- Category: Saving Money
- Published on Tuesday, 12 February 2013 01:12
- Written by MAP Financial Solutions
90% of my clients are self-employed, this has offered me the great experience of helping clients not only tackle their personal budgets, but also their business budgets.
When a client approaches me to work with them on their personal budget, there always seems to be the conversation of how to handle the personal budget against the business. The answer is always – separately. The first thing you want to ensure, is that you are not utilizing the same bank account or credit card for both personal and business expenses. You should use one account/credit card for personal and one for business. Not only will you make your accountant very happy, but you will also be more aware of where your money is going and less likely to leak it!
After you separate the two in regards to setting up the proper accounts, you want to then first look at your personal budget. What are your monthly, personal expenses? This includes everything from your mortgage to your toothbrush. Once you are able to determine your expenses, pay that to your personal account from your business account. It is like paying yourself a paycheck as if you were working for someone else. If your business income fluctuates, which again is about 90% of you in business, then you need to save in times of overflow. Here is an illustration of what I am discussing:
Personal Expenses = Your Salary
If your expenses are $5,000 (includes clothes, toilet paper, debt payments, savings), then you should pay yourself $5,000 from your business account each month.
If one month you make $10,000 – then you only pay your personal account $5,000 for your personal expenses and you save the other $5,000 in your savings account.
Then the next month when you make $3,000, but your personal expenses are $5,000 – you take the extra $2,000 that you saved last month out from savings to pay your personal expenses.
There are exceptions to any example, but I hope that this provides you with a basic illustration of where to start. Depending on your business income in the first few months, you may need to supplement some of your salary from savings that you already have to get this system going.
By keeping your personal and business accounts separate, you will save yourself a lot of work at the end of the year and also prevent against leaking money!