3 Financial Tips for Graduating Musicians

Winter is fading, the trees are budding, and thousands of soon-to-be graduates are preparing themselves for their march to Pomp and Circumstance; but as a musician you may know it more as the Trio section of Elgar’s March No. 1 that you repeated 44 times every spring as you wait for that year’s graduates to shuffle in and take their seats.
But this year you will be the one walking to get your diploma (holder). The ceremony signifies a major change in your day to day life. You will soon be reconciling all the advice and stories you have heard about post-college life with the realities of living in the “Real World”.

All graduates will have their own unique challenges, but as a musician you will be part of a group that has consistently been pigeonholed into being either too inept or indolent to develop a secure financial lifestyle. Whether you’re a jazz/classical/pop gigging musicians, singer songwriter, or a group/band, here are 3 steps to take before leaving college to prepare you for financial success.

Plan for Diversity in your Income

Developing income as an artist is much harder than getting a regular job. Hopefully through college you have developed a vision of how you will generate income. Now is the time to flush out the details of your income sources before you are set free. There is one income pattern seen across all musicians, big and small; Diversity.

If you look at the current Artist Spotlight posts on AmericanaFP.com you will see most artists have 5-6 different sources of income at any one time. Almost no musicians survive from one source. Even those that get a 40 hour a week gig, musical or not, find having a “side hustle” or other projects is either financially necessary or a great way to move ahead.

Having diverse sources of income is not just about piecing together as much work as you can do to increase current income. Having various sources of income can help you become more financial stable by reducing the reliance on any one source of income.

For example, if you are leaning financially on one consistent gig you have, but then somehow you lose that gig, even temporarily, most of your income could be gone. This could leave you in a bad financial position, and force you to start scrambling for more work.

If you have diversity of income, not only do you have other current sources of income, but you can work to immediately expand those sources to make up for lost revenue instead of having to start from scratch.

Diversity in your income also positions you better for growth. Having multiple sources of income increases the chances that one will be very successful one. You can plan your sources of income to create a mix that balances steady income with less upside (a consistent house gig that pays OK, but is there for you every week) with lower income projects with higher long term payoff (supporting your original music that is harder to get paid for now, but could lead to great exposure and growth in the mid-long-term, OR online projects like blogging).

Finding multiple sources of income as musician is easier said than done. Most musicians do at least some work outside of music for at least part of their career. Don’t be afraid to go this route, just make sure that it’s part of your plan for growth and use the opportunity to leverage your career.

Create a Budget fit for a Peasant

Create your new budget for after college. If you haven’t created or managed a budget before you MUST learn now. A great free source to learn about and create a budget is Mint.

Spend some time figuring out all your expenses for your budget. Living arrangements is one of the biggest, and living with parents is THE BEST if you can. Making sure you can cover any debts you have is another large concern. Be sure you understand your student loan terms, and when planning your budget note that many student loans allow you to not start paying on them until 6 months after graduation. It’s great to have that head start, but be aware of when payments start and have it factored into your budget. It would be a good idea to look at student loan payment programs too. Alternate repayment plans like income based payments could be beneficial, but the devil is in the details.

Focus on keeping monthly expenses as low as possible. Taking on any debt (car, credit card, new instrument loan) locks your minimum monthly expenses up high, making you less flexible financially. Especially when you have less of a safety net in your savings and a short work history you need to be able to fall back to a bare bones budget in case of any fiscal emergencies.

If you have been living like a college student (mac and cheese and 3 roommates in a 2 bedroom apartment) awesome, keep it up! You want to keep expenses as low as possible until you have solidified your income and savings safety net, then you can look to see how to budget in increase in your living standard. Take look at some more budgeting tips in this previous posts.

Don’t Piss of the IRS

The IRS coming for your/their money is a scary narrative. From small freelance gigging musicians to major millionaire celebrity artists, the IRS always wants its share of your income and they have amazing powers to find you and make you pay.

The best way to get out of trouble with the IRS? Yup, you guessed it; don’t get in trouble in the first place. That means keeping great accounting records and paying the IRS correctly.

Being a musician you have probably already received 1099-Misc forms during tax season. These forms show how much money someone paid you as a non-employee, or independent contractor, the most common way musicians get paid. This is compared to the W-2 tax form that “real” employees receive showing how much money was earned and how much money was withheld for income taxes and paid to the IRS.

Notice that big difference; the 1099-Misc doesn’t show you how much money was withheld for your income taxes because they most likely didn’t withhold any. It is your responsibility to withhold taxes due on the income you generate. It is crucial that you take a portion of all your income and set it aside to pay your tax bill later. Not paying attention to this consistently can lead to a large accumulation of taxes owed and if you are unable to pay the IRS can start hitting you with penalties.

Additionally, being self-employed means you also must pay the self-employment tax. When working for a company, they not only take a portion of your income to give to the IRS to cover your federal and state income tax and Social Security/Medicare tax, they also pay the employers portion of the Social Security/Medicare tax.

As a self-employed musician and therefore, business owner, you must pay both the employee share of Social Security/Medicare tax and the employer share. Because the IRS doesn’t like you holding onto the money all yourself (both because people tend to not save enough and because whoever is holding the money gets the earned interest) many self-employed people must file estimated quarterly tax returns and make payments accordingly. You can learn more about the self-employment tax from the lovely IRS website.

There are a variety of sources to help musicians with this side of their business. Accountants are great, but can be expensive. I’ve seen music specific accountants that start at a $1,000 a month for accounting and budgeting services. The price can be worth it as great accounting and budgeting can save you a lot more than that, but only if you are generating enough income. Even if you were earning $100,000 a year spending $12,000 for accounting can hurt your cash flow more than help it.

Finding and utilizing expertise financial advice is easier now than ever. With more and more financial consultants catering to virtual relationships with clients there are plenty of great options to get help at a reasonable price. XYPN is a network of financial advisors that have committed to helping the underserved millennials that are trying to improve their finances.

Get Your Life Started

There are millions of things to think about as you position yourself for your life post-college. The endless opportunities are inspiring and terrifying. By using these tips to start creating a solid financial plan you can reduce the odds of running into early financial trouble and use your financial foundation as leverage to grow your career into whatever you desire.