You and Your Money.
What they don’t teach you in music school!
For the Hamilton Musicians’ Guild, April 2015
This is the first of a series of articles that I have been asked to write to assist fellow musicians with managing their money. All musicians work hard for their money and my aim is to help you learn how to manage it and keep. Easier said than done!
No one is born knowing how to manage money – even Warren Buffet had to learn from the beginning. I expect that most of the readers of this newsletter will ignore it and continue to spend beyond their means as do most Canadians. If I only get one, and perhaps two readers, to implement the ideas now after reading the article then I will consider that I’ve been very highly successful – mission accomplished. Going forward the points that I will make will come from my own experiences as a working musician, as a corporate controller, and from the interactions I have had with my tax clients. In later articles I will discuss my personal viewpoint that it is better to owe the money to the government at April 30 then it is to apply for, and expect, a refund.
You have just received a tax refund – so what? What are you going to do with it? Most of us will treat the money as a free gift and go out and buy a treat for ourselves – some personal indulgence – whatever it is we think we need to purchase now. If you’re starting out in your career – perhaps you just graduated from music school – and you have not moved into a lucrative position right away, then you have a financial learning curve to surmount. No one is going to throw bags of money at you and you better get used to the idea fast. You may be rich in 10 years but in the interim you have to manage your earned money and manage it well.
If you have a day gig and you work for a T4 some issues will be taken care of: your unemployment insurance premiums will be paid for you, your CPP (Canadian Pension Plan) premiums will be paid for you and perhaps there’s a bit of an employee savings plan that’s available. If you do not have this steady daytime gig or if you do have one and you have employment income from self- employment as a musician then money management requires a little more effort on your part.
When you are just starting out in your career and trying to piece together a reputation you are probably doing gigs with many groups and playing several types of music. Money is not coming in in large amounts and you’re most likely just trying to get by from week to week. Still there is something that you can do to begin managing your money and there is no better time to start than now. Contributing amounts to the usual investments like RRSPs, buying some stocks or bonds, and so on, maybe beyond you for a while. I do encourage everyone to start saving as soon as possible and I contend that is never too late to start – no start no savings.
If you do not have an RRSP savings plan, or if you have not contributed substantially to one, or if you are not in the process of doing so, then consider opening a TFSA a tax-free savings account. If money is tight try to find a way to put just five dollars away every week. I understand that it can be very difficult. The point is: you need to get into the habit of saving and the only way to get in the habit of saving is to start and do it and stick to it no matter how hard it gets. Five dollars a week is a couple of designer coffees a week or maybe even just one. If you are scraping by trying to get your career off the ground and you are drinking designer coffees then shame on you. Keep those coffees for celebrating key points in your life over the year – like when you achieved a personal milestone or goal, played a difficult performance past your expectations, or when that lovely person that you have been courting finally agreed to become your spouse – well perhaps something other than a designer coffee is more appropriate in this case.
Get someone to set up a tax-free savings account for you. While contributions to a TFSA will not generate deductions on your annual tax return any earnings that your deposits generate do not attract income tax when you make a withdrawal. What the TFSA does is give you a buffer that you can use as an emergency fund should a real emergency arise – not an impulse buy – I said a real emergency. Twenty years ago my then elderly uncle told me that when he was married with two young kids he used to set aside three months of living expenses in a savings account for emergencies in case he lost his job. With the structural changes in the Canadian economy over the past few years that living expense buffer is probably more like six months. If you have not started any financial planning or savings program there is no better time to start than now. Take your tax refund and start now.
When the musical chairs in the game of life stop will you have a financial chair to sit on?
Any comments or viewpoints expressed in this article are those of Kevin Mann Accounting.
Copyright Kevin Mann Accounting, 2015.