How much to pay yourself when you work for yourself
When you work for yourself, your income does not exist until you decide what it is. And almost nobody decides: they take what was left.
In short
Pay yourself a fixed amount on the same date every month, worked out from the average of your last twelve months minus what the work itself consumes: tax, business costs and a buffer for thin months. In most small operations something like 50% salary, 30% tax and costs, 20% buffer works as a starting point. Taking whatever is left turns every good month into an ordinary one and every thin month into an emergency.
It is the question almost nobody asks out loud and everybody answers badly: which part of what came in is yours. In a job, somebody else answers it once a month. Working for yourself, you answer it every day, without noticing, at the supermarket till.
The problem is not how much you earn
It is that your income arrives in pulses while your life costs the same every month. A March with three invoices and an April with none are not two different situations: they are one year, badly divided.
While the work money and the household money sit in the same place, there is no way to tell whether the month was good or you were simply paid for something old. And that has a concrete consequence: you spend according to what you see in the account, which is the worst possible signal.
2 accounts
The minimum
One where the work arrives, one where the household lives
1 day a month
When you pay yourself
Always the same date, like a payroll
12 months
What it is calculated on
The year's average, not the month that just ended
Step one: two accounts, not one
Everything you invoice arrives in one account and nothing personal leaves it. Three things leave it: tax, the costs of the activity, and your salary.
No company and no business bank account are needed. Two ordinary accounts will do, and the separation does most of the work by itself: the tax money stops looking like yours, which is exactly what it never was and always looked.
Step two: the split
For a small operation, a reasonable starting point looks like this, and is then tuned with your real numbers:
- Around 50% to you. That is your salary, and it is the only part that reaches the household account.
- Around 30% for tax and the costs of the activity. This varies enormously by country and status, and it is the part to measure rather than estimate.
- Around 20% to the buffer, until it holds roughly three of your salaries. After that, the same 20% splits between you and the business.
The percentages matter less than the fact that they exist. An imperfect split applied every month beats a perfect one nobody applies.
Step three: the salary is fixed even when the month is not
Here is the change that makes everything else different. Your salary is not a share of what came in this month: it is a fixed amount, the same in March as in April.
It is worked out from the average of the last twelve months, not the last one, and it is worth setting slightly below what the sum gives. A modest salary you never skip builds confidence; one squeezed to the maximum breaks on the first thin month and puts you back to checking the balance before buying anything.
Good months do not change your salary. They change the buffer, and the buffer is what pays for the bad months. That is the whole mechanism.
When to give yourself a raise
When the buffer has been full for three months running and the twelve-month average has genuinely risen. Then it goes up once, and stays.
What does not work is raising it in the month a large invoice lands. That invoice is not a raise, it is a good month, and treating good months as raises is the most common way an excellent year ends up like an ordinary one.
If your income is irregular but you have a job
The same logic works for commission, tips or project work on top of a salary: the variable part is not spent but set aside and spread across months. It is developed in budgeting with variable income.
Common questions
- What percentage of my invoices should I pay myself?
- Around half is a reasonable starting point for a small operation, with 30% for tax and costs and 20% for the buffer. What really decides is your actual tax burden, which varies enormously by country and status, so the split gets tuned to your own numbers after two or three months of measuring.
- Do I need a business bank account?
- Not to start. Two separate personal accounts already do most of the work: what comes in from work does not mix with the household, and the tax money stops looking available.
- What do I do in a month when nothing arrives?
- You pay yourself anyway, from the buffer. That is what it is for, and if the buffer cannot survive an empty month, that is a sign the salary is set too high rather than that the month was bad.
Try it on your own money
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