Introduction
Having many good friends and contacts in the music industry, I’ve learned that effectively managing money can make or break any music career. One of the worst things that can happen is running out of money and having to give up on your passion.
I get it, for most people finance stuff is boring, and most of the stuff online about it is even more bleh. That’s why I’m creating a series on financial management for musicians. This series will keep things interesting while also teaching you what you need to know to survive.
This article introduces the key financial steps that you should think about when launching your independent music career. Over the next several weeks I’ll go into a bit more detail on each of these topics and provide some helpful tips and tricks that I’ve learned through my experience as a Chartered Professional Accountant.
Understanding the Importance of Financial Management
So, why is financial management so important, particularly for musicians? Because the average career for a musician is completely unpredictable! We’ve all seen several music careers that chug along slowly for a few years and suddenly take off. You’ll want the financial know-how to manage the slow times but also to be prepared in case you turn out like Ice Spice.
Steps Covered in this Article
1. Budget for Financial Success |
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2. Manage Expenses |
3. Pay Off That Pesky Debt! |
4. Saving and Emergency Funds |
5. Diversify Income Streams |
6. Seek Professional Advice |
Step 1 – Budget for Financial Success
The first thing to do before all else is to make a monthly budget. Add up how much money you expect to bring in each month (income) and subtract the money you expect will go out (expenses).
Income can be hard to predict at the beginning as an independent musician. My recommendation is to always be more ‘conservative’ – only add to your monthly budget the income that is definitely coming in next month. At the beginning this might only be gigs. As you start selling or licensing music you can estimate how much money you’ll make based on how much you sold in the last several months.
Split your expenses into categories to make it easier. For example: food, marketing, equipment, and clothing. For your first month you can estimate these expenses and over time you can refine this estimate.
One great thing nowadays is that there are a huge number of apps that can speed up budgeting so you can spend more time focusing on your music. Here are 6 handpicked budgeting tools that I recommend. Some of them can save you great amounts of time by automating your budget. Next week I’ll go into some detail about what I like (and don’t like) about each of them:
Once you’ve set your budget, going forward you’ll need to keep your monthly expenses under the budgeted amounts. To do that you’ll need to:
Step 2 – Manage Expenses
Now that you’ve made your budget, let’s think about whether it’s sustainable. Consider the following if you don’t want to turn out like MC Hammer:
Your monthly income must be higher than your expenses. Some months may be hard and this may not hold true, but over the course of a year this has to happen, or you will have to start taking on debt. That’s a no-no, as I’ll explain below.
Split out essential and non-essential expenses. Non-essential expenses can be cut, while essential expenses cannot. Remember to separate out food. Groceries are essential; restaurants are not.
Generally, debt is bad! Interest can cost a lot. And as someone in the arts it should also hurt your soul – why pay the bank when you should be paying yourself? So, one of the first things we should do is:
Step 3 – Pay Off That Pesky Debt!
With a few exceptions that I’ll discuss in the weeks ahead, generally you’ll want to pay off your debts before investing or increasing your non-essential expenses. If you have multiple types of debt, find the annual interest rates on each of them and rank them. Then start paying them off, starting with the highest interest rate first.
If you have trouble with credit cards, get rid of them. Yes, you heard that right. Look at your budget and determine how much cash you’ll need each week. Then only withdraw that much cash from the bank and do all your daily spending in cash. In most cases, nothing in your “essential” expenses category needs a credit card.
And most importantly, do not take on new high-interest debt! Especially avoid pay day loan companies like Money Mutual, Speedy Cash, and Cash N’ Go.
Step 4 – Saving and Emergency Funds
Once you’ve paid off your debts, building savings and establishing an emergency fund is essential for musicians. Saving a portion of your income regularly helps you prepare for future expenses and periods where your income might be a little lower. Many financial professionals recommend that you have saved three to six months’ worth of living expenses in case something goes wrong. I like to keep this money in an account separate from my main bank account to mentally divide it and to remind myself that I shouldn’t touch it.
Consider Morgan Stanley’s guide to creating an emergency fund.
Step 5 – Diversify Income Streams
Relying solely on one income source can be risky in the music industry. You can explore different opportunities to bring in new types of income each month. If you want to start making more money you need to think like Jay-Z.
Some options to consider:
live performances
streaming platforms
licensing your music
teaching
selling merchandise
social media
All these options may not be for everyone, but especially in the early stages, the more streams of income you have, the less risk you have in case one of them runs dry.
Step 6 – Seek Professional Advice
It’s best to find an accountant to help with your taxes each year, regardless of whether you’ve done any of the steps above. If you haven’t done your taxes in years – don’t fear – you should contact an accountant ASAP, but it’s possible the government could end up GIVING you money back for unclaimed tax credits.
To find an accountant ask your contacts in the industry if they recommend anyone. Or simply Google “your city + entertainment accountant”. If you’re living in the US or Canada (like me) and are looking for an accountant, I always recommend going for someone with a CPA designation and many years of experience. As an independent musician your taxes generally aren’t as simple as they would be for the average person with a 9 to 5 job, so you’ll want someone who knows what they are doing.
Down the road you may want to hire a financial advisor to help you decide how to invest your money in things like stocks and bonds. I recommend going with a fee-only advisor.
Conclusion
Following the above financial steps is not always easy –but if you stick to the steps it’ll make your career a lot easier down the road.
If you’re interested in learning a bit more about personal finance, I suggest checking out these blogs and Reddit personal finance. However, do not take anonymous responses on Reddit as gospel – I have personally encountered several times when the info on Reddit was incorrect. If you find info on Reddit (or any blog for that matter), always research it and see if you can find articles written by professionals to support it.
Jason Kowalczyk, HBA, CPA, CA, CFE - Co-founder, Staccato
Jason is a trusted advisor to musicians seeking to turn their passion into a successful business.
Jason graduated with distinction from the Ivey Business School and spent the last decade developing strong business acumen throughout the accounting, finance and regulatory spaces. Jason leverages this business experience to provide practical insights and guidance to help musicians navigate the industry and achieve their goals.