Money Strategy #2: Separate Your Money

November 19, 2008

This article is part of a series of eleven short articles on managing money. It is aimed at freelancers and independent contractors. Before you read this article, make sure you have read the disclaimers etc. in the introductory article about my money management rules.

Strategy #2: Keep your money separate

Keep your business and personal finances separate—separate bank accounts, separate credit cards (if you use them), separate shoe boxes/filing cabinet drawers for the paperwork for each.

Why? Well, here are a few reasons to keep your money separate:

  • Easier to supply the correct information at tax time
  • Easier to see at a glance the state of your business finances
  • Easier to manage on a daily or weekly basis as you don’t have to keep track of who owes what to whom—do you owe the business or does the business owe you for that purchase you made last month?
  • Deters you from spending the business’s money on personal things, thus leaving the business short when a business expense occurs
  • Reduces accountancy fees as your accountant doesn’t have to sort it all out and charge you accordingly

Even though I’m a one-person business, I have a business credit card which makes it even easier to keep business and personal expenses separate. If I have to go to the computer store to get a new network cable, for example, I whip out the business credit card to pay for it. The interest rate on my business credit card is high and there are no ‘free’ days, so I make sure I keep it topped up and in credit (e.g. I try to keep $500-$1000 on it as a credit amount). If I know I have a big expense coming up, I’ll top it up beforehand, then use the credit card to pay the amount without incurring any interest charges.

When I started my business back in 1999, I decided to set up my business bank account as a ‘Cash Management Account’, thus avoiding the extra costs of a chequing (checking) account. In nearly 10 years, almost every transaction on that account has been done electronically over the internet. I’ve had to draw two bank cheques from that account, so paying the bank fee for those was a no-brainer considering how much interest I’ve received on this account that I wouldn’t have received on a business chequing account.

If you don’t think you’re disciplined enough to keep your tax obligations to one side, talk to your bank. Most have a facility for keeping the money you owe to the tax office separate from your main business account.



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