Financial Education for Gig Performers (And Others!) During the Pandemic (Part Two of a Series)


thomas

By Thomas Donnelly
06.29.2020
Email: thomas_donnelly@me.com
LinkedIn: https://www.linkedin.com/in/tdonnellyfp/

In my last article, I detailed the various resources available from the federal and state governments to help gig performers when their performance incomes have been dramatically reduced during this pandemic. Today, I will explore some basic yet important ideas around budgeting and cash flow, and why having a budget (and sticking to it!) is essential for performers with irregular incomes.

Budgeting when times are tough financially can feel impossible; the distress can make it emotionally and intellectually difficult to spend the necessary time to go over your monthly expenses dispassionately.

But you should.

How to Start Budgeting

Begin by separating all of your expenses into two categories: non-discretionary and discretionary. If you spend most of your money each month on a bank card or check card attached to your checking account, you can go through your bank statements to separate and categorize your expenses. Similarly, if you have credit card expenses, look at those statements and divide each expense or purchase into non-discretionary and discretionary categories. Even if you spend cash during the month, keep track of these expenses on your smartphone, or in a notebook, and categorize those expenses. To repeat: Every single expense should be separated into these two categories, non-discretionary and discretionary.

Your non-discretionary expenses are expenses that you have no choice over — you have no discretion whether you have to pay them. Non-discretionary expenses are your basic living expenses and include things like: housing (rent/mortgage payment), transportation costs (car payments and fuel costs), insurance premiums, utilities (including internet, but not including cable TV), groceries, basic household and personal care supplies (but not including luxury beauty care items), any loan or credit card payments that you have, and any tax payments you must make.

Everything else — everything else — that you spend money on is discretionary and should be temporarily cut if you don’t currently have a sufficient emergency fund — and maybe even if you do. Discretionary expenses are the recurring or non-recurring things you spend money on that are non-essential items or services. Think of them as your “wants,” as opposed to your “needs.” Most consumer spending is discretionary. New clothes, that regular coffee you get at Starbucks, your tobacco or nicotine products, expensive nights out (or expensive food delivery during the pandemic!), expensive beauty products, all of your digital streaming subscriptions, and your gym membership all fall into the category of discretionary expenses and should be eliminated during a financial emergency. An example of one way to save a not inconsiderable amount of money annually by reducing a discretionary expense: your home internet speed and your phone plans can be reduced, which you probably won’t notice in your day to day experience of the services. Similarly, canceling underused subscription services like Netflix or Hulu can amount to over a hundred dollars in savings each month.

Many people spend more money each month on their discretionary expenses than on their non-discretionary expenses, so cutting discretionary expenses is the first and best place to start effectively managing your finances as a gig performer during the pandemic.

If eliminating most or all of your discretionary expenses is not enough for you to meet the financial obligations of your non-discretionary expenses in your budget, then you will need to consider ways to further reduce expenses, such as even reducing some “non-discretionary” monthly expenses. Here’s how.

Cutting Non-Discretionary Expenses

Many people carry too much insurance, especially gig entertainers. They are over-insured because insurance agents are good salespeople who work on commission — they get paid more by “up-selling,” and getting you to buy insurance products that may actually not be in your best interests. Here are ways that you can reduce your non-discretionary insurance expenses:

• If your car is paid off or is older and of less value, you can drop collision and comprehensive coverage on your auto policy.
• If you don’t have a large amount of savings or investments that you would need to protect from lawsuits, you can reduce the liability coverage on your auto policy down to state minimums.
• If you don’t have a large amount of savings or investments that you need to protect from lawsuits, you can reduce the liability coverage from your homeowners or renters policy if you have one.

Here are two other ways to temporarily reduce your non-discretionary expenses in your budget:

• Call your creditors about your temporary financial hardship. Most creditors will reduce or suspend your payments owed for a short period of time because they would rather do that than risk a default on the debt you owe them. Creditors seem to be especially understanding during this pandemic and the resulting economic crisis.
• If you have federal student loans, under the CARES Act, you may immediately pause all payments until September 30, 2020. A 60-day waiver of interest and suspension of payment, without penalty, was automatically granted by presidential executive order.

The Last Resort for Reducing Non-Discretionary Expenses

If the above action items don’t bring your non-discretionary expenses to an amount that’s sustainable for you, then — and only then — should you consider taking advantage of any rent or mortgage payment deferrals that your city or state may have enacted during the pandemic and resulting massively high unemployment. Many states, including California, and several cities, including Los Angeles, have implemented rent moratoria for those temporarily out of work due to the pandemic. This means that it is illegal to evict someone for non-payment of rent. You will still owe your landlord the rent, but you just get to defer when you pay.

Warning: These rent deferrals will eventually end, probably by late 2020. You will then have to pay any past-due rent that you previously deferred. Evictions will start again. So if you need to do rent deferral as a last resort, you should at least make a partial payment in order to make the eventual repayment less of a financial burden on you when the time comes.

If You Insist

If you choose to forego eliminating most or all of your discretionary monthly expenses, you should at least prioritize them. You may spend money on things that make you happy, or you may spend money on things that don’t actually do much for you in terms of adding to the quality of your life. You may spend money on experiences that give good and lasting memories, or instead on status symbols that soon cease to bring you any emotional or physical benefit.

I recommend prioritizing your discretionary expenses by cost per unit-of-quality-of-life. For example: Spending $50/month on cable TV that provides you many hours of entertainment each month is a better use of your not-infinite resources than a single $50 “curb-side” dinner from your favorite restaurant.

Most importantly, never pay for discretionary items that you can’t afford to pay cash for on a credit card. Also, avoid at all costs the temptation to rationalize purchasing splurges as “special occasions.”

Next Steps

In this article, I have explained some of the basics of budgeting and how to organize and reduce your expenses. Get started now.

Next time, I’ll detail how you can use what you have learned here to “start paying yourself first,” and how to be both prepared for the next emergency in life, and how to begin building your financial security and wealth right now.

Thomas Donnelly is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $1billion in assets under management as of 02/10/20. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”