Raise your hand if you’re an artist and struggle financially.
For many of us, an artwork by Salvador Dali makes way better sense than those boring complex charts with numbers and figures. Plus, Dali’s works are great to look at!
However, we creative folks could use a little bit of financial literacy so that we don’t make bad money decisions or worst, get duped by greedy and cunning opportunists.
Personal finance is actually really easy to understand if you know the basics.
Luckily, you’re at the right place. I’ll share with you all I know through this simplified but comprehensive post.
Before we begin, I must make it clear to you that I am not a certified personal financial planner.
However, due to my personal experience, interest in personal finance, regular research on the topic, and speaking to like-minded individuals on financial matters, I believe one does not require a certificate or a degree or an MBA to share with others the basics on saving money.
The reason I’m writing this post is because just like many creatives, numbers scared me so I never took the pains to learn about personal finance. Plus, I also used to believe in this silly dogma that money is the root cause of all evil. I’ve explained more here.
It was only until I became a father I realised the folly of my ways. I was working at a renowned art centre a couple of years ago. During this time, I knew peanuts about financial planning, let alone budgeting my expenses and saving money.
So every month, I hardly broke even. This led me to become demotivated and depressed because I began feeling utterly useless as a dad and husband.
During this period, I observed that there were many creatives like me who struggled to make ends meet. Many are exceptionally talented and brilliantly creative. Sadly, just like me, they lacked the required financial knowledge.
My interest in personal growth led me to observe and learn more about these creatives. Here’s when I discovered that there are generally four types of artists based on their financial knowledge and wealth status.
It’s common to find artists in this category. A huge number of them are talented and hold great potential if they were to hone their skills and craft.
A handful of them do work on their craft tirelessly in hopes that some day they get noticed for their talent and make it big. Until then, they struggle to bring food to the table, pay their rent and bills. Some even get mired with personal loans and credit card debts.
It’s no fun to be in this category. Even more so if you’re a married creative. This category of artists is why I am writing this post in hopes they learn the basics of personal finance.
These types are often the ones who would regularly spout, “Do what you love and the money will follow” crap.
They can afford to say this because they’re either from well to do families, have financially supportive parents and siblings, have some inheritance monies or lack financial responsibilities. It’s easy for them to pursue a full time career in the arts because they don’t really have too many responsibilities on their shoulders.
However, their lack of knowledge in personal finance can cost them dearly in the long run. Knowledge in personal finance is not only about ways to grow wealth, but also ensuring that your wealth lasts for years.
Artists from this category are generally resourceful and extremely determined. Information is always at their fingertips be it regarding money management, budgeting, marketing, how to apply for grants and funds etc. Often, they’re not shy to share what they know.
Most successful artists are from this category. These artists value hard work and are disciplined to get shit done. To date, I’ve only met a handful of such talented individuals. One of them is on his way to becoming a certified financial planner.
Many from this category have jobs on the side to sustain themselves and their families financially. Life is certainly not rosy for them but they make it happen somehow because they’re a practical bunch and also entrepreneurial.
This is a rare breed. You wouldn’t realise they exist because they don’t boast about their wealth. You wouldn’t know they come from wealthy families until someone silently points out to you that their dad or mum is so and so.
Majority of them are full time artists because they’re either financially supported by their families, relatives or through their own personal investments and family inheritance.
Because they understand the value in money and the arts, many are extremely entrepreneurial in that they have side businesses while pursuing a full time career in the arts.
Just how are they able to do this? We’ve finally arrived at the crux of this post.
It’s all thanks to saving money and then investing. Investing is how you choose to live your life today with the intent of having a desirable outcome tomorrow be it for yourself or your kids.
While the word is commonly associated with money, investing also applies to time and energy. From your favourite hobby to sport, to a television series to music and dance, to food and drinks and even relationships; how you choose to invest your time and energy is a great indicator of how you’ll be investing your money.
Yes, there are good and bad investments too. Such is life.
