How to Manage Your Money When You Have a Home Daycare
One of the complications of owning a business is how you have to manage your money differently! I’ve come up with my own system to manage our money that has worked very well for us and I’m hoping it will help you too.
(This post contains an affiliate link. See my disclosure policy here.)
Why This Technique Works
I have always done our finances this way since becoming self employed and it has always worked for us. Occasionally I quit using this system and try to do things mentally or say, “I’ll figure it out later.” That’s when it doesn’t go so well for us and the credit card tends to get used.
Now, we don’t live outrageously – but we’re not just scraping by either. Our family has no credit card debt and we’ve paid off our student loans. Neither of us have ever taken money from our retirement to pay for anything.
We’ve even gone on a few vacations since we’ve been using this method. Actually, I believe we’ve only been able to do these things because I started managing our money this way.
This technique works because it forces you to budget. Any money guru will tell you you need to budget your personal finances. This is true for businesses too; maybe even more so because there is so much at stake.
How My Money Management System Works
Get Things In Order
1. Open a checking account just for daycare, and get a debit card.
I know other daycare providers in real life that tend to lump everything together with their personal groceries and checking account. I definitely prefer to have it separate and I recommend you do the same!
Keeping a separate account makes it easy to see income and expenses. This helps to make sure that you don’t overspend before you receive your next business income.
2. Use this checking account to purchase groceries and supplies, NOT personal needs.
When I go to the grocery store, I check out twice. It’s a little inconvenient to keep everything separate. However, it’s so much easier to have separate receipts for record keeping.
Here’s a tip: when you’re in the store, keep personal items on one side of the cart and daycare items on the other. This makes it a lot easier when it’s time to check out.
→ Check out this post for more info on how I meal plan and grocery shop.
3. Create a daycare budget. Seriously. I know most people don’t like to budget but you really do have to if you want to be successful with finances.
It doesn’t have to be complicated. Just write down your monthly income, monthly food and supply expenses, and figure out how much profit you have. If you don’t have a profit, you probably need to raise your rates!
4. Pay yourself out of your daycare account. Don’t let yourself spend personal money from the daycare account. I almost guarantee you you’ll spend money you don’t need to (not to mention make your reports messier).
If you get one large income a month like I do, this can be tempting to spend. You can’t though! You will need that money for groceries in a few weeks.
Instead, take that profit number from #3 and divide it out by week (either divide by 4 or to be more accurate multiply by 12 and divide by 52).
Then, each Friday, pay yourself like a paycheck.
Online banking makes this easy. THEN, you can spend the money out of your personal account just like when you got paid from that job you left to start your daycare or stay at home with your kids.
When you spend from the daycare account, you run the risk of overspending without leaving a balance for daycare expenses or next week’s “paycheck” – which also pays next week’s bills.
But Don’t Forget…
5. Emergency Savings. You need to start an emergency savings plan now. Especially in daycare, it seems, clients tend to give excuses that they can’t pay on time or need to change their schedule. All of this affects your income!
And if something drastic happens, you might need money to cover up to a month or more of expenses. I suggest taking at least $25 out of every “paycheck” until you have a savings account that makes you feel secure.
6. Retirement. When I worked for other companies, I had a 401k and a company match. Obviously I don’t get an employer match anymore. I do, though, still recognize the importance of investing in our future (starting young gets interest on your side!)
I definitely recommend setting retirement savings on auto so that you don’t have to think about it or miss it. Then, when retirement comes, hopefully you’ll have a nice investment to rely on!
7. Taxes. I am definitely NOT a tax expert. Find a great accountant who can help you figure out how much to set aside for taxes during the year. I’ve tried to do it myself and it’s just not worth it to me when I can pay a professional!
If you expect to pay income taxes, set aside a monthly amount in a savings account. Then, come tax time, you won’t have a heart attack trying to come up with thousands of dollars to pay the government (been there, done that).
We have both of our incomes coming from self-employment – and this system has always worked for us.
Just because you are a small business owner does not mean that you can’t get your personal finances under control. My simple system has worked great for our family for years. We have paid off debt, gone on vacation, and built up our emergency savings by using this method and keeping to our budget.
If you’re interested in learning more about getting out of debt and managing your personal finances, I highly recommend Dave Ramsey’s book, The Total Money Makeover. This book will definitely affect the way you think about money!