Are you mixing business and personal finances?
If yes, that’s a recipe for unexplained losses and tax-headaches.
Whilst this may seem obvious, nearly one out of every five business owners don’t have separate personal or business bank accounts.
Most entrepreneurs treat their businesses like personal ATMs, running to them every time they need cash.
As an owner, you should be paying yourself a monthly salary and withdrawing profits in a structured way. Paying yourself regularly is the first step towards a healthy cash flow, and it teaches you discipline – a key ingredient to success in business.
3 Reasons You Should Never Mix Your Personal and Business Finances
According to Paypie, there are serious legal and financial consequences of getting this wrong:
It’s possible that an individual or company may make a claim against you. Depending on your business structure and the nature of the claim, your personal assets could be at risk as well.
- Penalties and fine
Making a mistake on your business or personal taxes because you’ve mixed your finances (this is referred to as “commingling”) can result in fines and penalties.
Anyone evaluating the financial health of your business will see a lack of separation as a potential concern.
Furthermore, separating personal and business will help you tremendously at tax time. Tax deductions are another huge advantage of keeping your business finances separate.
In this episode, we discuss the importance of separating business and personal finances. We also share the steps we’ve taken so that you can do the same.
Key Takeaways From This Episode:
- The importance of separating business and personal finances
- How you can begin to separate your business and personal finances
- Learn a money management system for allocating personal finances
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A-Ha! Quotes from This Episode:
Resources Mentioned in This Episode:
- Enter our Founders Connect podcast launch giveaway contest (over $5,000 in prizes)
- Green School Bali
- T Harv Eker’s JARS money management system
- Read our free guide to developing financial intimacy with your spouse and take control of your finances as a couple (click image below).
Click here to view the full transcript
Narrator: Did you know that financial intimacy can lead to better sexual intimacy with your significant other money is never just about dollars and cents. Money is wrapped up with emotions such as fear, insecurity, envy, and guilt, and attitudes such as control. So want to improve your financial intimacy. Grab our free guide at www. dot founders connect.co forward slash financial intimacy today.
Cindy Pham: Welcome to founders Connect podcast. We help lifestyle entrepreneurs to grow their business online and create a happier marriage.
Anf: Did you know that approximately 45% of marriages end up in divorce and 65% of all startups fail due to founder conflicts where we’re here to change that
Cindy Pham: Each week, we bring you an inspiring guest and practical tips to help you with business relationships and sustainable living.
Cindy & Anf: Now let the fun begin.
Welcome to founders Connect. I’m Cindy Pham. And I’m Anfernee Chansamooth
Cindy Pham: and today we’re here to talk about how to separate your business and your personal finances. So Anfernee, why should we do this?
Anf: Well, I think let’s talk about it this way. If you were to ask me how much money I have in my personal account,
Cindy Pham: what would you say?
Anf: I would say $10 million dollars.
10 million Dong! (laughing)
Anf: Yeah. For those who don’t get that 10 million. Dong is not a lot. When you convert to Vietnamese Dong. Okay. So something that happens when you have for a lot of freelancers or solo entrepreneurs, what happens is, and I did this when I started is, normally you’d have a personal bank account, and then you would run all your transactions and expenses for the business through that personal account. Okay, I’ve learned to actually create a business account. So I’ve got a bankwest account, and which is a separate business account. But still, there are some times where, for example, the business is not making enough cash flow. So then I will go and use my personal credit card or personal card debit card for that transactions.
Cindy Pham: So I guess that would be really hard for the accountants to reconcile your account, isn’t it?
Anf: Yes. And for my wife to work out what’s going on with the money?
Cindy: Exactly. I always ask, what is this expense, and he can’t even tell me,
Anf: okay. (laughs) And the other issue with not separating business and personal is when for a lot of startup businesses, when the founder or founders are not paying themselves salary, which is quite common, because that, you know, this is something that we’re taught is to take any profit that you’re making and reinvest in the business, okay. But what actually happens is, the founders are not pulling a wage, and therefore that creates a situation where there’s no personal finances hitting the personal bank account. And,
Cindy Pham: and that causes a lot of stress, doesn’t it?
Anf: for who?
Cindy Pham: for that couple? Especially me Anfernee.
Anf: That’s right. So let’s talk about, you know, how we’ve been able to address this issue and to really separate the business and personal finances. So what have we done?
Cindy Pham: Oh, well, you mean what have I done (laughing)
Anf: What did you do to help us resolve this issue as a couple?
Cindy Pham: So basically, I found out that he wasn’t really that great with the allocating and saving money. So I created a spreadsheet. So the spreadsheet is based on the jars money management system, which I’ve learned from Harv Eker.