Before we dive in further on the steps to save money, here are five easy to understand terms you have to familiarise yourself with first.
I first came across these terms when I read Robert Kiyosaki’s Rich Dad Poor Dad. It was the first book I read on personal finance that got me thinking.
Robert’s book opened my eyes thanks to his easy to understand, simple explanation on a daunting subject. I discovered these terms from his book.
I recommend it to anyone who wishes to learn the basics of personal finance.
These are objects, people and traits that bring you returns in terms of money, knowledge, skills, ideas, and productivity.
A guitar is a great asset. Ink pen and drawing pads are assets too because you can use them to make a living. That YouTube channel that you run is a terrific asset. A skill in singing or acting is an amazing asset to have. The ability to manage people and multitask is also an asset. A motivating friend is always a valuable asset.
Financially, assets come in the form of properties, stocks, bonds, commodities, fixed deposits and intellectual properties such as artworks, music, books, and more. In money speak, these are called asset classes or types of investments. More on them later in this post.
TL/DR: Assets put money into your pocket. It is always wise to own as many assets as possible.
Liabilities on the other hand take out money, time and energy out of your pocket.
They’re essentially financial responsibilities in the form of credit card debt, student loans, car loan, monthly bills, rent or mortgage, that friend who leeches money from you and never returns it, that abusive partner, your own negative traits and habits.
Financially, anything that takes out money from your pocket and does not give equal or higher returns to you is a liability. Properties are generally considered good debt but only if the returns you generate through rent is higher than the mortgage loan.
TL/DR: Liabilities take money out of your pocket. They’re best avoided.
Based on the two terms above, this is how we can calculate how much you’re worth, financially that is.
If something were to happen to you and you pass on, this is essentially the amount of money your family will receive after all your liabilities are subtracted.
So the next time you see someone driving a posh looking car, remember this calculation. They might not be as rich as they appear.
TL/DR: Total Assets – Total Liabilities = Your Net Worth.
The only logical way to save money is by getting some of them into your pocket first. Majority of the people in the world do it by working their socks off. This is called Active Income.
It could be a full time job or a part time, freelance or contractual stint. It could even be a gig at the local hangout spot or performance at an event or an illustration or writing project for a company.
So long as you actively put in regular effort in exchange for money, it is considered Active Income.
No active effort = no money. So when you lose your job or when you no longer actively look for work, you’ll find yourself short on cash.
TL/DR: Active Income is money you earn through regular work.
The wealthy, however, make their money work for them through the investments they make. This is called Passive Income.
Unlike Active Income where you have to put in regular effort to bring money into your pocket actively, Passive Income requires immense effort at the initial stage or minimal effort occasionally.
A good example is a YouTube channel. You put in immense initial effort in the beginning to create a video. Once it reaches more than a thousand views, the video starts generating money through ads.
Self publishing a book is another form of Passive Income. And it works. This writer on the other hand has turned it into a full time gig.
As with anything in life, you must put in effort in the beginning in order to enjoy the returns passively later.
The goal of passive income is to be able to support yourself through the investments you make. In other words, you no longer need to work for a salary.
Ideally, we should be generating passive income that is more than how much we’re spending per-year. Financially abundant people usually have six to seven passive income streams.
TL/DR: Passive Income is earning money through minimal effort.
With many jobs set to be automated in the very near future, many will be out of jobs.
Those with intelligence and financially smarts will rely on their investments to be financially sustainable when this happens.
I have often pondered how humans of the future would spend their time when they no longer need to work in the conventional way. As I thought deeper, I realised that in the future art spaces will play a huge role in providing quality life experience to people.
In fact, while art is commonly disapproved as a profession today, in 10 to 20 years time, I foresee it no longer being the case. While Artificial Intelligence might take over jobs, people will flock to the arts to remind themselves that in the end, they’re only human.
I foresee the arts becoming a lucrative full time career for many talented individuals. However, I also see many creatives possibly making similar bad decisions as the other greats of the past when it comes to money.
