Many creatives often put off financial planning but make no mistake: creatives need to be ready, and that means making sure your finances are in top shape. In this episode, we meet a person who will share her insights on financial planning for musicians and other creatives. Bree Noble sits down for a productive chat with the CEO of Create Financial Planning, Lindy Venustus. Lindy walks us through planning for your financial future and shares tips on making sure your finances are in good shape. A must-catch episode for creatives struggling with their finances.

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Be Ready For The Future: Financial Planning For Creatives And Musicians With Lindy Venustus

I am excited to be here with Lindy Venustus of Create Financial Planning. We are going to talk about financial planning for creatives and musicians. This is a topic I have never covered on my shows. We’ve talked about income streams and all of the stuff around bringing income. We’ve even talked about some tax-related things, but we’ve never talked about financial planning and figuring out what’s coming in, what’s going out, and how do you know if you’re being profitable or not? What are some tools that you can use around that? I’m excited to have Lindy with us before we jump into the questions. I’d love to know a little bit about you, Lindy. Why you started doing this for musicians, creatives and a little about your background.

Thank you, Bree. Thank you so much for having me here. I’m excited to present. It’s my first time too. My passion is around being accessible and available to help people. I’ve been in this industry for a long time. I thought it was so unfair how somebody could only have access to advise if they already had their first million dollars. I create financial planning to be a resource to people where they are. I am a fee-only advisor so I don’t get commissions. I don’t try to sell products. I’m available on a planning basis to help people where they are. I love working with creatives. I have the talent to help people not be mad at money, but I don’t have the same talent that you have. I’m excited to be a resource. Thank you.

I love that you’re telling people to not be mad at money because something I talk about in my Money Mindset Bootcamp is how we think money is evil. We’re mad at what it’s done to people that we know or we’re mad at things we don’t understand. There are so many reasons and we put all these things on money, but money itself is a unit of exchange. We put all this heaviness around this thing and all it is anything we’re using to exchange. It could be, “I’m going to give you a glass of milk and you’re going to give me a cookie.” It could be anything where we’re exchanging something for value. I love that you say that. I want to talk about musicians. There are a lot of musicians that go through a feast or famine experience.

Some of it is our fault because we’ll go crazy. We’ll get all these gigs and then while we’re in it, we’re never following up and getting more, then all of a sudden, we have a big dry patch. Sometimes it has to do with seasonal things. It has to do with summer is busier, holidays are busier and other things, times like January are kind of dead. Do you have any tips for navigating this income influx where it’s high some months and low other months? Also, if you’re a freelancer and maybe you have big projects, then they end and all of a sudden, you don’t have any more clients. How can you navigate that and get this even keel feeling with your money when you’ve got this rollercoaster going on in the background?

One thing I would tell people as a business owner myself is to always be in that gig acquisition mindset. Even when you are super busy, do set aside some time to be working on securing those next gigs. I know sometimes you feel like you have so much going on, you can’t even think about it, but it’s important to do that. As far as the feast and famine of the cashflow coming in, I like to think of it because it’s fun to be fancy once in a while, as a three-tier tower of champagne glasses. The top tier is your necessity and the rest trickles down. First, we’re going to prioritize our necessities, food, shelter, utilities, health and insurance. The second tier is where you pay debt and save. The base tier is where you can spread out more, enjoy that variable or non-essential lifestyle.

You know what these are. Regardless of what you tell yourself is essential, but this is how I’m visualizing this. How do you come about what are our necessities? You can list all of your expenses, write them down in one place that you can see. I’ve made a money flow sheet that can be updated monthly. It helps to see patterns for you and decide what is a necessity. In addition to listing all of your expenses, list all of your income. By doing this, you’ll start to see trends if they are there and be able to see everything earned for the month and the year in one place versus having it be cluttered up in a checking account or on a credit card. As you come to know your necessities and your income, it would be nice if there was a rule of thumb that I could give you an ideal to shoot for.

