Managing Personal/Business Finances

I pretty much use only 1 credit card for all of my personal expenses and 1 credit card for all of my business expenses. If I can swipe, I’ll swipe instead of using cash. It’s just so much easier to manage especially with online account access and statements. My main card is a rewards card so even though it’s not much, I’m still getting a little bit back. When the monthly billing date comes around, I simply pay the statement off using electronic transfer from my checking account. This makes my personal expenses incredibly easily to manage and lets me import everything into Quicken (I may move to Quickbooks, but Quicken is enough for now).

Exhibiting Self Control With Credit Cards
Financial discipline is important with credits cards, especially with the APR’s being so high. Some people just keep swiping away. The key is to simply not spend more money than you have. I’ve always paid off my entire statement on time every month ever since college. Because of this, I have excellent credit (I have a WaMu card I never use but their online account panel shows monthly updates of my credit score so I keep the card ).

I’m not getting into it but there are MANY reasons why having good credit is beneficial. Too many people, especially in the US, think that credit cards are like allowances or something. That’s why national debt is so high (I’m not talking about the goverment deficits). It’s just basically a bad practice to simply swipe on an expensive item and then pay it back slowly. You end up paying so much more. If you must, I’d suggest signing up for a new card with 0% APR for the first 6 months or something and then pay it off in that time so you don’t pay interest. Or do a balance transfer of your existing credit card debt to the new card and earn a reprieve for a couple of months.

Single Member LLC and Personal/Business Expenses
As a single member LLC, there’s pass-through taxation which means I’m basically taxed as a self-proprietor. All of my business revenue gets taxed as my personal income and all business expenses are written off as tax deductions. For entrepreneurs and those interested, it’s very important that you strictly separate personal and business expenses. I have a separate business credit card as well as a business checking account for this very purpose. I never spend any money for my business using personal accounts.

Why is that important? Well, if you don’t do this you can’t maintain your LLC (limited liability company) as an independent liable entity. What this means is that if you get sued or your business owes debts to creditors, the LLC protects your personal assets. Those creditors can only pursue the assets of your business. But if you don’t separate them, you lose that liability protection.

Two Certainties in Life - Death and Taxes
2006 was the first year I had to track personal/business expenses and do taxes on my own. We ditched the accountant and I just filed my whole family’s returns using TurboTax. Although for 2007, I’m probably going to consult an accountant again just to make sure things are in order. Plus there are just things accountants know that can reduce your taxes. I’ll admit my first year in business I didn’t keep very good records even though I told myself I’d pay for it during tax season which is exactly what happened. I had to trace through the entire year and bring all my records in line which was not that fun. Sometimes it can get very hard remembering what certain expenses were for or you might have misplaced a receipt. That’s why proper record-keeping is so important.

I’m also a bit paranoid because I’ve read that Schedule C filers are at a higher probability of being audited and certain other red flags for self-employed individuals can also attract audits. So it never hurts to make sure your house is in order (just in case).

Now I keep all my records current - every 2 weeks or so, I review everything and make sure everything’s up to date. I keep all my invoices, statements, and receipts all filed away and accounted for. Trust me, speaking from experience, this will help you a lot when it comes time to file taxes. It also saves your accountant time if you use one, which saves you money.