Understanding Your Current Finances

Having a clear picture about your current finances is the first step to better financial management. The best way to approach this is to create a few lists. These lists illustrate two financial streams. The first is your income, money that is coming to you over a period of time; the second is your expenses, money that you invest into your work or spend on living expenses.

Whether you are currently supporting yourself through your work, a secondary job, or through another source, it is best to account for all income that you receive annually. You may need to average your annual income as seasonal factors may contribute to the amount of money you make throughout the year.  While the summer or holiday season may offer a host of festivals, performances or sales, your income may drop significantly during other times of the year. Calculate and average these ebbs and flows for your annual statement. You may already have an intuitive sense of this as you supplement the development of your work during off-seasons. Developing a more structured understanding of these trends will be helpful as you examine your expenses, debt repayment, professional development opportunities, and inventory.

• Annual revenue from your work. If you have different types of income from your work you may consider separating them into their own categories for example performances, profit from sales of your work, royalties, etc.
• Annual revenue from teaching others about your craft such as workshops, presentations, programs, etc.
• Annual salary or wages
• Grants, fellowships, residencies, etc.
• Additional income such as gifts, investments, etc.

Begin by categorizing your annual expenses and separating work and personal expenditures. If you are not able to separate them completely, for instance, if your studio is in your home and you cannot delineate utility bills, consider instead adding a section for shared expenses.

• Contractors or professional services
• Payments on debt (student loans, car loans, credit card etc.)
• Education and training
• Food and beverage
• Insurance
• Marketing and communications
• Memberships, subscriptions and books
• Postage and mailings
• Retirement
• Salaries and wages to and apprentice, employee or intern
• Space (rent and/or mortgage payments and improvements or modifications)
• Supplies and Equipment
• Taxes and other government payments
• Travel
• Utilities
• Other yearly expenses

By creating lists of your income and expenses you can start to see the structure of your income statement. This is a statement ofyour net profit or loss. To finalize this statement, total your income and expenses and apply the formula:

Income – Expenses = Net Profit/Net Loss

In addition to income and expenses, you should create two additional lists: one to outline all of your current savings (savings accounts, CD’s, investments, etc.), and for your total debt beyond your annual payments. This will give you a better overall picture of your current and long-term finances. By listing savings you will gain a better sense of the current cash that you have on hand and how accessible it may be. Understanding your total debt will show you how much of that available cash may be tied up proportionately. Use this information to set additional financial goals and to create a balance sheet.