A jargon free guide to investing for freelancers and self-employed creative workers
You’re given three wishes. What’s the first thing your inner wise-ass asks for? That’s right: more wishes. When it comes to finances there is an option that comes pretty close to this scenario – it’s called investing…
I’ve said it before and I’ll say it again: no one gets into creative work for the money. There are benefits in creative work that far outweigh the relative dent in your paycheque. It’s an exchange the majority of us are happy to make. But with less cash available to us across our careers, we need to be smarter with what we have. This is where investing can help us.
Disclaimer: This article is for financial information and education purposes only. It is not financial advice. Investing carries risks. The value of your investments and can go down as well as up and you may not get back the original amount invested. Always do your own research and seek independent advice where required. Read the full disclaimer here.
What is investing?
The term ‘investing’ conjures up all sorts of negative connotations of city boys, YouTube shysters and sheep-stealing aristocrats. But let’s try to ignore those preconceptions for the moment, because investing is far too powerful a tool to leave in the hands of such characters.
Instead, let’s go back to the wish analogy. If our money is like wishes, then once we’ve covered our basic needs and a few things that make a genuine, lasting difference to our happiness, what’s the smartest way to use what’s left?
“Investing is about short-term sacrifice for longterm gain – this is something we are good at in the creative industries.”
Probably using it to buy things that produce more income. This is the process of investing and those ‘things’ are called assets. They come in many forms – for instance, stocks, bonds or rental property – but you can think of them as things that ultimately put money into your pocket.
Let’s borrow from another fairy story – the golden goose. That sparkly water fowl is an asset. To raise a golden goose you would need to buy the goose, invest in some feed, maybe build a pond and some form of shelter, but the golden egg it popped out every day would make it worth the initial sacrifice.
Don’t dismiss investing as a boring thing for boring people
Think of it this way: buying assets is how you make money work for you, instead of the other way around – and that is a considerably more exciting concept.
Each good asset you buy will generate a little bit more income. If you’re on a low or variable income from your work, investing could one day make a real difference to your cashflow.
“Keep it simple, invest in things you understand and make it a habit that you keep over the longterm”
As you acquire assets, you can choose to spend that increased income, or reinvest it to buy more assets.
The latter habit is how the “rich get richer”, why “money goes to money” and why the pandemic – with its stock market crash (resulting in cheaper assets) and subsequent recovery – has created more billionaires than ever before.
Contrary to popular belief, though, you don’t have to be wealthy to invest. Anyone who can create a bit of disposable income can choose to funnel some into investments.
Keep it up and, eventually, you may be in a situation where you have built up enough income-generating assets to make a huge difference: to your lifestyle, your travel plans or even backing creative ventures of your own.
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Thinking longterm is something creative workers know how to do
To invest, you need to make a choice to put that money into something for the longterm (in the stock market, this is usually 10 years+) instead of spending it.
Investing then is all about short-term sacrifice for longterm gain and, for all the crappy stereotypes about creative people and money, this is something we are good at in the creative industries.
“Many in creative roles have better things to do than watch the markets all day and cursing that Tesla dipped while they were in the loo.”
Any actor who spent years waiting tables so they could make auditions knows about investment. Anyone who did the internship and landed freelance work; who spent time at the funding workshops and received an Arts Council grant; who saved their gig money and bought recording gear… I’ll stop listing cliches now, but hopefully you get the picture.
We might feel repelled by some of the imagery around investment, but most creative types have already adopted this core concept.
Why you need to figure out investing now, not someday
Here’s a well-known example (I’m not the first to use this)…
Two 20 year-old twins – Early Ellie and Late Larry – start jobs with identical incomes.
Early Ellie decides to immediately invest £100 a month. She pays in for 10 years, until she’s 30, and then stops – making a total contribution of £12,000. She then leaves it invested until she is 60.
Late Larry waits until he is 30 to start investing, but then diligently pays in £100 a month until he is 60. A total contribution of £36,000.
Both get the same annual return of 7% on their money and opt to reinvest any returns it generates across that time.
Question: Who do you think ends up with more by the time they’re 60? Ellie who invested £12,000 or Larry who invested £36,000?
Answer: Early Ellie.
By the time the twins are 60, Late Larry’s £36,000 will turn into £121,997 – an amount not to be sneered at.
However, Early Ellie’s £12,000 investment would grow to £140,480 – a return of almost £20,000 more, after investing a third as much.
Ellie comes out ahead, despite her smaller overall payment, because her investment had 10 years longer in the market.
The principle at work here is called compound interest and, as financial bloggers will never tire of telling you, it’s what Einstein reportedly described as “the eighth wonder of the world.”
When you direct the income from your assets into buying more assets, the return builds on top of itself (compounds), enabling the value of your assets to grow at a super-charged rate.
When it comes to discussing investing for freelancers and creative-types (or anyone with less spare cash to put into investing in the first place) this is a particularly valuable lesson to learn. Start early and you won’t need to put in as much.
Just because we need to think longterm about investing, does not mean we should put off dealing with it. In fact, the opportunity cost of waiting can be huge.
When is the right time to invest?
There’s a phrase that pops up in lots of investment guides: “It’s time in the market, not timing the market.” Here’s another one: “The best time to invest was 10 years ago, the second best time is today.”
Both of these are getting at the same thing. That for the amateurs, investing often works best when we don’t try to be too clever about holding out for the perfect moment, or constantly buying or selling in the name of a quick buck.
Instead just get going and focus on quietly building up a store of dependable assets over the longterm. The sooner you start, the sooner you can benefit from the ever-increasing momentum of compound interest.
“Contrary to popular belief, you don’t have to be wealthy to invest.”
This is an approach that may suit many in creative or freelance work, who have better things to do than watching the markets all day and cursing themselves because Tesla dipped while they were in the loo.
Instead, keep it simple, invest in things you understand and make it a habit that you keep. The results could soon build and surprise you.
Finally, even if you – like many others – are focussing on paying off debts, or building an emergency fund, you can still research your options (as all investors should) and make a plan. Not having the funds right now doesn’t mean you can’t take action.
That’s it for now! Next time I’m going to discuss some how to get ready to invest…
Want to find out more about investing options? These are good starting points…
- MoneySavingExpert.com is an independent organisation that compares financial products, like ISAs and pension providers
- PensionsAdvisoryService.co.uk offers free and impartial guidance on workplace and personal pensions: 0800 011 3797
- MoneyAdviceService.org.uk offers free and impartial money advice, set up by UK government