First, Congratulations!The freelance life offers a lot more flexibility than a traditional 9–to–5. Welcome to freedom.
Now, A Reality CheckWith great freedom comes great responsibility, or something like that. Think: taxes and budgeting.
Make it EasyOpening a second checking account makes budgeting and tax prep 10X easier. Do it with a credit union, and you can even save money.
So, you’re successfully doing enough freelance work to have arrived here, reading our blog post about what you should do with all that extra cash. Well, first of all, we’re proud of you. It takes guts to get yourself out there and “side hustle,” as everyone says. (We heard them. They’re saying it. Everyone loves that phrase.)
Jokes aside, freelance work has become more popular than ever, partially because companies are often jerks who don’t want to fork over the full-time pay you deserve, but often because there are so many opportunities. The internet has enabled thousands of people to do things they never would have been able to before, like driving for Uber, hosting people with AirBnB and sharing music and art on Soundcloud or YouTube. Not to mention contract workers who write content on a freelance basis.
When it comes to your finances, these things are all super helpful. However, it can get a bit overwhelming trying to keep track of your personal budget and your side income at the same time. That’s where opening a second checking account comes in.
Organizing Work vs. Play Finance
If you’re going to consistently do contract or freelance work, a separate bank account for your work finances is essential if you want to make budgeting and filing taxes as easy as possible.
You could open a business checking account, but that’s complicated. Instead, we recommend opening a second checking account. The point is not to earn rewards or interest, but to easily keep track of your expenses, efficiently separating your work money and personal money so you don’t end up in tears come tax season.
There’s a few advantages to separating these types of finances, but the main one is that it allows you to simplify your taxes. With your own checking account for your “business,” if you call it that (I don’t know your life), you can keep track of business expenses quickly and precisely. Remember, as we’ve mentioned before, your business expenses are often tax deductible, and when they’re jumbled in with all your Target purchases, it’s really challenging to keep track.
Also, a separate bank account keeps things simple in case of an audit. Not that you’d ever get audited, because you’re so smart, but if you did, your separate account would help you out. Finally, it’s much easier to keep track of your profits and expenses on the whole. After all, even if you just freelance every once in a while, you’re still running something akin to a business.
Choose the Right Financial Institution
So, you’ve made The Decision to get started with opening a second checking account. This is not just an important step because of, well, everything we already said, but also because it means you’re committing to yourself and your freelance efforts both in the present and future. We are extremely proud of you. You can be sure of that.
The next step after The Decision is to choose the right place to open your new account. While many will choose the same bank or financial institution they’ve been using for their other accounts, consider looking around for a new financial partner. Your personal financial needs are different than your side hustle needs, of course. And partnering with an institution that was built specifically for the average-income side hustler — like a credit union — can benefit you in the long run.
Unlike banks, credit unions are owned by the members of the credit union. That means profits made from fees and interest don’t go into the pockets of already-rich men in suits, but instead get passed onto you in the form of fewer fees, lower interest on loans and higher interest on savings accounts.
This means if you open a second checking account there for your freelance work, you’ll keep more of what you earn for yourself. And when it comes to freelance income especially, fewer fees is a very good thing.
Things to Remember After Opening a Second Checking Account
Once you’ve opened up that second checking account, it’s easy to get complacent and think budgeting and tax season will be a breeze. But that’s not necessarily true.
1. Track Your Money
You don’t need to report just your income to the IRS every tax season. You also need to report your expenses and which ones are deductible. Tracking your income and labeling business purchases as deductible as you make them will save you a lot of energy come tax season.
Link your second checking account to a tool like Mint, which tracks your budget, or Quickbooks, which can generate automatic income and expense reports with a click. Prefer the old fashioned way? A simple excel spreadsheet can be just as helpful.
2. Set a Real Budget
If you’re new to the freelance life, the urge to spend that extra money once it drops into your account can be overwhelming. But remember that no matter how big that payday is, you still have bills to pay. Freelancing may offer more freedom, but the pay is often less stable, so make sure you’re budgeting in a way that lets you pay all your bills on time and start building up a savings account should you have a slow month.
And if you have a steady income from a full-time job and freelancing is just extra? Awesome! Spend or save however you see fit, but remember that you will have to pay taxes. Put away 25-30% of every paycheck you get so those splurges don’t come back to haunt you.
If you’re new to the side hustle or the full-time freelance life, you’ll never find everything you need to know in blog posts. The speed bumps you’ll face are unique, and having a financial advisor to help you over them is a great way to ensure your freelance success.
Luckily, when opening a second checking account with a credit union, you’ll often get access to top tier financial services like tax prep, financial literacy classes and financial advisors at a far more accessible rate than at any bank.