Foundations Part 2: Paying Yourself

Katelyn Magnuson: 00:00:16

Hey, welcome back today.

Katelyn Magnuson: 00:00:18

We are going to be talking about probably the number one question that I get

Katelyn Magnuson: 00:00:23

from entrepreneurs and business owners.

Katelyn Magnuson: 00:00:25

And also I think the most commonly confusing question

Katelyn Magnuson: 00:00:30

and that's how to pay yourself.

Katelyn Magnuson: 00:00:33

Seems, you know, kind of straightforward, but there are some serious

Katelyn Magnuson: 00:00:37

nuances and questions that come up around this and misconceptions.

Katelyn Magnuson: 00:00:41

So.

Katelyn Magnuson: 00:00:42

I'm going to talk about the right ways to pay yourself the do's and

Katelyn Magnuson: 00:00:45

the don'ts, whether you need to be running payroll and how that all

Katelyn Magnuson: 00:00:49

impacts your taxes on this episode.

Katelyn Magnuson: 00:00:53

Okay.

Katelyn Magnuson: 00:00:53

Number one, let's talk about how to pay yourself, you know, are you

Katelyn Magnuson: 00:00:58

going to use Venmo, checks, online transfers, do you need to take cash out?

Katelyn Magnuson: 00:01:03

Like what, what do you need to be doing?

Katelyn Magnuson: 00:01:06

And this might sound crazy.

Katelyn Magnuson: 00:01:09

I feel like this is such a common happening that we see happen

Katelyn Magnuson: 00:01:11

in the business world, right.

Katelyn Magnuson: 00:01:13

Where you're like, oh my God, there's so many options.

Katelyn Magnuson: 00:01:15

Like a, there's a little, little bit of like decision paralysis going on.

Katelyn Magnuson: 00:01:18

Cause there's so many options.

Katelyn Magnuson: 00:01:20

But at the end of the day, it's so much simpler than we all make it out.

Katelyn Magnuson: 00:01:24

If you are a sole proprietor or a single member, LLC, there's no

Katelyn Magnuson: 00:01:30

wrong way really to pay yourself.

Katelyn Magnuson: 00:01:31

It doesn't matter.

Katelyn Magnuson: 00:01:33

Cash check online transfers.

Katelyn Magnuson: 00:01:37

Zell's would be fine then Mo technically Venmo would be.

Katelyn Magnuson: 00:01:45

Okay with an asterisk simply because you're not supposed to be

Katelyn Magnuson: 00:01:49

using Venmo for business purposes.

Katelyn Magnuson: 00:01:51

However, technically paying yourself is not a business purpose,

Katelyn Magnuson: 00:01:54

although paying yourself via Venmo kind of difficult to do.

Katelyn Magnuson: 00:01:58

So.

Katelyn Magnuson: 00:01:58

My favorite and my major tip is to set up a regular way to pay yourself.

Katelyn Magnuson: 00:02:06

So instead of money flying here and there and chaos I really

Katelyn Magnuson: 00:02:09

recommend when you're first getting started paying yourself one day.

Katelyn Magnuson: 00:02:14

And either paying yourself a flat amount or paying yourself

Katelyn Magnuson: 00:02:17

a percentage of what you make.

Katelyn Magnuson: 00:02:19

Generally you want to be paying yourself about 50% or less, and

Katelyn Magnuson: 00:02:23

we're actually gonna go into that in our next episode, how to forecast

Katelyn Magnuson: 00:02:26

what you need to be making, but.

Katelyn Magnuson: 00:02:30

Paying herself, either a set amount or a set percentage once a week, I think

Katelyn Magnuson: 00:02:34

is a really easy way to do that when I was first getting started and with a lot

Katelyn Magnuson: 00:02:37

of our clients, I encourage, they pay themselves either every Monday or every

Katelyn Magnuson: 00:02:41

Friday, a that gets your personal bills.

Katelyn Magnuson: 00:02:45

That you can kind of know what to expect and it keeps you like if you're doing

Katelyn Magnuson: 00:02:49

the profit first medicine method or something else, you're not sitting here.

Katelyn Magnuson: 00:02:53

Oh gosh, I got five payments today, four payments yesterday, and I'm getting three

Katelyn Magnuson: 00:02:57

payments tomorrow and you're not having to do all the math on a daily basis.

Katelyn Magnuson: 00:03:00

It's just, it's a fricking mess.

Katelyn Magnuson: 00:03:03

I really liked doing it once a week.

Katelyn Magnuson: 00:03:05

If you're not counting on the income, I might even do it once

Katelyn Magnuson: 00:03:08

every two weeks or once a month.

Katelyn Magnuson: 00:03:10

But if you need the income more regularly, which I find to be much more common with

Katelyn Magnuson: 00:03:14

the businesses that I work with once a week, then eventually maybe move to

Katelyn Magnuson: 00:03:18

every other week if that works for you.

