Not every hobby has to be a side hustle. But, if you’re about to make money with yours – congratulations, you’re running a business! Now, we have to be careful with the finances.
It can be uncomfortable to take something you do for fun and turn it into a product with monetary value, especially if you’re a creative person. Add to that the trope that being financially savvy is antithetical to being a true artist, and it’s no wonder many creatives feel “bad about money.”
But when you ignore your finances, you not only miss peace of mind, you also lose the ability to make sound business decisions that come from a place of clarity rather than an “I’ll take what I can get.” ” Energy.
Writer, illustrator and musician Paco de Leon runs a financial education firm and accounting agency. His book, Finance for the people, is a beginner-friendly guide to help you navigate your financial life. De Leon joined Life Kit to offer his best financial management advice to creatives.
Configure weekly financial time
Whether you’re tracking bills, recording expenses, paying bills, or looking for accountants, many financial tasks get overlooked if we don’t take the time to prioritize them. To avoid this, hold a weekly financial meeting with yourself and hold it sacred. Spend 20 minutes to an hour ticking things off your list, instead of only doing them when you remember them.
“Don’t allow people to book meetings or disturb you during this time,” de Leon says. “Having that space to focus will allow that part of your life to grow.”
Separate your personal and professional finances
It’s easy to overlook your finances if all your money is kept in one account and your transactions aren’t marked as personal or business.
So bank with your business in mind. Keep track of your money and how it’s used by creating separate checking and savings accounts for your personal and business finances. Budgeting for your business becomes much easier when you have a clear idea of what you are actually spending and earning.
At first it might seem a bit scary if there is no money coming in. But, says de Leon, it can also feel good to look at your stagnant accounts and ask, “How am I going to water this? How is this going to be fed?”
Don’t forget the taxes
Another reason to separate your business and personal finances is to make it easier for you to report your income to the IRS, which you are required to do, regardless of how much you earn.
And, if you earn more than $400 a year, you’ll likely have to pay both income tax and self-employment tax. To prepare for this, de Leon says to save 10 to 30 percent of the money you earn and put it in your company savings account to prepare for tax season.
If preparing taxes is scary or stressful, consider hiring an accountant! The US tax code is thousands of pages long and changes often. Hiring someone to help you navigate it can provide “a huge return on your cost investment,” de Leon says.
Know your market
Here’s a hard truth: Just because you love taking pictures and your friends love them on Instagram doesn’t mean your next step should be to buy a domain name, produce hundreds of prints, and start a store. in line.
To better understand if there’s a demand for what you’re offering, de Leon recommends asking yourself, “Who should I take the problem to?” Who is looking for what I do or make, and why?
From an artistic point of view, it may seem strange to present your work as a solution to a problem, says de Leon. But if you’ve decided to put your work in a commercial space, this question helps you figure out who you’re trying to reach, who’s willing to buy your work, and what they’re willing to spend.
To demystify pricing, consider concrete and abstract costs
Pricing your products or setting your rates is like a “cactus bush,” de Leon says. “It’s tricky and difficult to navigate.”
Pricing forces you to consider hard factors, like the cost of your hardware and workspace, and abstract factors, like the value of your time, your level of experience, who you want to reach and what you offer that no one else can.
If looking at it all seems overwhelming, remember that prices are in a range. There is a low end and a high end for every service and product on the market. Ask your peers or research online to get an idea of these limits and then think about where you want to be within that range and why.
It may seem easier for beginners to add all of the above together and decide on an hourly rate. But, depending on what you offer and the experience you gain, pricing based on overall value – the need you’re filling or the solution you’re providing someone – is ultimately better for creators, De Leon says.
Know when to ask for help or raise your prices
If you earn income from one skill or product, you may also be doing a lot of other things: sourcing, marketing, shipping, accounting.
Pay attention to tasks that seem difficult to you. What slows you down, wears you down, or takes up time that you would rather spend on something else? It may be useful to outsource this task.
And, if your time is getting more valuable… well, maybe it’s time to raise your prices and see what happens.
The podcast portion of this story was produced by Sylvie Douglis.
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