I wish there was a straightforward one-size-fits-all umbrella formula for everyone, but it depends on if you’re a solo business owner acting as an LLC or if you have an S Corp. Also, if one of your streams of income is a W-2 salary or hourly income. The best recipe that I can come up with this is to try to have a category for your necessities of not having it be more than 50% of your income after your taxes are paid and you have saved. The first category of your necessities is trying to keep that at 50%. For the second category of saving, I’d say try to save at least 10% for yourself with a goal of 20%. I have met some super savers who are able to consistently save 25% of their income. Remember the IRS, if you are self-employed, you’ll owe 15.3% for self-employment taxes in addition to state and federal.

If you can, it’s a good idea to save 30% to 40% of all earnings in a separate account just for taxes. If you’re paying down debt, it’s still important to save so that you don’t have to rely on credit when that next thing happens because that thing is always around the corner, whether it’s new tires or a new mic or whatever. It’s having an actual goal for savings. It’s easier to save when you say, “I’m trying to save $15,000,” than when you say, “I’m saving for an emergency.” What does that mean? That’s not a goal. It might be easy to see that account growing and spend it if you don’t have that goal. Have your savings be liquid, not something that’s at risk. Consider using a high-interest savings account. If it’s at a different place than your current checking, sometimes that little bit of extra work to move money means that you might be more likely to stay there.

Remember, taxes aren’t a surprise. They are eternal. Save for them when big checks come in, Click To Tweet

Remember why you have the savings. Is it there as a buffer for those slow months or for the future goal like buying a house? Keeping in mind that it will make it easier to let it grow and not spend it on online shopping or at happy hour or on something spontaneous. In that month with lower income, when you go to the buffer account to cover the necessities for that month, you still feel safe and okay. To start that buffer savings, if you have seasonally changing income, you’ve saved for retirement, taxes, paid yourself and your business expenses in the months with more income, so you have a big month. Put the rest in the buffers to make sure that it is smooth and even out the lower-income months. That’ll depend on your business. It may feel good for you to have three months of income, especially if you’re married or have another reliable source of income or maybe if you’re single and it’s just you, you might want to have six months in the buffer for both your business savings account and for your personal emergency fund.

I have two more things. I want to talk about savings. The buffer emergency account is where you want to have you saved everything there and you feel like you still have money to spare. I hear angels singing. You, my friend, have hit wealth. Start saving into a brokerage account. Money and savings in cash do not keep up with inflation. The goal here is to not have too much in cash because it can hurt you long-term. Talk with an advisor to make sure you invest in a way that feels comfortable for you because we know the market is up and down. The last thing you need is to be worried about that, to understand what you’re doing and why to make sure that your cash is meeting your short-term and long-term goals.

This is a good way to move forward if you don’t have an immediate short-term growth goal that will require a lot of cash like a home down payment, for example. The last thing we just mentioned, wealth. Being able to consistently live within your means and have some money left over every month that comes from prosperity. When you overall earn more than what you need to live, when you have a sense of abundance, a feeling of positive flow, by doing these steps, I hope you feel both wealth and prosperity. The third thing I mentioned after paying for your necessities and saving was those more fun lifestyles. Now that you’re truly prepared, let’s go down to the party, the base layer of our champagne tower. Remember that we are in this industry. We do this work this craft because we are passionate about it.

We can do fun things of the three things, necessities, savings and lifestyle. This lifestyle is equally important. I call it my soul candy. It’s maybe actually doing the work is soul candy. For me, it’s also being able to afford to go to your show, being able to dance and to live in that prosperity. What we want to think about here is after you’ve covered your basic needs and saved for those dips in income, have some fun. My very vague rule of thumb that I can’t make it because you are unique and your business is unique and you deserve unique advice. However, in this category, it could grow to be as much as 30% of your take-home pay. If we look now again at our champagne glass tower, it’s seeing money move from Maslow’s hierarchy. If Maslow were at a party on his head upside down, we’re covering your basic needs first to have two consumer debts and 3 to 6 months of savings to cover you during slow times. You’re living your best life.

A quick note, don’t feel entitled to always live your best life. Pay your future self. Imagine a three-year-old running around with your wallet. That is what is happening right now if you’re not saving for the future. Plan to take care of yourself when you’re older, then you can act like a crazy kid again. When your basic needs are met and your emergency fund is full, then treat yourself. Trickle-down economics with champagne. I have a couple of two people I’d like to tell you about. Would you like to hear their stories and what their cashflow looks like?

