In the years I worked as a musician, I experienced times of financial scarcity and abundance. In one five year period, I had one year of $22K and another of just under $60K. We are still confused as to how we survived the first (God provides!) and where the money went in the latter.
This is about the latter.
Given the fact that there always seems to be “a little bit more month left at the end of the money,” it’s common to think “a little bit more” money will solve financial problems. But in reality, this solution rarely solves anything. The reason? Lifestyle Creep.
From Laura Rowley:
“But since we hadn’t set specific goals for the extra income, I was distributing it randomly in ways that may not have been optimal to my economic utility…or, to put it more frankly, pissing it away. That’s lifestyle creep – this unconscious thing that happens when you get a raise, or bonus, or a repeat client. The money just disappears on stuff that will probably provide little thrill in a few months.”
In her post entitled, not surprisingly, Lifestyle Creep, Laura offers suggestions on how to avoid this trap, and offers the proper perspective on money to boot. For instance, “what experiences do I want to have, and with whom? Research shows you’re better off creating memories than purchasing stuff.”
But for you, thinking about lifestyle creep is particularly important because musician’s earnings rarely grow year over year at a steady rate like those of non-musicians climbing the corporate ladder. Instead, you will likely experience wild fluctuations monthly and yearly for your entire career. These fluctuations can and will drive you insane if you don’t have a plan.
Dave Ramsey suggests a method for irregular income budgeting (check out his tools at his Financial Peace site). Here’s my simplified version, but go read about his:
- Write down your costs for bare necessity food. This is the base amount you need to sustain yourself healthily and sanely.
- List all the bills you MUST pay every month – rent/mortgage, utilities, car expenses, insurance, etc.
- Make a prioritized list of “the next things” that you’d do/have if extra money permitted it. I’ll talk about this more after the last step.
- As money comes in, spend it straight down this list: food first, shelter second, bills and then “the next things” one at a time.
The next things list should contain savings for the next week, month or year when the money runs out half-way through your “bills you MUST pay.” Make sense? It should also contain the controlled Lifestyle Creep. As Laura says, planning how you’ll spend the excess “is a great opportunity to take some time and really think about what you value most in life.”
After all, isn’t that the reason you work in the first place?
