Why Financial Literacy is Your Superpower
For most, money equals stress.
However, after working with and advising many people on their game audio career journeys, I can honestly tell you that it doesn't have to be.
My experience? Most people simply lack the fundamental understanding of money needed in order to empower them to make good financial choices.
So let's take a moment today to help you avoid the stress money can cause by talking about financial literacy.
Just like a plant, your financial situation needs your time, attention, and a basic understanding of how to keep it healthy.
If you feel overwhelmed thinking about your finances, you're not alone.
According to a 2018 study by Northwestern Mutual, money is the number one cause of stress for Americans, and it wouldn't surprise me to see similar results from other countries.
That feeling when you have no clue about money.
The abstraction of human effort (i.e. time, work, energy) into the financial systems we have today is without a doubt one of the crowning achievements of mankind, but it is also extremely complex.
In this article, we're going to boil down some of that complexity into simple concepts you can use to get your financial life under control.
Step 1 | What Are You Working With?
The first step to financial freedom is figuring out what your current financial situation actually looks like.
Let's take a step back and look at the big picture with a graph from Robert Kiyosaki, the author of the best-selling book "Rich Dad, Poor Dad".
As you can see, you have two main categories of financial considerations and they each have their own subcategories.
The breakdown couldn't be simpler:
Your income statement is made up of your income (money coming in) and expenses (money going out).
Your balance sheet is made up of the things you own that either make you money (assets) or cost you money (liabilities).
As you can probably already imagine, these four subcategories are intimately connected.
Let's look at a simple example:
In this chart, we have our paycheck coming in, which first goes to pay for our car (which we own but it costs us money via insurance, upkeep, etc...), and then takes care of our other basic expenses (food and rent).
Extrapolate this out to all of the things you currently pay for (or are being paid for) and you will get a clearer picture of your financial situation.
Here's another example using the financial overview of a game audio business (if you're a freelancer).
As you can see with this final arrow, assets are essentially forms of passive income that add to the money coming in without much extra effort beyond the initial setup.
These assets can either pay you back either directly (think soundtrack sales) or indirectly (think investing in stocks or bonds; they accumulate in value but you don't see money in the bank until you actually sell them).
Take a minute and fill in this sheet for yourself (link below). Do a version for your personal life and, if you're a freelancer, consider doing a separate one for your business.
Step 2 | Creating & Monitoring Your Personal Budget
Now that we have a general overview of where money is coming in and where it is going out, we can get an even clearer view of our financial situation by looking at the hard numbers.
Yes, it's math, but don't worry. It's very easy.
Setting up and maintaining a personal budget will take some time at first, but your future, less-stressed-by-money self will thank you for it.
What we need to do is accomplish the following goals:
1 | Translate the cash flow (income and expenses) from Robert's chart into hard numbers
2 | Set up a system to keep track of those numbers so we can better plan how we use our money; now and in the future.
In this endeavor, there's really no better tool than a spreadsheet.
Yes, I'm this nerdy and I use spreadsheets for eeeeverything.
There are all kinds of resources and templates online to help you get started with this but it can take a while to find a good one.
That's why I'm helping you speed-run the process by giving you my very own budget tracker template!
Download it here:
There is a Read Me section in this spreadsheet that will help you get started.
My #1 tip for tracking your spending is to use a debit/bank card as much as possible because then you can simply open your online banking app at the end of each month and move that information directly into the budget tracker.
I find if I use cash too often, I forget where and what I was spending it on and that is obviously not so ideal for budget tracking.
Yes, I did. And do very often when I pay with cash.
By using a budget tracker, you can see your transactions laid out in monthly and yearly increments and use that to calculate your average spending as well as identify and address potential issues with your cash flow.
You work hard for your money, but if you don't have any place where you can get an overview of what's happening with it, you're leaving your finances up to chance!
Step 3 | Planning Your Financial Goals
Look at you, taking the reins and riding the wild stallion that is financial literacy!
