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It might seem strange to think about having a relationship with money. But it makes sense when you consider that everyone has feelings about money and those feelings can deeply impact our financial behavior.

Your parents, friends, and life experiences have likely helped you develop different perceptions and biases about money. Those attitudes can influence the financial decisions — both large and small — that you make throughout your life. These decisions, in turn, can have a significant impact on your financial health.

When you have a healthy relationship with money, you feel confident, in control, and satisfied with your financial situation. An unhealthy relationship with money, on the other hand, can lead to avoidance, impulsiveness, anxiety, and increased levels of stress. Indeed, research shows that money is a top cause of stress for many Americans. In a February 2022 study from the American Psychological Association (APA) , 65 percent of respondents said money is a significant source of stress, up from 57 percent in February 2021. Worries about money can lead to, or worsen, depression, anxiety, and other mental health issues.

Exploring and understanding your relationship with money can be the first step to improving that relationship and enhancing your financial (and overall) well-being.

Why the Psychology of Money Matters

It’s almost impossible to separate money and emotions. Those feelings may come from the way we grew up and what our parents showed us and told us about money. Or they may come from what we’ve learned about money over the years. Regardless of their roots, negative emotions — like fear, guilt, jealousy and shame — can get in the way of making smart financial decisions. Some examples of how this can play out:

•   The market plummets and fear tells you to get out — which is likely the opposite of what up should do.

•   You’re living paycheck to paycheck but guilt tells you that you should take the kids on vacation anyway.

•   You’ve racked up a lot of credit card debt but feel so ashamed about overspending, you freeze up and avoid your finances altogether.

•   A friend posts photos of their beautifully decorated home on social media and jealousy prompts you to buy furniture you can’t afford.

Emotions aren’t necessarily bad, however. Positive emotions, such as gratitude, serenity, and compassion, can inform our financial habits and decisions in positive ways. Feeling grateful for the money we earn can help us establish a disciplined savings plan. A sense of responsibility and optimism helps motivate long-term financial planning.

The more you understand how emotions impact your relationship with money, generally the easier it is to manage your wealth to achieve your goals.

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Finding Your Money Personality Type

Money management habits tend to fall into five financial personality types. Your money “type” can impact your relationship with money and the decisions you make about how to spend, save, and invest it. Often, we fall into a combination of types and not just one. You may find you identify with one or more of these money mindsets.

The Spender

Spenders have no qualms about buying things. They like spending money on material items and experiences that bring them joy, whether it’s the latest iPhone or a vacation in Hawaii.

Spenders are generous with their friends and likely to support charitable causes. However, they often make spontaneous spending decisions and tend to live beyond their means. Many spenders are also investors and aren’t afraid of a risky portfolio.

Potential pitfalls: If you spend everything you make, you can end up going broke. Also, if you spend impulsively (rather than plan your purchases), your spending may not line up with what you truly value.

The Saver

Unlike spenders, savers don’t like to part with money. They continually sock away their paychecks, sometimes with no actual goal in mind. Saving simply makes them feel more secure in life.

Savers don’t keep up with the latest trends and will happily shop around, comparing prices to find the best deal. They will often drive used cars, pay their credit card balance in full each month, and watch their bank accounts grow. Savers tend to be conservative investors.

Potential pitfalls: If you save everything you make, you’re going to miss out on a lot of experiences that can bring happiness and purpose to your life. You could possibly live your whole life without spending much of what you’ve worked so hard to save.

The Avoider

Avoiders don’t like to deal with finances and don’t spend much time thinking about money. It isn’t because they don’t care about money — their head-in-the-sand approach to finance often stems from anxiety about money or a feeling that they don’t deserve to have money.

Avoiders will generally ignore their accounts so that they don’t have to think about money. They tend to let bills pile up and have difficulty making money decisions. Just the idea of going through their financial statements and budgeting makes them feel uneasy.

Potential pitfalls: That lack of attention can result in overdrawn accounts, late payments, and racked-up debt. Avoidance may also mean missed long-term opportunities such as not signing up for a 401(k) match.

The Gambler

These folks are willing to make giant leaps of faith with their money, whether it’s investing in crypto or spending more than they can afford on a home (because it’s bound to go up in value). The thrill of risk and the promise of reward bring them pleasure.

