How I Handle Finances As a Freelancer
Lessons forged from my financial mistakes.
Listen, if I could go back in time and talk to my 21-year-old self, I would smack him across the face.
“Do not ignore your finances, you dickhead.”
Welcome to Grace Notes. I’m ThatViolaKid and it’s my mission to help you navigate the music industry a little more gracefully.
Today, we’re talking money.
I’m not perfect. I’ve made all the mistakes. Between 2014-2018, I think I would spend an average of $10,000-$12,000/year on food delivery from Seamless.
I never cooked. I never saved my money. And my landlord only accepted cash.
Ohhhh the good ‘ole days
When the pandemic hit, everything changed for me. I was forced to rethink my relationship with money, how I operate in my career, and what I ultimately want in life.
I learned that, whether I like it or not, money is essential to life in the modern world. I decided it was time to man up and figure things out.
Now, my ultimate goal is financial freedom.
I’m not an expert. I’m a work in progress and I’m always updating my systems. I hope that by the end of this newsletter, you’ll have some new ideas and frameworks for keeping track of your money.
Final Disclaimer: this is a primer on MY personal financial system. None of this should be taken as financial advice. Consult a certified professional for the best results.
How This System Changed My Life
I never stress about having enough money to pay for taxes.
I have an emergency fund that has protected me from relying on credit cards for unforeseen circumstances (I sleep like a baby now).
I was able to launch my string quartet QUICKLY with my own capital. This allowed us to secure our first major luxury wedding client and our first major label artist placement in the first month of operation.
I’m now poised to hire my first assistant within the next 12 months.
Every time I get paid: The System
When money is deposited into my “Income” checking account, I do the following:
Step 1: Send 30% of this amount to my “Uncle Sam” tax savings account.
I like this approach for a few reasons:
It’s on the aggressive side. Because I’m a freelancer who gets a mixture of 1099 and W2 income, it’s really hard to predict exactly how much I’ll owe at the end of any given year. By saving as I go, it makes quarterly tax payments possible.
It gives me capital to hire a profession to help me keep as much of it as possible.
It allows me to invest in my Roth IRA guilt-free because everything after this will be post-tax money.
Step 2: I pay myself first. After putting away money for taxes, I send 25% of what’s left to one of a few places:
1st priority: Pay off high-interest debt (> or = 5%)
2nd priority: Emergency Savings (goal: 3-6 months of expenses)
This is the first destination for my saved capital. This gives me a margin of safety that allows me to be more comfortable with risk (see last week’s article on risk for more). This also gives me cash to jump on any opportunities that present themselves to me
3rd priority: Profit
This is money that I will invest. In order of priority it goes:
Maxing my Roth IRA
Maxing my HSA
Investments that will build my revenue further.
Taxable brokerage account
Step 3: Whatever is left will be allocated based on my monthly budget.
Here’s how I would handle a $400 check from a wedding gig.
$400 hits my “Income Checking Account”
I send $120 to my “Uncle Sam” savings account ($400 * .3 or 30% = $120)
I pay myself first by sending $70 to my “Emergency Fund” savings account. If my Emergency Fund savings account is fully funded, I will invest the money accordingly. ($280 * .25 or 25% = $70)
I’m left with $210 to pay my bills ($400 - $120 - $70 = $210).
Extra Takeaways
This above example hurts. You are offered $400, but you can only spend about 52.5% of that money. Understanding this helps me better understand what my REAL compensation will be. This gives me much more confidence in asking for more money or simply saying “NO” to work that will not help me achieve my financial goals.
Speaking of which, when you work for clients, the job must fulfill at least 2 of 3 goals: monetary goals, artistic goals, or exposure/social goals. 9 times out of 10, any job that fulfills fewer than 2 of these goals will make you feel bad. Let me know if you’d like me to talk more in depth about this mental model in the future!
Pay yourself first. In the past, I used to look at the number in my bank account and think “this is how much money I can spend.” Nowadays, I look at that number and think “how much of this can I save and invest?” Huge mindset shift.
Do NOT skip your emergency fund. Life comes at you fast. It’s not smart to rely on credit that will cost you 20% in interest every month. Though emergencies happen, the goal of the game is to put your money into compounding assets and avoid falling into compounding debt.
Action Items
Run your next check through this system.
Feel the pain and realize that the money you’re offered isn’t really the amount that you get to spend.
Create a budget. This is not a restriction. This a plan for how you will allocate your capital. If you were a General of an army, you wouldn’t blindly throw your soldiers at the enemy’s fortified positions. You would develop a plan to maximize every single soldier’s effectiveness, and you’d mitigate the risk of losses as much as possible.
Track your EVERY expense for the next 30 days, and then compare how you actually spend to what you planned to spend.
Quick note: my first couple of budget audits ended in failure. Failure is okay—it’s the first step to changing your behavior. If you’re off, you’re not alone, and it’s totally fixable. I know you can do it!
Avoid lifestyle creep. Evaluate if you can spend less on housing, transportation, or food. The more money you save, the more money you earn.
That’s it for me today! I hope you found this helpful. If you have a musician friend who’s expressed concern for their finances, please send this their way. I wanna help as many people as possible.
Finally, let me know if you would like me to share some tools that I use to track my expenses. I use Notion and I can make a few of my templates available to your if that would be helpful!
See you next week <3
-TVK
As someone who follows a similar system, I applaud you.
Solid advice.