I'm so proud.
If you've followed the steps until now, you should have a solid overview of your finances and can now move on to the fun part:
Planning your financial goals!
What you do with your money is obviously your business and your goals will depend heavily on you as an individual.
Maybe you're saving up for a house or retirement. Or perhaps you want to move to a new city with better connections for game audio work.
Your future goals are yours and yours alone.
For that reason, I will simply address some advice that I would give you in the two following situations:
Situation #1 - You're in the Green
This is obviously the most desirable place to be in.
It means you have more money coming in than going out.
If you look back at the balance sheet from our earlier diagram, one of the best things to do with extra money is to buy assets.
When you buy assets, you are essentially using your money to make more money.
As a private citizen, the easiest way to acquire assets is by investing in the stock market.
As a freelancer/business owner, consider using that extra money to buy things that help your business make more money.
This is a mistake many people with GAS (gear acquisition syndrome) make in the game audio industry.
Despite struggling to get clients and pay the bills, they invest their hard-earned money in gear or software that, while perhaps incrementally improving the quality of their work (and that's a strong *perhaps*), wouldn't be nearly as effective in making them money as, for example, hiring someone to design them a professional website or buying a ticket to a conference where they can broaden their network and meet potential customers.
I want hot new gear as much as anyone else, but turning your passion into a career involves making the kind of choices that a hobbyist wouldn't make.
Situation #2 - You're in the Red
If you've crunched the numbers and you have more money going out than coming in, you have some tough choices to make.
There are only two reasons why this might be happening.
You're either spending too much or not earning enough.
Either way, if this is the situation you're in, you might want to take the following quote to heart.
"It's easier to quickly cut your expenses in half than it is to suddenly make twice as much money."
Look at your expense column.
Are you overspending somewhere?
Maybe you're eating out more than you should? Or spending too much money on a hobby you can't afford right now.
In a more serious case, you might simply be in a living situation that doesn't match your current income (I've done that before. I upgraded apartments when my income couldn't yet justify the choice. That turned out very poorly for me.)
If you're already living as lean as you can but your funds still aren't cutting it, it might be time to get serious about finding another source of income.
If you're full-time game audio but can't pay the bills, a part-time job might be the best way to get yourself back on secure financial footing to avoid digging an even deeper hole that will only get harder to get out of over time.
I know that's not the happy-go-lucky, everything-will-work-out-in-the-end advice you might expect, but the people who make it in our industry are usually the ones who can hang in there the longest. And if your income doesn't match your expenses, that's simply not sustainable and you risk the situation becoming so bad that you have to exit the industry entirely.
If you're a game audio freelancer who isn't making a sustainable, full-time income, my recommendation is to find a part-time job (in the audio industry if possible) to give yourself a healthy, steady income so you can focus on your game audio work without the dread of wondering whether you can make ends meet.
There's a fundamental truth about money that is rarely discussed and that is this:
Money doesn't make you rich.
This is why even highly-paid athletes and celebrities can still end up completely broke.
Yes, they had money but they didn't know how to use it.
“People who don't have control of their finances make the people who do rich.”
Most who have achieved what we call "financial freedom" have done so through the careful and intelligent manipulation of what money they had, and having a lot of it isn't a prerequisite for success.
By using the strategies we discussed in this article, you can slowly but surely gain control over your financial situation, which is the first step to becoming the master of your own financial destiny!
This is a real gif of someone who has acquired basic financial literacy.
Would you like to learn more about budgeting and financial planning?
If so, leave a comment below and, if you enjoyed this blog post, please share it!
P.S. To save my own ass legally, I'm obliged to tell you that this information is not professional financial advice and is for educational purposes only.
I created The Game Audio Pro with the goal of helping others understand the fundamental business skills that are often the difference between success and failure for freelancers.
If you're ready to take your game audio career to the next level, download my guide to The Most Important Mindset for Game Audio Success.