In this video, Ryan Vaughn (Incite Tax) explains the critical budgeting principle of “pay yourself first” for small‑business owners. He argues that taking a reasonable, consistent salary before covering other expenses prevents burnout, builds confidence, and still leaves enough cash to run the business. He illustrates the concept with a $10,000 monthly revenue example, recommending a $2,000 salary as a starting point and suggesting the Profit First methodology to fine‑tune the amount. Vaughn uses a plate‑size psychology study to show how a smaller “plate” (i.e., taking a set salary first) helps owners avoid overspending the remaining cash. He then outlines practical ways to transfer the salary depending on the tax entity—W‑2 wages for S‑corps (required for active owners) or owner draws/distributions for other structures—and stresses proper bookkeeping categorization. Throughout, he emphasizes the transformative impact on confidence and business sustainability, inviting viewers to contact his team for personalized guidance.
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Hello. I am so excited to be talking about budgeting tips and tricks. Today we are going to talk about paying yourself. This is a question that I get all the time. When should I pay myself? How should I pay myself? How much do I pay myself, etc.? Something that is really hard for business owners is finding this balance. Obviously, we're putting all of this effort into our business and we want to pay ourselves for that effort, but we also wanna make sure that we're not taking out so much that the business can't grow anymore. So we run into this hard obstacle. We also sometimes know our service so well, but we're not sure how to take money out correctly, or we're not even sure how to transfer it, or different things like that. So that's what we're gonna go over today. So the main thing that I'm going to talk about today is when to pay yourself. Pay yourself first. I'm gonna say that again. Pay yourself first. This is really hard for a lot of business owners. They're like, oh, but I have rent and I have people I need to pay and yada, yada, yada. I know you do, and I know that you wanna take care of your people, and that is so awesome. One of the best ways to pay to take care of yourself, I mean, to take care of your people, is to make sure that you are not burnt out. You need to pay yourself first so that you can take care of your family, you can take care of your home, and then you can also take care of your business and let it continue to thrive, continue to grow. So One of our biggest things is if you pay yourself first, you will be able to run your business off the rest. Now, I'm not saying pay yourself first and go crazy, right? If you take $10,000, if you make $10,000 a month, if you pay yourself $9,000 a month, the chances are you may not be able to run the business off the rest. So still pay yourself a reasonable amount, but pay yourself first. So example, for example, if you get paid $10,000 a month, if that's your top revenue, Take 2 grand out a month and run your business on the rest. Now, it might not be again exactly 2 grand. This is where you want to implement the Profit First system. You can talk to us about doing that. You can read John's book, whatever you want to do, but you want to pay yourself first a reasonable salary so that you can then run your business off the rest. Now, again, the first thing that I hear from people when this happens is they say, Okay, but what if I don't have enough money? Or, well, I don't know if I'm actually gonna be able to pay myself first and still continue to run my business. You will be able to. That is really hard. But every person that we have worked with, when they pay themselves first, they are able to run their business off the rest. And they actually feel more confident. They feel like, okay, I could do this. Like, I'm getting paid for my work. I know how much I'm gonna get paid, and I know that I can run my business off the rest. So. Pay yourself first. Part of the reason for this actually goes back to a study that was done a while ago. They took 12-inch plates and they, they put food on it and people would eat all that was on their plate, right? That's kind of how we're trained in the US. Then they had some people go to 10-inch plates and magically those people lost weight. Not because they were trying, purely because they downsized the diameter of the plate. And the reason for this is they would still eat everything that was on their plate and it would make them feel full. They would feel like, oh, you know what? I ate everything that was on my plate. I'm full. I'm good to go. This works with money. It's just a human psychology thing. When we look at our bank account and we see 10 grand in our bank account, we're going to think, oh, this is good. I need to pay so-and-so. I need to pay rent. And you know what, I've really been wanting to buy this new desk so that I can work better. I also been really wanting to replace the windows, or I've been wanting to wash the windows. I can pay someone for that. I was gonna do it myself, and I'll pay someone for that. Different things like that. If our pile starts at 10 grand, we— our mind will find things to use it for. And at the end of the month, we're gonna say, how do we pay ourselves? We have no money left in our bank account. However, if we make our plate smaller from the beginning, meaning we pay ourselves first, we take out that $2,000 or whatever it is first, we take that out, then we will run off of the $8,000. We will still be at zero at the end of the month. But the difference is we paid ourselves first. Our home is taken care of, and so we can run our business off of what is left. So pay yourselves first. I know you're gonna get sick of me saying that. It's because it's so important. This principle Literally changes people's lives. I have had so many clients that this has just again made them feel confident, made them feel like they can keep going when they were feeling burnt out. This is so important. Other questions about this? How do I pay myself? Depending on your type of tax entity, there's a couple of ways you could do it through W-2. We recommend doing some through W-2. If you're an S corp, it's actually required if you're actively working in the business. And then outside of that, you can do just a straight transfer. It's called distributions or owner distributions, owner draws. They all mean the same thing. You could just do a straight transfer from your business bank account to your personal bank account. That's perfectly fine. You wanna make sure that it's categorized correctly in your books. You can do that if you are in charge of your own books or have your bookkeeper do it if you have a bookkeeper. So pay yourself first. Just do a transfer or through W-2 depending on your situation. It will really transform your business. And if your next question is, well, how much do I pay myself? Go ahead and contact a member of our team. This is something that we help people figure out every day. And again, it is amazing, just the confidence and the light that comes to people when this change happens in their business. So I'm really excited for you to implement this, and I hope you have a great time.
