Dependence on contracts is a fact of life for many singers. This means that singers need to make the most of their income from each contract. But how can they plan ahead financially when they do not know how many contracts they will have in a given year or how much each contract will pay? How can singers generate income when they are between contracts? Classical Singer asked several financial experts for their advice.
Past income, saving, and spending are excellent benchmarks to help determine future income, saving, and spending. For example, it might be helpful to calculate an average yearly income based on the past several years’ worth of income and use that number as a starting point for what you can expect to earn. You can also project a minimum annual income, which could be the least you expect to earn from singing or another job, and then create a minimum budget based on that projection.
“One of the most important principles behind this is that your ongoing expenses such as car payments, rent or mortgage payments, and tuition payments must fit within the minimum budget,” says Helen Huntley of Holifield Huntley Financial Advisers.
If you are having trouble saving, find your trends. “Look at the past six to 12 months worth of spending to figure out how much you spend on various things in a typical month, whether it’s food, clothing, technology, or something else. That way, you can budget going forward and not have any surprises,” says financial counselor Eric Tyson, author of numerous financial books, including Personal Finance for Dummies.
A basic monthly budget for spending may seem elusive on an irregular income since you cannot be certain how many times or how much you will be paid during a particular year, but it is very important to pay the most important bills first (such as rent, food, utilities, and transportation), keep fixed expenses low and know what you need to afford on a monthly basis.
“Don’t try to have the perfect budget for the perfect month because we never have perfect months, especially if you can’t count on consistent income. Spend every dollar on paper and give every dollar a name. You shouldn’t have any money left over. This is called a ‘zero-based budget,’” says Dave Ramsey, author of several personal finance books and host of the nationally syndicated radio program The Dave Ramsey Show.
After paying the bills, Ramsey recommends listing every item that is not part of the first budget and prioritizing the entire list—not by urgency, but by importance—based on the question, “If I only have enough money to pay one thing, what would that be?” Revisit these lists of fixed and discretionary expenses monthly. If you do not like the process of budgeting, or find it time consuming, Lea Ann Knight (CFP, principal of Garrison/Knight Financial Planning LLC) recommends online tools that make it easier to manage your money, such as Mint.com, and mobile applications like Xpenser (Xpenser.com).
For those whose incomes are more seasonal, Knight suggests making a seasonal budget and strongly recommends asking companies if you can pay your bills at certain times of the year—for example, an annual or semi-annual car insurance payment instead of a monthly payment. “Don’t assume that past payment schedules dictate future payment schedules, even for mortgage or rent payments. It’s certainly worth a phone call to try to negotiate a way to pay your bill when you have additional income. You might have to change from a monthly bill, but it could help match your income with expenses and relieve some anxiety,” she says.
Financial planners insist that a basic budget include health insurance to cover, if nothing else, a catastrophic injury and potential hospitalization. “Some people say go without insurance because the costs are too high. The problem is, if you think insurance is high, wait until you get a major illness. Not only will you not be working, but the bill for your care will be unbelievable. Once you are sick, you really have no choice but to spend for the care you need,” says F. John Deyeso, principal of Financial Filosophy.
Three options exist for coverage: your parents’ plan if you are younger than 26 and do not have access to an employer plan, a group plan, or a private plan. You could probably participate in a group plan with your spouse or partner through his or her employer, and other group plan options include a professional organization or association of which you are a member, the local Chamber of Commerce, or a state-sponsored plan. A private plan involves research, but there are people who can help.
Independent insurance agents represent several insurance companies and can match your health needs with the proper plan. “This is important because some insurance companies don’t cover the same conditions that other companies do cover,” says Dr. Robert Reed, CFP, who operates Reed Financial Planning and is the author of the upcoming book Your Art Is Your Business: A Guide for the Working Artist. Depending on your overall health and budget—the maximum out-of-pocket amount you can afford per month or year—you may want to consider a policy with a high deductible (what you pay for treatment before the insurance pays) because the monthly payments will be lower. If, at some point, you do require treatment and cannot afford to pay the entire deductible at once, medical professionals are usually able to set up payment plans. However, even with high deductibles, it is important to budget for routine care because your career can be affected if problems are left undetected.
To pay high deductibles, a health savings account can be invaluable. Here your money compounds over time and, upon withdrawal, can be spent only on health care expenses. These accounts are triple tax free: the money going into the account is not taxed, the earnings compound without being taxed, and the withdrawal is not taxed.
“Some people tell me that if they’re not going to save this money for the future, they need to spend the money now,” Tyson says. “My answer is that it’s still worth passing the money through the account because, by doing that, you still qualify for the tax benefits.”
