|
As artists, it is so
easy to feel like our finances are completely outside of our
control. We rarely receive regular paychecks. Our spending often
varies as well, since pursuing our art usually costs us money.
These
factors make it even more critical that we develop financial
consistency. Keeping a handle on the ways of managing our money
that are within our control will go a long way towards avoiding
the financial roller coaster that plagues many artists.
Following
are 5 simple steps to becoming financially consistent:
1. Pay Yourself First
This is
the cornerstone of any long-term financial stability, let alone
wealth. Every month, you should put a set percentage of your
earnings into a high interest savings account, and then don't
touch it until you are ready to invest with that money. This is
not the "rainy day" account that you dip into when things get
hard, nor is this the "splurge" account to get something special
for yourself as a celebration. Money is only withdrawn from
this account to buy assets with - an asset being defined in this
case as something that either makes you money, or appreciates
(increases) in value (so a new car would not be an asset under
this definition!). Do this consistently and, over time, you
will build up a very nice amount of cash to be investing with.
2. Schedule
Regular Money Days
A
"Money Day" is simply a day that you set aside to work on your
finances. The jobs might include filing, entering receipts into a
computer program, balancing bank statements, etc. Now, it does
not have to be a whole day, of course - unless your situation
merits it... usually because you haven't done one for a long time!
Personally, I set aside a couple of hours every other week, and
then a meeting with my accountant over the phone every couple of
months. Doing this accomplishes several things: Your
accounts will remain orderly, allowing you to continually track
your financial progress and identify potential problems early on.
Money Days also allow you to focus on your finances for short,
isolated periods, which frees up your time to think about and do
other things... like your art.
3. Forecast
your spending
Forecasting is the process of allocating where your money will be
spent. You start by going through your Chart of Expenses (email us
at
info@abundancebound.com if you need one of these), and finding
out where and how you currently spend. You then go through
that list, and determine which categories cannot change (rent, for
example) and which ones can (groceries, entertainment, etc). You
can then make strong, educated decisions about what amount you
will CHOOSE to spend monthly in each category. This tends to be
far more empowering (and effective) than just blindly trying
eliminate entire categories, i.e., no more Starbucks or dining out
or entertainment. That is the big difference between this process
and traditional budgeting. Budgeting encourages cutting out
"frivolous" categories entirely and forgets the fact that we're
human! You won't stick to something long term that makes you feel
deprived. But as opposed to going to Starbucks every day, can you
go every other day? Or order a Tall instead of a Venti?
Making these kinds of choices in several areas can make a huge
difference to your overall spending.
4. Keep
business finances separate from personal
Go
right now and open separate bank accounts for your personal life
and your artistic career. Identify one credit card you will use
for personal expenses and a different one to be used for
business. You would never see the CEO of Kinkos write a check for
company expenses out of his personal account, and yet as artists
we do this all the time. Separating your finances will allow you
to clearly see what you are spending and earning as an artist. It
will also legitimize all the tax deductions you are taking.
Clearly delineated bank accounts allows the IRS to see that you
are running your artistic career as a business, not as a hobby.
Remember that business expenses are deductible, while hobby
expenses are not. Having the IRS classify your art as a hobby,
disallowing your business deductions, can cost you thousands of
dollars in penalties.
5. Regular
financial learning
Keep
doing what you are doing right now! We take time to go to
art school, acting classes, workshops... but we expect our
finances to somehow take care of themselves. Not only is
this not realistic, it is dangerous, as we can make numerous
serious mistakes blundering around while we try to find our
financial way. The biggest reason people stop pursuing their
artistic careers is lack of money. Knowing this, doesn't it
make sense to put some time into financial education now, so that
you have the skills to develop the financial stability that will
keep you around for the long-term? We read all the time
about artists being "discovered" in their forties: wouldn't
it have been sad if they had had to leave the arts before then
because they had to make money? Carve out some time now to learn
how to manage money and how to invest it so it can grow faster.
Learn the strategies to handle your expenses, reduce your taxes,
and create passive income. It will be well worth it in the long
run.
So
there you have it. Consistently doing these five things will
significantly improve your financial picture over the coming
months and years. Incorporating each step into your daily
and weekly life requires only a tiny commitment of time, but the
dividends from doing so will last forever.
|
