How Much Should You Pay Yourself From Your Amazon FBA Business
One of the most common questions I get asked is tomorrow, how much money should I be paying myself from my Amazon FBA business. So in this video, I will help you figure that out and also share with you exactly what I do to pay myself from my business I have my notebook here with me today. So we can be taking some notes together to figure out how much money you should be paying yourself from your Amazon FBA business.
Now, if this is your first year selling products on Amazon FBA, then this video is for you. Because you may be asking yourself this question right now. How much money should I be paying myself? I know a lot of my students asked me that as well. So let's figure it out. Because you do not want to over pay yourself. But you also don't want to under pay yourself.
You also want to enjoy life and not have to give anything up. But you also need to most importantly, reinvest your money back into your business. So your business can grow, make more sales, and then long term, we all get paid. We're all happy, right? So where do you draw the line? If you guys have been selling for a while, you may have figured this out.
And by the end of this YouTube video, I will be sharing with you exactly what I did with my expenses and how I paid myself in my first year selling products on Amazon. And by the way, you guys do not want to miss my most recent YouTube video right here where I talk about my sales and my net profit and my progress with my very first year selling products on Amazon. So there are so many things that come into play, when you are trying to figure out how much money should I be paying myself from my Amazon FBA business.
Now, if you are not profiting yet, then this video can be saved later, when you are profiting for a lot of you guys, you may be profiting for a lot of my own students, they are profiting every single month now, I feel $1,000 per month, even 10,000, even $20,000 per month, but they cannot figure out how much they should be paying themselves. So a lot of things go into play here. But we are going to talk about the most important thing and simplify that one thing. So you guys can start thinking about oh, okay, that's how much I can or should be paying myself in my Amazon FBA business. Now, first thing is, you always have to keep in mind about taxes.
So I'm not sure where you guys live. I live in Canada, I live in Vancouver, British Columbia, Canada. And there are taxes here, meaning if I make money in my business, and if I get paid from my business, I get taxed, right, I get taxed in my business. And I also get taxed on the personal side. So before I make a decision to find out how much money I should be paying myself, I have to make sure that I am not going above specific tax brackets. So every time you make more money in both your personal and your business, especially personal income, you get taxed more, I'm sure you guys are aware of this, the more money you make, the more money the government takes, I mean, obviously that is not something that I like.
And that could be a story for another time. But you want to pay yourself where you are comfortable, and you are not getting taxed too heavily. Right? So we're going to figure that out.
So the first thing you have to figure out right now is what is the tax brackets for yourself on the personal side of things. So if you make $50,000 per year, this includes your job or any freelancing jobs that you have, or other side business side hustles that you guys have, you have to figure out your tax brackets because getting paid, for example, $50,000 is totally different than getting paid $100,000. And just because that is your gross income, it does not mean that that's how much you're taking back. Because if that was your gross income after taxes, you will be left with net profit and net profit looks totally different. If you were making $50,000 Compared to $100,000, you get taxed more with the more money that you make, at least that is how it is here where I live and for most of you who are from the United States or the United Kingdom or whatever, most of the times it works the same way unless you are in the Cayman Islands you do not get taxed.
So what I'm trying to say is just figure out your tax bracket before anything else. If you do not know your tax bracket, you can go to google.com and Google your tax bracket. So for me, I will be typing into Google, British Columbia personal Tax bracket and you want to make sure that you are not overpaying yourself, or else you pay more tax. But if you have to overpay yourself, then that's just what you have to do because you need to live.
Okay, so that's just my biggest tip for you. In this video, please figure out your tax brackets. Second, let's dive into all the good stuff right here. So how much you should be paying yourself depends on so many things.
It depends on your living situation. It depends on whether or not you have a mortgage or rent a car or a bike kids, dogs, cats, it depends on so many different liabilities. And you have to make sure that you are covering all of those expenses, right? But here's the thing, here is the most important thing that you need to know in this video.
Aside from figuring out your tax brackets, you need to know how much your monthly expenses are four necessities. So again, necessities are things that you cannot run away from you cannot run away from rent, you cannot run away from a mortgage, you cannot run away from your car payment. You cannot run away from eating because you need food to survive.
These are all necessities. So once you figure out your necessities, then you can determine Okay, how much money do I need to pay myself from my Amazon FBA business? So let me just write down all of the necessities so we can go over it again later on. All right, so no matter what you do, it doesn't matter what you do. It doesn't matter if it's an Amazon FBA business or like a hotdog stand or a hair salon, it does not matter.