Gamblers also tend to be instinct-driven and don’t pay much attention to sound financial advice. Their risk-taking doesn’t necessarily come from a place of irresponsibility but rather strong gut feelings and a sense of optimism that everything — including their finances — will turn out fine in the long run.

Potential pitfalls: Gamblers are willing to lose it all – and they just may, which can be a huge problem if they are the primary earner in a household. They may also compensate for losses by borrowing against their retirement money or children’s college fund.

The Risk Averse

Unlike gamblers, risk-averse people prize security, financial stability, and planning. Fear of losing money or that they are not doing a good enough job managing their money is at the heart of this money type. A volatile stock market stresses them out, and they’ll spend hours finding the source of a $1.90 error on their bank statement. Above all, the risk-averse wants to be in control.

This group is usually very organized about money, which serves them well. They also tend to prefer safe investments and will be thorough in their research prior to investing.

Potential pitfalls: A more conservative, risk-averse approach can hold you back from worthwhile opportunities to grow your money. Problems can arise if you are too risk-averse to make sound long-term investments.

6 Ways to Improve Your Relationship with Money

Like all relationships, cultivating a good relationship with money takes time and effort. Below are six tips that can help you build a better relationship with money and feel more satisfied — and less stressed — about your financial situation.

1. Examine Your Behaviors

Take a look at your money patterns in the past few months to a year. Are you spending more than you are taking in each month? Have you been making impulsive purchases or investment decisions? Are you avoiding financial decisions, such as how much to contribute to your retirement account?

If you’re unsure what your patterns look like, you may want to track your spending for a few months to get an idea of what money is coming in and going out of your accounts. An easy way to do this is to link your accounts to a budget planning or money tracker app, such as SoFi. These tools automatically categorize your spending and provide a bird’s eye view of your finances. This can help you quickly spot trends in your financial behavior.

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2. Consider How Emotions Have Impacted Your Financial Decisions

For many people, emotions surrounding money are most acute when they are faced with a big financial decision. It might be when you’re buying a home or making another major purchase, such as a car, or when choosing how to invest your money.

Think back to what emotions you’ve felt while making important financial decisions. Were you focused on what you wanted when you made a large recent purchase, as opposed to what you actually needed? Did your decision line up with your long-term financial goals? Were you gambling on the next big investment trend hoping for a huge reward?

If you see that your emotions are causing you to make poor choices, consider how you can work through those emotions in future scenarios.

3. Set Some Financial Goals

One of the best ways to manage your relationship with money is to know what you want to accomplish financially. If you aren’t working towards anything specific, you may spend more than you should, or the opposite — never reap the rewards of your hard work.

Keep in mind that you can have multiple financial goals with different timelines. Consider where you’d like your finances to be in one year, three to five years, and 10 or more years. Here are some examples of goals you might set:

•   Short-term: Building an emergency fund, buying a new car, or going on vacation

•   Mid-term: Paying off credit card and student debt or putting a downpayment on a home

•   Long-term: Saving for a child’s education or growing your nest egg with retirement planning

Once you’ve come up with a list of achievable and measurable goals, you’ll want to create an action plan to make them happen. This could mean cutting cable to save extra monthly cash, setting up a recurring monthly transfer from your checking to your savings account, and/or contributing more to your 401(k).

4. Communicate with Your Partner

Talking honestly and positively about finances with your significant other can help you have a healthier relationship with that person and also with money. Sharing how you feel about money and the attitudes you learned from your own family can help you and your partner understand each other better.

To get started, you may want to sit down together and talk about what money means to you, what your parents taught you about money, what you want to accomplish with it, and what your fears about money are. Having an understanding of your partner’s beliefs and perceptions can help you avoid conflict and set the stage for healthy discussions about your joint finances. You and your partner can then work together towards shared goals.

You may also want to set up a weekly or monthly money meeting with your partner to go over current challenges and anticipate future needs

5. Talk to a Financial Planner

Working with a professional can be an effective way to take emotions out of your financial decision-making. A financial planner will generally assess your current financial situation, then work with you to develop an individualized financial plan. They can help you set and work towards long-term financial goals, create a budget, build wealth through an investment portfolio, and put protections in place to help secure your future.

