Financial Consistency - Pay Yourself First

Paying yourself first is a concept that many have heard about, but few know what it actually means, let alone apply it in their lives. What it comes down to is this: 

Every month, put aside a set percentage of your income into a high yield savings account - your "wealth account".

And do this before you do / pay for anything else. If you make it automatic, then you will not even miss the money. But what it does is build up a head of cash that will allow you to start investing. And that is what you do with the money that builds up in your wealth account - you use it to buy assets, namely things that either bring in money, are appreciate in value. It is not there as a rainy day account, or a buy something fun as a reward account, or anything else. You use it to fund your investments, and you use the time it takes to build up to learn about what to invest in (we will cover this in another post, or check out the investment portion of Monthly Money Management For Actors).

So there you have it. Paying yourself first is the fundamental building block of every financially successful person - something without which no - and I mean no one - can build wealth, let alone the stability that we all need as actors and artists.

Do you already do this? If you do, what lead you to it? If not, what are your thoughts on the concept? Please comment here, and I will do my best to answer your questions promptly.

Have a fabulous week.

Financial Pipeline Or Hauling Buckets?

There is a great story in Robert Kiyosaki’s “Cashflow Quadrant”  (a must read book) that goes like this:

A village in Africa needed water, so they gave 2 people, Bill and Ed,  the contract to supply it, reasoning that the competition would keep prices reasonable and the service good. Bill immediately ran out, bought to buckets, and started making the trek to and from the lake, which was a mile away. He started making money immediately, which was great, especially as Ed disappeared from the village. The downside was that he had to get up before everybody else to make sure that the village had the water, and his work was very tiring, as he spent his whole day carrying buckets of water.

Several months later, Ed returned with a construction crew, and built a stainless steel pipe from the lake to the village. Once it was ready, he announced that he would charge 75% less for his water than Bill, that his water would be cleaner than Bill’s, because it would be covered the whole way, and that it would run 24/7, unlike Bill’s, because Bill didn’t work on weekends.

When Bill saw everybody run to the new faucet at the end of Ed’s pipeline, he dropped his prices by 75%, bought covers for his buckets, and employed his sons to work night and weekend shifts. Once his sons had left for college (and inexplicably never returned), he had to hire more workers to cover their costs, and spent his days dealing with accounting and labor issues.

Ed saw the success of his pipeline in this village, and went on to build them in several other villages as well, earning only pennies on every bucket delivered, but delivering millions of buckets a day. He oversees his business from a beach in Hawaii, as the water flows whether he is working or not. The End.

The moral of the story is obvious: don’t spend your days working for money when you could be designing systems to have money flowing to, and working for, you.

The problem, of course, is that we all need money now. We need to pay the rent, put food on the table, and gas in the car. It takes time to develop financial plans, find investors, and put a deal together. So what are we supposed to do if we don’t have the capital to live off while we create and build this business, whatever it may be?

The answer is that we have to be building the pipeline while hauling buckets, as hard as that may be. What that translates to is building some kind of business (outside of our artistic career) that will eventually support us in our artistic endevours, while working the jobs that many of us pursue to survive. Yes, this means that you will be working a little bit harder now, but one of the secrets of wealthy people is that they do work now that will pay them next month and next year, as opposed to only next week.

So what to do? The place to start is financial education. Learn about businesses, about investing, about tax structure and so on. Take the time to plan your financial progress, instead of being driven by it. Dedicate a few hours a week to this process, and then, once you have made a decision as to what you are going to pursue, focus that same time on that. By doing this you will ensure that you will have, in the longer run, the time and energy to truly pursue the things that matter most. If you choose not to do it, chances are that, in fifteen, twenty, twenty-five years, you will still be hauling the same buckets you are today.

What ideas do you have about other business? What things could you be building in your spare time that could bring in steady - and even job replacing - income down the road. Please leave your ideas here, as I would love the chance to brainstorm with you. 

Persistence - Chicago Acting blog by David Lawrence

I came across this, and rather liked it. Persistence is so important in this game, I feel we should be reminded of it every now and then.

Another way it has been said is:

"Persistence is the dynamic aspect of commitment" - George Zalucki

If we are truly committed to our careers as actors, we will persist until we succeed.

Persistence - Chicago Acting blog by David Lawrence

The Actors' Enterprise: Blog and News: Taxes/Deductions for Actors

Great article on taxes. I know we are all thinking about them, probably with a distinct unease, so apply some o this stuff over the coming year, and be in a different place in 2009!

The Actors' Enterprise: Blog and News<br>: Taxes/Deductions for Actors

Tax Tip For Actors & Artists

Set up your accounts properly! Most people are co-mingled financially, meaning that they run their entire lives out of a personal checking account. That is fine, except that many actors and artists are taking tax deductions on what they legitimately spend to pursue their craft - they are taking "business" deductions. Again, great... except that their acting career looks nothing like a business to the IRS!

Think about it. Real business' have separate bank accounts, paperwork, income statements... the list goes on. Whereas, having everything piled into one account makes your acting career look more like a hobby... and hobby expenses are not tax deductible! 

So the IRS looks at your accounts, determine that what you are spending on your art is not tax deductible, and presents you with a bill. Then, for good measure, they go back and look at the SEVEN PREVIOUS YEARS as well... and, oh look, you've taken the same deductions... that are now re-classified as hobby deductions... so now you owe back taxes and interest. 

