Creating separate budgets for personal and business

I've been using YNAB for a while but to be honest I've been really bad about looking at the budget instead of the account balances.  I'm thinking about making a clean break and starting my budget over from scratch with everything I've been learning.  I need to simplify and organize.  Here is what I'm looking for suggestions on:

I have two main categories of income and everything comes in as a 1099.  One category is my Transportation Services and the other is a network marketing business.  Right now most of my income is coming in from transportation services but I do have a small amount coming in from network marketing that I want to grow going forward.  However, everything currently is in one YNAB budget.  I do have separate bank accounts for my two businesses where all the income gets deposited.  However, I've mainly been transferring the income to my personal account and making all my purchases from there.  Some expenses overlap like cell phone use, transportation expenses (although I do mileage for that), etc.  Technically I understand how to create multiple budgets in YNAB.  However, here is my question:

What is the best way to make a clean break and keep my two businesses and personal accounts all separate?  My challenges right now are that I don't have a lot of extra money to keep extra funds in my three different accounts for expenses.  I was thinking I could take my Transportation Services budget (which is my main source of income currently) and create a budget item for taxes and deduct that then transfer a portion to my personal account to live off of.  Then while I'm getting my network marketing business going I can transfer money from my personal account to that account to make purchases from if it's a business expense.  However, that sounds like it's going to be tricky to manage without having much extra money in my accounts right now.  I'd greatly appreciate any suggestions on how to manage things moving forward.  I watched a lot of YNAB videos last night about setting up multiple budgets for business and personal but I don't want to start switching things over and make things worse.

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  • I would not separate these things. You're being taxed on this income as a personal entity, anyway. You're paying business expenses out of your "personal" account, and you'll have to track this as reimbursements in 2 budgets if you continue this practice. Overlapped phone service, etc. is far easier in a combined budget.

    If you want to separate, it's best to go whole-hog. Separate CC accounts. Separate budgets. Expenses for partial phone service in each budget. Outflows from the business budgets for "Owner Draws" when you do transfer to the personal account (treated as income in the personal budget).

    YNAB should mirror reality, and right now you're not treating these like standalone businesses. It's probably important to ask yourself what you expect to gain from this separation?

    Like 2
  • It sounds like you are on the right track. A separate budget for your business is a good practice. You have to be careful when claiming expenses and do not want to be seen as attempting to claim a hobby as a business, which is what can happen if you don’t remain professional & organized about your documentation.  But you probably don’t need separate budgets for each business since they have their own bank accounts, unless you just really want  to keep them completely separate. Naming the accounts can help you with  pinpointing expenses for each. 

    Then, like you said, move funds from personal to business if you need to make a purchase and enough funds are not there. I’d suggest figuring out the monthly expenses and make one transfer a month, if you can. Or submit an expense reimbursement form to your business at the end of the month to make sure that you have proper documentation. Just never make personal purchases from the business account; transfer the funds as Owner’s Draw, or whatever your accountant says to title the fund for paying yourself. 

    As far as phone and other shared expenses like a home office, you will need to determine what percentage is used for the business, then that is what would get reported. Don’t forget that if you have a home office, portions of your utilities and maintenance expenses are attributed to the business; so be sure to have a dedicated space for your business, not the kitchen table, so that you can actually determine the percentage to write off. Remember, we are giving suggestions here based on our experiences but always consult a professional accountant, as tax laws are always changing.

    Happy Budgeting!!

    Like 2
    • Digital Diva Any suggestions on recording tips?  Some tips are included in my pay so it's tricky to separate out... but some of my tips are cash.  Should I put the cash tips in my business budget and deposit them into my business account so they're in the same budget as my other tips that are bundled in with my normal income?  Logically that seemed to make sense to me but I just wanted to see if you had any input on that.

      Like 1
    • Digital Diva Also, I have an E-ZPass and it automatically gets funded with $35 from my personal account when it gets low then some of the tolls that come out of it are business and some are personal.  What is the best way to track that in YNAB?  Should I use an offline account and only track the business tolls in the business budget and not worry about the tolls in the personal budget?  I don't want to miss out on the deduction but it is kind of a pain to reconcile it with their website.  Usually I spend about $40 each month on business tolls.  I wonder if I can get two separate E-ZPass units and just swap them when I do a business trip.  LOL

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      • Digital Diva
      • Go Go Gadget!
      • digitaldiva
      • 9 mths ago
      • 1
      • Reported - view

      Jeff Altman I don't have direct experience with tips, but they should be recorded under the business budget as income. You can us the split transaction feature to designated the amount to the correct category when it is included in your pay. Depositing the cash tips into your budget is a great idea as well to keep track. Another option is to create Cash account and then make sure that you record the spending appropriately. Personally an account for Cash is too much to bother with so I prefer to deposit for accurate tracing. Just ideas that you can try.

