If you took a financial hit in the past few years, you’re definitely not alone. Millions of people lost their jobs or had their income reduced due to covid. Particularly people in arts/music/performance, freelance, service industry and gig economy. Like me, you may have received PPP or disaster relief loans. Also like me you probably did a bit of online retail therapy during all that time spent indoors. Regardless of where your finances are at in the end of this year id like to share with you my priority check list that I look at to make sure I am starting the new year off on the right financial foot.
By the way, any services or businesses I mention here are only because I actually use them and find immense value in what they have to offer. I am not sponsored by any of them and I am not receiving any kickbacks of any kind.
(In this article I cover Taxes, Debt, and saving for the future. Feel free to skip down to whichever section you are most interested in reading about)
Let's start with taxes since that’s right around the corner. Over the past few years, doing my taxes has gone from being up there with root canals and colonoscopy to feeling more like taking out the trash on a rainy day. It's never going to be fun, but I have some tips to help make it far less painful.
Last year I started using Quickbooks Self employed. They have an easy to use app and It made organizing my expenses so easy I was concerned that I was doing it wrong. Before using Quickbooks Self Employed, what I would do was make a full pot of very strong coffee and then sift through all my bank statements and credit card statements with a highlighter and after about 5-6 hours id feel completely depleted and defeated. My head would hurt and a knot of stress would lodge itself in my chest and at that point I knew I was about half way done. After downloading the Quickbooks self employed app I linked my accounts and then did some swiping left and right on my different expenses to put things in their proper categories and in less than 1 hour I had categorized an entire years worth of business expenses and knew exactly how much profit I made. I wish I had started using quick books the at the same time I opened up my tattoo studio because it would have saved me a ton of time and stress. I also use it to keep track of receipts. it's easy to snap a photo or forward all email receipts to the app and it links them to the right expense. No more shoving receipts in a shoebox for me!
When it comes to paying my taxes, I have a separate savings account that I use to automatically put money away every week for taxes. I find this the easiest way to make sure that I’m not scrambling to pay my quarterly estimated taxes. When my tax professional files my taxes we discuss what I should estimate my next years income and taxes to be. This way I can simply divide the quarterly estimated number into a smaller weekly number and then set up a weekly auto transfer of that amount into my tax account. If you are self employed and you don’t have a separate business account as well as a separate tax account you are setting yourself up for trouble and stress in the future. Make 2021 the year you bring clarity and simplicity to your finances. I find by doing this I stress less about money and have more time and energy to focus on art, family, and enjoying my life.
By the way, I am seriously stoked about my accountant and want to give a shoutout to Hannah from Sunlight Tax. Not only is she a wise tax professional who is easy to talk to, she is also a professional artist and is as passionate as I am about helping artists and freelancers become financially successful. She also leads these rad seminars and bootcamps to teach people how to take advantage of as many of the (perfectly legal) methods for reducing your taxes and how to avoid red flags that may lead to getting audited. Interested? don’t hesitate to contact her because I know she gets busy this time of year!
Entering 2021 with a solid plan for taxes is a huge step in the right direction. Now what do we do about these loans and debt that we might have taken on in this past year to help us and our businesses survive this difficult time. There is no shame in using debt to help get through a rough patch. In fact I don’t believe there is any shame in debt PERIOD! so don’t beat yourself up, but don't brush it off either. If you want some help you can download this free Debt Payoff Planner. Enter in all your debt information and it will show you several debt pay off strategies that suite different peoples needs and personalities. It will tell you exactly how much to put toward each debt depending on how much you can afford to pay. It will also calculate how long it will take to pay down all your debts and how much interest you will pay over that period of time. Having clarity around debts is essential for getting serious about paying them down and becoming debt free. Download the sheet now and then set aside some time (30 -45 min should be plenty) in the next few days to sit down and fill it out. Select a plan and update the sheet once a month or every other month to see your progress.
Want to get real serious about knocking out credit card debt? Then take the ice Tupperware credit card challenge! No you don’t have to dump a Tupperware full of ice and credit cards on your head. First, unlink all your credit cards from all auto pay accounts, your phone and any other devices. Then put all of your credit cards in a Tupperware and fill it with water and put it in the freezer. Break ice only incase of emergencies!
Ok, now that I’ve set myself up for success with my taxes and created a plan for paying off my debts, it time to make sure I am paying myself first by paying my savings account before I pay anything els.
Saving money for the future is something we all know we should do but so many of us struggle with it. learning how to save money is really no different than learning any other skill. It simply takes practice, start slow small and steady. It doesn’t matter how much or how little you earn either. In fact its not uncommon for people with six figure incomes to have little or no money saved. I do not make six figures (yet) and I live in one of the most expensive cities in the world, I pay for child care and car payments and I still manage to save almost 20% of my income. I’m not “naturally good” with money either, in fact I used to be terrible with money. So how does someone making a very average income in a very expensive city with above average expenses save money? I pay my savings account first before paying for my wants and needs and I set my bank accounts to automatically place my savings in multiple separate accounts to make it as inconvenient as possible to get to my own money.
Yep, you want to make it as difficult, inconvenient and annoying as possible to access your savings. If you wanted to eat some cookies right now, but to get the cookies you had to log onto a website and wait 3-4 days to receive the cookies, you would probably just forgo eating cookies and settle for whatever snacks you have in your kitchen, am I right? Ideally you would want to find a small, online only bank or credit union, preferably one with terrible app support and poor customer service. I like Vio bank for this. Their app is clunky and unintuitive. The one time I called them I waited 25 minutes to speak with a customer support person, its awesome! They are FDIC insured so your money is safe and they actually have some of the highest interest rates compared to other savings accounts. Set up automatic transfers into a savings account and then forget you even have that account. I actually use multiple different banks to make it even more inconvenient to access my savings. The harder it is to get to my money the easier it is to save money. I recommend saving at least 10% of your income but starting with 5% is better than not starting at all. Set up transfers for as often as you like. Since I get paid frequently throughout the week I set mine up to happen once a week. I don’t even notice the money is gone and over time I am able to easily save up for my bigger goals in life.
Creating simple, automatic systems for taxes, debt and saving money is how I set myself up for financial success. Its hard to make financial decisions but if my most important decisions are being made for me by systems I put in place then I am less likely to mess things up. If I don’t set up these systems, I am almost certain to mess things up. I have to accept the truth which is that I am a scatterbrained, emotional, passionate, creative human being and that’s what makes me such a great artist and I’m never going to change that. What is in my control to change is the systems that I can create that do the right thing for me so my actions in the present don’t get in the way of my goals for the future.
If after reading this you find you are still struggling to set up systems that support your financial needs don’t feel like you need to do this alone! Set up a free 1:1 Financial Clarity Session so we can look at what your goals are and how you can achieve them sooner rather than later.