How to Separate Business and Personal Expenses

Your freelance work is a business, not just a hobby. Unless you have a degree in finance or extensive experience dealing with the finances for a new business, you may find yourself overwhelmed trying to understand all the financial rules. When your skills are in demand and you have a heavy workload, it can be especially daunting to make sure you set up everything correctly.

Take a deep breath. Then another. Everything is going to be just fine.

You already know the importance of keeping your business accounts separate from your personal accounts. Now the trick is to actually separate the expenses. By following the very simple guidance of O.P.E.C.-it's not just a petroleum exporter's organization anymore!-you can make your accountant happy and get back to the creative aspects of your freelance business that bring in the money.

Open Your Business Account

Perhaps the better way to think of this step is opening an account to use for your business. If your freelance business is anything like mine, you do any credit card payment processing through PayPal and you don't deal with cash and coin in the same large quantities of fast food businesses. In fact, you may only have a handful of direct deposits and client checks running through the account each month.

In short, the typical business account offerings of most banks are way beyond the scope of your needs. Keep it simple and utilize a personal free checking account for your business expenses for as long as possible.

An important side note for this step is to say yes if the bank offers you a debit card for this account. I understand if you aren't keen on having more plastic in your wallet or if you have trouble recording the charges and don't use one for the personal account. Embrace the debit card for your business. Using paper checks for each and every purchase is like inviting fraudsters to steal your account number.

Plan Your Business Expenses

Not only is it good business sense to plan out the expenditures for your freelance business, it helps you avoid the co-mingling of business and personal accounts. Chances are good that you won't want to carry your business checks with you on every personal errand. If you plan your expenses, you won't need to carry two checkbooks because you'll know when you're making business purchases.

On the other hand, if you don't plan expenses, you may find yourself making business purchases on a whim. When this happens, it's easy to use your personal account. That can lead to forgetting to record a transaction and missing a valuable business tax deduction.

Establish a Rewarding System

Not every freelance business will benefit from this step, but it still merits mention. If you plan to use a credit card for your business purchases, make sure the card offers a rewards program. For my business, I'd spend years trying to accrue enough points purchasing printer paper and ink, but your business might be different. A freelancer who travels to conferences and conventions, purchases software and domain names, or requires a wide array of office supplies can rack up the reward points without breaking a sweat.

And you can use those business reward points to get your number one employee (you!) a nice gift.

Create Separation in Your Wallet

If your purse looks like mine, you can't find anything anyway, so this step doesn't matter. Let's pretend that you're way more organized than I am in that aspect.

Most likely, you'll open your business account at the same financial institution that has your personal checking account. This provides untold levels of convenience, but it provides a new nightmare for you: Everything looks exactly the same.

Checks are an easy fix because you can order different check designs. Find out if your bank offers more than one standard design. If they don't, you might consider using a designer check company for one of your accounts.

Debit cards are a different story. If you don't want to memorize the last four digits of each card to keep business and personal accounts separate, you can use a label or even a simple marker dot on your business card. Another easy strategy is to keep your personal debit card in the slot nearest your ID, and your business debit card several slots away.

You can also place one of your business cards behind your business debit card. If you don't see the business card when you make a purchase for your business, you have the wrong card.