Pay Yourself First: Savings Goals for Actors

Money

Apr 29

Several years ago when I started living that #strugglingactorlife, I was living in constant low-grade anxiety about my financial situation. Every month I brought in a different income from my work as a location assistant and script supervisor, and I couldn’t always be sure I would make enough to cover my bills. I was terrified of living in debt and I knew I was one unexpected expense away from getting stuck on the treadmill of consumer credit debt. Rather than let that happen though, I decided to build up as much of a savings cushion as I could so I would always be covered in an emergency. When my first car was totaled, I was able to pay cash for a new (well, it was new in 1991) car to get me to work.

*not my real car, but this is what it felt like some days.*

Now that I’m a working actor who is able to bring in enough from my acting work alone, I’m glad for this lesson I learned early in my career. My income still fluctuates widely month to month, but I’m still socking away money for my different savings goals. It’s difficult to set up a savings plan when you don’t have a reliable income stream, but the tips and strategies in this article will help you squeeze as many dollars as you can out of each paycheck to help you pay yourself first and meet your savings goals.

To start, it’s really important that you identify all your savings goals, and arrange them by priority. There are three savings goals that every freelancer should have, regardless of their lifestyles. Arranged by priority, those are:

Emergency / Rainy Day fund

This account must always be priority number one. If you do not have one of these, you are in a state of emergency. This fund is to cover any major unexpected expense, such as a new car if yours dies, medical bills (if you live in a country without free medical coverage), your living expenses in case of a job loss, or other large expenses. This should not be touched for anything other than an emergency. Write out a list of what you consider an emergency, and don’t touch those funds unless one of those emergencies occurs. A rule of thumb is to have a minimum of three months of living expenses saved in your rainy day fund, but six months is better. If you have to use this money, make sure to put it back as soon as possible.

Tax Savings

As a self-employed person, an actor is expected to pay tax on their acting income. You know the saying about death and taxes, right? Always put away at least 20% of every acting paycheck into this savings account when you cash it, so when you have to send the government a check you aren’t scrambling to get that money together in time. Don’t even consider it as money you own. If you end up owing less than you saved, you can use it for a different savings goal and/or give yourself a “Christmas bonus”!

Retirement

Unless you plan on dying at age 65, you’ll need savings for when you retire. The earlier you start saving, the more you can reap the benefits of the magic of compound interest. Compound interest is the addition of interest to the principal, or in other words, interest earned on interest previously received. If you invest $500 now, with a monthly investment of $10 with an interest rate of 3%, then in 30 years you’ll have $7,055.79. Almost $3,000 of that is interest - money you didn’t have to work for. Obviously, as you start earning more income and aren’t living paycheck to paycheck, you can increase your monthly contributions and earn even more.

Next are your other savings goals. These are for things like holiday travel, vehicle maintenance, big acting expenses, buying a home, a wedding, or anything else you want to save for. I also recommend having a “next month” fund, which is a holding account you can use when you have a really flush month and want to make sure your expenses are covered for the next month that isn’t.

Once you’ve made a list of all your savings goals, the amounts you’d like to save for each, and their priority, you need to open the accounts for them. Each savings goal may need its own kind of savings account. Since I’m based in Canada, I will be discussing the account options Canadians have. If you live in another country, you may have similar options under a different name.

Your rainy day fund should be liquid, meaning it can be converted into cash within 24 hours. However, it should not be stored in your day to day checking account, since you can easily spend that money without noticing. I recommend a High Interest Savings Account (HISA) at an online bank - online banks usually offer higher interest rates than brick and mortar locations. You can google “High Interest Savings Accounts” and compare the offerings of different banks. What’s important here is that you can’t accidentally spend the money but you can withdraw it quickly in an emergency.

An HISA is also a good place to store your tax fund, since the money sits around doing nothing for most of the year but you need to contribute to it many times throughout that year.

An investment account is the best place to store your retirement savings, since you won’t need to access that money for 20-40 years. In Canada, you need a Registered Retirement Savings Plan, which you can get through any banking institution or your employer (if you have one and they offer them).