There’s a reason why the stereotype that artists are poor still permeates. I want you to help me break this stigma.
All you got to do as an artist is to take interest in your personal finance and possess an entrepreneurial mindset.
For starters, if you do not have any emergency savings set up, this should be your number one priority. Ideally, you should have savings that can cover you financially for a year of your monthly expenses.
For example, if your monthly expenses is at RM1,500, you should save up to RM18,000 to be safe financially for a year.
Do not touch these monies unless an emergency happens. This money will come in handy when you lose your job or get into a life threatening accident.
If you’ve saved up for rainy days, give yourself a pat on the back. Now you can opt to save for other targets such as retirement, marriage, a house or for investing purposes.
Write your goal down and place it in a location where you can see it everyday. It could be your room wall or your phone’s wallpaper. Whichever works for you!
So long as you have a reason and a goal, you’re all set for the next step.
If you have high interest monthly debts (6% and above) such as credit card or personal loans, paying them off should ideally be your primary focus before setting up your emergency fund.
If you’ve been refinancing your car loans and student loans, continue doing that while saving for your emergency savings. This is because the interest rates are not amortized. So even if you pay more than what is required a month, you will still have to pay the total interest of the loan.
Credit card debts and personal loans have higher interest rates (more than 6%) and failure to pay them monthly can see the interests rack up.
Here’s a handy calculator to calculate how much interest you’re paying for your debts.
Before you can start saving portions of your monthly earnings, you have to know where exactly your money goes on a daily and monthly basis.
I am using a free personal finance management app called Monefy. Through this app, all of my spending are tracked and categorized. From loans, to utility, bills, to money spent on food and entertainment, so long as you find yourself spending money, always make it a point to record it through this app.
By the end of the month, you’ll have a better picture of your monthly expenses. This will help you tremendously in the next step.
By this point, you’ll have a better idea on the unnecessary expenses that you should cut or reduce in order to save more.
Sometimes the tiniest amount of expenses can compound to form larger liabilities. Perhaps it’s time to cut down on your coffee drinking or smoking habit if you see that a significant chunk of your earnings go there.
If you’re a regular phone user, maybe it’s time to opt for a cheaper post-paid plan. Is Netflix eating into your expenses? Maybe it’s time to share passwords. Does anyone in your family still watch Astro? Maybe it’s time to consider cancelling it.
The idea is to be as frugal as possible. The unnecessary expenses you cut will provide you more money to pay off your debts or save.
Through this step, you’ll have a more realistic picture of how much you can save.
Ideally, you should be saving at least 30% of your salary each month. Thanks to online banking, the portion you want to save can be automated into your savings account.
Remember to pay yourself first before spending away your earnings.
If you have trouble allocating even 10% to save, try figuring out ways to increase your earnings. Perhaps take on more side gigs or freelance work. You might even have to consider looking for a better paying job in the worst case scenario.
Another important thing to do is to set up a retirement fund. For Malaysians, we have the Employees’ Provident Fund (EPF), Singaporeans have the Central Provident Fund (CPF) and those from the United States, you guys have the 401(k) plan.
Ensure that your employers are regularly contributing to this fund. In fact, some percentage of your salary should go into this fund. Do not touch this money. Let it grow.
To ensure that you’re on track to meet your end target, it’s always good to keep yourself up to date at least once a month.
Pick a day when you’re free. For me, it’s usually after I receive my pay check when I’m paying my monthly bills.
There are various ways to track your expenses. There are free to download bookkeeping software as well.
I’ve also created an Excel sheet which I’ve been using for myself. It’s not much but it does the job.
While you’re patiently saving up to reach your target, invest at least an hour or two daily to beef up your knowledge on personal finance.
There are so many bloggers who you can follow online who write stuff on personal finance in a fun to read and easy manner.
I would personally recommend Ringgit Oh Ringgit, No Money Lah, Investment Moats, Dividend Magic, and Mr-Stingy. They’re by far my personal favorites. Reading just these four websites within the span of close to a year has increased my knowledge and view on personal finance tremendously.
