As any freelancer or small business owner will tell you, managing your finances is a huge part of the job. From the ebbs and flows of self employment income to keeping track of all your deductible expenses to paying quarterly estimated taxes, managing your personal and business finances is no small feat. But, having a clear, organized system for keeping track of everything is a great place to start.
We've found sorting our money into different places helps us manage multiple income streams and work toward our savings goals. It's also makes paying quarterly taxes much easier.
Here's how SD and I organize our finances as freelancers, teachers, and small business owners:
Business Checking: Right now, my income comes from several sources - part-time church music position, private teaching, graduate assistantship, Etsy shop, freelancing/contract work (gigs, administrative support) - but it all gets deposited into this account (SD has one for his business income, as well). I use this account to pay business expenses and my business credit card each month.
Business Savings: These accounts are linked to our business checking accounts. Each month, I transfer 30% of my self employment income into this account for estimated taxes (think of this like an employer withholding taxes from your paycheck). This makes paying quarterly taxes a breeze!
Joint Checking: This is our personal account. We use it to pay rent, insurance (car, renters, health), and our personal credit card (groceries, gas, personal care, etc.).
A quick note about our savings: We've found it's easier to keep track of our savings (and save for multiple things at once) with separate accounts, so we have several:
House Fund: I contribute a set amount each month to this fund right now (a high-yield savings account). We also designated our federal and state tax refunds to go into this account.
Piano Fund: Yes, we have a designated fund for our future piano. We don't actively save to this fund, but we've added money to it over the years (monetary gifts, gig money, etc.) and invested in a few mutual funds.
Car Fund: Since we don't have a car payment right now (and we have only one car), we've both made regular contributions to this savings account over the past few years. Right now, SD contributes a set amount each month.
Emergency Fund: We feel it's especially important for freelancers to have a few months worth of living expenses set aside (most people recommend 4-6) in case you have an emergency (house, health, car) or something happens with one or more of your income streams. We don't actively contribute to this account right now - we consider ours fully funded for the moment - but we know it's there if we ever need it. (Read more about setting up an emergency fund here.)
Roth IRAs: I know retirement sounds a long way off, but now is the time to start saving! (Read more about that here.) The Roth IRA is a retirement account that lets you contribute up to $5500 per year. Since you contribute post-tax to these accounts, the money is tax-free when you withdraw it. (Read more about Roth IRAs here.) Right now, I contribute a set amount per month to get me close to the annual limit (SD does the same for his). Then, if I have extra money to set aside at the end of the year, I invest up to the limit.
So, you might be thinking: Whoa. That's a lot of accounts. How do you keep track of it all? Here are a few things that work for us:
- I use Mint to see our financial picture at-a-glance and check up on all our accounts each month.
- We automate our monthly contributions to our various savings accounts and Roth IRAs.
- One day a month, I schedule all outgoing payments (credit cards, rent, etc.), deposit checks, calculate monthly income, and transfer tax money to my savings.
How to do you organize your personal and business finances? Any helpful tips?