Paying yourself on purpose

The most common way to get paid badly

Most owners pay themselves the same way. A little on Friday because the account looks alright. A bit more when the car needs something. Nothing at all in a quiet month, because it did not feel like the moment.

That is not a decision. It is a leftover. And a leftover has a habit of getting smaller, because everything else in the business was decided first and got to go first.

Whatever is left over is not a wage. It is a remainder, and remainders shrink.

Your kitchen table has fixed costs too

The studio has bills that arrive whether the week was busy. So does your home. The groceries do not know it was February, and the rent on your own place has never once asked how the bookings looked.

So the goal is not to take what you can each month. It is to make the same amount arrive every month, out of a business where no two months are the same.

Take the tax off the top first

One thing comes out before you look at anything else. A share of what came in was never yours, and it belongs to the tax bill whether or not anybody has asked for it yet.

That one is not a choice and it does not depend on any other number, so it goes first. How much, and how to work out your share, is its own chapter further on.

Then average six months

Take what is left after tax for each of the last six months and average it. That average is not your pay yet. It is the size of what the business can currently support, which is a different and more useful thing to know first.

Now split it, and not before

Most of that average is your pay. A slice of it goes toward the cushion chapter five is about. Decide that slice now, looking at a real figure, and take it out before you settle on your own number.

The order is the whole point, and it is why this is a separate step. You could not have decided the slice earlier, because you did not yet know what you were slicing. Anything you set aside before the averaging would have been a guess dressed up as a plan.

A slightly smaller pay that quietly builds something behind you beats a larger one that leaves you with nothing to fall back on. But you only get to make that trade honestly once the number is in front of you.

The same number, every month

That is your pay. Here is what it looks like against six real months once the tax and the slice have already come out.

Look at what those small numbers underneath do. Three months put money in. Three months took money out. Add all six together and they come to nothing at all, which is not a coincidence. If the average is honest, the good months pay for the lean ones by construction.

The envelope that makes it work

That movement needs somewhere to live, and it is an envelope like any other. Call it your salary buffer.

In a month that produces more than your number, the extra goes into it. In a month that produces less, you take the difference out and your pay arrives whole anyway. You never skip a month, and you never take a windfall either. The buffer absorbs the swing so your kitchen table does not have to.

Start it under the average, not on it

Here is the way this goes wrong in week one. On the day you begin, the buffer is empty. If the first month is a lean one, there is nothing to draw from and the whole thing collapses immediately.

So begin a little under the average and let a month or two of surplus collect first. Once there is roughly one month of pay sitting in the buffer, move up to the real number. It costs you a few weeks and it is the difference between a system that survives and one you abandon.

The buffer tells you if the number is right

This is the part worth remembering long after the arithmetic. Watch which way the buffer moves across a few months, because it is the honest signal that a single month never is.

Up and down, up and down, ending near where it started, means your number is right and the machine is working exactly as designed.

Only ever falling, three or four months in a row, means your number is too high for what the business is currently making. That is not a moral failing and it is not something to push through. It is an instruction to re-average and set a new number.

Only ever rising means the opposite. The business can afford more than you are taking, and you are allowed to give yourself a raise.

The part that is easy to miss

In a lot of small businesses the owner quietly ends up the worst-paid person in the building. Everyone else gets an agreed amount on an agreed day. The person who took all the risk gets whatever is left, whenever it is convenient.

Almost nobody chooses that. It simply happens, one reasonable postponement at a time, and it keeps happening until somebody writes a number down.

You did not do all this work to be the last one paid. Set aside what is not yours, average what is, and let the same amount arrive every month like it does for everybody else.