Financial Management for Musicians Part II: How To Create a Financial Plan

In my previous blog post on financial management for musicians, I outlined the basics of acquiring financial literacy.  The next step is to put this information together and to make a financial plan.

When we did this exercise in my class, my students were encouraged by this process since it enabled them to take the amorphous concept of “How do I make money as a musician????” and break it down into manageable action steps that they could begin working on right now. Not only did this seem doable but my students were actually excited about engaging in the process.  Armed with this knowledge, they felt ready to take themselves seriously as professionals by adopting the mindset of a business owner.

So let’s take a look at the process in greater detail.

1.    Set career goals based on best assumptions

Good financial planning starts by examining your career goals and figuring out how to generate the income to make those goals happen.   As my students found, if you have created the right kind of career goals-goals that are both inspiring and doable —you will be motivated to make them happen!

Project yourself into the future to the time that you are graduating from school and planning your next year.  How will you earn money?

This requires you to make assumptions about what you are doing. You make your best guess based on those assumptions and then make corrections to your plan as reality unfolds.
Be sure to include an honest assessment of your tolerance for risk and uncertainty.  In today’s music world, a full-time salaried position with benefits is the exception rather than the rule.  So how are you going to manage this lack of security?

For example, many of my students would like to play in an orchestra, which is based on the assumption of winning an orchestra job.  Some students were comfortable making this assumption.  Others felt that there was too much uncertainty in planning on an orchestra job so they examined other ways that they could earn their livelihood from music, such as forming their own ensembles, earning a DMA and then teaching and having a private studio. This, in fact, reflects the reality that most musicians have multiple streams of revenues.

2.    Calculate Your Annual Expenses

With your career goals in front of you and your assumptions at hand, you then make a budget that reflects your best estimate of  living and career-related expenses. 
Be sure to factor in where you will be living since this makes a big difference in your expenses.  Rent in New Haven is much lower than rent in New York City so a lot of students decided to base themselves in New Haven.  Others compared living in the Northeast to living in the Midwest.  And things like living in a city where you do not have to have a care versus living in an area where a car is a necessity will also influence your expenses.  For a handy cost-of-living calculator, consult this handy tool!

3.    Select your revenue streams

For the next step, you need to consider which revenue streams you can tap into in order to support yourself as a musician.
Musicians have a lot of options for making money!  Select the revenue streams that align best with your abilities and skill sets.  If there is something that tempts you but you do not know how to achieve it, set a goal!
Here is a sample revenue streams that my students came up with:
•    Orchestra performances
•    Solo concerts
•    Percussion Quartet concerts
•    String Quartet concerts
•    Weddings
•    Private Parties
•    House Concerts
•    Café concerts
•    Private lessons
•    Summer festivals
•    University teaching
•    Teaching at a local community college
•    Teaching Assistant
•    Selling reeds
•    Coaching musicians on performance anxiety
•    Working for an El Sistema Orchestra
•    Fellowships
•    Prizes, Awards and Grants
•    Workshops
•    Master classes
•    CD sales at concerts
•    Royalties from CD’s
•    Part-time office job

4.    Research the salary ranges of your of revenue-generating activities

Next, figure out how much money you can make from each of your revenue streams. If you are already deriving income from performing or teaching, you know how much you can earn per gig or how much you can charge for an hour-long lesson.  In addition, Berklee College of Music has assembled an excellent handout on the salary ranges for musicians.

5.    Calculate your annual income

Now it is time to calculate your annual income.  For each revenue stream, identify the charge per service, the number of services per month and the number of months per year to derive your annual income from this revenue stream.  And be sure to be realistic about how often you can perform or how many students you can handle!

Let’s say that you currently sub for your local orchestra and each time, you earn $100.  On average, you sub twice a month and you perform 10 months/year.  Next year, you will be pursuing your DMA and you assume that you will have more time to perform so that you will give 4 performances a month.  Your income from orchestra performances is calculated as follows:

$100(charge per service) x 4 (services per month) x 10 (months per year) =$4,000

Do this for each of your revenue streams.

If the total of all of your revenue streams falls short of your annual expenses, think about other ways to derive income.  Can you add more students?  Charge more per hour?  Find new performance opportunities?  Now you are thinking like an entrepreneur!

6.    Decide on your strategies

Now it is time to take action.  How are you going to generate these revenues?

For example, if your goal is to be a freelance musician in New York City, what strategies can you employ to find performance opportunities?
Here are a few ideas:

•    Network with friends and acquaintances who are already freelancing in NYC and let them know of your interest and availability
•    Ask your teachers and mentors for suggestions of performance opportunities in NYC
•    Take a lesson with a prominent NYC-based musician who performs a lot
•    Circulate your CD to presenters
•    Go to concerts of groups whom you would like to play with and meet the performers afterwards

Then, take action each week.  Set a SMART-goal around each strategy.  How many friends will you network with?  When and where?  Write down an action in your calendar and keep moving forward!

7.    Review and update your plan

The final step is to review your financial plan on a regular basis to chart your progress.  How well are those assumptions playing out?  Did you overestimate the number of gigs per month?  If so, what can you do to increase the number?  What else can you do to make up the shortfall in income so that you stay on track?

By following this process, you can see how your career path plays out financially.  The idea is to set short-term goals that enable you to get closer to your career goals, have the experience, evaluate how you enjoy that and how successful you are and rechart your course if you do not meet your goals (because your assumptions did not turn out the way your thought.  And that’s okay.   Because you know the underlying assumptions and the minute those assumptions stop being true, you can course correct.

Bottom line:

Not only is the process of making a financial plan doable, but also it is also critical to being a successful entrepreneur.  So put on your entrepreneurial hat and make your financial plan today!