Lesson 3: Getting Paid – Napkin Finance

Lesson 3: Getting Paid

When you’re self-employed, there’s no HR department to turn to for questions about your paycheck and no annual reviews when you get to renegotiate your salary. Instead, it’s up to you to make sure that you’re charging the right rates and that your clients are actually paying your invoices.

How much to charge

Your rates will vary based on the type of work you do (rideshare driving vs. programming, for instance), your industry, and the assignments or projects you take.

But whatever your line of work, there are some expenses you need to factor into your rates, including:

  • Health insurance premiums
  • Retirement contributions
  • Business expenses (see previous lesson on budgeting)
  • Continuing education to upskill yourself

Although it may be tempting to accept all the work you can get, even at low rates, try not to sell yourself short. Remember that your goal is to build a sustainable business over the long run.

Ways to get paid

There are a few different ways to receive payment when you’re self-employed:

  • Cash: If your clients pay in cash, you’ll want to keep careful records for tax purposes and in case you’re ever audited.
  • Checks: Checks can be a convenient option both for your clients and for you, particularly if your bank offers free mobile check deposit.
  • Direct deposit: If your clients support direct deposit, this can be the easiest way to get paid. You provide your bank account details, and they can send the money directly.
  • ACH transfers: For one-time or infrequent clients, you might opt for ACH transfers, in which they send money from their bank to yours. However, some banks charge a substantial flat rate fee for transfers, which could cut into your profits.
  • PayPal: PayPal makes it easy to create and send invoices, but it typically takes a 2.9% plus $0.30 charge on sales transactions.

Paying yourself

Once your business has gotten paid, you need to figure out how much to pay yourself.

Self-employed workers have to pay quarterly estimated tax (more on that later), and you’ll also have to cover those routine business expenses you’ve budgeted for. You should also consider putting some money into a business savings account each month to cover any lean periods or unexpected expenses.

You can pay yourself from what’s left over after accounting for those items. Here’s how:

Start with your total revenue for that pay period

Subtract your estimated taxes, and put those into a separate account

Calculate and deduct your business expenses
plus an amount to put toward your business savings account

Pay yourself out of the amount that’s left

You can pay yourself out of every client interaction, or you can put yourself on a scheduled salary. In the latter case, you might pay yourself out of a business account once a month or once every two weeks, whichever works for you.

The important thing is that you account for your taxes and expenses before you cut yourself a check or transfer money into your personal account.

Tracking payments

The only way to pay yourself is to make sure your clients are paying their invoices. It’s a good idea to set up a tracking system whether that’s a simple spreadsheet or through invoicing software so that you know who’s paid, who hasn’t, and whether any invoices are overdue.

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The simple information you need
to clean up your not-so-simple finances.