The Money Trap Every Creator Falls Into
And how to escape it.
‘Revenue is vanity, profit is sanity, but cash is king.’
Pehr G. Gyllenhammar
There is a moment in every Substack creator’s business that defines their future solvency.
It isn’t when they get their first subscriber.
It isn’t when they go viral.
It’s the moment they look at their bank account, see $2,000, and decide to buy a new ergonomic chair, forgetting that $600 of that money belongs to the government and $400 is for next month’s software subscriptions.
This is ‘Financial Soup.’
Most solopreneurs operate out of a single transaction account. Revenue comes in, groceries go out, Netflix subscriptions are deducted, and client payments are received.
All to and from a single bank account.
It is a warm, simple, chaotic slurry of money. You feel rich on the 1st of the month because the balance is high, and you feel poor on the 15th because the rent hit.
You’re making decisions based on the current balance, not the available cash.
This is how businesses that are technically profitable go bankrupt. They spend their tax money on tacos and trivialities.
Be smart, right from the get-go. Spend the 15 minutes it takes to set up the three bank accounts I describe below.
The problem with ‘Profit First’
Mike Michalowicz wrote the bible on using multiple accounts for different business purposes. His book, Profit First, is mandatory reading.
But Mike wrote that book for plumbing companies with five vans and a payroll. He recommends opening five, sometimes six, distinct bank accounts: Income, Profit, Owner’s Comp, Tax, Opex, and (maybe) GST.
If you tell a writer who’s making $800 a month to open six accounts, they’ll just say ‘yeah nah’ (for the non-Australian readers, this means ‘never gonna happen’).
Nope. They won’t do it. The friction is too high. It’s too complex, and the granularity doesn’t add value.
So our Substack creator leaves things as they are. They stick with single account soup, and get crushed at tax time.
Let’s strip the system down. Your Banana Stand is not a mighty corporation; it’s a guerrilla outfit. You don’t need a financial cathedral, you need 3 (and maybe 4) buckets.
The 3 account protocol
For a Substack creator doing less than $75,000 a year, you need exactly three buckets. No more, no less. This creates just enough friction to stop you from being stupid, without enough administrative drag to make you quit.
Account 1: The Airlock (Income)
This is your reception desk. Every single dollar you earn, from Substack, from Gumroad, from freelance clients - it all lands here.
Don’t get a debit card for this account. If the bank sends you one, cut it up. This account has one job: to catch the money and hold it. It creates a psychological airlock between earning and spending. Just because the money hit the account doesn’t mean you buy the chair.
These are the rules:
You never spend from this account. The only way money ever leaves this account is by you logging on to your banking app and transferring it to The Vault (account 2) or Feed Bag (account 3).
Every Thursday, flush it out. You move (via your banking app) every cent out to those other two accounts (and no others). The balance ends up at zero.
Handy tip for Aussie readers:
Register for PayID and link it to this account. Keeps the scams away.
Account 2: The Vault (Tax)
This is the most critical account in your life. It protects you from jail and bankruptcy.
Money in The Vault is dead to you. It does not exist. It belongs to the government. You collect it and hold it for them.
These are the rules:
You never spend from this account. The only way money ever leaves this account is by you logging on to your banking app and transferring it to your Feed Bag account (account 3)..
Every Thursday, you take 30% of everything in The Airlock and move it here. No trickery, no ‘but I have deductions,’ no bargaining. If you made $1,000, you move $300.
At tax time - once a quarter, once a year - you transfer your calculated tax payment to the Feed Bag account and immediately pay your taxes from there.
Anything left over after you’ve paid your tax (there will be some, because legitimate business deductions reduce tax payable) is a bonus tax refund. Buy that chair, spend a month in the Maldives, whatever - it’s your money!
The psychological relief this provides is better than a drug. At tax time you don’t panic. You don’t lose sleep. You don’t have to hustle extra freelance work to pay for it. You just open the Vault and send the funds you’ve carefully squirrelled away.
