Financial Planning for a Starving Artist
A starving artist is called starving because that is what many of them do, live at or below the poverty level. By taking a financial planning approach, an artist can enjoy their work more and not live paycheck to paycheck. The Wall Street Journal runs real-life stories about people and their finances in their Wealth Management section. The point of the articles is to give a financial professional’s opinion on how the main character in their story can improve their financial situation.
One of the real-life stories is about Erin Austin, a talented thirty-five-year-old Seattle based singer, and songwriter for whom I have a particular affinity. I used to be a starving artist too. A little over thirty years ago I decided to give up the life of a musician. However, I respect those that have persevered. Ms. Austin’s situation is all too common. She is having a difficult time balancing her art and her income. The Wall Street Journal article titled, “A Musician Wants to Find a Way Out of a Debt Hole,” gave these details on Ms. Austin’s financial situation.
She estimates her gross income at $100,000. However, after expenses, she said she makes so little that she qualifies for Medicaid. Her expenses include $3,700 rent, $1,000 travel, $70 for media subscriptions, $600 for food, $300 for Uber, $1,600 credit card, $200 student loans, $500 booking agent, $200 legal fees, $100 social-media specialist and $200 for a practice space (Kornelis, 2018).
Ms. Austin’s total expenses are $8,470 per month. She said that her income is about $8,333 per month. She also owes about $100,000 in debts of which $40,000 is credit card debt, and the other debt is to a private investor. So, the question is how can she get out of debt and get her life back on track.
The investment professional in the article made a good recommendation. However, it is one that most people including Ms. Austin probably already knows. She needs to get her spending under control, live more frugally and start saving. There were over forty comments on this Wall Street Journal article from readers. Moreover, many of them said about the same thing, spend less and make a budget.
Ms. Austin is a courageous person for putting her finances out for the public to see. It tells me that she is genuinely looking for answers. To some degree, her situation is not a money problem. Sure, not having money is the current situation and the reason for the article. However, this is a question for Ms. Austin’s heart. Does she want to keep doing things the same way she has been and hope a big break comes? Alternatively, is she willing to approach her work more logically from a business standpoint? FYI, it may still be possible to keep her passion for singing and writing by making some fundamental changes. Here is what I mean.
Musicians live by the saying, “If at first you don’t succeed, try, try again” (Hickson, 1836). Musicians spend hours and hours practicing every day. Then they spend even more time rehearsing with ensembles or groups. For those that endure, it is a labor of love for their art.
At some point, when things are not working, either musically or financially, it is essential to step back and re-evaluate the situation. You may have heard the saying that “insanity is doing the same thing over and over again but expecting different results” (Brown, 1984). That saying is difficult for musicians to accept. It takes thousands of hours to master the art of being a musician. They learn from an early age to keep working through adversity. So, change can be difficult.
I am not saying that any musician should give up on their art. It appears that Ms. Austin’s financial situation is stressful. Here are some ideas on how she could reduce her money worries. To begin, get a solid understanding of how much money is coming in and going out. Based on the information from the Wall Street Journal article, there seem to be some inconsistencies that need to be clarified.
She says that she makes so little that she qualifies for Medicaid. To be eligible for Medicaid, the maximum income is about $16,643. On the other hand, most booking agents get 10%. If $500 a month is going to the agent, then her gross income is more like $60,000. It looks more like net expenses are $7,870, and income is $5,000. There may be some other income from somewhere. However, she needs to make a list of what she is making and the source.
That brings up a significant aspect that is missing from the story, income taxes. Luckily, the state of Washington does not have a state income tax. However, there has been no mention of paying income taxes. After all of Ms. Austin’s expenses, it may seem like there is nothing left because of all her expenses. However, not all those expenses are tax deductible. The most significant cost, the rent of $3,700 is not tax deductible, and neither is food or the student loan payment. The credit card debt may not be deductible either. It all depends on how the expenses were treated when they were charged. Nevertheless, the rent, food, and loan add up to be $54,000 a year of taxable income. Under the old tax law, a self-employed person with that income should have been paying quarterly taxes of about $2,300. With the new tax law, she may be paying less. For any self-employed person that is unsure of how much to pay in quarterly taxes, they need to seek help. If you are a do-it-yourself person, look up filing quarterly taxes on the IRS or Small Business Administration’s websites. Additionally, tax software like TurboTax will compute a recommended amount to pay quarterly. If you need more personal direction, it would be a good idea to see a CPA. Plus, completing the schedule C will give business owners a clearer idea of their income sources and business expenses.
Of the forty or more comments on the article about Ms. Austin, many of them cited the same thing. She needs to move to a more affordable apartment, get a roommate or rent her apartment out through Airbnb when she travels. My recommendation would be to shop for a cheaper apartment. The Seattle Times reported in January that the average apartment in downtown Seattle was renting for $2,330 per month for all unit sizes (Rosenberg, 2018). A single bedroom apartment is probably cheaper.
