I remember planning my transition from a 9-5 employee to running my own business and carrying these money myths with me into the beginning stages of that planning process. They came from a mix of my beliefs and other people's beliefs, but while they appear to be 100% logical, they’re actually counterintuitive.

Myth #1: I need to make the same as my 9-5 salary.

Your previous salary is really just a random number that doesn’t apply to or dictate your required income as an entrepreneur.

Let’s imagine you’re working at your 9-5 when your boss tells you the company is experiencing cutbacks and your salary will be reduced by 10%. What do you do? Quit your job? That’s one option, but most likely you’ll accept the pay cut and adjust to make ends meet with 10% less pay. You’ll probably curtail unnecessary purchases or maybe cancel memberships you don’t use (or need), but in the end you will work to live within your new income amount. Similarly when you receive a raise, weren’t you living on the previous salary before your salary increase? We adapt to the paycheck we’re bringing home.

The important thing to do (even before making the transition to full time entrepreneur) is to calculate the amount you need in order to pay your personal bills AND your business expenses. Finding that ‘nut’ is the first step in the process to determining what you need to earn as an entrepreneur.

Myth #2: I’ll cover my expenses first then pay myself with what’s left over.

Just because you’re running your own business doesn’t mean you only get whatever scraps dropped from the table. Paying yourself is just as important as paying any other expense in your business, in fact, you should be paid first. Keep in mind, you are an employee of your business therefore you should be calculated in the expenses and paid before recording your profit.

Traditional Accounting Says:

sales - expenses = profit

Let’s go back and imagine your 9-5 operated like this and paid all its other expenses first then paid you whatever was left over. If anything was left over. That’s completely unacceptable, right?

As an employee of your company, you should be paid before any other expense in your company. Same way any other organization handles payroll.

What’s interesting about these two myths is they both pertain to Parkinson’s Law: The more we have of something, the more we consume.

The Myth #1 of needing to make as much money as you did before is debunk since you’ll adjust your spending behavior based on the income you receive. That previous income amount is not tied to your needs so don’t let that number discourage you nor hold you back in what you make within your own business.

The Myth #2 of paying yourself what’s leftover after paying everything else is debunk because you’ll spend as much money on expenses as you have available to spend. If you have $100 available, then you’ll spend $100. Pay yourself first before other expenses rather than what’s left over.

I like the way Mike Michalowicz, the author of, "Profit First", uses toothpaste as a metaphor to explain Parkinson’s Law:

“When we buy a new tube of toothpaste, we're more liberal when applying it to our toothbrush. Some may fall in the sink or down the drain, but we don't care, there's a whole tube of it!

However, when our tube of toothpaste is almost empty, we act differently when applying it to our toothbrush. We meticulously squeeze every last bit of paste from the tube and carefully apply it to the toothbrush, making sure not a drop is wasted in the sink or down the drain.”

Basically, we’re more frugal because we have to be.