By Nick Eddy and Patti Passmore
Is it worthwhile or even possible to create a budget for precarious workers like professional performers who have fluctuating incomes from year to year?
Absolutely! Budgeting for variable income requires a slightly different approach compared to those with a steady pay cheque, but it can be done effectively by following these steps:
- Calculate your average monthly income: Review your GROSS (before tax) ANNUAL earnings from the past two years and calculate your average monthly income (i.e. Annual income Year 1 + Annual Income Year 2) / 24 = Monthly Average. This will give you a starting point for your budget. We suggest using your tax returns to assist you in determining your annual gross earnings.
- Establish your essential expenses: Determine your non-negotiable expenses, such as housing, utilities, food etc.
- Create categories for discretionary spending: Set aside a portion of your budget for discretionary spending, like entertainment, clothing and dining out.
- Build an emergency fund: Since your income may fluctuate, it’s crucial to set aside money in an emergency fund to cover expenses during slower months to “smooth” your income and encourage a minimum of 15 per cent savings from each pay to build up an emergency fund (to cover essential expenses for three to six months).
- Adjust and review: Be prepared to adjust your budget monthly or quarterly to account for changes in your income and to reduce your discretionary spending where needed.
With practice, using a flexible budgeting approach allows performers to navigate their finances effectively, even with fluctuating incomes. CreativeArts Financial also has a budget spreadsheet we can share with our members as well as provide support with the budgeting process to any member who needs assistance
What are the pros and cons of different investment options (mutual funds/bonds vs. GICs, RRSP vs. TFSA) available to professional performers who may need to access these funds (and reduce exposure to financial penalties)?
The subject of investing can be intimidating and overwhelming, but it does not have to be. This article will speak to some commonly asked questions regarding mutual funds and Guaranteed Investment Certificates (GICs). Both can be invested within your Registered Retirement Savings Account (RRSP), Registered Education Savings Plan (RESP), Tax-Free Savings Account (TFSA) or First Home Savings Account (FHSA), or as a non-registered savings account. Click here (link insert to the quick facts document) for Quick Facts about RRSPs, TFSAs and FHSA accounts.
What is a mutual fund?
A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds or other securities (according to the fund’s stated strategy). Mutual funds allow individual investors to gain exposure to a professionally managed portfolio and potentially benefit from economies of scale, while spreading risk across multiple investments.
What is a Guaranteed Investment Certificate (GIC)?
A Guaranteed Investment Certificate (GIC), also commonly referred to as a term deposit, is an investment that provides investors with a fixed rate of return over a fixed period of time.
What are the pros and cons of mutual funds and GICs?
Both mutual funds and GICs can help investors achieve a rate of return within their RRSP, TFSA, FHSA, RESP and non-registered accounts, however, there are some key differences.
GICs have fixed terms and interest rates and are often non-redeemable during the term. They generally have no direct fees but can incur a penalty if you are able to withdraw them early. GICs guarantee your investment while earning interest at the same time. GICs are a suitable investment option when saving for a car, home, etc., and are not subject to market fluctuation.
Mutual funds are invested in the market, are subject to market fluctuations, and do not guarantee your investment. They can pay interest, dividends and capital gains, which may ultimately be taxed more favourably than GICs. Mutual funds can provide greater diversification, have potential for higher growth and provide greater liquidity than GICS. Mutual funds are a great investment option for those looking to invest for longer term, such as retirement, education, etc.
What is a MER (Management Expense Ratio) and why it important in assessing investment fund returns?
Mutual Funds are subject to what is commonly known as a MER.
A MER is the Management Expense Ratio of a mutual fund. It represents the expense a fund company incurs for managing and operating a mutual fund throughout the year. The MER is deducted from the rate of return. A mutual fund’s rate of return is published net of fees.
Example: ABC Fund had a gross return of 8.00 per cent in 2023. The MER of ABC Fund is 2.00 per cent. Therefore, the fund had a net return of 6.00 per cent.
What’s the difference between a financial planner and a financial advisor and how will I know which one is right for me and when?
There are some differences between financial planners and financial advisors in Canada, although the terms are often used interchangeably. Here are some key points:
- Credentials: Financial planners usually hold a specific certification, such as the Certified Financial Planner (CFP) or Personal Financial Planner (PFP) designation, while financial advisors can be a broader category that includes employees of financial institutions, stockbrokers, and insurance agents.