Here is where Ms. Austin’s heart and her logical side need to meet. The travel gigs are not paying enough to warrant the expense. If a musician is making $5,000 a month and paying $1,000 to get to the gig and $500 to the agent, plus another $200 to a lawyer, travel is not worth the effort. Here’s a thought, consider cutting down on travel. Stay local and only travel if a gig is paying 90% more than travel expenses. It is like a profitability ratio for a business. If a business is not making enough profit for a product, they either charge more for the product or stop making it. As a musician, your time is your product. If they are not being paid enough for their time, they need to make some changes. If you are a musician with an agent and you find yourself only getting travel gigs, ask your agent to concentrate on local gigs. If they will not, find a new agent. Of if you know, the venues consider booking your own performances.
Additionally, look at what many other Millennials are doing in other professions. The term side-gig has become synonymous with Millennials. Many have recognized that their current job is not giving them the income that they want so they are engaging in numerous money-making activities. One of the most productive side-gigs for musicians is tutoring or teaching. For the Seattle area, vocal teachers are charging on average about $50-60 per hour for online, in-studio, or in-home lessons. Also for songwriters, consider teaching composition privately. When I was in college, I studied privately with a composer. Not many people teach composition, so there is an opportunity. TakeLessons.com is an easy way to get started. It is like the Uber of music lessons. A traveling musician could even give lessons online while they are on the road if they want.
Private lessons are not the only side-gig resource. Teaching at a local college or teaching at a private school may be a good alternative. If you end up liking teaching, consider directing a church choir or getting your teaching certification. “The average wage of a church choir director is closer to $62,000 a year, revealed a survey by Christianity Today International, a nonprofit ministry association” (Houston Chronicle, 2012). If you like teaching, the median income of teachers in Seattle reported by Salary.com is $61,939 (Salary.com, n.d.)
For any independent business person, budgeting needs to be second nature. There is an overabundance of technology to help make sense of spending. The first place to start is the place you do banking. Many banks have online apps that will help you keep track of how you are spending your money. There are several other apps and stand-alone software programs as well. I have found four programs that work very well for musicians and other people that are considered independent contractors, Mint, Quicken, YNAB and Personal Capital. I like Quicken a lot because I too am an independent contractor. It lets me budget my personal life, run my business as well is imports information from many of the companies with whom I do business including importing my banking records. The home and business package run about $100. Some of the apps like Mint are free. However, the cost of being free is that you get many advertisements. The article in the link of this citation has much more information on the four programs mentioned above (Reviews.com, 2018).
Here is the final point. For a business, it is essential to look at the debt to income ratio. For the example of Ms. Austin, her debt to income ratio is about 1 to 6. For every dollar, she makes she owes about six. That is high. If a person is in that situation and they have reduced their spending, reduced expenses, such as the living expense and travel expense, yet they are still struggling to make ends meet, they should consider bankruptcy protection. If this blog had the variety of comments like the ones from the Wall Street Journal readers, you might hear some say bankruptcy is never an option. However, if a small business person has tried to fix their finances and the weight of debt payment is overwhelming them, bankruptcy is a viable option. It is indeed a topic that should be discussed with an attorney that specializes in bankruptcy.
To be a professional musician takes a burning desire to perform. All the musicians I have met are great people. They love their work, and they love making music for others to enjoy. My financial advice to professional musicians is to live frugally, keep track of your finances, maximize your talents and pass on your knowledge and love of music to the next generation. Life is too short to be miserable.
Posted by:
Van Richards
Van is the founder of Advice4LifeInsurance.com and Advice4Retirement.com . You can contact him at van@advice4lifeinsurance.com Follow on twitter @VanRichards or Facebook at Advice4LifeInsurance and Advice4Retirement.
References
Brown, R. M. (1984). Sudden death. New York, NY: Bantam.
Hickson, W. E. (1836). The singing master. Martlesham, UK: Boethius Press.
Houston Chronicle. (2012, November 28). Pay scale for a church choir director. Retrieved March 13, 2018, from http://work.chron.com/pay-scale-church-choir-director-13857.html
Kornelis, C. (2018, February 11). A musician wants to find a way out of a debt hole. Wall Street Journal [New York]. Retrieved from https://www.wsj.com/articles/a-musician-wants-to-find-a-way-out-of-a-debt-hole-1518404520
Reviews.com. (2018, February 16). The best personal finance software of 2018. Retrieved March 13, 2018, from https://www.reviews.com/personal-finance-software/
Rosenberg, M. (2018, January 13). Seattle-area rents drop significantly for first time this decade as new apartments sit empty. The Seattle Times [Seattle]. Retrieved from https://www.seattletimes.com/business/real-estate/seattle-area-rents-drop-significantly-for-first-time-this-decade-as-new-apartments-sit-empty/
Salary.com. (n.d.). Salary.com salary wizard. Retrieved March 13, 2018, from https://swz.salary.com/SalaryWizard/Teacher-Elementary-School-Salary-Details-Seattle-WA.aspx
Takelessons.com. (2018). TakeLessons. Retrieved from https://takelessons.com/