I also recommend reading books and podcasts on personal finance as well.
Once you’ve hit your target of saving for an emergency fund, it’s best to get yourself insured.
Think of your life as a real time strategy game. You need to set up defenses against any eventualities based on the lifestyle or career you have.
The insurance coverage will come in handy in the event anything unforeseen circumstances happens. Here are types of insurance available. If you do not know which one to pick, don’t fret. You’re not alone.
Once you’ve settled your high interest debts, saved up for rainy days, and got yourself insurance, it’s time to grow your money.
Investing your money comes with risks. They range from low risk investments such as fixed deposits to high risk investments such as get rich quick scams.
It’s crucial to know if the investment products and organizations are legit. Thankfully, I’ve done the leg work for you. Bookmark these links:
The above links are for Malaysians only. Use them to check if you’re making good money making decisions.
Now, a good rule of thumb when it comes to investments is this: Investments with the lowest risks usually yield the lowest returns. The higher the risk, the higher the returns.
Here’s a list of common investments ranked from the lowest risk, medium risk to highest risk.
How it works: Instead of saving money in a piggy bank, you’re putting money in an actual bank. Some banks would require an introducer to open an account. Others are pretty flexible.
Returns: 0.2% to 4.1%* p.a. (per-annum)
Risk level: Extremely low risk and highly liquid – meaning you can easily cash out. The only thing you have to make sure is if the bank is insured by the government. For Malaysia’s case, the Malaysian Deposit Insurance Corporation (PIDM) oversees this. Banks usually list this info on their websites.
*Hot Tip:Some banks have additional caveat if you want to enjoy their returns. Most banks require you to have specific amount of funds (usually RM1,000) remaining in your savings account at the end of the month or year in order to fully benefit their interest rates. Since interest rates fluctuate from time to time, bookmark this website to keep yourself updated on the latest rates.
What is it: Banks are in the business of “taking care” of people’s money. When you park your money for a certain amount of time as Fixed Deposits, these monies are lent out to others in the form of loans. This is how the returns are credited to you at the end of your tenure which you can decide to be between a month to five-years.
Returns: 2.75% to 4.1%* p.a.
Risk level: Extremely low risk but not liquid. If you want to cash out before your Fixed Deposit matures, a penalty might be imposed. Plus, if you do that, you would not obtain the returns you desired. Only put in your money into Fixed Deposits if you know you that would not be needing them for a long time.
*Hot Tip: Be extra vigilant to read the fine print when you come across promotions that scream you can generate xx% returns if you put your money in for xx months. Most of the time, your returns are calculated on a per-annum basis. For example, if a bank offers 5% p.a. for 3 months, your actual returns will be: (5 / 12 months) 3 months = 1.25%. Now you know why maths is so important. Click here to check out the latest rates.
Employees Provident Fund aka Mandatory Retirement Fund
What is it: A mandatory retirement fund managed by a government agency. Typically employers contribute 11% while you contribute 12% from your earnings to your EPF. These monies are then invested in various other investments such as Fixed Deposits, Bonds and Stocks. Since these are people’s retirement money, these funds are usually invested in low risk investments.
Returns: 2.50% to 8.50%*
Risk level: Low risk but not as liquid. You will only receive your EPF monies once you retire. However, recently the government has made it a little more flexible by allowing account holders to use portions of their funds to pay off their education loans and purchase houses.
*Hot Tip: Many don’t realise that the EPF is the best investment there is for beginners. Historically, Malaysia’s EPF has successfully generated 6.34% average returns on a yearly basis for the past 30 years – considered as among the best in the world. It has an all time average record of 5.97%. So my advice is do not touch your EPF funds no matter what. Through compound interest, your money will grow over time.
What is it: Companies and governments need money to operate. So they look for money from people like you and me by issuing bonds. The bank only acts as a third person to facilitate this process. You make money through the interest made on your principle.
