Ultimate Guide to Financial Planning for Musicians

I am not musically inclined. The phrase, ‘can’t catch a tune in a bucket’ is an accurate description of me.

It takes a certain skillset to string together sound that is pleasing to the ear. And if you have the rare gift of pleasing a crowd’s eyes and ears, you have a unique talent.

We live in the Nashville area and understand the difficulties of succeeding in the music business. Odds are if you are reading this article, you have earned some success. Congratulations!

As planners, we have run into some common themes those in the music business should consider. Thus, we have developed the Ultimate Guide to Financial Planning for Musicians. Without further ado, let’s dive in.

Manage Inflows and Outflows of Cash

Your income is volatile. That is the nature of the industry. Creating a budget helps to know what it takes for you, your family, and your team to survive. We have seen several successful artists struggle because they didn’t manage their budget well.

You don’t have to make it complicated. Split up expenses into two categories:

1. Fixed expenses

2. Variable expenses.

Fixed expenses are consistent costs that stay around the same amount. Variable expenses are consistent but less predictable in size. List both categories and track them for three months to get a baseline. Apps like PocketGuard, YNAB, and EveryDollar are great tools to use.

Creating a budget will help you manage the cash flow needed to navigate the volatile seasons of life.

Build Your Team

Outside of talent, your team is one of the important drivers of long-term success in the industry. The right team will limit the distractions and disruptions, so you can focus on what is most important. These include attorneys, agents, managers, accountants, financial advisors, and assistants. Some can handle multiple roles. Others are strict specialists.

Having the right team will allow you to focus most of your time on your creative talents and leverage your team for the other items. This will lead to fewer headaches and more clarity.

Build Savings for Gap Months

When times are good and income is strong, you are in the rainy season. Set out the buckets and collect as much cash as you can. Most of the time we see projects last a month to upwards of four months, where income is very good.

But, the next project is not guaranteed. Income is inconsistent and there may be a few months where it looks like small residuals or hardly anything at all.

We call these the gap months and prefer at least 6 months’ worth of expenses in a savings account. These funds are to sit in cash.

These savings can sit in a savings deposit, safe in your home, or invested in nothing more aggressive than a money market account.

Build Long Term Savings and Investments

If you can cover your bills and have some short-term savings, the next step is to build some long-term savings.

There are several ways to do this.

If your name carries some weight and recognition, you can use your brand to invest and collaborate.

You can also start participating in Real Estate, especially if your music business needs working space. By owning the space, your work offers a great way to save some on taxes and build long-term savings in the form of equity in the building.

Another option would be to set up a retirement plan, or deferred compensation plan. Whether you are a sole proprietor or have a small team of employees, you can set up a retirement plan much like the bigger corporations do. These types of plans can offer significant tax savings and long-term growth opportunities!

Protect Yourself and Your Family

There are a few items that are crucial to protect your hard work, as well as your and your family’s well-being.

If you forget everything else in this blog post, remember this:

Create a will.

Hire a competent estate attorney who specializes in the music business. Most musicians have a complicated income structure and vast catalog. Protect your asset so the income has a beneficiary when you are gone.

If you don’t determine the direction, someone you don’t know will. Put it on paper. Name where your money and income will go. If you have young children, name who you would like to be the custodian until they have reached the age of majority.

Second, consider purchasing insurance. Unforeseen problems happen and there are two main areas to consider outside of the typical home, auto, and health insurance. If you are married or have young kids, consider term life insurance. It is relatively inexpensive and can provide some cushion in the form of income replacement.

Next, look into some disability insurance. As an entertainer, it is challenging to get and a little on the expensive side. However, it can be a significant windfall should some problems arise and you cannot physically do your job. A competent insurance agent who specializes in the music business can help you walk through these options.

Success in the music business is hard to achieve. The competition is steep and many times the success is a narrow moment of time of your life. Those in the business that live a healthy, prudent life plan accordingly. We like to say, “if you protect the downside of your career, the upside will take care of itself.”

Best of luck! If you have any questions or would like some guidance, give us a ring. We'd be happy to help.

Any opinions are those of McCall & Associates and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The investments mentioned may not be suitable for all investors. Raymond James and its advisors do not provide tax or legal advice. Be sure to consult with the appropriate professional in regards to your particular situation.

End of Year Financial Checklist

In my house, we do our grocery shopping once a week. My wife and I will sit down on Sunday, explore recipe options, and decide what to buy at the store to make it through the week.

The problem with the grocery store is that there are so many options. Organic or regular? Fresh or frozen? American or Swiss? Not to mention the items in the store that look so attractive when we’re walking up and down the aisles. If I go to the grocery store hungry, my bill seems to double somehow!

So how do we avoid the lure of the cookies, frozen pizza or candy at the check out counter? We make a list and stick to it. By narrowing our focus, we’re able to block out the distractions and get in and out efficiently. While we may not be able to find everything on the list (why would the baking nuts and canned nuts not be in the same aisle?!), we’ll at least know our plan of attack when we walk through the doors. 