I wanted to mention, first of all, about the soul candy. I love that. The whole point of all of what we’re doing is to be able to have that money to do the fun stuff. For musicians, that fun stuff might be recording a new album that you’re not sure is going to be viable in the market but you want to record it anyway. It’s experimental or maybe it’s buying that new guitar that you want even though you don’t need it because you have five other ones but you love guitars. Think about what that would be for you, and then think about that as you read the stories of some people that got their cashflow in order.

Here’s a real-life example of what that money flow that I spoke about looks like. Riza has multiple streams of income. She owns an LLC. One of her gigs also is an hourly W-2 income with very flexible hours and schedule because music is her number one priority. Riza’s fixed expenses for her lifestyle are $2,500 a month, all in for her basic food, shelter and utilities. This month was stellar. She earned a total of $15,000 from her business, deposited all of her income from gigs into her business checking account, and then the W-2 income is deposited into her personal checking account. She’ll then transfer $2,500 from her business to her checking personal to cover her expenses as a business owner’s draw or because she’s an LLC so she gets to take an owner draw.

 

What she’ll do with the rest, because she’s an LLC and not an S Corp, is save 10% towards her retirement from either account, personal or business. For best practices, she should do it from her business account because if she decides to change to an S Corp, it can cause mixing of assets and she could lose some tax advantages that we get into later. Riza is going to send $1,500 or 10% to her retirement account, plus she’ll save 10% or more of her W-2 earnings from her personal account into an IRA or a Roth or something like that. Riza and all of you with an LLC should save 30% to 40% for taxes and if you’re paying the burden of both the employee and the employer for things like Social Security and Medicare, it’s important not to be surprised by taxes.

It’s best to pay these quarterly so you also don’t get dinged by the IRS and get a penalty. This was a good month for her. She’s going to send $4,500 to her business savings to pay those quarterly taxes. Not every month will be that high, but it’s a percent of what was brought in from the business. Most months it’s less, but Riza pays her business expenses which are about $22,000 a month from this business checking account. What’s left? She’s paid herself by saving, done an owner’s draw, paid the business expenses and save for taxes. She’s got about $4,500 leftover. She can see if she’s got her comfort zone in both her business buffer and her personal buffer savings account. She can put it where she needs it most if she needs to take an additional owner’s draw.

If this has been the first big check in a few months, she might need to replenish that. If her accounts are where she wants them then she could invest more in her business, in herself or take another owner’s draw and start investing in the market. Another client that I have, Yasmina, has an S Corp. She is in a different situation completely. She has three options from where she can pay herself, from giving herself a salary. You can take a loan from an S Corp too, and you also can do a bonus as a distribution if the company is profitable at the end of the year. S Corps use payroll and the company pays their share of taxes and your income taxes will be deducted from your income through the payroll system.

When big checks come in, remember it's not a windfall or found money. They are part of your plan. Click To Tweet

You’ll receive a W-2 and a K-1, all these fun tax forms. When you have an S Corp, it’s important that you pay yourself enough or it will be looked at as a little shady to the IRS. How do you know what is enough? It’s not an official IRS rule but it’s called the 60/40 rule. How it works is of all the pay that you’re going to receive for this year. If you pay 60% of your business income to yourself in the form of an employee’s salary. If Yasmina thinks she’s going to earn $80,000 this year, she’ll receive 60% of that or $48,000 a year or $4,000 a month as salary. For the rest, she’ll pay herself 40% of her business income as a profit distribution, also known as a bonus.

The bonus will make up the rest of Yasmina’s $80,000 for the year, which is a bonus of $32,000 taken whenever she wishes. Why this is smart and attractive is these profit distributions avoid the 15% self-employment tax and are what make an S Corp attractive. Another question is, “How do I decide what is a reasonable salary?” There’s no hard-fast rule of thumb, but it’s roughly about 10% of the business’s receipts. It also includes what the company paid for you for health insurance and any other benefits that you have. Be sure to work with the CPA to make sure you’re paying yourself. If not, it’s a red flag.