Katelyn Magnuson: 00:03:20

But there's nothing wrong with doing.

Katelyn Magnuson: 00:03:22

No.

Katelyn Magnuson: 00:03:23

I really like if you have your bank at the same place, like business

Katelyn Magnuson: 00:03:27

bank, personal banking, all at the same bank, you know, chase, Wells

Katelyn Magnuson: 00:03:30

Fargo, bank of America, you name it.

Katelyn Magnuson: 00:03:33

You're simply able to do an online transfer.

Katelyn Magnuson: 00:03:36

So you're able to go in and move money from the business

Katelyn Magnuson: 00:03:38

account to your personal account.

Katelyn Magnuson: 00:03:40

Normally in the memo, I'll put something simple, like owners pay or owners.

Katelyn Magnuson: 00:03:46

Because that's not actually a business expense, the money that you take

Katelyn Magnuson: 00:03:49

out of the business to pay yourself.

Katelyn Magnuson: 00:03:51

And that's in quotes to pay yourself is not payroll.

Katelyn Magnuson: 00:03:55

It's not wages and salaries.

Katelyn Magnuson: 00:03:56

It's owner's draw or owner's pay.

Katelyn Magnuson: 00:03:59

And it does not affect the expenses of your business.

Katelyn Magnuson: 00:04:23

Because like we said, in the previous episode, remember how

Katelyn Magnuson: 00:04:26

all that profit and the bucket drips into your personal bucket.

Katelyn Magnuson: 00:04:31

Same concept, whether you pay yourself all of that money that you have that's

Katelyn Magnuson: 00:04:37

profit, or whether you leave it in your business account, you get taxed on it.

Katelyn Magnuson: 00:04:42

So that's the next, really common misconception that I have.

Katelyn Magnuson: 00:04:46

I have worked with some clients who come to me and they're

Katelyn Magnuson: 00:04:48

like, oh my God, I'm terrified.

Katelyn Magnuson: 00:04:49

I was like, what the taxes are going to be.

Katelyn Magnuson: 00:04:51

I haven't moved any of the money over.

Katelyn Magnuson: 00:04:53

I don't know how to pay myself the right way.

Katelyn Magnuson: 00:04:55

I've left it all on my business account.

Katelyn Magnuson: 00:04:57

What do I do?

Katelyn Magnuson: 00:04:58

And I mean, the, the good and the bad is, Hey, like you're going to

Katelyn Magnuson: 00:05:02

pay taxes on it, whether you pay it to yourself or not, you're not going

Katelyn Magnuson: 00:05:05

to fuck it up by, you know, paying yourself or wrong as long as you're not

Katelyn Magnuson: 00:05:10

doing payroll when you shouldn't be.

Katelyn Magnuson: 00:05:12

So you can move the money over.

Katelyn Magnuson: 00:05:15

But you're paying taxes, whether you let it sit there and grow, which for some

Katelyn Magnuson: 00:05:19

of my clients, they're really happy to do, you know, they want to have their

Katelyn Magnuson: 00:05:22

business accounts be super flushed.

Katelyn Magnuson: 00:05:24

Maybe they have another job.

Katelyn Magnuson: 00:05:25

Maybe they have a partner whose income they're relying on.

Katelyn Magnuson: 00:05:28

That's totally fine.

Katelyn Magnuson: 00:05:29

If you're able to leave that money alone, just know that you're paying taxes each

Katelyn Magnuson: 00:05:34

year as you go, as you have your profits.

Katelyn Magnuson: 00:05:36

So you don't have to worry if you've accumulate.

Katelyn Magnuson: 00:05:39

You know, 50, 60, $70,000 in your business checking.

Katelyn Magnuson: 00:05:42

And then you finally go to start paying yourself.

Katelyn Magnuson: 00:05:45

You've paid taxes on whatever your profit is.

Katelyn Magnuson: 00:05:47

So deep breaths because you're not paying yourself wrong.

Katelyn Magnuson: 00:05:53

Now, if you do not have your bank, your personal bank at the same big as your

Katelyn Magnuson: 00:05:57

business bank, I really like using checks.

Katelyn Magnuson: 00:06:00

And this is so flipping old school.

Katelyn Magnuson: 00:06:03

Do not for the love of everything, do not order checks from your bank.

Katelyn Magnuson: 00:06:08

They are probably going to be like Harlan Clark.

Katelyn Magnuson: 00:06:10

It's going to be 125 checks for a hundred checks.

Katelyn Magnuson: 00:06:14

And they're going to be ridiculous.

Katelyn Magnuson: 00:06:16

Go to Vista print.

Katelyn Magnuson: 00:06:17

You don't have to order checks to your bank.

Katelyn Magnuson: 00:06:19

Go to Vista print.

