Why the New Credit Card Law Affects You

Honing a craft is a solitary activity. Excellence means many hours out of the spotlight, so that once you’re finally ready for prime-time, all of the finer points of the work are complete. To your audience it’s effortless; you’re a pro.

Unfortunately, this “solitary confinement” approach to excellence often clashes with successful money management. The government and business community are constantly revising rules that affect your ability to manage your money.

That’s precisely what happened late last month. A new credit card law went into place that has the potential to have a devastating effect on some artists.  I thought I’d give you my take on the rules and some ideas of how to respond, so that you aren’t surprised the next time you apply for credit.

Here’s the part of the ruling which could derail your planning:  you can no longer use spousal or overall household income to apply for credit.

What does this mean for artists?  If you’re working full-time (or near full-time) on your craft, your income may not yet be where you’d like it to be. First, you may be spending money that counts against your income, lowering the amount you can claim. Or, you may be still building skills to make money later. In either case, you may now find it difficult to secure credit in your name.

This blog isn’t a commentary on the law. As I’ve mentioned previously, life isn’t about changes you can’t control; it’s about how you react.

Here are my initial thoughts:

  1. Your cash reserve is your new personal credit line. If you’ve missed our piece on how to build reserves, read this: How Do You Survive the Paycheck Roller coaster?
  2. Keeping a high credit rating is more important than before. If your income is low, companies are going to be more selective about your credit quality. A good credit score now may be the difference between acceptance and denial. If you haven’t yet read our piece on raising your credit score, here it is: The Most Important Score in Your Financial Life.
  3. Knowing your budget and sticking to it is paramount, so that you’re able to save money for your art that may have previously been placed on a credit card. Keeping your credit card open for emergencies is crucial. If something happens to your current card, the chance of securing new credit is much slimmer than in the past.

You may be reading this, thinking, “I can’t build a cash reserve now. I can’t even find a way to save money!” You’re not alone.

There are two main problems many artists face, beyond a general lack of funds:

  1. Your income fluctuates.  It’s difficult to save when you don’t have a consistent, set paycheck.
  2. Money seems to disappear. There are so many priorities, that it seems impossible to keep funds in your hand.

Sound familiar?  If so, here are some fixes to try:

  • Although your income may bounce around, your budget shouldn’t.  Don’t go out for expensive food when you receive a nice check from a client and suffer through Ramen noodles when you’re broke. This boom/bust cycle creates big splurges that most people can’t afford.

Think of yourself like a squirrel. I know, it’s not flattering, but it’s appropriate for this analogy. Squirrels horde nuts to eat when food is scarce. Keep the budget the same each month as much as possible so that you have stores to turn to later.

To do this, save money into a savings account and then use bank transfers into your checking account to cover the budget. In this way, money is saved during good times automatically.

 

  • Level as many expenses as possible. When you know exactly what the outflows are going to be and when they’ll occur, you’re more likely to stay “on budget.”

A few areas to work on:

Utilities.  Often, water and electric companies will allow you to set up a budget plan which levels your payments. In most plans, you’ll settle up at the end of each year.

Cell phone.  Find a package that is a set amount of money each month. It may be a little cheaper to buy minutes as you need them, but the changes in your budget can be horrendous if you need tons of minutes one month and nearly none the next.

Groceries.  Set a fixed amount aside for this expense. If you sign up for Amazon subscription services, you receive a discount in addition to any sales they may be running. You’ll spend the same each month and (extra bonus!) groceries show up at your door, leaving you more time to spend on your craft.

 

  • Make saving a “bill.” If you have a retirement account, cash reserve, college fund, or vacation plan, give this “bill” the same priority as the electricity and phone. Every month you procrastinate, you lose precious time. Investment companies can help you begin an automatic savings plan.

Finally, remember to keep reading here! As new legislation arrives that has a direct impact on our community, I’ll be sure to pass it to you.

2011-11-03T06:02:10+00:00