I get this so much because I became an S Corp in 2020 and I had been a sole proprietor. I’m so glad I did it because 2020 was a little bit painful with the taxes because of that extra percentage for the self-employed tax. I think you should look into this but on the other hand, do you have a recommendation on how much you should be made before that’s worth switching? I held on a long time as a sole proprietor.

If you’re going to be able to save 7.5% on 40% of your taxes, it’s a weird mathematical question. I’d say to offer you to do TurboTax for free if you earned under $50,000, but you can’t do TurboTax for free because you’re self-employed and anything where you need a Schedule C or Schedule E, they won’t allow you to do it. I don’t know where everybody’s coming from but I live in Minneapolis, which was a pretty metropolitan area. I pay about $300 for a CPA to do my taxes. I think they’re worth it. I’m self-employed. She’s doing all this stuff for me and I pay way more than that in quarterly taxes. It’s worth it to hire a CPA.

I did my own taxes for a long time because I was an accountant.

You have a special skill.

I’m not a tax accountant but I wasn’t afraid of it. I was doing TurboTax myself but at this point, the reason I switched in order to become an S Corp is that I wanted to save that money and I could see where I was at the point where it was going to save me enough. For me, it was probably when I hit making six figures. That’s when it was right for me but it depends on if you have employees and all of that stuff as well because there are some payroll expenses but I don’t know.

Maybe this might be a little beyond. For some of the people reading this episode, it’s something to think about down the road. I’m glad that you mentioned that self-employment tax because the first time that I had to pay it, I was a little bit shocked. I think it’s good to know about that. I know you have a spreadsheet that you created to help people with cashflow. You want to talk a minute about how they can use this to figure out what’s coming in and the different months when things aren’t level.

I know that many musicians have multiple gigs and side hustles. Some tips for navigating keeping track of money coming in from multiple sources would be to use a cashflow tracking system. I have built my cashflow worksheet, which makes the world simple for me as a visual person. I have put in a tab if you have multiple gigs. You can make all of those sources and figure out where your money’s coming in this month and how much to expect this month from each of your gigs. You could keep track of that for the whole year. In addition to that, it has a tab where you can put in what your business expenses are and your personal expenses that are fixed, and then your variable. It’s based on that 50%, 30%, 20% budget that I spoke about or cashflow system. There’s a page called The Money Map where it visually shows you how much you have coming in, what your fixed expenses are, what your personal expenses in your business and then what’s leftover.

 

From there, I like to use a $0 planning. The goal is that there is money left over and to have your money work for you, instead of you working for money. There’s going to be hopefully a number leftover and we’re going to bring that down to zero by telling it where to go. Do you still have student loan debt? Is your emergency fund worked? Do you want this loan? Do you want to save for a down payment? Do you want to save for a trip? Do you want to save for a new piano? What are the goals? You literally tell your money where to go and how to work for you. What’s so beautiful about it is it’s all on one page and it’s pretty colors. More than that, something that might feel like a competing priority.

Here you can say, “This is how much I can afford to do this month.” You can save a new version every month and know how to watch your progress and see yourself meeting your goals or if you consistently save this much, you can say, “In nine months, I’ll have enough for that full down payment and be able to have some tangible goals set up.” It’s powerful. Another thing, there’s the cashflow worksheet. If you want a copy of that, email me at Lindy@CreateFP.com. I will happily share a copy with you. I’m so happy to do that.

The other thing I would say is when you get a check, know where they’re being deposited, what you want to save and pay for with them. Remember, taxes aren’t a surprise. They are eternal. Save for them when big checks come in, remember it’s not a windfall or found money. They are part of your plan so treat them the same, which leads me to say, “Be ready for months with less or no income. It won’t sting as much with your buffer accounts in place.”

It’s like saying that a tax refund is not a windfall either. That’s getting the money that you should have had in the first place because you paid a little bit too much. Don’t think of that as like, “Free money.” No, that’s the money that you should have and you should distribute it accordingly. What are some things that you see people miss as far as tax write-offs, and advantages that you can take as a self-employed person or an LLC or an S Corp if you’re at that level that you see people missing, or maybe if they were a little more organized, that they could be doing better on taking advantage of those?

