How much money do you need to put aside for tax?
The next step is looking into the tax. How much money do you need to put aside for tax each month? Again, I can’t answer that one clearly as I’m in Australia and you might live somewhere else. That’s something you’ll have to figure out for yourself, but you need to know that from the beginning. That’s nothing worse than realizing at the end of the year you need to pay tax and having nothing in your savings account. That happened to me in the past and let me tell you it wasn’t a great time. So, be clear on how much you need to pay and write it down – usually, it’s a percentage of what you make, e.g. 20%, 30%.
Here is the gist of it
Let’s say that the minimum salary you want to pay yourself for a month (personal) is $2000 and your overhead (fixed business expenses) is $500.
On top of that, you know you have to pay 20% in tax to your state/government.
To break-even (meaning you do not re-invest in your business or save money but have enough in revenue to pay yourself, cover your overhead, and put money aside for your tax) you would need to make a revenue of $3125.
20% of that amount will be set aside for tax. That’s $625.
$3125-$625=$2500 → Exactly what you need to pay yourself a $2000 salary and cover $500 of expenses.
→ You are breaking even.
Here is the calculator where you can just put your numbers and it will make the calculations for you automagically!