Why Those in the Music Industry Need to Think About Money Differently

Whether playing guitar at local coffeehouses, performing in front of packed stadiums, in a songwriting session or tracking their streams on a streaming platform, those working in the music industry face unique challenges when it comes to their finances.

“Most songwriters, composers, artists and professionals who work in and out of the studio usually don’t get paid via a monthly salary. Instead, they may get paid anywhere from twice a year to eight or 10 times a year,” said Denise Colletta, head of music for City National Bank’s Entertainment Banking team. “This means that they need to understand how to manage the inconsistent timing associated with receipt of income.”

She knows that foundational practices can help music professionals avoid financial pitfalls and surprises. However, there are often challenges when it comes to combining the creation of art with the management of money.

Colletta works to help those earning income in the music industry understand how to make informed financial decisions by helping them look at the different ways money is earned and how it is paid out in the industry.

Everyone who seeks to earn a living in the music industry needs to understand the business of music, Colletta said. “With knowledge comes the power of choice.”


Money Management in the Music Industry

Whether you’re experiencing your first break or you've had a long career in the industry, you need a basic money management plan to handle the highs and the low notes of your career.

Start by thinking about the routine expenses associated with your everyday life. It’s wise to have a reserve of cash to cover expenses. But how much should you try to save?

For those who earn a traditional paycheck, financial experts often recommend establishing emergency savings of six months of expenses. However, those who earn a living in the music industry will likely need to save more than that due to income fluctuations and sporadic paychecks.

“Artists might consider keeping approximately 12 to 18 months’ worth of expenses in the bank to cover fixed obligations such as a mortgage or rent, car payment, insurance and, most importantly, taxes,” Colletta said.

Don’t Forget the Tax Man

One mistake that artists can make is failing to adequately account for taxes. This is especially true if a person’s income involves an advance.

An advance is a forward monetization of future income. This means that there is no continued cash flow or income from an advance’s source until the advance is recouped by the source. Because of this, planning how to set aside a portion of an advance for taxes is important.

“An advance is considered income in the year that it is received,” Colletta said. She noted that this can cause an unexpectedly high tax bill, especially if an advance covers income that would otherwise be earned over multiple years.

“If you do find yourself in a position where there aren’t enough funds to pay your taxes, we recommended that you consult with a tax professional. They can help you understand potential solutions, including possible payment plans with the IRS,” she said.


Helpful Money Management Tips for Music Industry Professionals

Set Up a Budget

Know who is paying you and when your income comes in; then compare it to the timing of your fixed obligations.

This fundamental knowledge can help you determine how much reserve funds you need to assist with the variability associated with income.

Read, Read and Read Again

Read every document before you sign it and ask questions if you don’t understand any aspect of what you are signing.

“For example, you need to know how your advance works, including how you’ll earn out from it,” Colletta said.

Get Your Band Together

A banker and wealth advisor can step into the picture once you’re ready to seek guidance managing money.

While you may not have the need for a full set of advisors at the start of your career, Colletta recommends identifying a group of seasoned professionals along the way who can provide informed advice.

This means seeking help as early as possible in your career.

“Even if you can only afford an hour of advice from a professional, it’s worth it to get on the right track,” Colletta said. “Ultimately, you'll likely need a business manager, an attorney, a banker, a wealth advisor and an estate planner with the industry experience to help guide you and plan for the various stages of your career’s finances.”

For Colletta, it’s all about surrounding yourself with people who understand what challenges those in the music industry face. They should help you plan for your future, including the various stages of a career and the twists and turns that yours could take.

“Your professional team is an excellent sounding board that can help you set realistic expectations about your earnings and expenses,” she said.

Master the Business Scales

While you may want to focus solely on the art of music, it can be smart to also focus on the business of music by considering ways to diversify your income.

One way to do this is by capitalizing on any reputation you’ve earned inside and outside of the music industry.

“In the right scenario, your business manager and attorney can recommend ways to monetize your name, image and likeness,” Colletta said.

She also suggests that artists think of ways to monetize their body of work.

“Those who own their intellectual property might want to think about the future life of their catalog and when or if to sell it,” Colletta remarked.

Many times, artists are worried about more than money when it comes to catalog sales. And they often want to make sure their legacy is preserved. Colletta suggests working with professionals who can help manage your estate.

“A banker, wealth advisor and estate planner can guide conversations that will allow you to make informed decisions to preserve the legacy of your creations, including how your art is used for generations to come. They can also help you manage the expectations with your heirs and create a plan for any assets you leave for them.”

Contact our team of experienced entertainment bankers today to start putting your financial band together. 

This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

City National, its managed affiliates and subsidiaries, as a matter of policy, do not give tax, accounting, regulatory, or legal advice, and any information provided should not be construed as such. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. Any strategies discussed in this document were not intended to be used, and cannot be used for the purpose of avoiding any tax penalties that may be imposed. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies or information presented taking into account your own particular circumstances. Trust services are offered through City National Bank.