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Pay yourself and automatically save

After you take care of the business finances, you can set automations within your personal finances to make saving and getting paid a breeze. 

The first thing we’ll need to consider is how money flows from the business account to your personal account. With most accounts, you can set automated transfers for weekly, bi-weekly, or monthly deposits to pay out to yourself. It’s like putting yourself on payroll.

To figure out how much you can automatically transfer to yourself, consider two main things:

  1. Your business’ financial needs.

  2. Your personal financial needs.

If you spend $4,000/month on personal expenses, you want to reach $48,000/year paid out to yourself from the business. If your business expenses are $500/month, you need to invoice at least $54,000 throughout the year to cover expenses and personal pay (not including taxes). 

To make these projections, you have to get an understanding of what you’re spending each month and year. I recommend using a tool like RocketMoney so you can connect your accounts and the app categorizes and adds up your spending. 

To begin creating a personal payroll automation, you need to consider the business’ cash flow as well as your personal cash flow. I’ve created two charts (with sample numbers provided) that can be used as a starting point and customized to fit your unique needs. Projecting cash flow is important because it gives you an inside look at your money and lets you begin planning ahead (which makes managing money much less stressful).

If your income is irregular and varies dramatically month-to-month, it’s harder to create a consistent automation — but it’s possible. We’ll walk through both ways below.

If you have a consistent income

If you have a consistent baseline income each month, you’re in the perfect spot to start automating personal payouts. If you’re not using a payroll software (like Gusto), the automation typically needs to be set from your personal bank side to pull out of the business account.

Using the example above, you could set a monthly automated transfer for $4,000 or a bi-weekly transfer for $2,000 to cover your $4,000/month in personal expenses. You should be able to link your business bank account and then set your regular transfer (below) which acts like paying yourself a salary.

Remember: You either need to withhold taxes as soon as money lands in your business account, or you can do it manually after you get paid personally. Either way works, but I prefer doing it right away before it gets to my personal account. When you’re ready to pay taxes, you can then transfer the money to pay via EFTPS.

If you have an irregular income

If you have irregular income each month, the first step towards automating is creating a “buffer” in your business checking account to ensure that your balance doesn’t go negative. If your monthly expenses for the business are $200, work towards maintaining a $600 balance (three months of expenses) at all times. Then as you keep going, you’ll be able to keep that baseline and automate any extra funds that start coming in more regularly.

Here’s an example of what this looks like in real life:

Let’s say a $3,000 invoice has been paid and deposited into your business bank account.

If you’re using Novo, whatever percentage you choose to be set aside will automatically be withheld — I personally do 25% (which would be $750). 

So you have $2,250 available. If your monthly business expenses are $300, you’ll have $1,950 left over to pay yourself.

Now, you could leave some of that money in your business checking account to start creating a 3-month business buffer, but you could also send that money straight to your personal account as a payout.

Once you’ve established the 3-month buffer and feel comfortable with your business income, I recommend setting an automation for bi-weekly or monthly payments so that it mimics a regular paycheck (though this is entirely up to you - you could set weekly payouts and be just fine).

Financial Planning tip: A general budgeting framework in personal finance is 50% needs, 30% wants, 20% savings and investing. If you’re making $5,000 per month, $2,500 goes towards bills, rent/mortgage, food, $1,500 towards whatever you’d like, and $1,000 towards investments or savings goals.

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