Managing two things at once can be quite a task. Here’s all you need to know about managing both your business and personal finances.
Are you tired of seeing your personal and business accounts getting mixed up? We know how that makes you feel. In case you think that there are no ways to avoid this confusion, you’re wrong. With better planning and execution, you can actually succeed in keeping your personal and business finances separate.
We know some of you are waiting to skip this part and jump directly to the part where we give you all the tips and tricks. But, wait! Before we directly jump to that part, you need to know the importance of maintaining separate business and personal accounts.
Simplified tax calculations
One of the biggest advantages of keeping your business and personal accounts separate is that it helps simplify your tax calculations. Keeping both your business and personal money in the same account can lead incorrect tax calculations.
First mistake: There are high chances of you accidentally counting your non-taxable income that could include cash gifts from your family or income that’s already been taxed as part of your business income. What does that mean? You’ll end up paying more tax than what you actually should. Doesn’t sound good, does it?
Second mistake: Accidentally including non-business costs on your tax return will reduce your business’s profit figure. That will affect your tax bill incorrectly. And underpaying your taxes isn’t a smart move either. If you get caught, you can be asked to pay an increased interest. Not just that, you could face some serious penalties as well. That certainly won’t be very good for your business reputation.
Third mistake: When you check your bank transactions from earlier in the year, there are chances that you’ll mess things up. You’ll also find it difficult to remember which payments were for business and which were personal.
Confusion is never good; especially when it involves your money. If you miss out some business costs while calculating your tax returns, it could mess things up for you. You’ll just end up paying too much tax because your profit figure will be higher than what it actually should be. That’s why you must separate your business and personal accounts right away.
Additional Reading: 8 Things To Do If You Want An Income Tax Refund Fast
Better track of money
Keeping one bank account for your business and personal finances might look like the simpler way out. But the truth is entirely different. Although you have just one account to look after, it also means that you could easily lose track of how much money you have for each of the two—business and personal use.
Since your bank balance will reflect a good number (business and personal balance combined), you might miscalculate the total amount you have to spare. As a result, you might just end up buying an expensive gadget and repent later. Separate bank accounts can help avoid any cash flow problems that can occur from accidentally mixing up your business and personal money.
We hope these reasons are enough for you to consider keeping your business and personal finances separate.
Additional Reading: 5 Personal Finance Lessons From Mahatma Gandhi
Great! Let’s move on to the ‘how to’ part now. Here’s the way:
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Separate business and personal bank accounts
You need to start with the basics. And here, it’s opening two separate bank accounts — for business and your personal use. Like we mentioned earlier, separate bank accounts ensure separate cash flow and hence you get to track things better. It also helps calculate tax properly so that you don’t end up messing up the calculations and paying extra tax for no reason. Smart move, isn’t it?
Additional Reading: Linking Your Bank Account With Aadhaar: What Happens If You Don’t?
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Store all receipts separately
Receipts are the proof of your transactions. To keep a better account of all your transactions, it’s better to store all business and personal receipts at two separate locations. Trust us, it’ll solve a lot of your problems and make your life simpler. We get it. You think it’s a waste of time and you don’t have free time on your hands.
In that case, even if you start collecting and managing your business receipts separately, that works. You don’t need to manage your personal receipts as well. When one of them is sorted, the other one automatically gets sorted, doesn’t it? Also, while calculating your tax returns, the auditor is likely to be more interested in your business receipts as compared to your personal ones.
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Start paying yourself a salary
This might sound a bit funny, but it actually works. Instead of randomly taking money from your business account for personal expenses, you can just pay yourself a salary and use only that money.
It can help limit your extra expenses and you won’t randomly take money from your business account for unnecessary things. You’ll become more prompt with following budget restrictions. That’ll also help you save better! So, put an end to all those saving woes and start writing yourself a salary cheque.
Additional Reading: How To Make Your Salary Tax Efficient
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Business on a budget
Planning to expand your business is an awesome idea. But you also need to keep financial viability in mind. Just because you want to see your business grow, you can’t randomly keep applying for loans/credit. Always keep the affordability factor in mind before taking big financial decisions.
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Keep clear business accounts
Keeping clear accounts of your business can help simplify your life. If you use a personal resource for both business and personal use, you need to keep a clear account. This includes your phone bills, fuel expenses etc.
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Take professional help
In case you’re still stuck and have no idea of how to go about your money management, you must consult an expert. They can help you understand your finances better and guide you better too. A little help can take you through the sea of financial worries.
Additional Reading: Advice For Successful Tax Savings
Now that you have all you need, it’s time to manage your business and personal finances better. No matter what type of business you’re running, you must keep it separate from your personal expenses.
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