4 Tips to Avoid Blowing Your Music Royalty Advance
If you’re expecting an advance royalty check for writing a song or for signing to a record label, the worst thing you can do is mismanage it and wind up with no money to take care of yourself later.
As accountants for musicians and others in the music industry, we’ve spotted a few ways you can manage your advance royalties to meet your needs. Although music advanced royalties are harder to come by, if you do receive them, make sure to use them to your advantage.
1. Save For Emergencies
If you have no savings account, start one. When you receive your royalty check, the first $1,000 should be put into savings and should go untouched unless there is an actual emergency. I’m talking events when you would need a doctor, police officer, or fire fighter. If your instruments are stolen on the road, emergency. If you need to go to the hospital, emergency. You get the point. Preferably, set up this account at a different bank from the one where you have your checking account. This will make it more difficult to spend it frivolously.
2. Save for Living
If music is your living, irregular pay is normal. Let’s make sure you’re not going hungry in between albums or royalty checks. After saving for emergencies, the next chunk of your royalty advance should be set aside for 3-6 months of living expenses. So that you don’t run out of cash to pay for your livelihood, your living expenses include the following:
- Food (be reasonable)
- Housing (for where you live now, don’t upgrade yet)
- Transportation (this doesn’t mean buy a new car)
- Car Payment (if you had one before the advance, don’t go purchase one just yet)
3. Ditch your Debt
Protect your profit by ditching your debt. The more people you owe, the less money you get to keep. Pay off your existing debt off, if you have royalty advances left over after saving for emergencies and living, . This will lower, if not eliminate, the monthly payments you’re sending out for stuff you bought way back in the day.
4. Have Some Fun
Life is no fun unless you live it up! Although the steps for budgeting your music royalty advance seem to not allow for fun, they will be when the stress of not having enough money will vanish if you follow them. Now, set an amount you’re willing to to part with for “fun” and stick to it. Don’t let the fun blow your financial future.
Royalty advances are taxable, so when you receive a 1099-MISC from the record company, don’t be surprised. Choose a music industry accountant to help you ensure you don’t owe the IRS penalties and interest for not paying taxes on your advance.
If you use an accounting package, such as Xero, budgeting for your royalty advances couldn’t be easier –just click here. You can plan for this month, this quarter, or this whole year. If you don’t use Xero, contact us to see how you can get a free subscription for one year.