- Specialization: Financial planners may have a specialty in investments, taxes, retirement planning or estate planning, while financial advisors can offer a wider range of services.
- Regulatory requirements: In Ontario, for example, the Financial Services Regulatory Authority of Ontario (FSRAO) has specific requirements for individuals using the titles “financial planner” or “financial advisor,” including having an approved designation or license.
- Cost: There can also be a big cost difference when hiring a financial planner versus a financial advisor and the fee structure can vary between financial institutions. Please speak with your trusted financial partner for fee-related information.
Ultimately, the choice between a financial planner and financial advisor depends on your specific needs and preferences, and it’s essential to research and compare different professionals to find the best fit for you.
Why should performers avoid withdrawing funds from their Registered Retirement Savings Plan (RRSP) before they retire?
A Registered Retirement Savings Plan (RRSP) is designed to provide or supplement income in retirement. In most cases, it is recommended to explore all other options before withdrawing from a RRSP before you retire. There are three hidden impacts to consider before withdrawing early from a RRSP:
- Lose the “compounding interest advantage;”
- Permanently lose RRSP contribution room; and
- Pay tax on the RRSP withdrawal.
What is a Registered Education Savings Plan (RESP)?
A Registered Education Savings Plan (RESP) is a long-term savings plan to help people save for a child’s education after high school, including trade schools, CEGEPs, colleges, universities and apprenticeship programs. An adult can also open a RESP for themselves.
When you open a RESP, you can ask your financial institution (the promoter) to apply for benefits like the Canada Learning Bond (CLB) and the Canada Education Savings Grant (CESG). If the child is eligible, these benefits will be received in the RESP to help with the cost of the child’s education. Eligible expenses can include tuition, books, tools, transportation and rent.
A RESP offers several benefits, including:
- Tax-sheltered growth: investment earnings within a RESP are not taxed until they are withdrawn, allowing your savings to grow faster.
- Government grants: the Canada Education Savings Grant (CESG) provides a 20 per cent matching grant (up to a certain amount) on your RESP contributions.
- Flexibility: you can invest in various types of investments within a RESP, such as stocks, bonds or mutual funds, depending on your risk tolerance and financial goals.
Keep in mind that RESPs come with some rules and restrictions, such as contribution limits and requirements for withdrawing funds, so it’s important to understand the details before investing and to speak with a trusted financial partner.
Nick Eddy, Branch Manager, Creative Arts Financial, a division of FirstOntario Credit Union
I am passionate about providing guidance to help members achieve their financial goals and doing what I can to make planning for future a little easier. I’ve been in the financial services industry for 20 years, which has given me the opportunity to help people with long term and short-term goals like retirement, buying a house, tax minimization, and savings. I have a keen interest in educating people about financial literacy for the next generation – I want to help build a better tomorrow! Read more…
Patti Passmore, Investment Specialist, FirstOntario Credit Union/Aviso Wealth
I bring over 15 years’ experience in helping families and individuals reach their financial goals and aspirations. No matter your career or life stage, it is my goal to help you develop a sound plan tailored to your specific needs. Read more…
Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds, other securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated.
Performer Resources
ACTRA Toronto’s Member Education Money Management Basics for Performers 101 and 201 online learning courses help performers develop financial literacy and financial planning skills.
Learn more about the financial resources and investment options available to performers through both AFBS and Creative Arts Financial.
Did you know?
Under ACTRA’s collective agreements, a producer/engager is required to contribute seven per cent of ACTRA Full members’ gross earnings (under both the IPA and NCA) to your retirement plan? They also deduct a percentage (three per cent under the IPA and four per cent under the NCA) from your gross fees to contribute to your retirement plan.
According to a 2023 study by Embark, the average cost of a four-year post-secondary program in Canada for students starting school in 2024 is just over $75,000 when factoring in residence costs. This figure is forecast to rise by 39 per cent over the next 18-years, reaching $104,898 by 2041. It’s even higher for students in Ontario who pay an average of $86,106. The study forecasts this will grow by 32 per cent to $114,024 by 2041 for students in Ontario.
Disclaimer:
This article is intended for informational purposes only. Performers should speak directly with an investment/financial professional regarding their individual situation. ACTRA Toronto is not responsible for the business practices of investment/financial professionals operating in the province of Ontario and will not provide advice to performers about investment/financial professionals or their individual investment/financial situation.