Handy tip:
Make this account really inconvenient to withdraw from. Use a high-interest savings account at a different bank, or a term deposit, or buy into a cash ETF. You know when you need to access it (tax time), and you transfer it into your Feed Bag account before tax due date. Fast access is not essential.
Account 3: The Feed Bag (Expenses)
The remaining 70% goes here. This is your operating reality.
This is where you pay for your domain name, your hosting, your subscriptions, and anything else that is related to you running your Banana Stand.
And most importantly, this is where you pay yourself.
In the strict Michalowicz method, ‘Owner’s Pay’ and ‘Operating Expenses’ are separate. But for a newsletter writer, you are the main operating expense. Your overhead is low, so separating these two piles of cash at this stage is a complication you don’t need.
If The Feed Bag runs dry, you either stop spending or lump in some personal cash (this hurts). You don’t raid The Vault. You don’t borrow from The Airlock. You stop. You wait until you sell something else. Or you pump in extra cash.
This makes you focus on your real Banana Stand income, not your gross revenue.
The fourth bucket
I said earlier that you need three buckets.
If you report income in a country that has GST (goods and services tax) or VAT (value added tax), you may want a fourth bucket.
I’m going to double click on the Australian situation here because that’s what I’m most familiar with. But if you’re in another GST/ VAT country, it should work pretty much the same way.
If you run any business at all, the very first thing you must do is register for an Australian Business Number (ABN). It takes minutes and costs nothing. You have a choice then or any time after, to also register for GST. The choice goes away if you earn AU$75,000 or more through your ABN (you must then be GST-registered).
Earn less than AU$75,000? My suggestion is - hold off registering until you get close to that figure.
When you are registered for GST:
You become a tax collector. You add 10% to the price of every sale, which is you collecting revenue for the government.
You have to file a simple tax return (business activity statements, or BAS) every quarter, and pay anything that’s due.
On the plus side, you get to credit the GST component on the supplies you buy from other businesses.
These three things add paperwork complexity, and complexity is what we all want to avoid.
You are small. Enjoy being small. Stay under the radar. Keep your banking simple, until the law forces you to complicate it.
Account 4: GST (Sales tax)
Is it really needed? Maybe not.
There are two approaches if you’re GST-registered (ignore if you’re not):
Set up a fourth bucket and call it GST. Before transferring money to the Vault or Feed Bag accounts, you transfer the GST component (in Australia, 10%) to the fourth bucket. Then, 30% of the remaining to the Vault and 70% to the Feed Bag. This is the Michalowicz way.
Stay with the three buckets and instead of 30% to the Vault, transfer 36.5%. The remainder goes to the Feed Bag. Why 36.5%? You sell for (say) $100 ex GST. But you have to add GST, so customer pays $110. You transfer $10 + $30 = $40 to the Vault. And $40 / $110 = 36.5%. Done.
You still use the Vault for tax, but now there’s enough for GST plus the tax on whatever you pay yourself. Plus you get interest! Plus you have some cash left over for an extra tax refund! Winner grinner chicken dinner!
Clean it up
If your Banana Stand money is mixed in with personal money, you’re not running a standalone business. You’re a hobbyist.
Go open the three accounts. It takes 15 minutes online. Name them: Airlock, Vault, Feed Bag.
The next time you sell a PDF for AU$36, put $10.80 in The Vault the following Thursday.
It feels ridiculous. It feels like Monopoly money.
But at tax time, when you look at that account and see $2,000 sitting there earning interest and ready for the tax man, you feel smug and safe.
That feeling is worth chasing.
P.S. Rule #1 of The Banana Stand 10 Step Cash Flow Audit: ‘Church and State Separation,’ don’t buy tacos with your business card. If your expenses are a soup of personal Netflix and business software, you cannot optimise. Separate the accounts today. And while you’re at it, use the button below to get the 10 Step Cash Flow Audit totally free (AU$12 value)!