      Like 1
      • Digital Diva
      • Go Go Gadget!
      • digitaldiva
      • 9 mths ago
      • Reported - view

      Jeff Altman I don't track my E-ZPass in YNAB since, like you, it is funded with my personal account. For my auto expenses, I give my accountant a spreadsheet with line items for my mileage and there is a column for associated tolls. Then I attach a copy of the monthly report with the business tolls highlighted just for backup documentation. But I don't really have a lot of toll transactions.

      It sounds like you have more transactions and if you really want to track them in YNAB, instead of a separate tracking account, you could submit an expense report to your business for the business related tolls each month. A separate tracking account could work as well but just don't make things so complicated that you spend more time managing the process.

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  • I agree with dakinemaui : splitting off your business(es) into a separate budget is a great idea, but only when the time is right, and that means having truly separate finances for your business.

    Your business budget serves two different purposes, both vital: (1) keeping income and expense records so you can produce the reports you need at tax time, and (2) actual budgeting—giving dollars jobs, making sure you're not overpaying your salary without taking your business's True Expenses into account. Meat and potatoes YNAB.

    If you're running into difficulties with either (1) or (2), it's probably worth the trouble to split out at least one business budget. I have two (very) small businesses myself, but they fall under a single sole proprietorship, which means a single Schedule C, and for that reason I've found it easiest to have them share a single YNAB budget, separate from my personal budget.

    Like 4
    • Matthew I've decided to get off to a fresh start with my budget and with my bank accounts on 1/1/2020.  I had a checking account with 3 different banks... one for personal and two for business.  I'm in the process of switching all 3 accounts over to the local credit union so they're easier to manage.  I'm also in the process of setting up a brand new personal budget and two new business budgets (one for each Schedule C).  I'm going to keep using the  current YNAB budget until the end of the year then I'll make a clean break to the new budgets on 1/1/2020.  In the meantime I'll keep working on getting them setup properly so it's an easy transition on the 1st of the year.

      I think I have a pretty good handle on my personal budget in YNAB.  I broke everything down into the following categories:

      * Giving and Taxes

      * Expenses Already Decided (Monthly) - I gave each monthly bill a subcategory and organized them by the day of the month they are due so as money comes in it's easier to give each dollar a job.

      * Expenses Already Decided (Yearly) - I gave each yearly expense a subcategory and organized them by the month they are due so as money comes in it's easier to give each dollar a job.

      * small Influence - these are things I don't have a lot of control over

      * BIG Influence - these are things I have a lot of control over

      * Gift Giving - I setup subcategories for my immediate family member's birthdays, anniversaries, and a subcategory for Christmas gifts

      * Credit Card Payments

      I'm trying to setup my YNAB business budget categories to closely resemble the categories in the Schedule C so it'll make things easier for tax time.  However, I'm not 100% sure what category to put some of the items in so I'll probably need to talk to an accountant to make sure I'm setting it up properly.

      If I need to transfer money from my personal account to my business account or from my business account to my personal account what is the best way to record the transaction?  On the business side I assume I'd make an "Owner's Draws" category for withdrawls but what would I do with deposits?  Would that go in "To Be Budgeted" or should I create an "Owner's Deposits" category?  What about on the personal budget?

      Like 1
    • Hi Jeff Altman !

      It sounds like you have a nice layout in place for your personal budget! You'll want to add a category for the transfers you plan to make to your business accounts, such as "Investments to Personal Business" - that way, your reports will tell you how much you're spending from your personal budget on your businesses. You can even separate that category into "Investments to Business A" and "Investments to Business B" to keep a closer eye on things.

      As for handling those deposits in the business budget, you'll categorize them as Inflow: To Be Budgeted and use the payee to indicate where the funds came from - so, the payee could be "Owner's Deposits".

      When you have a moment, check out this article on how to set up a business budget as well as the Using YNAB for Small Business workshop. I think you'll find them both really helpful! 

      We also have a number of blog posts that you may find helpful:

      Please keep in mind that they were created based off of our previous version of YNAB (YNAB 4), so you won't recognize some of the screenshots. The information is all still relevant, though!