For your other savings goals, you have a lot of choices when it comes to kinds of savings accounts. You can stick with HISA for short term goals, such as travel or acting expenses, or you can use a Guaranteed Investment Certificate (GIC) if you don’t need those funds for a few years. A GIC is not a liquid account - you purchase a GIC for a set term, such as 1 or 3 years, and you earn a guaranteed interest rate for the duration of the term. You cannot withdraw these funds though until the term expires, so it’s not a good option for an emergency fund or a near-future goal. It’s a very low risk account, since you are guaranteed a specific return on your investment at the time of purchase.

A higher-risk, higher-reward option is a Tax Free Savings Account (TFSA), which responds to the stock market. A TFSA is an after-tax investment account - this means you don’t pay tax on any earnings from that account. This is a great option for mid-term goals, such as saving for a new car, a down payment on a home, or other big ticket savings goals.

Once you’ve decided on which account you’ll use for which savings goal, it’s time to figure out how you’ll actually save that money.

I really recommend having a small, consistent automatic transfer set up every month as part of your monthly expenses. And when I say small, I mean small. For a couple years I could only put $20 a month into my emergency fund. $20 a month seems pathetic, but that emergency fund saved my butt on more than one occasion. More importantly, however, I was building a habit of saving money. Every once in a while I would look at the balance on my savings account and feel a sense of accomplishment that I was someone who took steps to be smart with my money. Now that I have more to save, I don’t have to struggle with building that habit and fighting against lifestyle creep.

Now obviously, $20 a month is not enough to save for all of your goals within a reasonable time frame. That’s where my next tip comes in. Since we actors don’t have static monthly incomes, we can’t set a flat rate to save every month. The solution to this: percentages.

In this below example, this actor’s monthly net income fluctuates month to month, but their monthly living expenses stay static. The remaining money (or surplus) is then split into three categories: 50% goes to the Emergency Fund, 40% to a New Car, and 10% for Fun Spending. I recommend setting a maximum of 10% of your surplus for fun, guilt free spending - such as a nice piece of clothing or a night out with friends. This will make it easier for you to stick to your budget in the long term.

	Month 1	Month 2	Month 3
Net Income (after tax)	$1,485.00	$3,400.00	$2,190.00
Expenses	-$1,200.00	-$1,200.00	-$1,200.00
Remainder	$285.00	$2,200.00	$990.00
Emergency Fund (50%)	$142.50	$1,100.00	$495.00
New Car (40%)	$114.00	$880.00	$396.00
Fun Spending (10%)	$28.50	$220.00	$99.00

You can add more savings goals and split the surplus between them. I suggest that your emergency fund stays at 50% of your surplus until you’ve saved at least three months of living expenses ($3,600 in this example), then you can lower it to 25% to bring it up to six months of living expenses (or $7,200 for this example).

At the beginning of each month, tally up your net income, subtract your monthly expenses, and divy up the remainder between all your savings goals. You can easily set up a spreadsheet to automatically calculate these amounts so all you need to do is enter the net income amount and transfer the funds.

Future you will thank you when it comes time to spend the money you’ve saved.

So, to summarize:

Start by identifying all your savings goals and assigning them a priority. #1 on this list should always be an emergency fund, which should be 3-6 months of living expenses.
Deposit 20% of every acting paycheck into a tax fund account. Don’t count that money as part of your net income. This way you know that you will have enough to pay your taxes come tax season.
Find the right savings account for each of your goals. In Canada, you can use High Interest Savings accounts for your emergency fund and tax savings, Tax Free Savings Accounts or Guaranteed Investment Certificates for mid-term goals, and a Registered Retirement Savings Plan for your retirement.
Have a small automatic transfer going each month. Even as small as $20 a month is good for helping you build a habit of saving money and is better than saving no money at all.
Build a spreadsheet for yourself so at the beginning of every month, you can enter your net income (after tax!), from the previous month, subtract your monthly living expenses, and assign the surplus to your different savings goals.
Set aside a maximum of 10% of the surplus for fun spending to help you stick to your budget and allow you to celebrate your life and acting achievements!

How do you save your money? Let me know in the comments!

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About Me

Larissa is a professional audiobook narrator, voice over artist, and actor. With her home recording studio in Vancouver, B.C., she is able to spend her time doing what she loves most - becoming a conduit for stories that resonate with us.