I have a list of fifteen of them. Basically, the self-employment tax, home office, internet and phone bills, health insurance premiums, meals if they’re for entertainment and part of your work, travel. Make sure to keep accurate records of your travel, even if it’s in your car because you can be reimbursed over $0.57 per mile. That’s a big deal for your actual vehicle use. Interests that you’re paying on things associated with your business, publications and subscriptions, ongoing education for your career business insurance, rent, startup costs, advertising, retirement plan contributions. The other thing is that S Corps can be able to take a qualified business income deduction and deduct up to 20% of their business income in addition to the write-offs listed above that we talked about. This deduction is taken off of your tax return, not the business. That’s important to know.

The ways to reduce your self-employment tax are within reason because it makes sense, but increases your business expenses. Add to your expenses, not just increase them but be wise about it. For example, pay your health insurance through your company. This is often a credit to your taxes. A credit is applied directly to your taxes, reducing the tax bill owed. It has more impact than a deduction on your income. Also, be mindful to pay yourself enough to not get noticed by the IRS and to make sure you make enough to qualify for your own Social Security. In 2021, that amount is you have to earn $5,880 and this can be salaries, commissions, tips, vacation, and severance pay. What is not considered income by Social Security is investment earnings, loans or gifts received. A way that you can reduce your Federal taxes is by saving more for retirement but that’s a whole other show.

A quick question that came up for me was, if you are paying yourself a salary and then you also are getting a bonus because you’re an S Corp, let’s say, does that go toward Social Security or do they not count that because it’s profit-taking?

I would love to get back to you on that. That was not something I am prepared with an answer for.

Always be in that gig acquisition mindset. Even when you are super busy, set aside some time to be working on securing those next gigs. Click To Tweet

That came to me. I have no idea about that either I’ve been curious about it.

Based on what we just spoke about, salaries, commissions, tips, I feel like it would count towards Social Security but let me find out. I’m not an attorney and I’m not a CPA.

As far as retirement, I know there are a million options out there for the self-employed. We don’t have to go into this super deep because as you said, it’s a whole other show. Do you have any suggestions? I have an IRA and my husband’s got his own retirement as well. Are there any things we should be looking at as self-employed as far as the best way to save for retirement?

The question is variable depending on the person and their level of income tax bracket. The one thing I want people to be aware of is I feel like a lot of CPAs think their job is to save you taxes for the year. In the planning that I do with people, I see some massive tax burdens when they’re in their 70s and 80s. An IRA, usually you’ve saved before you’ve paid taxes on it. You’ve effectively lowered your tax rate for that year. You put it in your taxes forms that I saved into an IRA and it lowers your income for this year, lowering your taxes. That’s one option. That is called deferred income. You are going to take that income and pay income taxes on it later. It’s lowered your tax bracket for the year, but we don’t know what our taxes are going to look like when we’re in our 70s and 80s.

I wished that when I got my CFP, my Certified Financial Planner designation, it came with a crystal ball. I think they were out that day. I don’t know what the market’s going to do or what the taxes are going to do down the road. Saving in deferred ways, you can also save in a brokerage account which you would have access to forever at any time. There are no rules about when you can take it. That has income taxes on it for things like interest and dividends that you earned and then capital gains. That has a little bit less tax than your 401(k) or IRA might have because those capital gains taxes are less usually than income taxes.

The last tax bucket would be a Roth or something that you’ve saved after taxes. The laws, and I don’t see them changing it, is that you will never have to pay any taxes on the growth or anything that you pull out of there because you saved with after-tax money. Some ways that are available for business owners to save in a tax-advantaged way or after taxes, you can set up a solo 401(k) for your business. You can set up a SEP IRA, a Simple IRA, a regular IRA, a Roth IRA, and they all have different rules and there’s a lot to look into to make sure that it’s the right thing. There are a plethora of options available for everyone. It’s not like one size fits all.

I’ve always been like, “Should I do a Roth? Should I do a regular?” You don’t know the future. I would definitely consult a professional on this, but know that because you don’t work for a company doesn’t mean you can’t save for retirement and there’s a lot of options for us.

The reason that the 401(k) came about was that people used to have a pension. When companies stopped making pensions so readily available, some lucky people still do get a pension. They created the IRA and the 401(k) to move that responsibility of saving onto the individual because the companies weren’t taking on that burden anymore. It is important to know that you are responsible for your welfare.

