So you’ve quit your day job and started your own business. First and foremost, congratulations! You’ve done something most people only dream about. Owning a business can be personally and financially fulfilling, but it’s important to keep your personal finances afloat as well. I've written about my struggle with this here and here.
Now that I’ve had a bit of experience with managing both personal and business finances, I’ve found that it’s less of a balancing act and more of a system of checks and balances.
There are a few things you can start doing immediately that will help you in the long run. After all you’re hoping that some of that business revenue makes it back to your wallet, right?
How to Manage Your Personal Finances as a Business Owner
Keep It Separate
When you own your own business it is important that you keep your business and your personal accounts separate. It can be tempting to deposit payments straight to your checking account, but what happens when tax season rolls around or you have business expenses to be paid? You don’t want to have your business earnings tied to your personal accounts or you could run into trouble if you are audited by the IRS. By separating your business earnings from your personal earnings, you’re creating plenty of records of your cash flow.
You can pay yourself a consistent amount weekly, bi-weekly, or monthly (similar to your old paychecks) to cover personal life expenses and still keep a clear idea of your business revenue.
Before opening business accounts at your regular bank, take time to research the benefits of other institutions. If you have an online business, an online bank may make more sense and have better benefits than a brick-and-mortar business.
Banks may also have different incentives to bring your business accounts to them, so make sure you shop around! (I like Chase, USAA, and BBVA FREE Checking products.) If you’re planning on opening accounts anyways it doesn’t hurt to reap some rewards.
Set Up Automatic Transfers
After you’ve started your business accounts you should set up automatic transfers for your paychecks and any recurring business expenses. You don’t want to be stressing about late payments while you’re building your business! By automating one step of the process you can focus on what is really important: getting money in the bank. After all, when you work for yourself, every part of your business is on you.
This also applies for your personal finances! Spend one afternoon getting your bill pay set up and don’t worry about it again.
Make a Budget (and Stick to It!)
Treat your business finances like your personal finances. You should be creating and sticking to a budget for both, allowing you to make your money work best for you. While your job is to keep your business afloat, you can’t let your personal finances suffer. By budgeting you can keep yourself from overspending – meaning you don’t find yourself in the awkward situation of skipping a paycheck to finance your business.
Creating a budget will also keep you from dipping into business income for personal expenses. I am super guilty of this, so it's important for us all to remember – you are not your business!
Remember: If you find yourself constantly borrowing from one account to finance the other, you may have a larger problem.
Start Planning for Retirement
Just because you own your own business doesn’t mean that you won’t want to retire some day! As an entrepreneur you have more direct control over both your personal and business finances, and now is a great time to start aggressively saving for retirement.
Solopreneurs and small business owners even have access to specialized IRA accounts known as SEP IRAs. Speak to a tax or retirement specialist to learn what retirement option can save you the most in tax benefits while allowing you to contribute the maximum amount possible. You can also set up a brokerage account (both retirement and non) with TradeKing here.
Save for Slow Days (Or Weeks. Or Months.)
Having your personal finances tied to your business’ performance can put you in a bit of an awkward place. When you have off seasons (and you will, trust me) how do you get paid?
You still have to eat, even if business isn’t exactly booming.
You can prepare for this ebb and flow by opening a business savings account and sock money away for the months where the money just doesn’t seem to be coming in. That’s right – even your business needs an emergency fund!
By saving money in advance, you don’t have to rely on your monthly business income to pay your personal bills. You can still pay yourself your regular “paycheck” from this savings account. Be sure to pay special attention to your budgets around this slow period; so you don’t overspend, and so you know what to expect for next year. It all ebbs and flows!
Meet Octavia – The Expert on Managing Your Personal Finances as a Business Owner
Octavia became CEO of her own multiple six-figure biz at the tender age of 24, and she's one of the brightest, biggest go-getters I know. She's such an inspiration, so I had her on for an episode of #awkwardmoneychat to tell me her favorite tips for managing her personal finances as a business owner.
Have other tips for business owners navigating their personal finances? Share in the comments below!
Like this? Share on Pinterest!