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Financial Planning is mostly about habits. If you have bad habits when you have little money, you're going to have bad habits when you have lots of money. You can acquire good habits at any time, but they're especially useful when you're just starting out. Artists tend to make a living in a feast or famine environment. Good financial habits can help alleviate a lot of unnecessary stress and give you options you might not otherwise have.

Your habits are even more important than the amount of money you can save. This is a good place to throw logic out the window. Trust us on this one: Your habits are even more important than the amount of money you can save. Say you used some of the tools on this site and figured out you need to start saving $500 a month to retire well and this doesn't even take into consideration saving for other things like a down payment on a house. You've looked at your finances and figured out that you can save $25 a month with what you're making currently. It's tempting to say, what's the use? Why save at all if I'll be 175 by the time I can retire? Then comes the onslaught of negativity. I suck with money. I can't even balance my checkbook. I'll never own a house. Financial planning is for the rich, not me. Fight the negativity and implement the habits that follow.

Your habits truly are more important than the amount of money you can save. They're more important than your current income situation and your debt load. When you set the habits that follow, you begin to invest in yourself and that's the most powerful investment you can make.

Three Powerful Financial Habits:

1. Start a Savings Account.
You may have to build up to this, but everyone can and should have a savings account regardless of their financial situation. I don't care how poor you are, you can afford $25 a month. Many banks require a $100 minimum to start a savings account. Trick yourself into saving the $100 if you don't have it right now by subtracting $25 a month from your checking account, noting "savings." When you've saved the $100, go in and open a savings account.

In addition, ask for the paperwork for automatic deposit into your savings account. This is crucial. If you don't have a day job, have the money automatically drawn from your checking each month. If you have a day job, have it come from your paycheck (you'll give the paperwork to your employer). This is the world's easiest way to save money. You don't see it, you don't spend it.

Your goal is to have six months living expenses saved. Don't worry about how long it will take to save it right now. That's not important. What's important is to get your savings plan set up to run itself. Once you've accumulated six months worth of living expenses, you can use the money above that amount to pay down debt, to invest, to save for whatever you want or need. The goal right now is to get started.

2. Start a Retirement Account.
At the same time you set up your savings account, set up a retirement account (or as soon thereafter as you can). A retirement account allows you to make your money work for you because you can't touch it until you retire and it grows in a tax-free environment which means it can add up.

If you work for a company that has a 401k plan, begin investing in it immediately, even if you don't plan to work there for a long time. You can take what you've put into your 401k and put it into an IRA when you quit.

If you work for yourself, you can start your own IRA. There's usually around a $1,000 minimum investment. If you don't have the money right now, which is the case for many artists, wait until you have enough in savings and then open it. The main thing to remember with a retirement account is that there are penalties if you withdraw the money early, so that's even more incentive to leave it alone. It's also a great tax move (but you can read about that elsewhere on the site).

Whatever type of retirement program you establish, set it up so that whatever you invest each month is automatically deposited into your retirement account. Remember to invest in a good mutual fund because this is an investment, meaning it can lose money as well as make money (take a risk tolerance questionnaire before you choose a mutual fund). However, once you choose a mutual fund, don't worry about your earnings. Check the investment periodically, but you want the money to sit for a long period of time so short term gains and losses aren't important if you've chosen a good diversified mutual fund.

To illustrate the point about letting the money sit (but NOT the point about investing in a diversified mutual fund), I have a high tolerance for risk so I invested $1,000 in an aggressive growth mutual fund. That means the earnings can go way up or way down. Much of the mutual fund invested in technology companies (you'd be better advised to go with a lower risk mutual fund unless you like living on the edge). Within five months the IRA was worth $500, half of the money I'd invested! But, I'm in for the long haul. I won't need the money for a few decades, so I'm simply leaving it alone. Eventually it will even out and make money.

If you can only afford to invest $50 a month, split the money between your savings account and your retirement account because you want some money at your disposal (the savings account) and some money that you can't touch (the retirement account). Once again, don't worry about the amounts right now. You're forming lifelong habits. That's all that matters.

3. Increase Your Deposits Regularly.
Increase the amount of the deposits into your savings and retirement accounts every six months. Your goal should be to have at least six months worth of living expenses in a savings account and to put ten (10%) of your income into a retirement account. Build up to it. Always put away a little more than you think you can afford. You'll be surprised at how little you miss the money and how fast you can begin to build solid financial habits.

Even the world's most unorganized person can start a savings and retirement account and once it's established, it practically runs itself. From humble beginnings do great things come, but you must begin. If you want a bright financial future, this is the place to start.

Next: Beginner's Financial Planning

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