Returns: 4% to 9%
Risk level: Due to the various types of bonds, from the low risk AAA rated bonds to extremely high risk junk bonds, I consider bonds as medium risk investments. You have to do thorough research before deciding on investing in bonds. The good news is, in the event a company capitulates, bond issuers are the ones paid first. Still, I would recommend reading up before investing.
*Hot Tip: The old adage, the higher the returns, the higher the risk applies to bonds too.
What is it: Basically a large number of people give their money to an investment firm to be pooled together and then invested in various assets ranging from fixed deposits to bonds to stocks.
Returns: 1% to 8%
Risk level: Unit trusts aka mutual funds come with their own set of risks. From the experience and expertise of people handling your money to exorbitantly high fees to manage your funds. It is always wise to know what your risk tolerance and risk appetite is. I would recommend unit trusts to folks who are busy with their life and prefer someone else doing their investment for them.
*Hot Tip: Instead of unit trusts, I would recommend you to invest in Amanah Saham Nasional Berhad (ASNB). It’s the best investment you can ever make because of its good historical track record and zero service fees. Here’s a good article explaining why.
What is it: This is another way companies raise money to run their operations. They list their companies on the stock market so that regular folks like you and me can purchase a small percentage of ownership. So when the company makes profit, some of them usually release these profits to their stakeholders in the form of dividends.
Returns: 3% to 10%
Risk level: Because stocks are an unpredictable investment and many have historically lost their money for not doing thorough research, stocks are generally considered high risk investments. There are moderate risk ones too such as REITS and ETFs.
*Hot Tip: When you read about stocks, you’ll come across these terms, “bullish” and “bearish“. The bull represents the upward trend of stock prices (meaning lots of folks are purchasing a particular stock) while the bear represents a downward trend (many are selling their stocks).
Real Estate / Property
What is it: You buy a property not to live but to rent. Some folks hold on to these properties, renting them out and sell them at a later time when the prices has gone up.
Returns: 3 to 10%
Risk level: Because owning a property requires a huge down payment and not to mention the various risks involved such as bank loan and finding tenants, investing in properties is high risk.
*Hot Tip: While many of our elders would say that owning a property is a good investment because property prices increases over the years, it’s not always the case. The U.S. experienced this in 2008.
What is it: Just like bonds, only you borrow money to companies directly without the involvement of banks. There are various online platforms such as Funding Societies and Fundaztic which allow regular folks such as you and me to lend companies to run their businesses. You make money through the interest made on your principle at the end of the term.
Returns: 8% to 12%
Risk level: Because borrowing money is generally a risky investment, there have been cases of companies defaulting on their payment.
*Hot Tip: Thankfully, platforms such as Funding Societies provide a break down of a company’s financial health so that investors are better informed when lending their money.
What is it: Okay, this is certainly not my domain. All I know is that you own a digital currency such as Bitcoin and Ethereum which does not provide any dividends and you pray that the price of that… thing goes up.
Returns: -60% to 300%
Risk level: Because we’re still wrapping our heads around this brand new investment type, cryptocurrency is something best left for the experts. You can read more about it here.
*Hot Tip: If you don’t know what you’re doing, avoid it at all cost.
There are other asset classes too such as precious metals (gold, silver, jewels), collectables such as Lego toys to even fine art and sculptures.
Phew! If you read all the way here, it means that you’re serious in bettering yourself financially. I had spent close to a month working on this post because this is a topic that is close to my heart.
I want to see other artists succeed, so I hope this post benefits you. If you’re in a financially worst place, it gets better so long as you put your mind, effort and time at wanting to claw out from where you are. It is possible.
By the way, for those who’re more knowledgeable, please let me know if I left out anything or made any mistake in this post.
I leave you with my final thoughts on this subject: As much as money shouldn’t be the end goal of things, it certainly helps to be aware of its implications in our lives.
Stay creative, stay financially literate as well. Feel free to share it with anyone from the creative industry who you see could benefit from this post. We have to help each other out.