A common question faced by most entrepreneurs is how much they should pay themselves. There are several factors in answering this question, including how much your small business can afford; however, you should consider your personal finances to effectively determine how much money you require to maintain your monthly standard of living.

Determining how much to pay yourself as a business owner, is perhaps one the most crucial decisions in controlling your business and personal finances better. 

A common mistake made by entrepreneurs is failing to keep adequate records of spending. In several cases, this happens when business owners mix their personal and business finances. 

Signs of mixing personal and business finances: 

1. You do not have a business financial plan.

2. You often have cash withdrawals that you can’t track or explain to your accountant.

3. You have not separated your personal and business expenses.

4. You do not have clarity on where you’re spending money.

5. You feel overwhelmed and anxious due to money issues, even when you have sufficient funds. 

How to effectively track your spending. 

We recommend starting by tracking your spending habits daily for at least a month:

1. Decide whether you use cash or credit or both. 

2. Ensure that you efficiently record your spending and organise and complete your filing.

3. Keep track of accurate and complete receipts for 30 days. 

Once you’ve successfully kept track of your spending for a month, you’ll develop a clearer picture of your expenditure. 

Where do you start? 

Many entrepreneurs make the mistake of thinking they will start generating income within the first three months of launching their ventures; however, in most cases, it takes notably longer to earn your desired amount. By determining what your personal budget is, you will be able to define how much you should request from your business as a personal salary. 

Questions to consider when setting a personal budget:

• What are your needs and wants?

• Which items in your budget fall under needs? These should include fixed expenses such as rent, utilities, phone bill, fuel, food and miscellaneous purchases. 

• How much do you spend on each item daily, weekly, monthly, quarterly and annually? 

What should you consider in your personal budget? 

• Shelter. Rent, bond repayments, security, water rates and electricity, and repairs.

• Taxes

• Transport. Including car financing, maintenance, petrol, license and insurance.

• Medical aid.

• Short term and long-term insurance.

• School fees, tuition and educational resources such as textbooks.

• Household expenses including a nanny, gardener, a domestic worker.

• Food and clothing.

• Entertainment and hobbies.

• Communication such as your cellphone, tablets, internet and mobile data.

• Holidays and other miscellaneous expenses.

Conclusion

Once you’ve determined your personal expenses in terms of needs and wants, you’ll be able to accurately discover how much money you need from your business to take home a salary. By employing the steps mentioned above, you’ll have an easier time determining a realistic salary.