If you are starting a career in music or are thinking about being a professional musician someday, you will need to know more than just how to play your instrument. One of the real world things you will need to know is how to handle your money. Handling your money well is critical, especially in the early stages of your career when you may be struggling to make ends meet. While everyone needs to understand basic personal finance, it’s even more crucial for musicians, most of whom don’t have the security of a regular paycheck to act as a safety net.
Here are the most basic things you need to know to stay out of financial hot water. I’ve divided them into three levels: Basic, which you absolutely MUST do to stay on the right side of the IRS; Pro, which you will need to learn so you don’t have to live in your mother’s basement; and Master, which will help you take charge of your financial and musical destiny.
1. Keep a written calendar. Either on computer or on paper, this is the first step in documenting your work history, and therefore your income history. This is an essential document at tax time.
2. Know how to balance your checkbook and DO it. In this computer age, there is no excuse for not knowing how much money is in your account or for bouncing a check. Make a note of each deposit and each expense as it occurs. Then balance your account each month. Always.
3. Keep your receipts. You could just throw everything in a shoebox, or you can use an elaborate filing system, but either way you will have the paper trail you need.
4. File your taxes. Get help if you need it, but you must file your taxes. Not filing your tax return is a federal crime, even if you don’t owe any money. Can you say Leavenworth?
5. Pay yourself first. Make saving a habit. When you get paid, take a portion of the amount, for instance, 10%, and put it in a savings account. Taking the money off the top before it goes into your checking account is the painless yet effective way to save.
6. Learn how to budget. Budgeting may sound like a tightwad habit, but it really is just a way of making sure your money goes where you want it to, instead of disappearing into thin air. Check out Dave Ramsey’s take on budgeting.
7. Find a good accountant who will teach you what you need to know. An accountant who can show you the best way to keep your records and teach you basic financial literacy will save you a lot of money and time.
8. Open an IRA and make regular contributions. You’re never too young to plan for retirement. In fact, saving early for retirement is the smartest thing you could do, thanks to the miracle of compound interest.
9. Plan for major expenses. Will you need a new instrument soon? Or major repairs to your car? Plan ahead and save now, so that when the time is right you’ll be ready to write a check.
10. Learn how to build your business. Read business books, learn from a mentor, study the people who seem to be doing it right. Invest in your success and make your music business whatever you want it to be.