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Personal finance and planning

Variable Income

Having a variable income means you do not make your living by having a consistent regular paycheque. If you are an artist working on a project-by-project basis, with contracts of varying amounts, and your income is dependent on the timelines of your multiple projects, then you live with a variable income. A variable income can be challenging because most of anyone’s major living expenses are set amounts due at regular intervals. This means it requires more work and planning for you to manage your income against your living expenses. The good news is you can use your producing skills to manage your variable income.

Your Monthly Budget

Just like you would build a budget for your show, you can make a budget for your life. If your life was a show, how much does it cost to run it every month?

Set Expenses (Monthly)

Determine your monthly set expenses. These are any recurring bills you have to pay every month - rent, internet, phone, car payments, transit pass, gym memberships, netflix subscriptions, bank fees, loan/debt payments, etc.

Fluctuating Expenses (Monthly)

Estimate your monthly variable expenses. These are amounts that might change from month to month - groceries, gas, clothing, coffees, meals out, entertainment, and so on. Set them at round numbers you think reflect your habits.

Personal Expenses (Annual)

These are expenses that don’t come up every month, but are significant enough that you know you can expect to be spending this money every year. You can look to the year ahead and know approximately how much you will spend on certain areas of your life:

  • travel (personal trips and vacations)
  • charitable donations
  • medical and dental
  • birthday gifts, special occasions
  • insurance

Business Expenses (Annual)

Whether you are a registered business or not, as an artist producer you have business expenses. It is important to keep track of these expenses for tax time but it is also important, wherever possible, to plan for these expenses before they come up. You know every year you have to spend money on certain things in order to do what you do:

  • union dues, membership fees
  • travel
  • workshops, training
  • headshots, website costs, agent retainer
  • supplies (plays, books, materials)

Work it out

Here is a basic formula to determine your total monthly costs:

(Set Monthly Expenses + Fluctuating Monthly Expenses) + (Personal + Business Annual Expenses) / 12 months =The cost to run your life each month

Once you know this monthly expenses number, you have a better idea of how much money you need each month to live.

To figure out roughly how much you make monthly you can look at your previous year's income tax return, or use a formula like this:

(Add up all the contracts you had last year/or the year ahead) / 12 months = Your average monthly income

Think of this as your monthly revenues.

Managing your Variable Income Budget

Hopefully, your monthly expenses and your monthly revenues balance.

If your "monthly expenses" seems astronomical (or just unrealistic) compared to your "monthly revenues", you may need to find ways to lower some costs OR increase your earnings. The goal is not to run a deficit, you need to have at least this total monthly expenses amount available in cash each month.

Feast or Famine

When you make a variable income, you may find one month your actual monthly revenues is only enough to cover 50% of your monthly expenses while the next month your monthly revenue is double your monthly expenses. Some months I feast and some months I famine. What do I do?

A strategy to avoid the Feast or Famine problem is to start working with a buffer for yourself.

If your combined income one month is more than your monthly expenses, you can start putting your surplus towards the next month(s) to build your buffer. Having a surplus one month doesn't mean you can spend more money that month. Stick to your budget. As you accumulate surplus from previous months, you will start to create your buffer so you’re not living paycheque to paycheque.

In an ideal world, you want to get to the point where you start each month with at least your total month’s budget amount already available in cash. This way, if you have a month or two where you are making less than your monthly budget you are covered.

With a variable income, you are bound to have some months with surplus and some months with deficit. The strategy is to plan for these instances to balance each other out. Your buffer is not the same as your savings. Your savings should be money directed somewhere else that you don't touch. Your buffer is actively in flux month to month working for you.

The more buffer you accumulate in terms of months' surplus (one month's surplus, two month's surplus, etc) means the more flexibility you have - to accept a smaller contract, to take that 2-week training program, to schedule time off to write, or to take that (planned) vacation.

More Personal Finance Resources

There are many resources available for Personal Finances & Planning, but it is worthwhile to look at resources created specifically for artists and/or creative freelancers. There are many specific financial questions and answers that are specific to us.

Artbooks - A highly recommended tax filing service based in Toronto dedicated to working with artists with over 20 years experience.

HoursTracker - Do you work one or more part-time jobs with fluctuating hours? This mobile app will track hours, pay periods and expected income for up to 4 jobs.

Smart Money - Financial management strategies & services for creative professionals.

Rags to Reasonable - A great blog and website written by an opera singer who is also a financial planner! Includes lots of free worksheets, tools, reviews, and other resources.