What matters is your monthly expenses that are necessary things that you cannot run away from. So let's pretend that our monthly expenses are, what's the number $3,000 Let's pretend everything that you need to cover in your life is around $3,000. So in order to survive, and for you to get through life, you need a $3,000.
So how much money should you be taking out of your Amazon FBA business? Do you take out $3,000 entirely? Well, not necessarily. Because if you have a full time job, you may be getting money from that job. Or if you are someone that is trying to transition out of your full time job, which a lot of people do after having success in their Amazon FBA business.
I know that's what happened with me, I just did not go back to my nine to five job because I didn't need it anymore. I made enough money, more than enough money where I don't have to go back to work. That's where we all want to be? Well, most of us. So if you are transitioning from a job and trying to get out of it and making sure that your monthly expenses are covered, then that amount of money from your Amazon FBA business needs to be pulled out.
So if you were to get rid of the job, let's pretend that your job is paying you $4,000 Every month, you have to be ready and prepared to cover $3,000 of those expenses. So that means you need $3,000 out of your Amazon FBA business to cover all of the necessary expenses, expenses that you cannot run away from, which means you have to make sure that your net profit in your Amazon FBA business every single month is exceeding $3,000. Or else you will not be covering your necessary expenses. So I really made sure that all of my necessary expenses were covered. And if they were not covered, I will be in the red, I would be in big trouble.
But luckily for me, I had money saved up, I had a lot of money saved up for my regular job, and I was able to use those savings to invest into my Amazon FBA business. I understand that a lot of new entrepreneurs do not have a lot of savings. And that is why we are here today to make sure that you cover your most important expenses, and then figuring out how much to pay yourself from your Amazon FBA business. In this scenario, where you have to cover your monthly expenses, then obviously, your tax brackets really don't come into play, right? It only comes into play if you have money left over.
So if you already covered $3,000 of your monthly expenses, and you want to pay yourself more so you want an extra $2,000 for a vacation or do something personal, you have to make sure that you're not overpaying yourself because that is when the personal tax brackets come into play. And then you have to pay more tax because you're taking more money out of your business. So I want you to write down all of your expenses and how much do your expenses costs everyone's is different for me my monthly expenses that are necessary to my lifestyle are over $10,000 so I pay myself to De I pay myself over $10,000 per month from my business. Now, that's just me. But I do that because again, I need to cover all of the necessary expenses while myself and my husband needs to cover all of the necessary expenses or I will not be breathing, I will not be living and you do not want to be in that situation where you are stuck and you have no money to pay for your expenses.
You have to figure out your expenses, and then all the necessary expenses you have to pay for from your job, or your Amazon FBA business or both. So now that we figured out our monthly expenses, we have an idea of how much we should be pulling money out of our Amazon FBA business. That is only if you have no job. If you have a job. If you have a job. Or if you have another source of income, I actually suggest you to not pay yourself at all from your Amazon FBA business.
So this is what happened with my first year selling on Amazon. I got fired from my nine to five job. And like I said earlier, I had a lot of savings in my bank where I can live off of pay my expenses. And my monthly expenses during that time was not a lot.
I think it was just a few 1000. I don't remember now, it was in the very low 1000s. I think like maybe even two or 3000. Anyway, I had savings, so I didn't have to dip into my Amazon FBA business.
So what happened that first year and how I was able to grow so much in my Amazon FBA business, the big secret is I didn't pay myself for a whole year, I paid myself $0. Because all of my expenses, my unnecessary expenses were covered. They were covered by my spouse, and our savings.
And we also had real estate. So we did not have to pull money out of our business. So if you guys have a job, and you are already getting paid from that job with money left over that money left over, if we go back to this example here, if you get paid $4,000 per month, and your bills are $3,000 per month, that extra $1,000 should actually go towards your Amazon FBA business because you need to buy inventory, you need to advertise your products to grow more and grow more and grow more. So when people ask me, how did you grow your Amazon FBA business so fast? That's exactly how I did not pay myself at all for over a year $0 $0.
That's it, because I just didn't need it. Even though I had expenses, I had savings and all that other good stuff. So I was in a more fortunate situation. But if you guys need to figure out how much you should be paying yourself again, one is to figure out your personal tax brackets because you do not want to be overpaying yourself where you pay more taxes, and to figure out your necessary monthly expenses. What do I need to pay out of the pocket that is totally necessary for me staying alive for me to continue breathing? What are those expenses and be very honest with yourself, there are some expenses that you just don't need.
Like for example, you probably don't need that new cell phone. Unless your cell phone now is broken, you probably do not need that new pair of shoes. Unless you have no shoes. There are other ways to be frugal with your monthly expenses, where you can make this work and take full advantage of the first year when you sell on Amazon FBA. Your first year is the most important year.
