Earning a living is hard enough without being a musician.  

Here are 3 essential things you can do to be as financially stable as possible in the short and long-term. 

1. Unless they have rewards or benefits, don’t use cash, checks or debit cards to pay for anything

Currently, it’s possible to avoid using cash or a debit card almost everywhere in the United States and in many locations world-wide.

With the hundreds of excellent credit cards out there and significant rewards in categories ranging from hotels and flights, to cash back, to points which you can use in many different places,  there’s no reason to pay with cash or a debit card.  If you are, you’re wasting your resources, missing out on free benefits, and passing on a critical opportunity to build credit, unless that debit card comes with some pretty serious benefits. 

In addition, you will need to have excellent credit as a musician if you ever hope to buy anything that requires a credit check.  As freelancers, financial institutions do not like to deal with us because we often don’t have that stable 9-5 job with a W2 tax form at the end of the year.  

This means you won’t be able to do certain things financially, or it will cost you more. 

2.  Start a retirement account and a Roth IRA, NOW! 

If you don’t already have one, start both of these accounts today.  Start an HSA if you can as well.  You will need all of them.  Compound interest doesn’t do a lot of good if you start taking advantage of it’s full potential at age 50 or 60 when you are winding down your music career, however, it will be the single greatest tool you can take advantage of to ensure you don’t outlive your money. 

If you are not earning a ton of money, sacrifice as much as you can and invest it in both of these accounts right right now and every month. 

If you’re earring a lot of money, max both the Roth and the Retirement account (401k) every single year without fail.  

If you still have money left over, max out the HSA account after you have saved up at least 6 months worth of living expenses.

If you still have money left over, set up a low cost investment account, separate from all three and make that money start to work for you.   A simple investment strategy is to select a few index funds, and don’t give it another thought except to add to it as frequently as possible. 

When you sign up for these accounts, make sure you do it with an organization that uses fiduciaries so they are helping you to make the most of your investments. They are legally required to advise you with what is best for you in mind, not what’s best for them. 

If you don’t find a way to set up these accounts, you will end up working in to your 70’s possibly later, and will have nothing to live on in retirement.  Not a place you want to be.  

3.  Form an LLC or an S-Corp

I know, you’re thinking, “what a stupid idea, I don’t have a business,” but you ARE the business.  An LLC, S-Corp or even a C-Corp are the usual options to consider.

Unless you want to get eaten alive by that 15.3% (or higher) self-employment tax rate or higher without any way to mitigate pay fluctuations, gain legal protection or minimize the amount you lose to taxes each year, forming one of these entities is a good idea.  

I recommend looking at an S-Corp for most freelance musicians.  It is without a doubt worth it to talk to a tax attorney or CPA for help to figure out which option is right for you.  The main advantage of an LLC as a freelancer who gets a lot of 1099’s is a legal one, it protects you financially.

Yes they cost money to form and yes, there is a yearly cost to renew and costs in taxes and fees, but since I formed mine almost a decade ago, I’ve saved significant amounts of money each year on my freelance income. 

Here’s a concise breakdown of why you might want to form one and what the advantages and disadvantages might be. 

Bottom line, the pros usually outweigh the cons for most freelance musicians, so set yours up today. 

There will be an added cost to file your taxes especially if you use a CPA, but again, the fee for a good CPA is minimal compared to the time and energy you’ll have to expend figuring out complicated taxes on different continents and in different states.  In addition, without exception, everyone I’ve spoken with that has moved from doing their own taxes to using a CPA has saved money both in time and in found deductions or streamlining of your finances.