Essential Tips for Learning How to Manage Your Money
As a professional musician, I learned early on that financial management is key to sustaining a thriving career. Unlike salaried jobs, freelance income is often unpredictable and inconsistent. In this guide, I’ll share strategies that helped me as an independent musician—covering everything from budgeting and saving to tax planning. Understanding and developing strong financial habits and solutions is the only way to protect and grow your career.
Why Financial Literacy is So Important for Musicians
Performing artists face unique challenges: income fluctuates, expenses vary, and tax responsibilities can be confusing. Developing a sound financial approach allowed me to gain control over my finances, have peace of mind, and ensure the financial longevity of my career. Let’s break down the core financial practices that worked for me.
- Budgeting: The Cornerstone of Financial Health for Artists
Budgeting, the first and most important skill, was the foundation of my personal financial health. As a freelance musician, this meant understanding, identifying, and allocating funds for regular expenses, unexpected costs, and long-term goals. Here’s how to start:
- Track Income & Expenses: Record all sources of income—gigs, streaming, teaching, royalties—and itemize expenses (instruments, travel, promotion).
- Separate Accounts: I found it helpful to use separate bank accounts for business and personal finances. This keeps budgeting simple, helps with taxes, and helps me track deductible expenses.
- Set Aside Savings: Establishing an emergency fund to cover at least three to six months of essential expenses is crucial, especially as work can vary from month to month.
- Allocate Gig Income for Taxes and Expenses
One of the most practical steps I took was allocating my gig income to cover taxes, insurance, savings, and daily expenses. Here’s a table showing a breakdown I follow to keep my finances in balance:
Income from Gig (e.g., $250) | Suggested Allocation | Amount ($) | Purpose |
Taxes (25%) | 25% | $62.50 | Self-employment taxes and estimated taxes |
Retirement Savings (10%) | 10% | $25.00 | IRA, SEP-IRA, or Solo 401(k) |
Health Insurance (15%) | 15% | $37.50 | Premiums or savings toward coverage |
Business Expenses (20%) | 20% | $50.00 | Instruments, travel, maintenance |
Emergency Savings (10%) | 10% | $25.00 | Safety net for slow months |
Personal Expenses (20%) | 20% | $50.00 | Rent, utilities, food |
Using a similar approach for each gig paycheck ensures that every dollar is directed toward sustaining and growing my career. Adjust these percentages as needed based on your personal situation and cost of living.
- Navigate Taxes and Deductibles
Navigating taxes can be daunting, especially if you’re new to freelancing. Here are the steps I took to simplify the tax process:
- Track Deductions: I keep receipts for any business-related purchases, such as music equipment, travel, website hosting, or other promotional expenses. These costs are usually deductible.
- Quarterly Payments: To avoid year-end tax surprises, I make estimated tax payments quarterly. This reduces penalties and spreads the tax burden throughout the year.
- Use Financial Software: Programs like QuickBooks or Wave helped me organize records, track income, and manage invoices. Software subscriptions can also qualify as a business expense and therefore a tax deduction.
- Diversify Income Streams
As a musician, it’s ideal, perhaps vital, to create multiple revenue streams. By diversifying my income, it helped me offset fluctuations in gig work and strengthened my financial stability. Some reliable options include:
- Teaching: I offer music lessons both online and in person.
- Session Work: Working on other artists’ projects, both live and in the studio, has been a great income source.
- Content Creation: I can earn passive income by posting likeable videos, writing articles for blogs or magazines, or uploading music to streaming platforms.
- Invest in Health and Retirement
As musicians, we often focus on short-term goals and overlook important aspects like health and retirement planning. However, both are crucial for long-term success. Unfortunately, there have been too many cases of musicians who enjoyed lucrative careers but neglected to contribute to Social Security. Later, when the gigs dry up and retirement looms, they find out that no Social Security benefits are available to them.
- Health Insurance: I explored coverage options through the Marketplace and my musician union. Some unions, like the American Federation of Musicians, offer plans specifically for members.
- Retirement Savings: I opened a ROTH IRA to build retirement savings. Even small contributions over time add up significantly.
Conclusion
Managing finances may feel overwhelming at first, but with knowledge, consistency, and a proactive approach, freelance musicians can build lasting and sustainable financial health. By budgeting, planning for taxes, and saving for the future, you’re investing in the longevity of your musical journey.
Additional Resources for a Musician’s Financial Literacy
For those looking to build on these principles, here are resources that have guided me along the way:
Books:
- The Creative’s Guide to Money by Ilise Benun – A practical guide to managing finances as a creative freelancer.
- Personal Finance for Musicians by Bobby Borg & Britt Hastey – A musician’s guide to understanding personal finance and business management.
Websites:
- Freelancers Union – Offers resources, benefits, and health insurance options for freelancers.
- Music Business Worldwide – Industry insights, trends, and advice for musicians and music entrepreneurs.
Articles:
- “Manage taxes for your gig work” – Published on IRS.gov, this article covers essentials of how to manage taxes for gig work as an independent contractor