Keeping your personal finances separate from your business expenses is important for maintaining a good budget both for your business and you.

It’s not always easy to keep your personal finances separate from your side hustle or small business. But separate you must, otherwise you’ll have no way of knowing if your business is profitable. There’s also the potential to make mistakes.

Fortunately, there are several ways to keep your personal finances separate from your business. Most are pretty simple, and you can set them up once and then go about your life.

Apply for an employer ID number (EIN)

This is probably the simplest way to keep your personal finances separate from your business expenses. You can set up an EIN on the IRS website in a matter of minutes. You can then use the EIN as your official identification number for business purposes. Your Social Security number can then be reserved for personal matters.

This isn’t just a matter of convenience either. An EIN is one of the best ways to protect your identity. That’s because you will be giving out your EIN number for business purposes, rather than exposing your Social Security number. Anytime someone has your Social Security number, the potential for identity theft opens up. (Sadly, most identity theft is an “inside job”. It’s perpetrated by people with whom you willingly share your information.)

Instead of providing your Social Security number to a client, customer, or vendor, you can give them the EIN instead. It can’t be used for malicious purposes to anywhere near the level that your Social Security number can.

Set up a Corporation or an LLC

A Corporation or LLC effectively establishes your business as a separate legal entity. That will create a recognized separation between you and your business.

In addition to creating an entirely unique corporate identity, incorporation also enables you to file your business income tax separate from your personal income tax. And naturally, either business form provides a strong measure of legal protection. In the event someone sues your business, your personal assets will be held separately.

There’s also the convenience of identification. Since the business entity will have its own corporate name, you and anyone associated with your business will know immediately that a particular transaction is related specifically to the business.

Set up a business bank account

A business bank account is probably the most effective way to keep your personal finances separate from your side hustle or small business. You conduct all business transactions through the business bank account. Your personal account will then be strictly for personal financial activity.

A business bank account will also help to prevent unintended transactions. It will make it less likely that you will use too much money to pay personal expenses, and leave your business short on cash.

But the bigger advantage is developing the ability to clearly see the activity in your business. Since the business bank account will be the destination of incoming receipts, and the source of most of your business payments, it will represent an ongoing record of business activity. That will make it much easier to prepare financial statements or file a tax return, or even simply to monitor the profitability of your business.

Set up a dedicated space for your business

One of the best ways to keep your personal finances separate from your side hustle or small business is to literally create a separate physical space for your business. This can be an office or shop. If you can’t afford to go that route, you might be able to sublet space for less money.

The idea is to create a separate place where your business operates, that way you will avoid spillover from your personal life.

It sounds simplistic, but sometimes the best way to create separation is the most obvious. Operating a dedicated business space will help you accomplish that. It literally prevents financial information from mixing with business, and vice versa. It’s also good for concentration purposes, since it will be a space reserved specifically for business.

Set up separate file storage for your business

If you can’t afford to cover the cost of a dedicated business space just yet, the next best solution is to create a distinct business filing system.

Even in the cyber age, businesses accumulate a significant amount of paper documents. Co-mingling them with personal documents can be a certified nightmare. You should have a storage space specifically for business documentation.

It should go without saying that all business documentation and media should be stored in a safe place, under lock and key. Business documents hold a higher security risk, since it often includes identifying information for customers and clients. Casual handling of it could result in costly legal situations.

Get a business credit card

Having a business, or even a side hustle, often comes with the need to engage in a large number of routine transactions. It will be beneficial to have a business credit card. This will be an invaluable tool for your business from a financial standpoint, but it will also be instrumental in keeping your business activity separate from your personal.

The ideal situation would be to have a credit card that’s in the name of your business. That would enable you to maintain complete separation. But if your business isn’t sufficiently well-established to warrant a credit card from a bank, the next best step is to have a personal credit card that’s dedicated solely to business purposes.

The credit card will enable you to maintain an additional account for business spending. This will come in handy for tax purposes. Since the dedicated credit card will only have business activity on it, a year-end summary may be all you need to account for business transactions.

A business credit card can also be a major advantage in protecting yourself from identity theft. If the card is in the name of the business, a thief will not be able to access your personal information through the card.


Keeping your personal finances separate from your side hustle or small business does require extra steps. But most of those steps are a one-time event – you set them up, and then go about your business. Once you do, tracking business income and expenses will become much easier. And so will preparing your taxes. It’s worth investing some extra time and effort into creating that separation.

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About the author

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Since 2009, Kevin Mercadante has been sharing his journey from a washed-up mortgage loan officer emerging from the Financial Meltdown as a contract/self-employed “slash worker” – accountant/blogger/freelance web content writer – on Out of Your He offers career strategies, from dealing with under-employment to transitioning into self-employment, and provides “Alt-retirement strategies” for the vast majority who won’t retire to the beach as millionaires. He also frequently discusses the big-picture trends that are putting the squeeze on the bottom 90%, offering work-arounds and expense cutting tips to help readers carve out more money to save in their budgets – a.k.a., breaking the “savings barrier” and transitioning from debtor to saver. He’s a regular contributor/staff writer for as many as a dozen financial blogs and websites, including Money Under 30, Investor Junkie and The Dough Roller.