Why is saving important for artists and creatives?
Everybody should cultivate the habit of saving money – but it is particularly important for creatives, especially self-employed artists. Saving money may come from the idea of delayed gratification. Yes, you might not be spending that extra dollar to material goods like a brand-new car or a new haircut, but that money accumulated over the years will become useful when you decide to take a sabbatical and do a round the world trip in 5 years from now.
Saving money also works as a financial and life cushion. Having an emergency fund saved up can work as a buffer in time of unpredictable situations like the loss of job or in case of health issues preventing you from generating revenue from your work.
Finally, saving for a retirement fund is also important as it will guarantee financial stability upon retirement so you can enjoy your life when work income isn’t as significant during senior years.
There are no shortages of reason why saving is important. Keep reading this post to learn how you can save money, how to save efficiently by investing and what you need to take in consideration when you become an investor.
3 Basic Tips to Save more Money
My first tip is to automate your savings. It does not matter if your goal is short-term or long-term, the most important is that you are not only putting money away in your savings fund. Most financial instructions allow you to send a specific amount to another account every week, month or quarter and you should take advantage of that tool because it will force you to save and there is less risk that you change your mind from saving that amount.
The second tip is to stop wasting your money on frivolous things. I know it is easier said than done. An effective way to stop wasting your money is to start tracking your expenses. As you start to see where your money goes every week or month, you think twice about spending money on items or services that you do not need. Some people recommend budgeting but, in my opinion, tracking expenses is better. The danger with budgeting is that restricting yourself too much from spending might cause you to rebel and binge-buy. Tracking your expenses will not only stop you from spending money, but the psychological effect it has on you will work better on the long term. As you analyze your spending patterns from a more reasonable and detached approach, you also apply this calculated mindset when you use your credit card to buy things.
My final tip is to not leave all your savings in a banking account or in cash (like under your mattress). Leaving all of your money in a bank saving or cheque account is probably the best way to lose your money on the long run, as you lose 3-4 % of the total value due to yearly inflation. An alternative would be to save it in a GIC or better, in a registered account like a ROTH IRA or individual 401k. In Canada, the somewhat equivalents are TFSAs or RRSPs. The advantage with these types of accounts is that the money is invested in different types of securities so the money grows with time, catching up with inflation and potentially more depending on the type of security. Also, these accounts may provide you with tax advantages. Every time you contribute to your 401k (*RRSP equivalent in Canada), you can reduce your tax liability at the end of the year. Few people take advantage of this tool, which is mind-boggling. You can also invest your money in non-registered accounts but this is only recommended if you already have a maxed out registered account and if you are already in a comfortable financial spot.
But it is all nice to put money away for the future, but the best way to maximize your saving strategy is to invest your savings.
Investing Basics: Why artists should be investors
You might wonder why artists should be investors? Isn’t financial investing something reserved for business people, trust fund rich people or stock brokers? The thing is, with the rise of stock trading apps, DIY investing and robo-advisors, anyone can become an investor today and everyone should be able to – especially creatives. Being an artist basically mean you are a business owner and being in business requires that you are responsible of your own financial future, so you need to know how to invest your money and how to be financially responsible.
Investing Instruments 101
Let’s say you open a 401k account and you have $1000 you’d like to invest. You’d have multiple choices of types of securities and commodities you can invest on. What are securities? They are defined as tradeable financial asset. Some securities are considered equity securities, like company stocks. Other securities are considered debt securities, like government or company bonds. Some securities are considered baskets of securities that track a market index such as ETFs. Mutual funds are simply a pool of money collected from different investors to invest in securities like stocks, bonds, money market instruments, and other assets.
Securities are traded in different financial markets, like the stock market, bonds market, etc. They have an initial value and their price and value fluctuate in the market depending on many economic factors and some, like stocks even provide dividends to their investors depending on the company’s performance.
As to commodities, they are considered basic good used in commerce that is interchangeable with other goods of the same type. Typically, they are sorted into four broad categories: metal, energy, livestock and meat, and agricultural. Cryptocurrencies are considered commodities in certain countries as well. The value of these goods is traded in the commodities market.
TL;DR: These are the different types of investments: bonds/stocks, ETFs, Mutual funds, Index funds, treasury bonds/commercial papers, cryptocurrencies (commodity), tokens (securities) and other commodities
Where are investments usually placed?
They are usually placed in a non-registered account, a registered account, brokerage accounts, trusts, etc.
The advantage with registered account is definitely the tax advantages. In some cases, you don’t need to pay for interests made on your investments or dividends earned.
However, in the case of non-registered accounts, you will have to report any capital gain or capital loss when you file your income tax and you will also be taxed on earnings made from interests and dividends. For that reason, registered accounts are the best way to start investing. Please note however that 401k and Roth IRA accounts have an annual contribution limit so if you go over that amount, you might have to pay penalties to the government. If you reach the contribution limit for your registered account (s), then you might consider getting a non-registered account to save any extra money. That is, again, just my opinion so it is always best to talk about this with your financial advisor and they will advise you based on your personal situation.
Financial Advisors vs. Robo-Advisors
If you are a beginner in investing, your financial advisor will tailor your portfolio of investments based on your level of risk, time horizon and investor profile while taking in consideration tax implications. In return, they do get a commission from transactions and trades they make under your name, so it means less return for you as a percentage of your invested money will go to the advisor and/or dealer.
If you want to maximize your earnings, there are alternatives to getting a financial advisor. You can either learn about investing and trading stocks (check out Skillshare’s courses on stock market here) or you can invest through robo-advisors. Robo-advisors are a class of financial adviser that provide financial advice or investment management online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms
The pros and cons of robo-advisors (Wealthsimple, SoFi, Vanguard, etc):
– Pro: No commissions and lower management fees
– Pro: No or low account minimum
– Con: less or no human contact
– Leaving your saving in a saving/cheque account or under your mattress,
– Buying a stock or commodity without prior research or review with a financial advisor just because of FOMO
– Buying a meme cryptocurrency (unless you don’t care losing that money) or Buying any type of crypto in the hopes of getting rich quick. So many investors fall in this trap, but traditionally if you invest in high risk/high reward securities or commodities like crypto-currencies, you need to be invested on the long term, not short-term. That’s why you need to really believe in the technology and be there on the long run in order to take advantage and really see your money grow in that market.
*Please note however that anytime you trade cryptocurrencies or that you take crypto out in cash, these are considered taxable events so you will need to pay taxes on your trades and withdrawals.
– Not taking in consideration your tax implications when you invest.
– Not considering your time horizon or level of risk when you invest
– Not saving. You do yourself a huge disservice.
– Investing 100% of your money in the stock market, commodity market, etc. This could be very risky and you expose your money to potential loss. Never put all of your eggs in the same basket: It is best to keep a good balanced financial portfolio with percentages allocated to liquid cash, balanced equities, bonds and stocks/commodities. The percentages are usually determined as your build your investor profile.