By far the most common question I get asked as a financial educator for creative entrepreneurs is:
“Am I making enough money?!”
And the truth is: only you can know that! But I can help you figure it out, as I will in this post.
When you work independently, it can feel overwhelming to know if you’re on the right path and getting paid your worth. Entrepreneurs often talk about making “six figures” like they assume it is everyone’s goal. And sure, six figures sounds great! But it’s just an arbitrary number. Some people might need to make $60,000. Others might need to make $130,000. “Six figures” for six figures sake is a bad goal (and if you can’t tell, marketing the term “six figures” is a huge pet peeve of mine!)
So, how do we get started?
Let’s start with what you shouldn’t do.
You shouldn’t decide how much to charge based on:
- What you think your ideal client can afford
- What your competitors are charging
- What “sounds good” to you
While these can all be factors, they should not be the foundation you build your pricing on.
So – what should?
Your enough number.
What’s an enough number? It’s knowing how much money you need:
- In your personal life, to provide for yourself and your family if applicable
- In your business, to know how much you need to sustain it (and pay taxes)
- In your future, how much money do you need to be saving and investing each year
Personal number + business number + future number = your enough number.
Here’s how to calculate your enough number.
Step one: start with your lean household/personal expenses.
What are your absolute must-spends? Things like:
- Car payment/insurance/gas
- Health insurance
- Cell phone
- Pet expenses
Keep this to things that are necessary. I call this your lean personal expenses because this is the minimum you’ll need for bills each month, even if business is slow.
Step two: add in your quality of life personal expenses.
These are things like:
- Eating out
- Going out/entertainment
- Amazon/Target purchases
Step three: add in your business expenses.
How much does your business need to sustain itself?
Step four: add in some padding for taxes.
This can be anywhere from 15-30% of your net income – I’d ask your CPA as they know your tax bracket and tax liability historically. I save $7,000/year for taxes.
Step five: add how much you’d like to save each year.
Things to think about saving for:
- Future down payment
- New car
And there you have it!
Here’s how I calculated my enough number:
- My lean household expenses are $20,000/yr.
- My reality budget is $25,000/yr ($5,000 more than if I really needed to batten down the hatches).
- My business needs $18,000/yr to survive.
- I add $7,000 for taxes.
- I want to save $20,000/yr.
In 2021 I made a little over $90,000 so was able to save and invest even more.