Keeping your personal and business lives separate is important in many aspects of freelancing, including your finances. When I was first starting up, I read up quite a bit on the pros and cons of having separate checking accounts for my business and personal moneys.
To be frank, I couldn’t find any legitimate cons (be sure to leave a comment if you have any), so below are my suggestions on how to go about it.
Get a separate checking account
Small business checking accounts are usually free, and some might even have perks that personal accounts don’t have. You can probably get one with the bank you already use for personal accounts to make the transition even easier. I manage my accounts online, so can transfer money between my personal and business accounts via the bank websites. Makes it pretty easy to manage everything. Plus, having checks with your business name on them can look pretty pro.
Write yourself a check (or transfer electronically)
Pay yourself the same amount every month. Sure, this seems like an extra unnecessary step, but it helps with consistency and you’ll have a record of the payment. It’s easier to budget and keep track of your finances when your income and expenses are steady, and if you plan ahead, you can make sure to leave a cushion for any slow months that might come up.
Track your deductible spending
Chances are, most (if not all) of your spending from your business account will turn into the tax-deductible expenses you claim on your tax return at the end of the year. This fact alone speaks to the ease of having everything separate to start out with. That way there’s no confusion what was for you and what was for your business, and there’s less chance of some possible tax deductions slipping through the cracks. Your accountant (maybe you) will thank you later.
It can be very tempting to pull extra cash from your business if you’re running low in your personal account. Avoid this! If you pull out too much or too often, you risk coming up short on your expenses (which hopefully you’ve carefully budgeted for). This can lose you money if you’re not careful, and start a vicious cycle of moving money around without good reason.
If you constantly find yourself short in your personal cash flow, give yourself a raise! Of course, only do this if you have a real need, and a consistent surplus coming into your business–don’t risk draining your business assets because you’re not responsible with your personal cash. There are few things more satisfying than getting a deserved raise, and giving it to yourself is just as good.
If I have an especially good month (one that’s not making up for a poor month), sometimes I give myself a bonus for my efforts. Setting goals for yourself with an incentive to reach them is a good way to keep motivated. Just don’t go overboard.
Always plan for slow months in the future, no matter how confident you are that you can avoid them. Do this with your personal finances too–it can really help stave off the need to swipe money from your business when you shouldn’t.
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Do you keep your business and personal finances separate? What are some tricks you’ve found in keeping your cash in order? Leave a comment and let us know what you think!