This article started out as a response on our Work It, Mom! Forums to a question another reader, Caitlin, posed about paying your own salary I have responded here, because I realized that my response was turning into an article!
I have always paid myself a salary, but I have almost NO start-up costs. I am a medical editor. My business is largely providing a service rather than a product. I have four bank accounts: the joint account my husband and I both contribute to for the cell phone, the mortgage, the electricity, water, trash, some groceries and some eating out. (Some groceries because we also pay for them out of our individual accounts-- mostly because I have 3 kids from my first marriage).
Next, I have a savings account, and 25% of anything I earn goes into that for taxes and estimated taxes (I live in the States).
Then, I have a business account. My business insurance comes out of this. I originally set up my health insurance to come out of my personal account and so I continue to pay for insurance out of that account. But I pay myself a monthly salary every month from the business account. All of my earnings go first into this business account. Then, the 25% goes to savings, and a portion of my salary goes to joint, and the rest of the salary goes to:
my personal account, from which I pay for the kids' stuff (lunches, clothes, some groceries, basically everything kids, though my husband ends up sharing that with me a lot), my student loans, my credit cards, my health insurance as I mentioned, my car loan, and then everything else I need for the month.
Ideally, I keep the business account stocked with two or three months' salary. However, last year, I paid for a lot of marketing, so I am still trying to re-build my coffers. Ugh. In a perfect world, I would have a corporate credit card and would also pay for my health insurance directly out of my business account, and also for that corporate credit card. Hahahahahahahahahaha. That will happen someday, but in the meantime, since I am the sole proprietor, I just pay myself adequately to pay for my health insurance, and at tax time, I go through my credit card statements with a yellow highlighter. So far, that has worked. With electronic banking and electronic credit card statements, it makes bookkeeping pretty simple.
I can hear experts around the Internet cringing. But it has worked for me to do things this way for more than two years.
What is your system?
I am against credit cards and curious as to what the circumstances have been that made you wish you had one.