Katelyn Magnuson: 00:06:21

Go to look at their check options.

Katelyn Magnuson: 00:06:23

You need your info.

Katelyn Magnuson: 00:06:25

So like business name, business address, um, what bank you bank with

Katelyn Magnuson: 00:06:31

and your nine digit routing number and your account number, which

Katelyn Magnuson: 00:06:34

you can get from online banking.

Katelyn Magnuson: 00:06:36

Go in.

Katelyn Magnuson: 00:06:37

It'll prompt you to enter all your information for the checks.

Katelyn Magnuson: 00:06:40

And I'm still working off the Vista print orders that I had

Katelyn Magnuson: 00:06:43

like three or four years ago.

Katelyn Magnuson: 00:06:45

And I write checks regularly for my business, just nature, you know who I am.

Katelyn Magnuson: 00:06:50

So I think they were like $5 or $7 for 125 of them.

Katelyn Magnuson: 00:06:55

So if your banking is not all at the same place, order some checks, um, same thing.

Katelyn Magnuson: 00:07:01

If you're needing to be like contractors or subcontractors and you need

Katelyn Magnuson: 00:07:05

checks, you can use all of those.

Katelyn Magnuson: 00:07:08

I really like using checks for exactly that reason.

Katelyn Magnuson: 00:07:10

But when you're paying yourself, it's really easy because you can write yourself

Katelyn Magnuson: 00:07:13

a check and then mobile deposit it.

Katelyn Magnuson: 00:07:16

So it's a really low cost way to be paying yourself.

Katelyn Magnuson: 00:07:19

So this is for sole proprietors, single member, LLCs, and

Katelyn Magnuson: 00:07:25

partnerships for the most part.

Katelyn Magnuson: 00:07:27

Now, if you are running payroll, paying yourself as different, and we're going to

Katelyn Magnuson: 00:07:34

talk about that for just a minute or two.

Katelyn Magnuson: 00:07:37

So when you have an S-corp election, you have to be running payroll in

Katelyn Magnuson: 00:07:43

order to lock in all of the tax savings at the S-corp election brings.

Katelyn Magnuson: 00:07:47

And when I say payroll, I mean like through QuickBooks, please don't

Katelyn Magnuson: 00:07:50

use QuickBooks payroll through ADP, through Paychex, through sure.

Katelyn Magnuson: 00:07:54

Payroll or through my favorite Gusto.

Katelyn Magnuson: 00:07:57

We'll link them in the show notes here because they're, they're phenomenal.

Katelyn Magnuson: 00:08:00

Their customer support is great.

Katelyn Magnuson: 00:08:02

They're really affordable.

Katelyn Magnuson: 00:08:03

And they e-file everything for you, which is fantastic.

Katelyn Magnuson: 00:08:07

We use them for all of our clients because we literally cannot process

Katelyn Magnuson: 00:08:10

payroll as inexpensively as they can.

Katelyn Magnuson: 00:08:13

They've really just been killing it.

Katelyn Magnuson: 00:08:14

So if you're an S-corp, you need to be running.

Katelyn Magnuson: 00:08:18

At least one a year, most times, depending on the dollar value, at least

Katelyn Magnuson: 00:08:22

for a year, what I recommend doing is I recommend setting up payroll on a twice

Katelyn Magnuson: 00:08:27

a month schedule, which is known as semi.

Katelyn Magnuson: 00:08:30

Keep in mind, this is not the same as biweekly biweekly.

Katelyn Magnuson: 00:08:34

You get paid every other Friday.

Katelyn Magnuson: 00:08:36

Generally there are 26 pay periods in a year, meaning you get paid

Katelyn Magnuson: 00:08:40

26 times because there's 52 weeks.

Katelyn Magnuson: 00:08:43

So if you get paid every two weeks, 52 divided by two is 26.

Katelyn Magnuson: 00:08:48

However, have you get paid semimonthly that is twice per month,

Katelyn Magnuson: 00:08:54

which means that there are 24 pay periods per year instead of 26.

Katelyn Magnuson: 00:08:59

So with that, the reason that I like semimonthly over biweekly.

Katelyn Magnuson: 00:09:05

So my monthly, your pay date stay the same every month.

Katelyn Magnuson: 00:09:08

So if you pick like the first and the 16th or the fifth and the 21st or

Katelyn Magnuson: 00:09:12

the 10th and the 26th, or it doesn't matter, it lets you plan your personal

Katelyn Magnuson: 00:09:17

bills around that, which again, we're covering on our next episode.

Katelyn Magnuson: 00:09:21

It lets you plan your personal bills and gives you some stability,

Katelyn Magnuson: 00:09:25

which I think is really important.

Katelyn Magnuson: 00:09:27

Um, when you're a business owner.