6. Review What Resources Your Employer Might Offer

Many companies now offer a range of financial wellness tools and resources that workers can use to strengthen their finances and make sure they’re on the right path for long-term goals. These benefits might include help with student loan repayment, a 401(k) with employer matching, and access to free financial planning and coaching.

If you work for a company that has a benefits portal, that can be a good place to start to see what’s open to you. Ideally, you don’t want to leave anything (money or support) on the table.

The Takeaway

Everyone feels emotions about money. Exploring and understanding your relationship with money can help you take steps to overcome emotional obstacles, reduce money stress, and build a more secure financial future.

Sofi at Work offers a variety of financial wellness and financial education resources to help employees make objective decisions about money and build a positive foundation for financial success.

Photo credit: iStock/stockfour

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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They say you should never mix business with pleasure — and that applies to bank accounts, too. If you’re a freelancer, small business owner, or entrepreneur, chances are opening a business checking account could be a good move for you.

While both business and personal checking accounts allow you to safely store money and utilize those funds to pay bills and expenses, there are some important differences that make a business checking account a good idea for most folks who work for themselves. In fact, depending on the structure of your business, you may be legally obligated to open a business bank account — which is a pretty compelling argument to do so, we’d say.

Let’s take a closer look at how a business checking account differs from a personal checking account. We’ll cover:

•   What is a business checking account and how it works

•   What is a personal checking account and how it works

•   What are the key differences between a business vs. a checking account

•   Which one (or both) is right for you

What Is a Business Checking Account?

A business checking account is a checking account specifically designed for business owners. As such, they often include business-specific features, such as payroll or bookkeeping integrations, the ability to assign debit cards to employees, or simplified credit card payment processing.

In many other ways, however, a business checking account is a lot like the personal checking account you likely already have. It’s a (relatively) safe place to stash cash and use it for regular, day-to-day expenses by way of writing checks, using a debit card or initiating transfers. For example, it can allow you to:

•   Pay suppliers

•   Deposit payments from customers

•   Pay employees

But it’s only to be used for business-related expenses!

How Does a Business Checking Account Work?

When thinking about a business checking account vs. a personal account, you’ll find many similarities. You open the account, fund it with some money, and, hopefully, go on to deposit more cash as profits from your business roll in.

You’ll likely have access to the account via a debit card and/or a checkbook, and will likely also be able to log into the account and manage it online. (Both digital-first and brick-and-mortar banks offer business bank accounts these days, and most feature some kind of virtual account management option.) Business banking products often bundle both a checking and savings account, so you can start creating a cushion for a rainy day.

However, as mentioned above, a business bank account may come with some additional, business-specific features. It may also come with higher fees and minimum account balance requirements than a personal checking account, not to mention requiring documentation to prove you do, in fact, have a business.

What Is a Personal Checking Account?

A personal checking account is, well, a checking account used for personal expenses. Just like a business checking account, it’s a place where you can stash your cash with relatively few worries and use it to pay bills and expenses using a debit card, checkbook, or transfer services. Many banks also make it easy to bundle a personal checking account with a personal savings account, which is a great place to stash your emergency fund.

Unlike business checking accounts, though, a personal account won’t include those fancy features we were talking about. On the bright side, though, it’s very possible to find free personal checking accounts, which can help you save cash on those pesky monthly maintenance fees.

What Are Personal Checking Accounts Used For?

Personal checking accounts are commonly used for:

•   Storing money earned through employment or other income streams

•   Paying bills using transfer services or paper checks

•   Making transfers to friends, family, and businesses

•   Making point-of-sale purchases using a debit card

As their name suggests, personal checking accounts are designed to help you manage personal expenses and attend to your everyday money needs. Typically, a personal checking account is the hub of someone’s daily financial life.

What’s the Difference Between Business and Personal Checking?

Let’s recap what we’ve learned about the difference between business and personal checking accounts.

Are Business Checking Accounts FDIC Insured?

Any business checking account worth its salt should be FDIC insured — or NCUA insured, if it’s opened and held at a credit union. The FDIC is a government agency that protects deposit accounts, such as checking accounts, and reimburses lost funds up to the $250,000 standard insurance amount in the event your bank fails. (Some banks participate in programs that extend the FDIC insurance to cover millions¹.) The NCUA is a similar agency, but specifically geared toward credit unions.

