How Do I Know How Much to Pay Myself?

This topic was part of a previous post about being financially self-sufficient in a relationship. To read that article here’s the link: https://www.facebook.com/groups/livingpractice/posts/1072396946837280/

For most of us self-employed clinicians, opening a practice is our first foray in to entrepreneurship. We hang up our shingle and learn as we go. As our businesses grow and more money comes in, we typically will reinvest all of the revenue back in to the business. Especially when we’re first starting out. Then eventually the revenue is enough to cover all of your operating expenses and now you can take a little something for yourself out of what’s left over.

And that’s the cycle where so many self-employed clinicians get stuck. They pay for all of the needs of the clinic then pay themselves the leftovers.

The problem with this method of paying yourself is that what you bring home is inconsistent from week to week and month to month. It makes it really difficult to plan your life when you have no consistent way to fund it.

So how do you know how much to pay yourself? First you need to know how much money you need to fund your life and lifestyle. And the only way to do that is to have a household, zero-based Spending Plan. List out all of the monthly expenses in your personal life, including what you want for spending money and what you want to put away toward savings, and add them up. That number is the amount you need to pay yourself every month.

Now, take that number and put it in as a line item for your business Spending Plan and prioritize it just as you would any other fixed operating expense. Treat it as a non-negotiable expense just as you do for your office rent expense.

When clinicians do this for the first time it’s often a wake up call. Because they’re now seeing whether or not their current business is actually capable of sustaining their personal life. If paying yourself what you need on a consistent basis is showing to be a strain on the business, you will have to start making adjustments in your revenue (i.e. make more money), or your overhead expenses, or your personal expenses, or all three.

If you’re working with a financial planner or a CPA they may have additional strategies within this that are customized to your individual situation or goals, but these are the foundations. If you don’t have a Spending Plan in place for your household or business head on over to TCM Hub to check out the course I have about this very thing.