Katelyn Magnuson: 00:09:29

Now, if it's biweekly, your pay dates will rotate throughout the month because

Katelyn Magnuson: 00:09:35

there are two months out of the year where you have three pay periods, meaning

Katelyn Magnuson: 00:09:39

that like your Friday dates will shift.

Katelyn Magnuson: 00:09:42

Some people really like that.

Katelyn Magnuson: 00:09:43

So.

Katelyn Magnuson: 00:09:45

Set it up.

Katelyn Magnuson: 00:09:45

How you like, um, some people will do monthly.

Katelyn Magnuson: 00:09:48

I don't love monthly payrolls simply because monthly payrolls require a lot

Katelyn Magnuson: 00:09:54

of cash up front for a lot of smaller business owners and gusta doesn't charge

Katelyn Magnuson: 00:09:59

extra for running multiple payrolls.

Katelyn Magnuson: 00:10:01

So I think from a personal finance and a personal budgeting standpoint and cashflow

Katelyn Magnuson: 00:10:05

it's much easier to do two per month.

Katelyn Magnuson: 00:10:08

So you've got payroll.

Katelyn Magnuson: 00:10:11

You're looking good.

Katelyn Magnuson: 00:10:12

You're really happy with it, but you need to take more money out.

Katelyn Magnuson: 00:10:16

Maybe you're buying a house, maybe, you know, you're paying yourself a bonus

Katelyn Magnuson: 00:10:20

or you're doing a profit distribution.

Katelyn Magnuson: 00:10:23

You can take additional money out of the account.

Katelyn Magnuson: 00:10:26

Just like you were a single member LLC or a sole proprietor.

Katelyn Magnuson: 00:10:29

It needs to be a little bit more legitimate though.

Katelyn Magnuson: 00:10:31

Once you're in essence.

Katelyn Magnuson: 00:10:32

So in this case, I recommend either an online transfer or a check.

Katelyn Magnuson: 00:10:38

I prefer a check and you just need to denote.

Katelyn Magnuson: 00:10:41

If it's a bonus, it should go through payroll.

Katelyn Magnuson: 00:10:43

If it's profit sharing or an owner's distribution, you

Katelyn Magnuson: 00:10:46

can run it through a check.

Katelyn Magnuson: 00:10:49

So I know again, we're going to recap because this is a lot and kind of dense.

Katelyn Magnuson: 00:10:55

So single member, LLC, sole proprietor.

Katelyn Magnuson: 00:10:59

Pay yourself.

Katelyn Magnuson: 00:10:59

However you choose.

Katelyn Magnuson: 00:11:01

My preferred methods are check and online transfers.

Katelyn Magnuson: 00:11:05

Doesn't matter if you pay yourself all of the money, or if you hoard

Katelyn Magnuson: 00:11:08

it all in your business account, you still get taxed on whatever your

Katelyn Magnuson: 00:11:11

profit is at the end of the year.

Katelyn Magnuson: 00:11:14

If you are an S-corp, you need to be running payroll in order

Katelyn Magnuson: 00:11:19

to maximize all of the tax benefits that come with an escort.

Katelyn Magnuson: 00:11:24

If you have questions about any of these, we cover all of these in

Katelyn Magnuson: 00:11:30

the self study course that get your finance shit together, linked on the

Katelyn Magnuson: 00:11:34

website, confident money podcast.com.

Katelyn Magnuson: 00:11:37

And it truly, this gets to be so much simpler than a

Katelyn Magnuson: 00:11:41

lot of us make it out to be.

Katelyn Magnuson: 00:11:42

We want, we want paying ourselves to be a little bit complicated, right?

Katelyn Magnuson: 00:11:46

Especially if you've worked, you know, a standard job or like a day job where,

Katelyn Magnuson: 00:11:50

you know, you're filling out your tax withholdings and it's on a set pay period.

Katelyn Magnuson: 00:11:54

And it's, you know, got a delay on when you get paid.

Katelyn Magnuson: 00:11:56

We're used to it being more complicated.

Katelyn Magnuson: 00:11:58

And I think coming into business, we're used to things in business

Katelyn Magnuson: 00:12:02

being a little bit more confusing or a little bit more complicated.

Katelyn Magnuson: 00:12:05

And this is one thing that really gets to be.

Katelyn Magnuson: 00:12:10

About as simple as we want it to be.

Katelyn Magnuson: 00:12:12

So again, if you liked this episode, please leave a five star review.

Katelyn Magnuson: 00:12:17

Tell me all about it.

Katelyn Magnuson: 00:12:18

Leave your Instagram handle in the comment on your review, because we

Katelyn Magnuson: 00:12:21

do pick one person every month that we're going to do a free strategy

Katelyn Magnuson: 00:12:25

session with, and I am so excited.

Katelyn Magnuson: 00:12:28

So make sure you tune in next week for the next episode.