passion for your business, but balancing your personal and business finances can be hard. It’s easy to neglect your financial well-being in the name of growing your company, and while that can bring rewards, it could be a more sustainable strategy. You’ll be more apt to stick to your spending plan and build up your savings over time if you set aside some money from each paycheck before spending it on anything else. Even if small, it can make a big difference over the years. It will not only help you feel more secure, but it will give you more confidence in your ability to grow your business and weather any financial challenges that might arise.
Financial Security
Paying yourself first is a budgeting strategy that puts your savings and long-term financial goals ahead of other expenses. Typically, it involves directing a portion of your paycheck away from your checking account and into a savings or investment account. It can be a great way to reach your savings goals and even grow your money over time. For many small-business owners, operating their business is stressful and risky. It’s important to have a team to help you navigate the peaks and valleys of your business’s financial situation, including a qualified accountant, a tax professional and a personal finance specialist or financial planner. While it may seem counterintuitive to prioritize your financial security over paying your business bills, protecting yourself from unexpected expenses and financial emergencies, such as an unexpected medical bill or needing to replace a vehicle, is essential. By committing to the “pay yourself first” philosophy, you can feel more confident that you can manage these unexpected expenses responsibly. It’s also important to remember that a strong savings foundation can support you financially, regardless of how well your business is doing. The financial flexibility that a strong savings foundation provides can make it easier to navigate tough economic times, allowing you to continue growing your business and achieving the lifestyle you desire.