Ouch.

To avoid this, set up a business checking account by forming a DBA (Doing Business As) for your acting or artistic career. LegalZoom makes this very easy, and quite cheap. Then you pay all your acting bills out of your business account, any money you earn as an artist goes into that account, and you top it up from your other earnings, if you need to, by loaning your DBA money.

Yes, it is an extra step, but do you really want to risk paying seven years of back taxes for an extra few minutes a week? We actually had this happen to a student (before we started working with him), and he ended up owing several thousand dollars... not a happy day!

So get it done, and take the time to do it properly. If you have any questions, comments or concerns, please post here - I will be happy to address them. We also have a bunch of other resources, including free CD downloads etc, on our website www.abundancebound.com.

Tax Deduction Tip For Actors & Artists

Assign a specific credit card to your artistic career - even if it is a personal one - and NEVER use it for personal stuff. Interest on business loans is tax deductible, interest on personal loans is not. Having even one personal expense on there blows this loophole, so be careful. Over the year you should be keeping all your credit card statement. Then, at tax time, go back through them, add up all the interest you have paid, drop it into the right place on your tax forms... and viola, an extra few hundred (or maybe more) back to you.

This obviously applies equally to any expenses any actor, artist, musician incurs in the course of pursuing their art, from photo paper, to sketch books, to instruments, to acting classes... you get the idea.

There are also some nice tax tips specifically for actors that can be seen by clicking here.

Was this useful? Had you heard this somewhere else before? Please leave any comments or thoughts you have!

Happy Easter!

What Financial Freedom Really Means (1)

The concept of "Financial Freedom" is, understandably, a popular one. But what does it actually mean? The answer is simple, but truly understanding it will change your financial focus.

Everyone dreams of financial freedom. It doesn’t matter if you are waiting tables at Chillis’, the CEO of a large company, or a stay-at-home Mum, the illusive concept of financial freedom calls to us. We want more time and more money, so that we can spend some of that doing things we want to do as opposed to what we have to do.

But, generally speaking, that is where we stop. At the “Wouldn’t it be nice if…” stage. We never really bother to think about how we could achieve freedom in our life. What this would look like. How things would be different. Let alone the fact that, due to a crumbling social security system, financial freedom is something we need to achieve. Not want. Not dream of. Need to.

But that still doesn’t answer the question of what do people actually mean when they refer to “Financial Freedom”. People have this vague concept of it being about “money in the bank” (as I did), or earning much more than they are spending. In truth, it has nothing to do with either of these things (although the first answer at least moves you in the correct direction). No, the real definition of financial freedom is this:

Having enough passive income to cover all your living expenses indefinitely.

That’s it. Nice and short. That is (or should be) the is the purpose of all financial strategies. Every time you make a financial decision, in the background should be a little voice whispering “Does this increase my passive income?” Now sometimes that answer may be no, and for good reason, but the question needs to be asked none-the-less. Otherwise, just like any other goal, it will be nearly impossible to hit.

Investing for Actors and Artists

I am currently reading a book called "Rule Number 1", by Phil Town. It maps out a very simple, specific way for people to start investing with anything from a few hundred to several thousand dollars.

My husband has always dealt with the stock market, as I found it all rather intimidating, so I wanted to find a book that I could recommend to our community, and actually work through it together. I am about 3/4 of the way through, and I think I may have found it!

I will not give details on analysis etc yet, until I have finished the whole thing, but I have always felt that learning about and starting to invest was crucial for everyone, but especially actors and artists. The problem has been the intimidation factor, as I mention above, so I am excited to have found something accessible and understandable to all.

In vesting is something we always cover with regards to peoples acting career, and we dealwith it specifically in one section of our Artists' Prosperity Bootcamp.

As I learn, I will pass it along.

To your prosperity.

Miata

Monthly Money Management For Actors!

I am very excited to announce the launch of a brand new Abundance Bound program MONTHLY MONEY MANAGEMENT FOR ACTORS. In this special, ongoing program, we will be sending out two CD downloads a month dealing with particular topics of personal finance as it relates to a  career in the arts, along with worksheets detailing specific action items, and the ability to ask questions (these will be answered in one of the sessions.)

Our drive is to bridge the gap between what people learn in acting schools vs what they need to establish a successful and long term acting career.

So check out Monthly Money Management For Actors, and take a strong step down the road to financial independence!

Acting Schools to Acting Career - 4 Simple Tips

Acting Is A Business, Not A Hobby

Being a SAG member for over ten years, I know the stress of starting a New Year unsure of where my acting career will take me. Here are four ideas not taught in acting schools to help you move forward into 2008 better financially organized.

1. Set up a business account for your acting career and separate out your acting expenses from your personal ones. This protects them from being categorized as “hobby” expenses by the IRS, which are not deductible. (http://www.legalzoom.com can help with a DBA – Doing Business As).

2. Assign a credit card exclusively to your acting career. Business interest is tax deductible, personal interest is not.

3. Start paying into a high interest “wealth account”, even if it is only $25-$50 per month. http://www.ingdirect.com has some of the best rates.

4. Develop a step-by-step plan to improve your financial education & situation, giving you more energy to focus on your acting career. Visit http://www.abundancebound.com for free tips and resources.