The FDIC and NCUA insure business and personal accounts alike, but it’s always important to double-check and make sure the bank or financial institution you’re hoping to open an account with explicitly states that deposits are insured.

When Does Someone Need a Business Checking Account?

If you’re a small business owner — or even a freelancer — a business checking account might be a good idea, even if it’s not technically required. Keeping your business and personal expenses separate can help make accounting easier, simplify your tax reporting process, and help make your business look more legitimate to the IRS.

In addition, if you’re incorporating (i.e, operating as LLC, S corp, or other type of business entity), separating your business expenses from your personal expenses can help protect your assets in the event you get sued. Even if it’s not legally required, many accountants and law professionals recommend their clients open a business bank account for this reason.

A business bank account can help you:

•   Separate your business and personal expenses, which can both protect your assets and make bookkeeping easier

•   Help make your tax reporting easier, as all of your deductible expenses will be in one place

•   Make it easier to see you business’s cash flow and make adjustments to your business model as needed, or valuate the business for other purposes

•   Make your business look more legitimate to both the IRS and potential customers, vendors, and other parties you interact with professionally

Establish a relationship with a bank that could allow you to more easily take out a business loan or business line of credit in the future.

Can I Use the Same Bank for Personal and Business Banking?

In many cases, you technically can use your personal checking account for business banking… but doing so is generally considered ill-advised by experts for the reasons listed above. Just for starters, it makes separating out your expenses a lot harder — and you’ll definitely want to have a handle on those so you can get any deductions coming your way.

Case in point, the IRS explicitly recommends keeping separate business and personal bank accounts for record-keeping purposes. It’s easy to let it go by the wayside if you’re just starting up as a small business owner or entrepreneur, but consider whatever expenses the account incurs as part of your business start-up costs. It’s worth it in the long run!

What’s more, it’s a wise move to separate your business and personal accounts in the event that you ever get audited. Combined accounts can lead to a very challenging situation if you ever need to prove your business vs. personal cash flow, expenses, and other aspects of your banking life.

Choosing the Right Business Checking Account

When you are shopping for a business checking account, there are a few features that should be considered to help ensure that you find the right match. These include:

•   Fees. Many business accounts have fees associated with them, and if you are able to get them waivered, the financial requirements (say, the amount you have held in the account) tend to be higher than for personal accounts.

•   Cash deposit limits. Your bank may set a limit in terms of the amount of money you can put in the account per billing cycle. If you hit that amount, you may accrue a cash-handling fee.

•   Transaction limits. Your business checking account may have a limit on the number of transactions they will handle for free per billing cycle. Go over that amount, and you may be charged.

•   Interest. There are business accounts that offer interest on your balance. Do the math though to see if this should be a deciding factor in your choice of a bank. If fees are higher at the bank offering interest, you might wind up losing money in the long run.

•   Bundled services. Your bank might offer some free features, like a business credit card or merchant services along with your checking account.

Depending on the nature of your business and how you handle your banking, some of these factors may matter more than others. Find the bank that gives you the most features and perks you are seeking with the lowest fees possible.

The Takeaway

If you own your own business or earn freelance income, keeping your business expenses separate from your personal expenses can help simplify your life in many ways. A business bank account will help keep these finances separate, streamlining accounting and tax preparation, and protect you if you were ever faced business liability.

But let’s not forget that keeping your personal banking in tip-top shape is vital, too. That’s where the SoFi Checking and Savings bank account can help. When you sign up with direct deposit, you’ll get both checking and savings with absolutely zero account fees and earn a competitive APY just for letting us hold onto your funds.

FAQ

What documents are required to open a business checking account?

In order to open a business checking account, you’ll need your regular, basic documents — like your government-issued picture ID — as well as business-specific documents such as your EIN and business license. Check with the bank you’re considering directly for full details on which documents are required

Can I open a business checking account without an LLC?

It depends on the financial institution, but yes, business accounts are available that don’t require the business owner to be incorporated in any way

Can I use a personal checking account for business?

You can — the question is whether or not you should. Separating your business and personal expenses can make your life, or your accountant’s life, a lot easier when it comes time to assess your business finances or pay taxes. In addition, there are special business banking features you might get if you opt for a business-specific account.

Photo credit: iStock/mapodile

¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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