      Take a look there and let us know if you still have questions! :)

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    • Faness I posted this up above in the wrong spot but I couldn't delete it so I'm reposting it here.  :P

      Any suggestions on recording tips?  Some tips are included in my pay so it's tricky to separate out... but some of my tips are cash.  Should I put the cash tips in my business budget and deposit them into my business account so they're in the same budget as my other tips that are bundled in with my normal income?  Logically that seemed to make sense to me but I just wanted to see if you had any input on that.

      Also, I have an E-ZPass and it automatically gets funded with $35 from my personal account when it gets low then some of the tolls that come out of it are business and some are personal.  What is the best way to track that in YNAB?  Should I use an offline account and only track the business tolls in the business budget and not worry about the tolls in the personal budget?  I don't want to miss out on the deduction but it is kind of a pain to reconcile it with their website.  Usually I spend about $40 each month on business tolls.  I wonder if I can get two separate E-ZPass units and just swap them when I do a business trip.  LOL

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    • Jeff Altman If they're cash tips, I'd suggest a cash account — we cover two separate options on how to handle cash spending in our Help Docs, but the category option doesn't really apply here. With a cash account, you could enter your tips specifically in your business budget. This way you'll know that you have $25 in tips for your business, even if there's $100 in your pocket.

      As for the E-ZPass are you able to tell the exact tolls for each trip? If so, it does seem like a few extra steps, but you can get the amount of the tolls just for your business and transfer them from your business account to the checking account to reimburse you for the amount paid from the personal account. So, if there's $40 in business tolls, transfer that amount from your business account to your checking account. When the transaction imports in your business budget, categorize it as "Tolls" and in your personal budget, put the $40 towards the category you used to pay the tolls. 

      Like 1
    • casner
    • Now retired, and figuring out transitions
    • casner
    • 9 mths ago
    • 3
    • Reported - view

    If you are filing Schedule C for your taxes, try creating an additional budget for your sole proprietorship, and make the categories right off Schedule C. That way you can be sure of tracking separately what you need to for tax time, and have everything trackably separated from your personal finances.

    Like 3
  • Jeff Altman said:
    * Expenses Already Decided (Yearly) - I gave each yearly expense a subcategory and organized them by the month they are due so as money comes in it's easier to give each dollar a job.

    If you're not handling these with monthly contributions, I'd suggest you move to that. Having expenses normalized to a monthly basis makes it easy to understand and apply priorities. It's far easier to see how much your effective "burn rate" really is. Check out Rule 2.

    Like 1
    • dakinemaui Thank you!  I actually am doing that but I still put them in a separate category for now.  I went into each one and setup a target date and the amount I need by that target date and it tells me what I need to add each month.  I've been going through and binge listening to the podcast starting at episode 1 and I'm up to episode 62.  The one episode he talks about how there is no "normal" month.  As long as I can stay consistent with spreading everything out it should get easier to follow after I start having a whole year to plan for everything.

      To be honest I tried to start using YNAB a while ago but I ended up mainly just entering transactions and categorizing things but I never really changed my habits.  Everything was still kind of disorganized and things were so tight I kept looking at the balance in the account when making decisions about paying bills and other expense.  With this fresh budget I'm going to come at it with a fresh mindset.  I'm going to really focus on giving every dollar a job and spreading out my non-monthly expenses into monthly expenses.  I'm going to look at the budget categories before spending instead of focusing on the balance in the account.  To do that I wanted to simplify and organize things.  Maybe I shouldn't even put yearly expenses in a separate category.  With everything so tight right now I thought it might be better to keep them separate but still put the target on them.  That way when money came in I figured I could focus on getting caught up on the current bills first, then after those envelopes are funded the next thing I could fund is that month's portion of the yearly expense, and after that start working on my emergency fund.  Once I get caught up and all the expenses are spread out over a whole year I think it will start to get a lot easier but starting out I don't have much of a buffer so I needed to get really organized.

      Thank you for all your help.  I'm really trying to focus hard on changing my mindset and following the rules this time otherwise I'm losing all the magic that makes YNAB so unique.

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  • Jeff Altman said:
    With everything so tight right now I thought it might be better to keep them separate but still put the target on them

    Yep, lots of people put the due date in the category name and drag them into whatever order they like.

    While there is no "normal" month, there is always Plan A, or how you hope the month goes if Mr. Murphy cooperates. Even when he doesn't, most of Plan A stays intact, with reallocations hopefully hitting a small subset of categories and always moving from lower to higher priority.