And do not forget if you randomly pull out money from your Amazon FBA business and you are getting paid from their job. Now you will be paying more taxes on the personal side because you have income coming in on both sides. So that is why it's so important to figure out your monthly expenses, what is necessary and with the money left over that you have maybe in savings or maybe from your job that should be used to invest into your Amazon FBA business so it can grow. And if you do not have to take out money from your Amazon FBA business, I suggest you not to because that's exactly what I did.
And I do not regret it. I lift off savings and then after I think it was about four to six months, I started profiting from my Amazon FBA business. So it wasn't even a very long time where I wasn't paying myself.
I could have paid myself. I think it was around the four to six month mark. I was making over $10,000 a month in my Amazon business in net profit. And could have I paid myself Yes, I could have but I decided not to because I didn't need to so I didn't have to pay the taxes for money that I don't need. I had all of my needs covered from somewhere else.
You really have to sit down and think about your tax brackets and your monthly expenses and then decide what should i do with my money on the Amazon FBA side of things and then also with their job and other income. And like I said, if you do not have to touch money from your Amazon FBA business, the better the money that you make in your Amazon FBA business should be used to reinvest into more inventory, more products, more advertising. So it can grow a lot quicker. The people that grow a lot slower are people that pull out too much money out of their business for enjoyment, which I do and I do not agree with. So one thing I do agree with is you should always treat yourself.
So when you do make money, you do have to spend some money to treat yourself maybe to a nice dinner, maybe a small vacation, maybe a new cell phone, but it would be a bad idea to use all that money and just dump it into everything else in your personal side. That is not necessary. Especially if you already have a job or something else going on or savings. Again, the fastest way to grow your Amazon FBA business and not get taxed as much on the personal side is to reinvest that money in your Amazon business, if you can, a lot of people start to lose that motivation when they see that their business is not paying themselves anything. But one thing to remember again, is that the longer that you leave your money in your Amazon business and reinvest every single penny, it will grow a lot quicker. Now, everything I just said relates to an individual and a business entity.
So I am the individual and my Amazon business is a separate entity. So that is how you look at it based on everything I've just said. However, if you are selling just as an individual, some of you guys are, and I suggest you to actually create a separate business entity after you make 5000 to $10,000 per month in sales, you should start creating a separate business entity.
So you separate yourself from your business. So that's everything I just talked about. But when you are just an individual and you are selling on Amazon, just you so if it's just under my personal name, and I am my business, I will be paying a ton of taxes, because on the personal side, you always pay more taxes, at least that's how it works in Canada, you pay more on the personal side. So that's why you want to separate your business and create a separate business entity and leave that money in there. So if you are an individual, there's nothing wrong with that, I want to tell you, there is absolutely nothing wrong with selling on Amazon as an individual. But as time goes by, and if you have been selling for over six months now, and this is what you want to do, then please go out there and create yourself a separate business entity because there are a lot of tax benefits when you do.
And you can write off so many more things in your business to lower that tax owed to the government at the end of the year. So if you are an individual selling on Amazon, it's the same thing. You have to make sure that your monthly expenses are covered. But you have to be extra careful that the money that you are making your gross income on Amazon is not exceeding any crazy tax bracket, especially when you're selling on Amazon, it's so easy to make sales on Amazon and that will all go towards your gross income. And then depending on how much inventory or things that you buy for your business, you can't deduct all those expenses. But I am not an accountant.
So I cannot give you professional advice over there. All I know is that if you sell as an individual, you do not want to do that for too too long. Because as you start making money on Amazon, it's very hard to kind of differentiate your business expenses from your personal expenses and then your gross income will be very high and then you have to work out everything that you are allowed to write off to deduct your taxes and everything else is just gets really messy. So same goes for individual there's nothing different. But please create yourself a business entity after six months of selling consistently, or when you start seeing net profit. So I wrote down all of the expenses here that you guys should consider not sure we can read that.
Not even sure if it's the cameras filming your way anyway. Mortgage and rent car payments, gas gases a lot these days. electricity bills, phone bills, if you have kids, if you have pets, any liabilities and food all those expenses need to be covered and then you can figure out what you want to do with the money in your Amazon FBA business. So going back to what I did, I didn't pay myself the first year at all and I do not regret it. It's the best thing I ever did. And that's how I was able to grow my business so fast.
I just reinvested every single penny that I earned in my Amazon FBA business in more inventory and more advertising and that was how I was able to blow up my business. If this video was helpful for you that make sure you give this video a huge thumbs up subs griped to my channel leave me a comment and I'll see you guys in my next YouTube video
2022-04-29 04:48
