Longtime solo designer (and CFC attendee), Jennifer Wilkerson of Albany-based Aurora Design, generously shared on the CFC LinkedIn Group recently the practical financial plan she uses to put money away for taxes, retirement, new equipment AND a regular draw. “It is second nature after 20 years,” says Jennifer, “but it would have saved a lot of heartache knowing it up front.” Here’s how it works:
First, we figured out as a family exactly how much money we need to draw each month from my business. Any adjustments to hourly fees gets calculated off of that target. (Money is transferred the last of the month regardless of business cash flow. That is a tough on for me, but worth it for marital harmony.)
Second, we target the percentage of my income that should go towards retirement. For arguments sake we’ll call that 10%. (I wish it could be 15% but I never quite get there.)
Then I look at what I spent the previous year on equipment as a percentage of my income. Currently I use 3.5% as a target.
I have several bank accounts set up…but these could also be virtual accounts. For every check I receive the following happens:
–10% goes directly into my SEP IRA account
–3.5% goes directly into an equipment savings account
–20% goes directly into a savings account and is ONLY used for paying taxes
So…when a check for $3000 comes in the mail I don’t think of it as $3000. To me it is really $1995. I don’t even think about the money that is put away–it isn’t mine–or at least not now.
Anyone else doing this? Something similar? Something different? Not at all?
We’ll be addressing these issues at CFC 2013, especially in June Walker’s session, “Creatively Legitimate Expenses: Don’t Cheat Yourself.” Find our recent podcast here.