Financial Planning for Musicians
Financial Planning for Musicians
By Troy Brown
Every career has stages, and no pun is intended. First, you are broke and living paycheck to paycheck. Then, you are making some money and probably still living paycheck to paycheck because you spend more on wants than needs. Next, you start to make a decent living and buy a more expensive house than you should purchase, but you make it work. Finally, you are getting older and decide it’s time to start looking at saving for retirement or at least back away from the daily grind of your profession.
Besides the stage in life where you have limited gigs, what you get paid is hardly enough to buy you a drink, and your bedroom is a friend's couch, there are ways to plan for any other phase of your career. You can accomplish this with a bit of financial planning.
Income & Expenses
Tracking your income and expenses for financial planning is called budgeting. When budgeting income, remember that the music industry has uneven earnings throughout the year. Use the last 12 months of income as a gauge for what you will earn. Additionally, track what time of the year this income hits your bank account. To calculate your expenses, use the prior year as a guideline to predict your costs, too. You can access the available electronic bank statements that guide you through this process. Lastly, use your manager or a bookkeeper to help if this is painstaking (which it is).
Taxes
Make sure you set aside money for taxes. This business rarely has withholdings, and the IRS wants to ensure the government gets its fair share of your earnings whether you care or not. As an earner that doesn’t have taxes withheld from your earnings, you may have to pay estimated taxes on a quarterly basis. Check with your tax professional because not doing so can lead to penalties. Penalties cost more money.
Emergency Fund
Once you’re past the stage in your career that you’re not living on a shoestring, start to build an emergency fund. An emergency fund of 3-6 months of expenses should be sufficient. An interest-bearing account in which the cash is immediately available is the thing you will want for this fund. When this fund is built up to six months of expenses, you can stick the extra money into investments that may take longer to access, like an investment account at a brokerage house.
Diversify Income
You are brilliant and talented. Unfortunately, as a musician, you rely heavily on live shows to earn your money. If you are starting out, in a slump, or just can’t hit the road as much as you used to, you can find other ways to make money. Some ideas are to produce music for others, consult, manage, teach, and write songs.
Invest
Once you have your emergency fund in place, you can invest in other things. There are two main items to consider. First, educate yourself about investments. Don’t just rely on your team to do this for you. There are horror stories available to tell you the dangers of having someone invest for you without your knowledge of what is going on with your money. Second, do your homework when you choose an investment advisor, meet with them regularly, and always have access to the records of your investments.
When you are to the point of investing, you are saving for the day you may want to retire. A good advisor will ensure your hard-earned money is placed in safe accounts for you. Don’t fall into the trap of a risky venture that you can’t miss out on. Usually, if it seems too good to be true, it is. Once again, educate yourself.
Keep Detailed Records
In conclusion, keep detailed records of your income, expenses, and investments. If this is something other than your strong suit, hire someone to do it for you, but always maintain access to all your record keeping. Also, reflect on or consult with your financial team to make necessary adjustments. Adjustments will ensure you won't have to return to your friend's couch.
