My friend Donald just landed a role in the Disney Channel movie “Girl Vs. Monster”. It’s his first big break and his question to me was, “what should I do with the money?”.
He is in his twenties, lives at home and is still going to school. Since we have both been too busy to get together, I thought I would write to him here. Maybe other actors would be interested in my advice. After all that was the idea behind this site. Actors helping actors.
First let me tell you how envious I am of you. Not because you are booking acting work. I have seen how hard you work in class and you deserve your success. I am envious because if I had had someone mentor me in personal finance when I was your age, I would probably be able to retire by now.
The first lesson that I want to teach you is that there is no free lunch in the world of acting or investing. The good actors I know read books about acting, attend acting workshops and discuss the craft of acting with other like-minded people. The same holds true for financial freedom.
I am always amazed that actors will drive across town and spend 12 hours working outside in the rain as extras to earn $200 (after tax, union dues, agent fees) but won’t spend 2 hours reading a free book from the library that will teach them how to make $2,000.
The second thing to remember is that gambling is something that you do when you are on vacation in Las Vegas. Putting your money in a hot stock tip or some pyramid scheme is not the way to build a solid foundation under your family.
Yes, I own some stocks that I consider my “gambling stocks”, but they make up less than 20% of my holdings and were bought after my other low risk investments were in place. Also because I take the time to read about these companies regularly the risk is diminished.
The third idea I want you to embrace is to treat yourself like a business. We have both attended the business classes taught at The Actor’s Foundry and learned to treat our career like a business. Now I want you to treat your personal self as a business too.
You need to learn to create a balance sheet for yourself to get a clear picture of where you are at financially. Get a piece of paper and draw a line down the middle. On the left side write the heading “asset” and on the right side write “liability”.
Now list anything of true value on the left side. (Don’t include old golf clubs etc.) I’m talking about cash in the bank, stocks, bonds, a paid off car etc. On the right side list all debts that you have; credit card debt, student loans, back taxes etc.
Now total each column and then subtract the liabilities from the assets. This number is your NET WORTH. Is it a negative or positive number? Most people walking around have no idea what their net worth is. This is the first step to financial freedom. Always know what your net worth is and know if it is getting better or worse every month.
I used to write my balance sheet on a dry erase board next to my desk. Every time I sent in a visa payment, I would change the amount owing on the board and change the net worth total. When I looked at it every day, I was motivated to improve that net worth number staring at me.
Some people think that you shouldn’t start investing until you are 100% debt free. I disagree. I think that whether you are paying down debt or buying assets, you are improving your net worth, so the result is the same. Yes, if you have a credit card with an outrageous interest rate, most of your money should go to paying that off first. But, if you started investing even $25 a month in a mutual fund, you would start to learn the process of investing. This would be valuable down the road when you finally had more money to invest.
This post is getting long, so I will let you go. In my next post I will get more specific about what kinds of investment options might be right for you.