Financial Tips for Creative Professionals
In this post we share a few guiding thoughts for creatives on how to grow your business by being smarter with your money.
Financial intelligence is crucial to all aspects of ‘making it in life’ but it is not something you’re born with. Thankfully it is something you can learn. Knowing how to be smart with your money can provide financial security, setting you on a path to success and happiness.
Creatives are notoriously bad at handling their money, but with a little discipline and forethought, anyone can be smarter with their hard earned cash. In this post, we’ve outlined a few financial strategies specifically geared toward creative professionals.
Photo from Flickr.
Grow Your Assets
In his book Rich Dad, Poor Dad Robert T. Kiyosaki spells out all the things he thinks rich people teach their kids to help them stay rich. I’m in two minds about some of the contents of the book but there is one really helpful salient point that it worth learning:
Buy assets not liabilities.
The basic difference that Kiyosaki suggests exists between the poor/middle classes and The Rich, is that The Rich buy things that make them more money, while the middle classes just buy more stuff – a new car, house, sofa etc. So the idea is that you should spend your money in things that will make you more money and then keep going round in that virtuous circle until you can buy that new car, house, sofa with some of the profits from your investments. Buy assets (things that will put money in your pocket) and not liabilities (things that will take money out of your pocket).
So what are assets for a creative?
Investing in further training, new software or equipment can be real assets, but only if you know they will pay their way. The danger for imaginative creatives with a lust for the latest technology is that they can buy things (in a ‘middle class’ way) that they think they need but in reality they just really want. So if you never get around to watching the training or using the new expensive equipment on paying gigs, they are in fact just liabilities.
The best way to avoid this pitfall is to find a customer first. Find someone (or hopefully several people) who are willing to pay you for knowing a new piece of software or using a specific piece of technology, then make the investment that you know will give you a good return.
Other assets for creatives are the same as they are for anyone else – put your money into anything that will grow over time - property, enterprises and people.
Photo from Squidoo
Another really important thing to learn is to be organized with your money. If you’re a creative freelancer you’ll be getting paid gross. This (as you well know) means you’re responsible for paying your own taxes. You can save yourself a lot of headaches by being organized with your money and the moment you get paid, setting aside the percentage you’ll need to cover your taxes.
It’s vital that you move this into a physically separate bank account from the one you live out of. If you leave it in there it will just get spent. This way you’ll always have the money you need to pay your taxes in full and on time. Plus once the sums are all done, you could end up with some left over, to invest back in new assets. As a freelancer in the UK I put aside 30% of my gross pay to make sure I can cover my taxes come year end. This is just a suggestion and your accountant should be able to advise you on what you need to set aside.
Some people recommend a 70/10/10/10 philosophy of money management. Save 10 percent of your take home pay, invest 10 percent, give 10 percent and then live on the rest. Personally I think this makes a lot of sense. What would that look like in your life?
Check out this article for a real world example of the 70/10/10/10 model in action.
When you talk to most people about budgets, especially ones that are about their day to day expenses and not how much they’re about to get out of the production pie, their eyes tend to glaze over and their mind shuts down.
People think budgets are boring…and they are.
They are not supposed to be exciting, they are just a means to an end. The end is what is supposed to be exciting and that end might be a new house, holiday or a sofa (you are allowed to buy them and be part of The Rich – but only with your profits!). So don’t think about how you’re budgeting, think about the exciting end that your budget is taking you to. Without a budget you’re basically flying blind, so you must have one. Luckily there’s only one rule to budgeting which is:
Spend less than you make.
If you’re not earning much, then you need to get creative with spending less, finding ways to make what you do have go further and of course, making more money. The first step is to find out what you’re spending and where its going, so you can make some wise choices about how best to budget your finances.
Another important aspect of being thrifty is to simply make do with less or to buy second hand if you can. You’ll obviously save a lot of money although you won’t have access to manufacturers warranties or support. If you are buying something expensive always ask if you can pay in instalments to help spread the cost over time. With any business: cash flow is king.
Do some quick calculations to see how many projects you’d have to land by adding on an equipment charge, to pay off an item. Then calculate what kind of profit you could make from that piece of equipment within its working lifetime. These figures should help guide your thinking as to whether your current customer base can support that purchase.
Are you a creative professional that has ‘budgeting’ down pat? We want to hear your financial advice!
Share your thoughts and suggestions in the comments below!