Avoid Excruciating Mistakes and Split Your Finances

“What did you do?!”

I never want to hear my wife say those words. It’s why I keep my personal and business finances separate, and you should too.

There are plenty of accounting, organizational, and legal reasons to separate your finances. But I’m not going to talk about those. Instead, here are two reasons backed by research in psychology.

You Can’t Multitask

Starting or running your own business pulls you in a hundred directions at any given moment. Our brains can’t handle doing two things at once.

Don’t believe me? Half the people who watch this video don’t pass the test: http://bit.ly/1Trhdyx

Did you see that?! Again, half the people did not pass the test.

Multitasking does not exist. Instead, you are quickly switching between tasks. That’s why texting while driving is so dangerous.

Why can you walk and talk at the same time? You put your body on autopilot while you perform a different task. It also explains why you get great ideas in the shower.

What does this have to do with separating your personal and business finances? Well, it turns out you are human and will make a mistake. I would much rather pay an overdraft fee than explain to my wife why money is missing from the checking account.

You Are Terrible at Predicting the Future

It’s good to hope for the best. Optimism can get you excited. Unfortunately, it makes us terrible at predictions.

Tali Sharot is an associate professor of cognitive neuroscience at the University College London. She says in her TED Talk, “It’s our tendency to overestimate our likelihood of experiencing good events in our lives and underestimate our likelihood of experiencing bad events.”

Using a personal account for business expenses could harm your family’s finances. You might think future mistakes won’t happen, but the optimism bias causes the chances to seem lower.

It’s good to be optimistic and hope for the best, but be sure to plan for the worst. It’s more likely than you think.

What Now?

I don’t mind what type of business account you open; just do it.