78: How to Be the Boss of Your Money
Wealth by Design
English - June 27, 2019 10:00 - 19 minutes - 18.1 MB - ★★★★★ - 33 ratingsInvesting Business News Business News financialplanning lifeplanning retirementplanning millennials onlineentrepreneur Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
If you’re a business owner or entrepreneur, you may already feel like the boss of your money. After all, you’re pretty much solely responsible for what goes in and what comes out, right? But as many entrepreneurs and biz owners know, that can also lead to a lot of stress. In many cases, taxes aren’t withheld, revenue can vary from month-to-month, and it always seems like there’s a new bill to pay. So how do you feel like you’re REALLY the boss of your money, rather than holding on to money for a while before it goes out the door again?
That’s what we’re talking about on this episode of Worth It. In it, we explain what business owners and entrepreneurs need to pay attention to in regards to their money and income, and what they can do to gain control.
WHAT YOU’LL LEARN00:51 What symphonies and maestros have in common with your money
01:05 Why taking control of your money will help you personally and professionally
02:05 A cautionary tale of what can happen when you don’t tell your money what to do
03:02 The downfalls of 1099 income
05:18 Why planning for taxes is non-negotiable
06:21 Why changing the way you think about taxes is important
06:49 The importance of knowing your (and your employees’) salary
07:39 Why you need a snapshot of your income and expenses (steady vs. variable)
10:43 3 ways to be the boss of your income
10:48 The importance of treating your money like a full-time employee
11:51 How to set up a “mothership account”
13:16 What you should include in your sub-accounts
14:38 How this “mothership” approach helps you embrace a profit-first model
15:00 How to start thinking of your income as “net” instead of “gross”
16:03 Why you should view expenses like healthcare, taxes, and salaries as part of doing business
BUSINESS INCOME: WHAT YOU NEED TO FACTOR INHow many times have you been trucking along, thinking you’re doing pretty well with sales or client work, only to find out that you have a big fat bill to pay at the end of the month? Or maybe you’re like Danielle’s friend who didn’t realize she had to pay taxes out of her 1099 income… and had a hefty check to pay at the end of the year.
That’s why the first step to being the boss of your money is to figure out taxes, hourly contractor rates, healthcare — all the things that come out of your business income. This way, you can make sure that what you’re making, what you’re taking home, and what you owe (to the government, your healthcare plan, your workers, etc.) are all accounted for.
Other things you need to pay attention to as a business owner:
How much are you withholding for taxes? How much are you paying yourself? (Remember: you need a salary) Is your income consistent or does it vary? What are your total expenses for your business? (office, employment, etc.) What expenses are steady and which are variable?
Once you have those numbers and you are for sure paying yourself a salary (nope, this is non-negotiable), you can finally have a better picture of what’s going in and coming out. You’ll also know exactly what to set aside each month to pay at least the non-variable expenses, like your salary, your office rent, your software costs, etc. That brings us to the second part of our podcast discussion….
Having an accurate picture of your numbers is a great start. But what do you do to make paying those bills and saving that money easier? Here are some actionable tips that can help:
Figure out what you need to pay yourself. Your salary as a business owner or entrepreneur can eliminate a lot of stress about variable income. Even if it’s not what you want to be making right now, or you’ve never calculated a salary before, don’t skip this step. Talk to your accountant or CFP if you’re not sure what to do. Treat your income like a full-time employee. Tell your money what to do, and set up systems so it automatically does it. As your income comes in, have automations set up so that money immediately goes to work. This way, it all gets done without you having to do anything. How do you do that? Create a “mothership” account where you have all your revenue come in, and then you’ll have “sub-accounts” that hold your salary, your employees/contractors pay, your taxes, etc. Whatever you know you need to set aside money for each month, quarter, or year, set them up and automate the withdrawals so that it’s totally off your plate. See how easy that was? This follows the Profit First model, which focuses on paying yourself (and your bills first) and then uses whatever’s left to float your business, invest in it, etc.Change yo’ mindset. Instead of thinking about all the money you bring in (the gross revenue of your business) as money made, you need to start thinking about income as net income. That means you’re only looking at what you’ve got after expenses are paid, taxes have been contributed, and so on. It hurts a lot less to watch the money go out, and you’ll have a much better idea of what kind of profit you’re making, which can help you raise prices, streamline processes, or decide to hire help.
This was a quick and dirty episode, but we think the tips are super valuable. If you’re struggling to feel like you have “money in the bag,” this is definitely an episode for you. And even if you’re a traditional employee, you should check out this episode so you can get a feel for what you can do with the money that’s leftover on your paycheck.
Our hope is that you can implement these tips into your life and business today, so you can stop feeling so out of control — even if your income and expenses vary. It doesn’t have to feel so chaotic, y’all!
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.