Of course, the biggest possible annual expenditure is taxes, but there are a few tips to help minimize what you owe. Keep a record of every professional expense for deductions, even if there is only a remote possibility you will be able to deduct some of them. You can also deduct the cost of your health insurance and the cost of out-of-pocket medical expenses, as well as the interest on student loans. Reed offers a simple spreadsheet, ArtBooks, to help with tracking your income and expenses (www.yourartisyourbusiness.com).
Avoid credit card debt to prevent the balance and finance charges from being part of your monthly budget. This is unnecessary spending when money might already be tight, and you do not want to have to spend excess income on eliminating debt. “Credit cards are a convenience, not a source of funds. It is really easy for them to get out of control even with a predictable income. The interest rates are very high, and the penalties for being late on your payment or exceeding your credit line are vicious,” says Frank Boucher of Boucher Financial Planning Services. If you struggle to pay off balances, some financial planners recommend using a debit card.
Equally important to spending wisely on a variable income is saving wisely. There are two crucial reasons to save excess income. One is to save for luxury purchases that you will eventually need or want. The other is to build a cash reserve that acts as a fund for fixed expenses and emergencies when income is slow or nonexistent. Financial planners recommend that you set aside 10 to 20 percent of every paycheck in a savings account (the interest rate is important but not the priority), and that the account should cover three to six months—ideally, a year’s worth—of expenses. Set money aside based on the difference between expected bills and expected income. “The money is still available, but not too available in terms of swiping a card or writing a check,” Reed says.
Citing his clients as examples, Reed explains that this “nest egg” also makes it easier for artists to make professional decisions. “A frenetic state of mind makes it hard to say ‘no’ to jobs, even if a job isn’t appropriate. You almost feel compelled to take anything because you don’t know where you are financially. You don’t know if you need that cash or not. Make it easier to direct your career, rather than being directed by other people,” he says. Even if you decide not to accept an offer, however, you can create two positive results by referring someone—this helps the other artist, and it helps the client because you are not leaving him or her without an option. Both, in the long run, create positive impressions of you.
At the same time, saving for retirement is vital and, like saving for emergencies, this can initially be accomplished by setting aside money from every paycheck, no matter how little. “Ideally, part of the savings would be accomplished within the fixed monthly budget. But if there’s too great a variation for that to be reasonable, you can create benchmarks that the first ‘X’ thousand dollars per year over your fixed expenses go into your retirement account. After that goal is met, you can split additional windfalls—some money can go toward consumption and some can go toward additional long-term savings,” says Jean Keener of Keener Financial Planning.
Two types of accounts that may be appropriate for singers are SEP-IRAs (Simplified Employee Pension Individual Retirement Accounts) and Keoghs, which allow you to save 20 percent of net self-employment income, up to a certain maximum each year.
For singers who are paying off student loans, how should they balance those debts with trying to spend and save wisely? Tyson advises researching the interest rates and tax benefits. If the interest rates are low and there are tax benefits, he encourages keeping the loans and making reasonable payments. If the interest rates are higher and there are few or no tax benefits, he encourages eliminating the debt and postponing saving for retirement. “It all depends on a person’s comfort factor between getting rid of debt or building an investment,” he says.
One option that could make a big difference is consolidating the loans into one loan, a process that you can seek assistance for from your school’s financial office or the www.CollegeBoard.com website. This consolidation comes with a caveat, however: you are allowed to consolidate only once and you are not allowed to renegotiate the loan. “Pay off the loan as part of your monthly budget—and you don’t need to pay it off early, because it’s good debt. You’ve made an investment in yourself that increases in value over time,” Reed says.
In addition to these pointers relating to your current income, you could also use your skills to create extra income and relieve more anxiety and potential financial difficulties, maybe by singing for church services or at weddings. “Don’t overlook opportunities to work at something else when you are not singing. Can you sell your services as a voice coach or piano teacher? How about working as a temp? You are comfortable being in front of audiences, so how about singing as a character for birthday parties or similar events? With a little imagination, you will be able to find employment that is fun and which will help you smooth out those rough spots,” Boucher says.
Between your regular income and possible extra income, there will be times when you have an unexpected surplus at your disposal. These are the times when you could, for example, buy a new car if you pay with cash or if you make a large enough down payment that the subsequent payments fit within your regular monthly budget.
Although no one can predict the future, all of this advice should reduce some of the anxiety that can result from irregular income. There is one item upon which all of the financial experts agree: saving for emergencies and retirement and enjoying luxury purchases are all possible—it just takes discipline and planning.
