What percentage of my paycheck should I pay myself?

Asked by: Lauren Hagenes  |  Last update: August 27, 2025
Score: 4.7/5 (36 votes)

The 80/20 rule breaks out putting 20% of your income toward savings (paying yourself) and 80% toward everything else. Once you've adjusted to that 20% or a number you're comfortable with saving, set up automatic payments to ensure you stick to it.

How much should I pay myself from my paycheck?

Step 2: Determine how much to pay yourself

This method allocates 20% of your monthly income to savings and debt repayment, 50% to necessities and 30% to wants. With a $3,400 monthly income, for example, you'd reserve no more than $680 for savings and debt repayment, $1,700 for needs and $1,020 for wants.

What is a good percentage to pay yourself?

You can pay yourself based on a percentage of your revenue. This percentage should make you feel comfortable, and it should be a percentage that your business can afford: 5-15% is usually average.

What is the most tax-efficient way to pay yourself?

Key takeaways about how to pay yourself as a business owner

For sole proprietors, an owner's draw is the only option for payment. A salary payment is a fixed amount of pay at a set interval, similar to any other type of employee. Taxes are withheld from salary payments but not from an owner's draw.

How do LLC owners pay themselves?

However, you are not paid like a sole proprietor where your business' earnings are your salary. Instead, you are paid directly through what is known as an “owner's draw” from the profits that your company earns. This means you withdraw funds from your business for personal use.

How To Manage Your Money Like The 1%

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How to get the most money from your paycheck without owing taxes?

To increase your withholding fill out a new Form W-4 and give it to your employer. The Tax Withholding Estimator is a helpful tool. You may also make estimated tax payments if the withholding from your salary, pension or other income doesn't cover your income tax for the year.

Is it better to claim 1 or 0 on your taxes?

By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.

Is it better to take owners draw or salary?

Advantages of owner's draw

Draws offer more flexibility. You can withdraw money as needed without sticking to a fixed payment schedule. You can manage cash flow more easily by adjusting your draws based on business performance — i.e., profitable months = more money, less profitable months = less money.

What percent of my paycheck should I put away?

Experts typically recommend setting aside around 20% of each paycheck for savings. However, the exact amount you save will vary based on your income, monthly expenses and personal goals.

Can my employer pay my LLC instead of myself?

Being paid through an LLC can be an option for some types of employees when working with businesses, and can have its advantages. However, there are some considerations to bear in mind before opting to be paid through an LLC, including looking at other financial solutions such as Wise Business.

What percent should I pay myself?

Profit distributions as a salary

An alternative method is to pay yourself based on your profits. According to Evan Singer, CEO of SmartBiz Loans, a provider of Small Business Administration (SBA) loans, the SBA reports that most small business owners limit their salaries to 50% of profits.

What is the pay yourself first rule?

Pay yourself first budgeting is sometimes referred to as "reverse budgeting" because your savings goals are prioritized instead of your expenses. The simplest explanation is that paying yourself first means depositing a portion of each paycheck directly into your savings. The remainder is then spent on your expenses.

What are the disadvantages of pay yourself first?

Cons
  • Transferring too much to savings: Not keeping enough money in your checking account can be harmful for your finances. ...
  • Contributing more than you can afford to your 401(k): Devoting too much of your paycheck to your retirement fund can also leave you with not enough funds for bills and living expenses.

What percent of a paycheck goes to taxes?

For federal deductions, about 8.55% of your paycheck will go to taxes, but you'll need to account for state deductions on top of that. The percentage of your paycheck that goes to state taxes will vary based on how taxes are levied. Different income tax brackets apply depending on how much money you make.

Is 6k a month a good salary?

While this figure can vary based on factors such as location, family size, and lifestyle preferences, a common range for a good monthly salary is between $6,000 and $8,333 for individuals.

How much tax do you pay if you win $5000?

The IRS requires that lottery agencies immediately withhold a 24% tax on lottery winnings exceeding $5,000, which reduces your actual take-home prize amount.

Will I owe money if I claim 1?

Claiming 1 reduces the amount of taxes that are withheld, which means you will get more money each paycheck instead of waiting until your tax refund. You could still get a small refund while having a larger paycheck if you claim 1. It just depends on your situation.

Why do I always owe taxes when I claim 0?

If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough.

Is extra withholding a good idea?

To avoid a large or unexpected tax bill it is also a good idea to change your withholding when you experience a big life change such as marriage, divorce, birth of a child, getting a new or second job, starting a side business, or receiving any other income that isn't subject to withholding.

Can I still get a refund if no federal taxes were withheld?

It's possible. If you do not have any federal tax withheld from your paycheck, your tax credits and deductions could still be greater than any taxes you owe. This would result in you being eligible for a refund. Remember – you must file a tax return to claim your refund.

What to claim to get more money on a paycheck?

If you'd rather get more money with each paycheck instead of having to wait for your refund, claiming 1 on your taxes is typically a better option. Claiming 1 reduces the amount of taxes that are withheld from weekly paychecks, so you get more money now with a smaller refund.

Is it better to owe or get a refund?

The best strategy is breaking even, owing the IRS an amount you can easily pay, or getting a small refund,” Clare J. Fazackerley, CPA, CFP, told Finance Buzz. “You don't want to owe more than $1,000 because you'll have an underpayment penalty of 5% interest, which is more than you can make investing the money.