The biggest mistake a sole proprietor can make is mixing their personal finances with that of their business. It’s extremely easy to fall into this trap and that can quickly lead you to a tax problem. If you’re not properly tracking which expenses belong to you and which belong to the business, how will you know if the business is profitable or not?
When it comes to running your business, implementing a user-friendly invoicing and billing system will make your life (and your accountant’s life) easy. Then, like The Offspring, “you have to keep’em separated” (yes, I just quoted The Offspring). It’s very important for your sanity to keep your personal finances organized and as simple as possible. There is good debt and bad debt. Stay away from racking up credit cards and pay down mortgages and lines of credit. Some will say you should make a plan to save for retirement. I say make a plan to save, period! During the first few years your income may be unpredictable. Having a plan to save a percentage of that income (after paying down any debt) should be a priority because it makes sense…making RRSP contributions does not. Some of those savings could be directed into a TFSA for potential tax-free growth but only if it makes sense to invest in the first place. Directing a portion of your income to insurance, whether it be term insurance or living benefits like critical illness or disability insurance, might make sense if your spouse’s benefits at work are inadequate. This assumes that your spouse works at a job where benefits are offered. Your spouse may be operating their own small business and there may not be a safety net for either of you.
As always it’s better to speak with a professional who can take a look at your situation objectively and provide you with options on how to take advantage of what’s out there.
This article was written by Wayne Leacock from Sun Life Financial. Wayne is a financial advisor with experience working for companies such as Investor Group, Fidelity Investments and Sun Life Financial. During his career of over 10 years he has helped many Canadians realize their dream of financial freedom.
In his spare time, Wayne enjoys reading, travelling and maintaining a regular meditation practice.
He can be reached by email at firstname.lastname@example.org or by phone at 416-366-8771 ext. 2331. You can also follow him on Twitter.
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