So basically, there are just six categories that you want to put your money in and put a percentage to the six categories. So the six categories we did were necessities, long term, short term, play, education, give and financial freedom.
Anf: i just want to add to do sort of put some context around those. So necessities are rent, food, groceries, that kind of stuff bills. For long term, we’re talking about savings that we spend later, as our holidays, might be unexpected medical expenses, family, things that are going on, you know, with our families.
For play, that’s really for us to have fun, you know, and go to the movies as we did on a weekend, entertainment. For the education bucket.
You can think of these as you know, T Harv Eker calls them jars and these can physical jars like if you think back to before the time of bank account our moms or maybe our grandparents had actual physical jars that they put on a table and they would just put coins or bills into each of these jars and that’s how they would divide their finance.
You can also do this electronically via bank account, right?
Our Education bucket or jar is really for us to learn and grow as individuals so that’s for anything like coaching mentoring books or any training courses that you’re going to do.
Cindy Pham: So basically anything that will create income for financial freedom, this jar we didn’t touch. Gift jar, basically donations to charity, or any gift to really that you want to give to anyone.
Anf: Yep. for sure, giving back so one of our core values and sustainable living is also something we’re really passionate about. Building self-sustaining communities.
So projects that are doing that kind of work. So one of the places that we went to earlier this year was the Green School in Bali, My dream. We actually, paid to do their day tour or two tours there on-site, which is really amazing for both of us. At a later stage, we want to, you know, be able to use that giving jar and actually donate to cause projects like that.
Narrator: You are listening to the founders Connect podcast, helping lifestyle entrepreneurs to grow their business online and create a happier marriage now back to the show
Anf: now they’re the six sort of recommended categories from to T Harv Eker system and raise up to you as a couple how you want to allocate those Exactly, and how the percentage and you can even do the categories that’s important to whatever it is the case Exactly, and potential allocations like, and he just said, you know, you work out how, what is more, important based on your own priorities as a couple, and then you would split that up.
So, you know, you might go 55% to your expenses, your monthly bills, and whatnot, and then allocate otherwise, that’s really great. Now, what Cindy did, being someone from a financial background is she created a spreadsheet, yeah, Google Sheet, which has all those allocations and formulas and co equations and things that makes it a lot easier for us to so why did it does this play in your income, and there were two spits out the percentage that you want, and you could even also changed a percentage, and it would just formulate itself, that’s really awesome.
And we’re actually going to give that to you for free!
If you want to head over to our free guide to financial intimacy. And that’s, you know, results that we’ve created for entrepreneur couples. And that includes that allocation spreadsheet that’s in this put together or you need to do is go to founders Connect dot CEO, four slash money guide. Once again, that’s founders connect.co slash money guide.
And you’ll be able to grab those resources as well as some other resources and tools that we recommend as a reference to T Harv Eker jar system. And also there’s let’s talk about some of the behaviors or apps that you can use to manage your personal finances.
Cindy Pham: There are lots of apps out there for Apple, and also for androids pocketbook is one money coaches from Apple and mint as well,
Anf all these tools or no pocketbook, I actually have used that before in the past. And it’s actually just a good way for you to get into the habit of budgeting and allocating. So essentially, you can apply and implement the jar system using a tool like a pocketbook if you’re an app person. So I’m an app person and I’m crazy about apps that seemed is not so much. So if you’re that type of person, then you know,
I recommend taking a look at pocketbook money coach was another one that’s the newest playing around for, but that’s only for iOS, it’s not Android. And then there’s another one which is probably North America could mint which is they’ve been around for ages, like on a decade or more. So go have a look at those.
And if you have any that you actually are already using and recommend. Let us know as realist knows in the comments or, you know, just send us an email or on our Instagram and give us some tips on what you’re using to manage your personal finances. So that’s really what this you know how we’ve been able to separate our business, personal finances and why it’s important to do so. So for you listening out there, you know, make sure you go home and apply these tips if you’re not already doing it. And if you are doing it and you have better ways of doing it, please let us know. We’d love to hear your feedback.
Cindy Definitely, we need that.
Anf Okay, cool. So we’re gonna wrap up this episode on how to separate business personal finances. So once again to go grab that free guide. Just head over to foundersconnect.co/money guide and you’ll be able to get the allocation spreadsheet as well as some tips on how to improve your personal finances and financial intimacy with your partner, your spouse.
Alright, awesome. And if you really enjoyed this episode, please do share it and leave us a rating so five-star rating and review on iTunes because that would really help us get the word out to more people and help more couples.
Join us in our next episode where we discuss how to manage and talk about money as a couple including how to handle difficult money conversations.
Cindy & Anf Thanks for tuning in and remember to live passionately, purposefully and confidently. Till next time. Ciao.
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