Ah the new year — a symbolic, yet meaningful clean slate for everyone. Instead of letting this year gradually dribble into a financial black hole (for you and me both), I thought it might be productive to have a simple discussion about some money basics so we can all get excited about taking control of our financial lives and grab onto this fresh start, feeling empowered. Hells yeah — this is the year we all crush it, so let’s get started with a mega-dose of financial savvy!
The thorny vines of finance twine around almost every aspect of our lives, and it can be hard to step back and find the mighty oaks under the kudzu. Furthermore, if you’re not swimming in it, money can be scary and unpleasant, and it’s easy to ignore things until something catches on fire. The ‘putting out fires’ strategy of personal finance compounds the difficulty, because if you only pay attention to your money in the middle of a crisis, you’ll always feel like it’s out of control.
So in these first days of the year I am going to ask you to think about your finances in an entirely different way in order to start taking positive, proactive steps in 2015. One of my hopes for the New Year is that we will all still be working in our art practices on December 31st, 2015, but in an even better place financially than we are now.
Step one: Spend less than you make
The simplest and most important strategy for financial success is to live below your means. No investment scheme or wheat grass juice diet is going to get you anywhere if you are spending more money than you make. The cold hard truth is that any structures you put into place to advance your financial life will quickly crumble if you aren’t able to master this concept. It’s not easy; believe me, I understand how hard it can be, especially if you’re living in an expensive city (I’ll always love you San Francisco!), and are managing a fluctuating income. However, this most essential concept is as simple as it sounds, spending less than you make means you’ve got extra to save, and the only way you’re going to get anywhere is to save. You don’t need to make a lot of money; you just need to make sure you are setting some of what you do have aside on a regular basis. If you can do this, and do it without fail, you’ll be far ahead of most people.
For me, I’ve made one resolution for 2015, which is to track my spending for the entire year in order to stay frugal, and face my bad habits as they are happening. And for the last 4 days, my Sm*artly Expense Tracker has worked like a charm! [To all you folks who are also using your Sm*artly Expense Trackers I would love to hear how it’s going, so please drop me a line with your stories.] If anyone wants to jump on board, I ordered extra copies, and you can get yours HERE.
It’s now more important than ever to jump on the saving bandwagon. I am sure you all spent your holidays reading Thomas Piketty’s epic tome Capital in the Twenty-First Century, no? Well, I’ll fill you in on the book’s central thesis, which states that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, yadda, yadda, yadda, r > g = patrimonial capitalism… and we’re all screwed… and so are our grandkids — unless we save now!
Step Two: Gauge your balance by assessing your risks
Over the years I’ve come to realize that the art of personal finance is essentially a delicate balance of risk. ‘Risk’ is one of those flexible, amorphous words that can mean a lot of different things when used in different contexts, and of the majority of work I’ve done is to understand the many hues of this term.
Distilled to its core, risk describes the chance that an anticipated outcome will be different than expected.
What is risk to an artist? Yes, you can take risks with your work, and stand out as provocative, and by doing that you’re risking harsh criticism or turning off your viewers. But you’re also embracing opportunity and I applaud that sort of risk. However, a more dangerous form of risk is living a financial life that is so close to the edge of failure that one late check or unexpected expense sends you into a downward spiral. When everything is so tight, the chances that an ‘anticipated outcome will be different than expected’ are high.
But we all know it isn’t uncommon in our community that people bob in and out of debt, or hover at net zero as a result of their fluctuating incomes. This makes it practically impossible to build assets that will insulate our art practices, and our personal well-being in the long run. It may seem normal, but living close to the edge without a safety net is how I define serious risk.
Artists will swallow this sort of risk in the hopes that living lean for a period of time will allow them, through singular focus, to launch their art careers. And this tenacity comes from the genuine ambition to make something of lasting value, and add to the cultural dialogue — which I salute you for! But my dear friends, I worry about you. Yes, opportunity and success can only come when you take on a certain amount of risk, but my challenge to you is to examine what kind of risk you have embedded in your life, and consider ways to minimize it.
Click and then click again on the infographic below to enlarge. Don’t skip this part — I made it just for you visual people!
And there’s so much more to say, but I’ll save it for my next post where I’ll continue the discussion of risk and the reasons why we should embrace it! Yes, I’ll be changing my tune to sing about why I love risk (when it’s properly managed) and how it can benefit you too!
If any of this resonates with you I’d love to hear about it. Please a comment below or send me an email directly at email@example.com.
© 2015 Christina Empedocles. All rights reserved.