To narrow our focus as we near the end of 2021, we have developed a “grocery list” of items you need to take care of before December 31st. An “End of Year Checklist”, if you will, that will help guide you up and down the aisles of year-end financial planning. While some will be financially “gluten-free” and need alterations or addendums to this list, it’s a great place to start.

So, grab a pencil and start crossing stuff off. 

Insurance

- Make sure your home, auto, health, umbrella, life, and any other insurance policies reflect the coverage you need. With salaries and home prices on the rise, you may need to make slight adjustments. Insurance needs to protect you in the event of a loss.

Taxes

- Contribute to retirement plans (401k, IRA, Roth IRA, Simple IRA, etc.)

- Take advantage of any available tax deductions

- Harvest losses in your portfolio where it makes sense

- Meet with your CPA before Thanksgiving to maximize tax strategy

- If you are over 72, make sure you take your Required Minimum Distribution (RMD) before January 1st

Health Savings Accounts

- Check with your FSA provider to see if you can roll over the balance into 2022. If you can’t, use it. Don’t lose it.

- If possible, max out your HSA for 2021 if you are covered by an eligible health plan. The contribution limit is $3,600 for an individual and $7,200 for a family. Contributions are tax-deductible, grow tax-free, and are distributed tax-free for qualified medical expenses. After age 65, distributions can be taken for any reason, but are subject to ordinary income tax. 

Gifts

- If you are gifting to an individual, complete the gift by the end of 2021 to take advantage of the annual exclusion ($15,000 per giver, per recipient). If you wish to give more, consider giving at the end of 2021 and beginning of 2022.

- Contribute to College Savings accounts

- If you are philanthropic, make sure you gift to 501(c)(3) organizations before the end of the year to reap the tax benefits.

Spend Time with Family

This last topic isn’t as much of a check off item as it is a call to action. A lot of families have spent less time together than ever before due to the pandemic. Be intentional about spending time with those you love. Take the vacation. Invest in your family. Love and cherish those around you. 

Here at McCall & Associates, we have the unique privilege to help families walk through this checklist and so much more. If you have a need, feel free to reach out to us here, or give us a call at 615.370.4040. 

60/40 vs 80/20 portfolio: What is the Right Stock to Bond Ratio for My Investment Portfolio?

Here at McCall & Associates, we’re big football fans. Steve grew up a Razorbacks fan, and Barry rides hard for the Vols. Personally, I bleed two toned blue (as an aside, Derrick Henry should be in the MVP conversation!). 

There are a lot of different ways to build a football team. Here are a few of my favorites:

• 2000 Baltimore Ravens: This team had one of the best defenses of all time. The Super Bowl champions allowed 9.4 points per game, best in the league

• 2013 Denver Broncos: They rewrote the record books. The Broncos scored 606 points during the regular season, averaging 10.1 points per game more than the next best team. Peyton Manning broke the single season record of passing yards and touchdown passes. 

While both teams were impressive, they were built very differently. The Ravens loaded up on defense and neglected offense to some degree. In fact, the Raven’s offense went 5 consecutive weeks without scoring a touchdown. The Broncos had an incredible offense, but were stymied by the Seahawks in the Super Bowl, losing 43-8.

The point is, there isn’t a perfect way to build an NFL team, just like there isn’t a perfect way to build a portfolio. 

Selecting investments is a balance of risk vs reward. That begs the question: Should you build your team like the Ravens and minimize the downside or like the Broncos and shoot for upside? Let’s dig in. 

Should my portfolio be 80% stocks / 20% bonds or 60% stocks / 40% bonds?

This is not a question about which allocation percentage will perform the best over the long-term. It’s more about how much risk an investor should take on in their portfolio. Instead of answering this question in general, let’s look at it during two phases. The building phase and the distribution phase.

The building phase for an investor is the accumulation of assets during your working years. Investors are compiling assets during this stage, needing their assets to grow for retirement. Due to the growth nature of this phase, we advise our clients to take on as much risk they are comfortable with to allow for the maximum amount of growth. If an investor is okay with the volatility that comes with a stock portfolio, it will historically allow for more growth before retirement. 

In contrast, the distribution phase happens when you enter retirement and begin to live off of your assets. When our clients reach this stage, we like to pull back their risk to reduce volatility in the portfolio. Even though interest rates are low, investment grade bonds offer a buoy during a stock market downturn. We operate off of a total return philosophy. Some investors view their performance solely based on interest and dividends. We account for those, as well as the growth of the investments. 

No matter the stage, the important thing to remember is that there isn’t a right or wrong allocation. Your asset allocation should be fluid throughout your investing life. This will allow you to take advantage of the current market.

The Bottom Line

The asset allocation of your portfolio should be a lot less about market strategy, and a lot more about risk tolerance. If a 60% stock/40% bond portfolio allows an investor to achieve their goals and aligns with their risk, that’s the right allocation. If an investor can stomach a little more risk, a 80% stock / 20% bond portfolio would be more applicable. 

Like an NFL GM, we can help build your portfolio based on your goals and desires. If your situation calls for a stellar defense, we have the ability to put that in place. We can also implement an offensive or balanced strategy if your situation calls for it. To get in touch with one of our advisors, click here. 

Any opinions are those of Austin Coley, CFP® and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.