There are many creative people who love focusing on their craft. These talented individuals are poets, musicians, artists, designers, writers, and those who work in the entertainment industry. In the United States, 673,656 businesses create or distribute arts, employing 3.48 million people. This translates to roughly 4% of all U.S. businesses and around 2% of all U.S. employees.
While there’s no doubt that mastering your skills is important, it’s equally as important to learn the ropes of running a successful business. Because, at the end of the day, you still have bills to pay.
In school, you may not have learned the skills to manage the financial (and emotional) aspect of dealing with peaks and dips in your earnings. So, let’s explore the challenges of dealing with fluctuating income so you can build a strong financial foundation.
Why The Creative Class Has Variable Income
Working in the arts or entertainment industry usually involves taking on different projects or gigs. Each one could pay varying levels of compensation and last for different amounts of time. Aside from that, you might have to work irregular hours, such as evenings and weekends, which is different from working a traditional 9-to-5 job.
Since you’re likely to be self-employed or an independent contractor, you probably don’t have access to health benefits or life insurance coverage that many employees get to enjoy. Essentially, you’ll have to pay out of pocket for medical expenses, which could cause more financial strain. With all these factors, it’s common for creative workers to have months where they have high earnings, followed by months where they barely scrape by.
Dealing With Inconsistent Cash Flow
If your finances are like a yo-yo going up and down, there are ways to get a better grasp on them. Here are some practical ways to measure your cash flow if you work in one of the creative industries.
- Begin by building an emergency savings fund. The standard guideline is to save between three and six months’ worth of expenses. If an unexpected cost arises, you have money to cover it. Having a buffer is a smart way to avoid getting into debt or relying on credit.
- Make a budget to track your income and (fixed and variable) expenses. You can use a simple spreadsheet or use apps to help you organize your transactions. Being aware of your ongoing expenses will help you understand how much you need to earn at a bare minimum each month.
- Once you know your expenses, you can identify areas where you could cut costs. You may have subscriptions you no longer use and can choose to eliminate them. Alternatively, you might have noticed that your cell phone bill has increased in the past year. It’s a good time to negotiate your bill with your provider or switch to a competitor offering a better deal.
- Instead of spending all your earnings, follow the “pay yourself first” method. This is where you set aside a certain amount of money (like a salary) from your earnings every month. Then let the remaining balance accumulate in your bank account or emergency savings fund. When you experience a slowdown in your business (a.k.a. “famine” month), you can tap into the funds you already set aside during your high-earning months.
- Forecast your predicted income for the next 12 months. This exercise can help you anticipate the slower months and plan accordingly. Considering you’re dealing with high- and low-revenue months, you’ll need to give yourself some flexibility and not feel bad about your progress. Do monthly and quarterly reviews of your finances so you have a clear sense of whether you’re on track with your targets or need to make adjustments.
- Organizations want to support artists, writers, and musicians. Research and apply for grants, residencies, or awards that you’re eligible for. These are good sources of income that could support you financially as you build your business.
Ways To Diversify Your Income
Instead of relying on a single source of income, you should aim to create multiple revenue streams. Doing so can help you become more financially stable and make it easier to weather slow periods. Plus, working on different types of projects can encourage you to be more creative and give you some variety in your line of work. These are a few ideas to help you get started:
For artists: Sell different lines of merchandise or products. For example, artwork, ceramics, t-shirts, stickers, tote bags, jewelry, and drawing portraits. You can sell your pieces at arts and craft fairs, local markets, coffee shops, bookstores, or festivals. You can also reach a wider audience by selling your items on your own website or on online marketplaces.
For fiction writers: Branch out to freelance editing. Submit short stories to literary magazines. Publish and sell your work on Amazon. Stay connected with your readers through social media or an e-newsletter.
For musicians: Use global platforms to sell music to fans. You can also sell merchandise such as clothing or posters. Look into licensing for television and film productions or earn streaming royalties. Another popular option is offering private music lessons to students. You could also go on tour with a band or perform at concerts. Find different venues where you can perform, including festivals, local bars, online events, or community events.
No matter your occupation, it’s important to keep finding leads so that you can land new gigs or clients. You should also network with peers so you can support one another and share your knowledge. You never know when you’ll have an opportunity to collaborate or work together on a project.
Managing Your Finances
When you run a small business, you need to wear multiple hats. One of the most important hats is knowing how to manage your cash flow. Here are some helpful tips to get your finances on track:
Keep your personal finances separate from your professional finances. You don’t want them to be mixed together because it’s harder to track your business expenses. Have distinct bank accounts and credit cards to stay organized.
Every time you get paid, take a portion of your earnings to pay taxes. You may want to speak with an accountant or tax advisor who can give you the proper guidance on filing your business tax returns accurately.
Allocate time for administrative work, such as invoicing, following up on payments, and bookkeeping to track your expenses. You can use invoicing software to help you send automated reminders.
Join industry associations or organizations. They usually host financial literacy workshops to educate people on how to generate new leads, negotiate contracts, and grow their businesses.
Lastly, make sure you have the proper insurance coverage. Consider both personal and professional insurance coverage. If something were to happen to you, you would have some sort of protection that you could rely on.
Investing In Yourself And Your Future
As your business grows, it’s important to reinvest in your business. That could mean taking new courses to learn new skills. You might also stock up on new supplies or upgrade to fancier equipment. When you level up your skills, you become better at your work, and you could potentially charge higher rates. Having advanced tools and equipment may also save you time and produce better quality products.
Don’t forget to invest your money for your future goals, like retirement. Even though retiring may seem like decades away, it’s still important to regularly contribute to your investment accounts. You can consider purchasing assets that may appreciate over the long term, such as stocks, bonds, and certificates of deposit (CDs). While there are always risks involved in investing in the stock market, historically, it’s been a helpful way for Americans to reach their financial goals faster.
Working in the creative sector can be challenging to earn a decent living. However, if you build strong financial habits to better manage your cash flow, you can become more resilient during lean times.
The information provided on this website is for general informational and educational purposes only and should not be considered financial, investment, legal, or tax advice. While we strive to provide accurate and up-to-date information, we make no guarantees regarding the completeness, reliability, or accuracy of any content. Any financial decisions you make are your responsibility. You should consult with a qualified financial advisor, accountant, or other licensed professional before making decisions based on information found on this site.
Past performance is not indicative of future results. Any examples provided are for illustrative purposes only and may not reflect your individual circumstances. By using this website, you agree that we are not liable for any losses or damages arising from your reliance on the information provided.
Sources:
- https://thinksaveretire.com/how-independent-artists-manage-cash-flow/
- https://motifplanning.com/cash-flow/
- https://authorsguild.org/resource/yes-you-can-budget-as-a-writer/
- https://www.writermag.com/improve-your-writing/writing-education/how-to-manage-money-as-a-freelance-writer-11-tips/
- https://www.altcap.org/resources/5-tips-for-how-artist-entrepreneurs-can-manage-their-cash-flow
- https://reddotblog.com/9-tips-to-help-you-better-manage-sporadic-cash-flow-in-your-art-business-21/
- https://www.wealthspire.com/blog/the-art-of-financial-planning-for-artists-entertainers-and-creatives/
- https://womeninartsnetwork.com/how-to-make-your-art-career-financially-stable/
- https://www.americansforthearts.org/by-program/reports-and-data/research-studies-publications/creative-industries
- https://artistcommunities.org/directory/residencies
