Financial planning for artists; here are steps to ensure you are on the right track – Economic Times

Synopsis

To be able to maintain your financial wellbeing and lead the life you are living today, especially with the growing expenses, and inflation eating into your value of money investing early with clear goals will be fruitful.

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Most professionals and self-employed have a long working life of about 30-35 years.

However, several careers especially artists/actors/models/athletes/airhostesses come with a short career span ranging from 15-18 years. Short working lives limit the ability of these professionals to accumulate wealth over a long period of time.

Did you know if you had invested a mere Rs 500 every year and stepped it up by 10% annually i.e. Rs 550 next year and Rs 605 and so on so forth, made an average return of 12% per year, you would end up with approximately the below:

Invest per month with step 10% per year

Period of investment (in years)

Amount invested

Total Corpus (in lacs)

500

10

95,000

1.6 lacs

500

20

3,50,000

9.4 lacs

500

30

9,85,000

42 lacs

500

40

27,00,000

175 lacs

The table tries to depict three important things

  1. Consistency of investing
  2. Stepping up your investments at regular intervals
  3. The magic of compounding

Now imagine this with higher amounts.

Thus, to start investing within the first few years is crucial to be able to experience the magic of compounding and ensure your financial goals are in place by the time you are at the cusp of your professional journey.

Rather than starting at a time when you are already 5-7 years within your working life, you would be left with a mere 10 years to accumulate wealth.

You would also need to sustain this corpus for a very long time in your non-working years ~ about 35-40 years.

To be able to maintain your financial wellbeing and lead the life you are living today, especially with the growing expenses, and inflation eating into your value of money investing early with clear goals will be fruitful.

A few steps to be looked into to ensure your financial plan is on the right track

  1. Budget – How do you plan your income and expenses. Every month/project you receive the payout for, a bare minimum of 20% of that you would set aside to save, and then invest in- inflation-beating assets
  2. Creating an Emergency fund– The latest experience of covid has shown how air hostesses were out of jobs, actors had no jobs, artists had no theatre performance etc. When you are out of work/have limited projects, the question arises on how will you fund your daily expenses. Thus, an emergency fund is crucial to ensure the same.

  3. Plan for your goals – We have seen big film stars, people with extremely high potential live a luxurious life and come into a financial crunch during hard times since they couldn’t plan their finances as required. Thus, its essential in your growing years if you have ensured to earmark a fixed amount going to well asset allocated investments, then when you are at a place that would need starting a new stream of business, retirement, other goals you would be able to survive that

A good example of inflation beating investments are mutual funds. It is important to invest in the right asset class to reap the right benefits.

Let’s look at this example, if you were totally invested in a PF/FD vs an equity mutual fund

In this case assuming a return from a FD/PF would be in the range of 6-8% and an equity fund assuming a return of 10-12%

Invest per month with step 10% per year

Period of investment(in years)

Amount invested in time period

Total Corpus (in lacs) invested in PF/FD @ 7%

Total Corpus(in lacs) invested in Equity Mutual Fund @11%*

500

10

95,000

1.3lacs

1.6lacs

500

20

3,50,000

6lacs

8.9lacs

500

30

9,85,000

21lacs

38lacs

500

40

27,00,000

65lacs

140lacs

*The rate of returns of Equity Mutual Funds is assumed to be 11% in the current illustration. The rate of return may vary higher or lower depending on the conditions of the equity markets

Start investing early, we never think of financial freedom in our growing years when money is flowing in freely. We feel we may have a long time to go. But the nearer your goals get the less time to grow your wealth. Ensure appropriate asset allocation within your portfolios.

Views are personal:The author Sneha Jain is a Partner & CEO at WealthTrust Capital Services

Disclaimer: The views expressed are of the author and are personal. TAMPL may or may not subscribe to the same.The views expressed in this article are in no way trying to predict the markets or to time them.The views expressed are for information purpose only and do not construe to be any investment,legal or taxation advice.Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management Pvt. Ltd.will not be liable in any manner for the consequences of such action taken by you.

Mutual Fund investments are subject to market risks,read all scheme related documents carefully

(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)

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