Credit: Arjun Kartha on sxc.hu
As a freelancer, it’s incredibly tempting to do everything as cheaply as you can — especially when you’re first starting out. That can include just running client payments and business expenses through your personal checking account, rather than taking the time to get a business checking account.
Even if you’re only freelancing part-time, though, I’d encourage you to open a business checking account and get serious about separating your personal finances from your business finances.
Put a Giant Wall Between Your Finances
I’m practically religious about the fact that I won’t pay for anything personal out of my business account. There’s a reason for it, though — and it actually makes for less work for a freelancer, rather than more.
If I’m not paying for anything that isn’t a business expense out of my business checking account, my taxes are a lot easier. I sit down, total up my spending and I know how much I can deduct in terms of business expenses on my taxes. No trying to remember what a particular purchase was, or deciding that half a shopping trip was deductible or anything like that. The giant wall I’ve put up in my expenses means that I cut my time calculating my taxes in half, at the very least. It helps that I never use cash for my business expenses if I can help it. I use the debit card tied to my checking account for everything. That eliminates trying to sort out cash receipts as well.
Manage Your Money Better
Another benefit that goes along with separating your finances is that you can reduce some of the hills and valleys that tend to go along with a freelancer’s income. You can set up an automatic transfer every month from your business account to your personal account. You can budget for that amount and, assuming that it’s less than you make in your best months, you can keep a cushion that will help cover the slower months. If you build your budget only around what actually goes into your personal checking account every month, your finances can wind up being a lot healthier.
I’ve also found that, personally, knowing that I need to have enough in my business account to cover that monthly transfer is very motivating. It’s easier (at least in my mind) to go out and hustle up some more work, than it is to mess around with that automatic withdrawal. I make sure that there’s always at least enough to cover the transfer in my business account. Avoiding both an overdraft fee and needing to mess around with an automatic process I’ve set up keeps me working (and lets me build up even more of a cushion).
Be More Professional
The more like a business you treat freelancing, the more you’ll come to see it as such. You’ll see yourself as a professional and so will your clients. And, trust me, it’s a lot easier to land bigger clients if they hear from people you’ve worked with in the past that you are a true professional.
Mindset is a lot of what it takes to grow your freelancing career. The average business account costs something like $25 a month to maintain (although many banks will offer an account for free). If you don’t believe that you can afford $25 a month just for a second bank account, it’s going to be tough to grow your business. If you can’t afford $25, you can talk yourself out of books that will help you grow your skills, networking events that will help you grow your business, or even dinner with someone who can connect you with a bunch of new clients.
Professionals watch their money, but they don’t think in terms of what they can’t afford. Rather, they think in terms of what they need to do to afford the next step. You need a business bank account as a freelancer, so think about what you can do to earn an extra $25 every month. If nothing else, a business account should free up some time in your bookkeeping that you can spend on client work.
Photo credit: Some rights reserved by Arjun Kartha.
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