A bunch of years ago, a good friend of mine was thinking of making the leap into Copywriting Land. He’d been a journalism major in college, and he loved to write. (He was, and still is, an excellent writer.). After college, he detoured and worked for various small businesses in the retail and printing industries. When he saw I was making a living as a freelance copywriter, the writing spark inside him reignited. When he began to seriously contemplate making the shift to freelance copywriting, we met for lunch, and he came equipped with a bunch of questions.
And his first one? “How do you pay yourself?”
It was such a beautiful, vulnerable question. He’d worked for a paycheck all his life. And even though he’d been studying copywriting and content marketing in recent months and doing little side projects here and there, the whole concept of paying himself felt foreign to him. Like, HEY. How do I get them dollars I just earned into my bank account? Legally?
This brings me to today’s post (or video, if you prefer to view rather than read).
How do copywriters get paid? How to pay yourself when you’re self-employed?
My goal here is this: SIMPLIFICATION. You can find plenty of articles, books, and tutorials on how to create profit and loss statements and/or how to use QuickBooks (or its equivalent) and all the various official definitions regarding small business bookkeeping. That’s NOT what this post is about. I want to simply show you how to think about money and your freelance copywriting business AT A HIGH LEVEL. And how I pay myself month to month.
In terms of your freelance copywriting business, think of three buckets when it comes to money.
- Revenue bucket. That’s the money coming in from paying clients.
- Expenses bucket. That’s the money going out to pay for your legit business expenses, like Internet and health insurance.
- Taxes bucket. That’s the money you pay to Uncle Sam and your state government.
For the purpose of this post, I’m going to assume you’re making a profit. As in, your revenue exceeds your monthly business expenses. Again, this isn’t a how-to article on bookkeeping or business terms.
And I realize if you’re just starting out, your business expenses might exceed your revenue, at least for a short while until you gain some traction. That’s OK. It’s expected. And even understandable. And the IRS has a whole way of determining whether your “business” is really a business or a hobby, based on how much you bring in year-to-year. But that’s a subject for another article by someone who holds the title of “accountant.”
Speaking of accountants, consider these two important recommendations:
- Work with an accountant. Have them prepare your taxes and quarterly estimates. I recommend doing this from the start, even if you’re not making a lot of scratch. A good accountant will help guide you and make sure your T’s are crossed. It’s an expense, but not as expensive as you might think. I spent under $600 on mine last year. (Your mileage might vary depending on a bunch of factors, but I’m a big believer in being transparent with numbers whenever possible.) And that expense is EXACTLY that: a business expense that you can deduct the following year.
- Work with a financial advisor. Specifically for retirement planning. (But they can help with your entire financial landscape.) Don’t put off contributing to your retirement. As a self-employed copywriter, IT’S ALL ON YOU TO WATCH OUT FOR YOURSELF. It’s OK to start small. Make it $25/month, if you can swing it. Then up that amount by 10 or 20 bucks every month or quarter. You won’t notice such incremental increases, but they will add up quickly. I have a standing directive with my financial advisor to keep upping my contribution every quarter until I tell him to stop.
But back to our topic: How do copywriters get paid? How to pay yourself when you’re self-employed?
As you work for clients, you will invoice them. (I’m going to write a blog post about how to create a copywriting invoice.) So the money—the revenue—comes in. Either via check or electronic payment.
You’ll deposit this into your BUSINESS BANKING ACCOUNT. My business and personal banking accounts are with the same bank for ease. And I use the bank’s online banking portal for even more ease.
You’ll pay your monthly expenses from your business banking account. ALL of my recurring expenses are automatically debited from my business banking account, from my health insurance to my cell phone to my IT maintenance. This makes end-of-year bookkeeping a breeze because it’s ALL done electronically and there’s a paper trail. I also have a business credit card for those one-off purchases I occasionally need to make, like a new computer or a new office chair.
Be mindful about taxes. In the beginning, you might not be making enough (again, consult an accountant!), but as you grow your business (because you’re going to GROW, right?), you will need to pay taxes. You’ll make quarterly estimates (and I recommend doing so . . . you’re supposed to do it, for one thing, but beyond that, it’s a much easier pill to swallow to spread the payments out over four payments rather than one big check in April).
You might have heard the adage: Think in terms of thirds. A third of the money you make will go to taxes, a third will go to expenses, and a third you get to keep (in your business account and/personal account; obviously, you need to keep a chunk of money in your business account, but you pay yourself from that dough as well). That’s a rough rule, but from a high level, not a bad way to think about it. As a freelance copywriter working from home, you’ll have fewer expenses than other small business owners, so you might not necessarily be putting a third toward expenses. (Again, your mileage might vary.)
OK, a reminder about my disclaimer: I’m not an accountant. I’m not a lawyer. And I never did successfully shimmy up the ropes in gym class. Oy!
I’m simply sharing my ways. Every month, I go into my business banking account and pay myself by transferring money to my personal bank account. I have a small range, but it’s usually the same amount month-to-month. From my personal account, I pay non-business expenses, like my personal credit card bill, which covers things like Panera (LOTS OF PANERA) and groceries or dinners out with Mister Word Nerd. You get the idea. Business is business. Personal is personal. But yes, I pay myself each month.
You could set up recurring payments through the online banking portal. You could also pay yourself every week or every other week. I choose to do it monthly. But you do you!
And I know the big question you’re asking is HOW MUCH should you pay yourself month-to-month? That very much depends on a variety of factors, like your personal expenses, how much you want to make, and how much you’re making in reality. See point #3 in this helpful article from Intuit QuickBooks.
Need more help on how to pay yourself when you’re self-employed?
More resources to check out:
- How to pay yourself when you’re self-employed – from Intuit QuickBooks. Essentially, it describes everything I talked about here (but it also provides some useful info on reinvesting in your business AND determining how much you can/should pay yourself)
- How to Budget for Taxes as a Freelancer – from The Balance
- Tax Guide for Small Business – from the IRS
- Tax Deductible Expenses for Freelance Writers