    I think breaking out the non-monthly expenses (a.k.a., True Expenses) into their own group is a good idea because the farther away the due date, the lower the priority (for most people). Funds are especially tight when starting out since you're usually having to pay for the past (catch up on True Expenses due sooner than the ideal and/or pay down debt) as well as the present (monthly outflows) and the future (True Expenses at the nominal level). While the TE catch-up goes away eventually (e.g., contributions for a yearly expense go down to 1/12 the outflow), until it does the lower priority things simply have to wait. The more easily you can identify those, the better.

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  • dakinemaui said:
    While the TE catch-up goes away eventually (e.g., contributions for a yearly expense go down to 1/12 the outflow), until it does the lower priority things simply have to wait.

    Something to consider in your spare time (!), is that you'd like to understand your "steady-state" budgeting needs, which are those when all True Expenses (TE) are at their nominal contribution levels (e.g., 1/12 for annual bills, 1/4 for quarterly, etc.). If your monthly income doesn't support the total of these and your normal monthly expense contributions, you're in an infeasible situation. The sooner you know this, the better.

    Like 1
  • Jeff Altman for the ezpass and mileage: As per my accountant, I can only deduct miles OR costs, I don't do both. I'm not sure if tolls fall into that category, or not, but at any rate, the way I would wrap my head around it is to track the number of trips that you have that are business related and then do the math on the tolls, then make a payment directly to your personal account for that amount each month. If you're tracking mileage it shouldn't be that difficult to do.

    I drive a LOT for my small business (my mileage expenses for 2019 are over $16,000!), and the way I keep track is using a calendar. I have all of my trips tracked in my google calendar, then I print it at the end of the month for my records, and use that to total up my miles. Since I am always going to the same places, I have the distances written down, so I just add the number of visits and the mileage and calculate the federal travel rate and then get my total from there. It would be pretty easy to do something similar and just note which trips have tolls on them, and add in the totals for the tolls. I would keep a copy of the ezpass statement with my records for my business, maybe highlight the trips that were biz vs personal, and that way you've got it recorded.

    And to another point you mentioned - I don't think you can have 2 transponders in your vehicle anymore. We used to do things like that as well, and now I believe the transponders are linked specifically to a single vehicle, so you can't swap them out on the dash like you used to (at least that's what's happened here in MD). And besides, I could see myself easily forgetting to grab the "right" one when I'm flying down in the toll lane!

    This is assuming you want to be that particular... an accountant can help you sort all of that out, and is money well spent in terms of getting the best return back.

    To answer your initial question - I would separate the budgets, and record any transfers as income into your personal with the specific business as the payer. I also strongly suggest using separate credit cards or some other means of payment for business expenses vs personal expenses. It makes it SO much easier to show records when you know that there isn't anything that is mixed up. I always think that god forbid, if I were to get audited, I want to be able to drop all of my records (I keep a crazy amount of records) in the auditor's lap and know that everything is really clear cut.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • 1
      • Reported - view

      farfromtheusual Tolls are not covered by the mileage deduction. The mileage deduction is in lieu of tracking operating costs (fuel/maintenance/repairs)

      Like 1
    • nolesrule That's good news! Now I need to go change that on my account so that I pay that out of the business.....

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • 2
      • Reported - view

      farfromtheusual If you are using schedule C, the mileage deduction is Line 9 (Car and Truck Expenses) while Tolls would come under Line 24a (Travel), which also includes parking fees, ride share, airline tickets, hotels and any other travel expenses  that are not meal related.

      Like 2
    • nolesrule Actually I'm a Schedule F for agriculture :) I don't know if it is the same, but I do have many of the same things. My accountant fills all that stuff out which is so helpful! I'm very grateful to have an accountant that takes such good care of us.
      But now I'm going to go back and figure out the EzPass stuff because I don't think we ever make trips through the tunnels that aren't for my biz right now. Almost all my travel through the tolls is for my business. So I can repay my BF for the "loan" he's been giving me every time the EzPass has auto billed! 😂

      Like
  • I use YNAB for my Airbnb side business and have started to separate my personal and business accounts, which makes things so much easier.  Everywhere I look they say to keep your business and personal accounts separate now that I'm looking, but I never did that before because I didn't really think of myself as a business person.  I know I will have further deductions at the end of the year because some things are paid out of personal funds that are deductible (fractions of my phone, mortgage interest, property taxes, plus depreciation), but this is just icing on the cake.  It really has made it easier to budget for business expenses.

     

    Another helpful tool I have started using is Profit First accounting, which is implemented really easily with YNAB without as many accounts as he recommends in the book.  I highly recommend checking it out.

    Like 1
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