⏱ 5 min reading
We’ve briefly covered this topic before, but it honestly deserves its very own blog. Separating your accounts and then setting up different funds within your business account will give you major advantages. We’ll briefly touch again upon why it’s so important to separate these things and subsequently go into the different funds you can set up within your business account.
Why you need to separate your account
If you’re still using the same account for your personal and your business account: stop! We can imagine that in the beginning, this might seem like the easiest idea but as your business will grow and finances will become more advanced and complicated, it’s absolutely worth setting up a different account. Why? The most obvious and also important reason is to give you the best possible overview you can have. Finances can be tricky and when you have everything sorted this will help you to see things more clearly. When you have both your personal and business accounts into one and the same bank account, how can you possibly keep a good overview of how much you have coming in and going out? It’ll be a blur of expenses and incoming money for your personal life and for your business life. Moreover, when it comes to balancing out your numbers for your business, it’ll take you a very long amount of time to sort through this all and then see if you can trace back if it was a personal or business purchase.
As the saying goes a cluttered space goes for a cluttered mind, and we can also apply this to your finances. When it’s cluttered and have no overview and accurate insights into this, things will most likely turn out as a mess. While some people may thrive in a mess, we’d recommend to clear it up anyway. And if this argument doesn’t convince you, consider separating your account for legal reasons. When you separate it, your personal finances are at least protected in case you should be in troubled water financially with your business. So are you now convinced it’s better to separate them? Good, because then it’s time to get the best and easiest possible overview you can have by setting up different funds within your business accounts. Obviously, it’s up to you to decide which ones would work best for you, and maybe you’ll think of some funds that are not here and would work great for you. The purpose is to give you an idea of how you can create a good overview.
Emergency Fund
This one is exactly as the same name suggests. An emergency fund is for emergencies, and these can be very wide. Setting aside extra income that you receive into this fund will make sure you build up a buffer for when things get tougher. But don’t be tempted to tap into this every time you might want a little extra money. That’s not what this fund is for, it’s called emergency fund for a reason. If you’re easily inclined to quickly grab money from an emergency fund, you might want to consider to just make a miscellaneous fund for a number of different things that you are allowed to draw money from more easily. An emergency fund typically shouldn’t be touched for little things, but it’ll make your life a lot easier when things do get hard to have this money as a safety net.
Tax Fund
Very, very important. Taxes have to be done and what’s a greater cause of stress than not knowing if you’re able to pay your taxes. With setting up a fund specially designed for setting away money for your taxes, you’ll have a better indication of how much more money you need to earn in order to pay your taxes. It’s not rocket science, but actually making the effort to make a fund like this will make it much easier to have the purpose of that money be only for taxes.
Vacation Fund
Setting up a vacation fund is not a necessity but more of a nice-to-have in case you can afford to store more money away. In case you’re able to do this, once again, it’s nice to know that you have this money at hand and you have a designated fund that is only meant to be touched once it’s time to go on vacation. It leads to less disappointment when you know beforehand if you have enough money in your fund versus not having this fund and then finding out there’s not enough to take a vacation.
Once you’ve set up these different funds within your business account, it’s much easier to see the money you actually have because everything is neatly stored away in its own little category. It makes it much easier to have a good overview of your finances and makes it less likely that you’ll encounter some unwanted surprises. It’s nice knowing that you have enough money for your taxes, you can take a vacation because you saved up money in your vacation fund, and when thing’s get really tight, there’s the emergency fund. These three are the most beneficial and realistically. You could set up as many different funds as you want, but especially in the beginning, you may not have enough money to even put in each fund. Also, it’s about making sure that you have a good overview and you don’t find yourself facing difficult money problems, so there’s no need to overdo it and make 35 different funds.
