Monday, January 24, 2011

Budgeting for the Year Ahead

If you're on top of your business, you're probably doing your year end finances right now and planning for the year ahead. If you're not on top of your business, you'll probably put this off until the last minute and maybe even pay late this year because you'll realize at the last minute that you hadn't set aside enough to pay your income taxes. Well, my lovely lovecat- let's make this year better than the last, OK?

Here's how I generally like to budget in order to help me appropriately manage my income to cover my current and future expenses:

- 30% personal salary & quality of life
- 30% planned for IRS (whatever is left over becomes bonus or retirement)
- 25% business expenses
- 10-5% education/conference/workshops/networking
- 10-5% giving back
- 10-5% savings for emergency repairs/replacements and/or retirement

This means, for every $1000 that walks in the door...
$300 goes to me personally
$300 goes to the IRS
$250 covers business expenses
$50-100 is invested in my education
$50-100 is paid forward or given back
$50-100 is saved for a rainy day or future

There are more breakdowns within each category- especially business expenses to cover overhead and operational costs, but this is a good guide toward making sure that you're setting aside enough from each little piece of income you earn in order to account for everything you need to pay for when you're self-employed. If I've missed a larger picture item that you like to budget for, feel free to share in the comments below!

Anne Ruthmann is a lifestyle & wedding photographer from Boston, MA. She spent 10 years practicing marketing & management in corporate and non-profit businesses before pursuing her passion for photography as an independent small business. She loves helping others find creative and low-cost solutions to business problems. Follow her on Twitter to see her daily adventures and thoughts.


  1. If you're self-fulfilling print orders &/or album orders, you probably need to plan a lot more for business expenses. Anne, I know you use Pictage for all your hard copy sales - so you just get the fabulous check after the expenses are taken out. For those of us who do our own albums, we need to keep the costs of those in mind. 25% isn't enough to cover overhead + cost of sales, unless you're marking your albums up 500% :)

  2. I budget similar to Anne's when it comes to bookings from weddings & boudoir sessions. Things like albums go into a completely different fund, separate from overhead expenses.

    So if a client books a $4000 wedding which includes an album that costs me $600, I set $600 aside before I do the division of the rest. I also set aside any other costs I know I'll be covering, such as outsourcing my editing.

  3. Krista - I think this depends greatly on how you price your products. Your products should obviously be covering the cost of your time- and that becomes part of your own personal salary.

  4. Christine - I definitely consider the COGS and outsourcing part of my business expenses.

  5. Oh, I do too! I just sort them out differently. I didn't do a good job of explaining that...

  6. Great estimator! I have been averaging a lot more in expenses though (about 40 percent)...which is why my album prices had to go up for 2012. thanks for this reminder though!

  7. one relatively large expense i didn't see mentioned - health insurance.

  8. Health insurance is one of those things that you need to decide if you've planned for it as a business or a personal expense. Depending on how you have your business set up (sole-proprieter vs. s-corp, LLC, inc, etc.) is part of how you can determine which category you'll be expensing it from. If you get a discount on health insurance costs at a certain income level, than it may be coming directly out of your personal salary or "quality of life" portion. If you have a business structure that is completely separate from your personal liability, you'll want to take it out of your business expenses. As long as you know what that monthly or yearly amount is and can account for it- that's one of those things that you'll be account for where it's most appropriate for you. Likewise, if you're on a family health insurance plan as a dependent or spouse with someone else in your household, or if you're a part time photographer with another job that provides health insurance, you may not need to account for it in your photography business at all.

  9. Hi Anne,
    I was just rereading this post. Thanks for the guidelines. How do you stick to or keep track of those percentages so you know you are staying within them? For example, do you open up another account to put your tax money in? I'm trying to decide the best way to organize this because I did find myself in a pickle with taxes at one time! How about the other categories. Thanks!


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