The biggest money mistake creators make — and how to avoid it
Learn why mixing your personal and business finances is one of the biggest money mistakes creators make!
As a creator, your bank statements are probably filled with a slew of… interesting purchases. (Goggles, potato chips, and 20 pounds of glitter, anyone??) Whatever you’re buying, it’s important to know which are for personal use and which are for your business. Business and financial manager Belva Anakawenze is here to explain why, and help you plan properly so you can avoid money headaches.
This video is intended as knowledge-sharing, not tax, financial, or legal advice. Always consult with tax/financial/legal professionals to determine what's best for your business.
One of the biggest mistakes I see creators make, especially emerging creators, is not separating their personal finances from their business. It might seem unnecessary and quite daunting to keep your personal and business finances separate, but mixing the two can actually cause a huge headache down the line. I'm going to explain to you why you should keep your personal business finances separate, and I'm even going to give you three tips to help you.
I'm Belva Anakwenze, and I work with creators just like you every day, helping them with financial and business decisions.
But before we start, just remember financial decisions are complex, this show is for informational purposes only, so consult with legal and financial professionals to make sure you've got the full picture for your particular scenario.
When it comes to your personal and business finances, think of it like this. You've got your personal finances over here, this coffee, and your business finance is over here, this cream. Once the cream hits the coffee, it's nearly impossible to separate the two. And if this is how you've been operating all along, that's okay, here's what I'd suggest. Pick a date where you're going to start separating your business finances from your personal finances, and I don't mean starting in three months from now. Pick a date in the near future and start there.
“Having separate accounts will already make this a lot easier, but monitoring cash flow on both sides will help give you a snapshot of your overall business and personal financial health.”
And here's why that's so important, first, not separating your personal finances from your business could actually carry legal risk. No one wants to dwell on the negative, but it's important to remember that your personal assets could be in jeopardy if there is co-mingling in the case of legal action against your business. This is also a huge no-no from the perspective of the IRS.
Second, keeping things separate can really help you maximize deductions and streamline things when it comes tax season. If you have all of your business operating costs, your equipment rentals, client dinners, subscriptions, all segregated and separated, you'll know exactly what can be written off as a business expense when you file your taxes.
So what are some steps you can take to keep things separate? First, consider forming a business entity. Now keep in mind this may not be right for everyone, but certain business structures like S-corps, C-corps, and LLCs, can really help you separate your business and personal finances, and forming an entity can help protect your personal assets from business losses and lawsuits against your business.
I take a deep dive on the differences between these business structures in another video, which I'll link below. Another tip, it's important to open separate bank and credit card accounts dedicated for business income and expenses. Open a new business-only checking account and put all of your business earnings in that account. Open a new business-only credit card and use that only for business expenses.
And that brings me to my last tip, monitor cash balances and the flow of funds, and do it at least weekly. Having separate accounts will already make this a lot easier, but monitoring cash flow on both sides will help give you a snapshot of your overall business and personal financial health.
How you go about separating your finances is highly personal, so make sure you consult a financial professional to figure out what makes the most sense for you. The important thing is that you do separate the two in whatever way makes sense for you and your business. Look, I love my coffee and cream together, but personal and business finances shouldn't mix.
Make sure you like this video and subscribe to the channel for more financial tips and tricks, and let me know down in the comments what other questions you have around business operations and finances. Until next time, go be creative with your business.