How To Open A Business Account With Bank Of America – As a freelancer, getting clients and getting paid is always a priority. But what do you do with the money once you get it? Where did you put it? How do you manage every day? Most freelancers fail to properly structure their finances due to lack of time or understanding. The result is a disorganized financial life that can cause major financial problems later.
As a freelancer, I bet you have one checking account and one savings account. After all, most of us were taught to do this growing up. While running your freelance business this way isn’t necessarily bad, I don’t think it’s good.
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After years of using an account at Bank of America, M&T, and apps like Easy and Mint to manage my money, I’ve finally found a system that works well for me. Today I want to share the details of my system with you in hopes of giving you the insight and inspiration you need to manage your money more effectively.
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Since you’ve started a business, you need to rethink how you handle payday cash. The easiest way to do this is to separate “business money” from “personal money”.
As a sole trader, you do not qualify for a business checking account, but you can open a second personal checking account.
Some banks may allow you to open a business checking account as a sole proprietor, but meeting all the requirements can seem like more hassle than it’s worth. Although a second personal checking account offers no legal benefits or protections, you can easily use it as a repository for your “business money.”
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The next thing you should do is open several savings accounts. Most people don’t even realize that polygamy is possible, but they do. I work at Chase Bank and can open 5 online savings accounts for free.
You may not need 5, but I recommend having at least 3 for taxes, emergencies, and personal savings. My other 2 accounts are tithing and investing.
If your bank allows it, provide a nickname for each account to make money transfers and account inquiries easier. My online dashboard looks like this:
Now that you have your account set up, you can manage your finances like a pro. Each account will have separate routing and account numbers, financial statements, activity feeds and balance views. You should be able to transfer money between them online for free and instantly. If not, consider turning to a bank that allows this, as this is an integral part of the process.
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If this sounds like extra work, stay with me. I think you’ll agree that it’s worth it.
Now you’re probably thinking of apps and websites (like Mint and EasyBank) that claim to do a lot of this “managing” and “identifying” for you.
I’ve used Mint and Simple Bank for years and have never found an adequate alternative to using separate accounts to separate your money from its source. This is a manual process, but the more active you are with your money, the more disciplined you will be in managing it.
Mint and Easy Troubleshoot are just visualizations of your money. When you swipe your card, the money still comes out, whether you “allocate” it or not.
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This gives you the ability to budget $500 per month per category, but switch to another category if you want to spend more. All funds are in one place. Having a separate account is the only way to keep money from moving around when you don’t need it.
Knowing that money can be spent is a big problem. Allocate money to the source and move it manually when you need it.
Perhaps most importantly, I find it very difficult to mentally keep track of the minimum amount I need to keep in my account. For example, if I accumulate a $15,000 emergency fund in my personal checking account, my account should never drop below $15,000. But once I saw that there was so much money available, it was easy to justify the cost.
Similarly, if I have one savings account that I use for emergencies, taxes, and personal savings, I may spend more money than I have (regardless of the interface used to display the information). Knowing that money can be spent is a big problem. That’s why I prefer to separate the money from the source and move it manually when I need it most.
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Transferring money from your business account to your personal account every month (if you want to… have a really lazy or lazy banker) is a hassle, but it can help you grow your savings faster. If there are accounts with automatic payments, it is important to check the accounts several times a month.
Deposit 100% into your business checking account every time you get paid. If it’s pre-tax income (which most of it is), you should make sure you pay Uncle Sam.
. This is probably the most important step that freelancers miss. If you receive a $10,000 check, you can only save about $6,000. oh
Unlike regular salaried jobs, you have to pay your taxes quarterly on January 15th, April 15th, June 15th and September 15th. That’s why it’s best to strike right away before spending money that isn’t yours.
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Tax brackets change slightly each year, but here are the federal tax brackets in this article:
Let’s say you fall into the 28% tax bracket because you’re a rock star. In addition to federal taxes, you have to pay state income tax, which (by my rough estimate) is roughly 6% in upstate New York. Finally, you must pay self-employment tax.
Yes, you are taxed as self-employed, at 15.3% in 2015. “How does it work?” do you ask Well, self-employment taxes are similar to Social Security and Medicare taxes that are deducted from most workers’ wages.
While you may have write-offs and deductions to soften the blow, I recommend putting 40-45% of your income directly into your “taxable” savings account on your payday. It’s definitely not fun, but it’s always better to get your “estimated” tax payment and get a big tax refund next spring. After my first year as a freelancer, I got almost $20,000 in tax refunds because I overpaid and had a lot of mistakes. It was a good day.
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Here’s an example of the spreadsheet I use to track my writing and which quarters are deductible:
You’ll also want to consult with your CPA or financial advisor about how much should go to the state and federal government each quarter. Don’t be fooled into thinking you can visit the IRS website and make all the payments.
I learned the hard way (even after talking to my accountant), but since I had a lot of money in savings, the mistake was easily fixed.
When it’s time to estimate tax payments, you can withdraw money from a tax savings account without affecting your other finances. You may get a small fee ($5 or $10) for having a temporary zero balance in your savings account, so make sure you close new projects and add them quickly. You can also keep the required minimum amount in each savings account to avoid potential fees.
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Once you’ve deposited your paycheck into your business checking account and saved money on taxes, it’s time to pay yourself. This is where your “personal” checking account comes into play.
While there are no tax benefits here, it is an easy and effective way to separate your “business” money from your “personal” money.
Money in your business account can be used for business expenses (such as computer equipment), while money in your personal account can be used to pay rent, buy food, and pay off debt. It’s a “personal” checking account that you use every day.
. Be conservative until you get this system right. Create a realistic budget that includes your bills, expenses, debts and allowances in a spreadsheet. Then transfer the funds from the “business” checking account to the “personal” checking account once a month. You can update this budget as your lifestyle changes.
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This budget sheet clearly shows how much you need to earn each month and year to survive. Business expenses can come directly from your “business” checking account, and personal expenses can come from your “personal” savings account. As a bonus, you’ll know that all payments from your business account are treated as tax breaks at the end of the year.
Both checking accounts come with a debit card that you can use to make individual purchases when shopping online or in stores.
If you have money to spare, work on building your “emergency” savings account first.
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