It does put more control into your hands. You can trust yourself hopefully versus trusting a company that could potentially lose your pension.

That’s something that I am always conscious of when I’m doing a plan too because they are so great when they work and we want them to be there for you but it’s not guaranteed.

Is there anything else we haven’t covered? I feel we’ve covered so much but I want to make sure if there’s anything else you’ve got on your list that we need to cover in this episode.

I have one thought. Having different buckets for tax savings and emergency funds is a good idea to have that rule of thumb in the back of your mind always but everyone has a different business structure. Do try to always save at least 10% for yourself upfront, 30% to 40% for taxes, and then having that lifestyle of 30% for fun, hopefully. The way it works out is your business’s paying you 10% for your savings and 30% for taxes and its expenses, and then you’re getting paid. Half of that money should go to your fixed lifestyle, 30% for fun, hopefully, and 20% more for savings. You’re actually saving more than 20%. Another thing are there any disadvantages financially to being self-employed? One is that we talked a little bit about that both you and your business are paying half of your Social Security and Medicare taxes.

 

Normally, a W-2 employer would pay half of that for you. That’s where the full burden comes out for you. Make sure that you’re saving that. The good news is that the employer portion that you’ve paid as a self-employed person will be a federal deduction for you. You do get some breaks on that. Remember to pay quarterly taxes and pay enough. It’s possible you could qualify for free TurboTax potentially because we’re awesome business owners. Another disadvantage is that there isn’t an established savings plan in place like we spoke about. Be sure to save for your own future in the way that makes the most sense for you over the term of your life, if that takes talking to somebody about how to do that. Another possible disadvantage is flexibility. Can you handle it or are you a super pro?

The final disadvantage is that you are your everything, your marketing sales, PR, president, bookkeeper, secretary, bottle washer, the main act, custodian scheduler until you can afford to hire somebody. That’s a huge decision too to bring somebody in to do those things for you. That’s a powerful feeling because you are both supporting yourself and another person is relying on you. That’s exciting. I know we covered the cons but one thing I want to say is I love being self-employed for a million reasons. One of which is the confidence and the faith in my own work and ethic. I always thought that having a job or working for somebody meant security. I finally took a leap of faith to start my own business and I’ve never been happier. I realized that security is what you make.

Start saving into a brokerage account. Money and savings in cash do not keep up with inflation. Click To Tweet

You deserve to work with your values and the reasons that drive you. That, my friend, is worth a champagne toast right there. Lastly, I was hoping to give you a simple rule, save this much, spend this much, put it here, but the truth is each one of us has a completely different business and life. The simple rule is you are unique. You deserve unique advice tailored to your life and your business. I’m not saying you have to work with me but please do work with a professional planner like myself, as well as a CPA, a bookkeeper and an attorney. Thank you, Bree, and thank you, musicians, for having me. I hope I give something of value that makes your life truly celebratory. This is amazing.

You are so welcome. I’m so glad we finally covered this subject on the show. You guys reach out to her. Send her an email at Lindy@CreateFP.com. Her website is CreateFP.com. Check out her services there. As she said, whether it’s her or someone else, I would connect with somebody to make sure that you’ve got your financial house in order because especially as you grow your business. We’re not automatically learning these along the way.

People aren’t just out there giving us all the information. Some of this stuff is complicated and I wish it wasn’t, but taxes and retirement, none of that is easy. We need somebody that it’s their job to learn all the intricacies of this stuff. That’s why you’d want to reach out to someone like Lindy. You definitely want her cashflow spreadsheet as well. That’s going to help you out, so email her at Lindy@CreateFP.com. Thank you so much, Lindy. I appreciate all the thought you put into your answers, and that we were able to uncover a lot of things that musicians need to know about their business.

Thank you, Bree. It was fun and an honor. Thank you.

 

Important links

• Create Financial Planning
• Money Mindset Bootcamp
• Lindy@CreateFP.com

 

About Lindy Venustus

Create Financial Planning is dedicated to the arts and artisans.

Understand what’s coming in, where it’s going, and dream of multiple goals. Lindy’s favorite materials: Sweat, tears, dreams, elbow grease, inspiration, and money.