12 Steps to Financial Independence
Jan 18, 2020
Before we get to the first ever Thriving Musician guest blog post, you need to understand who Cody Garrett is...
When I started Thriving Musician I couldn't imagine there could be another musician out in the world as interested in personal finance, financial literacy, etc. as myself. It turns out there is and he is only 240 miles away in Houston on practically the exact same path as me. After hearing about my financial endeavors a musical colleague who moved to Houston recommended I talk with Cody, a professional pianist and arranger. I called him and discovered he was taking CFP® classes at Rice University (I was taking mine at SMU) and about 6 months ahead of me.
Fast forward one year and we are both working full-time as financial planners, he was a guest on my podcast and we talk frequently about how to help musicians better their situations. Cody is the real deal and knows what it's like to be a professional musician. So with that... enjoy his wisdom!
12 Steps to Financial Independence
by Cody Garrett
Financial Order of Operations
- Assess the Situation
You must know where you are before determining where to go (and how to get there). Make a list of the things you own (assets) and the things you owe (liabilities). Include details about them - type (cash, investments, property, credit cards, loans), account ownership, location, value, loan dates, and interest rates. Subtract your liabilities from your assets to determine your net worth. The basic goal should be to increase your net worth over time, by increasing your assets and eliminating your liabilities.
- Budget on Purpose
List your monthly income and expenses. You can further separate your expenses into needs (non-discretionary) and wants (discretionary). Determine ways to increase your income and decrease your expenses, and give every dollar in your budget a job – debt repayment, savings, expenses, and giving. It helps to set up sub-accounts at your bank or credit union to earmark the jobs of your money.
- Manage Risk
If someone else financially depends on you, ensure that adequate insurance (life, disability) and beneficiary designations are in place. Estate documents (wills, powers of attorney, guardianship, advanced directives) should also be established and reviewed. Get this done when times are good!
- Start Emergency Fund
Don’t let unexpected expenses derail your progress. Put enough cash aside to cover insurance deductibles (health, property/casualty) and other sudden expenses. Health insurance deductibles may be saved in an HSA, as described in step 9.
- Get the Employer Match
If you have access to an employer-sponsored retirement plan (401k, etc.), determine pre-tax or after-tax (Roth) and contribute up to the employer match percentage. A 4% employer match is equivalent to 2 weeks of extra pay. Don’t leave free money on the table!
- Pay off Consumer Debt
Credit cards and other high-interest unsecured debt should be eliminated and avoided if you are going to be on the path to financial independence. Choose your debt repayment method - debt snowball (lowest balances first) or debt avalanche (highest interest rates first). Stop paying interest, and start earning it!
- Build Up Emergency Reserves
Save six months of non-discretionary living expenses (housing, food, utilities) to protect against temporary loss of income. Alongside the initial emergency fund, only keep this money in a low-risk money market or CD account.
- Invest for the Future
Contribute 15-20% of your annual income to pre-tax and/or after-tax (Roth) retirement accounts across multiple savings vehicles. An IRA (Individual Retirement Account) is a great place to start, and can be easily opened. Find a fee-only financial adviser if you need help determining your account type, risk tolerance, and investment choices. Automate your savings if possible, through the use of recurring direct deposits or bank transfers.
- Contribute to a Health Savings Account (HSA)
Take advantage of tax-deductible contributions, tax-free growth, and future tax-free distributions for qualified medical expenses if you are enrolled in a high-deductible health plan (HDHP).
- Save for Future Expenses
Fund other financial goals, including college savings and large purchases. This helps to avoid future debt financing.
- Pay off Remaining Debt
Eliminate low-interest secured debt, including mortgages and auto loans. Living completely debt-free allows you greater control of your money and your life!
- Maximize Savings, Spend, and Give
Increase your retirement savings rate and give your disciplined savings a purpose!
Cody Garrett developed a curiosity and love for music when he began piano lessons at the age of six, and from then on strived to become educated in music history, theory, composition/arranging, improvisation, production, and business. Cody continued his academic education at the University of Houston Moores School of Music, where he studied music theory, composition, and piano performance. Desiring a greater understanding of contemporary styles, reharmonization, and music production, Cody attended Berklee College of Music as a scholarship recipient, where he completed the legendary harmony and arranging curriculum in two semesters.
Since then, Cody has developed new interests and skills in digital audio production and professional music direction in his current work as a keyboardist, music director, and arranger. Cody currently lives in Houston, TX, and explores professional opportunities around the world.
Cody has collaborated as a performer and arranger with many renown artists/projects, including Aaron Lindsey, Alley Theatre, Ben Vereen, Brian Courtney Wilson, Cindy Cruse Ratcliff, Gene Moore Jr., The Hobby Center, The Houston Symphony, India.Arie, The Irish Tenors, Lakewood Church, Michael Moritz Jr., Michael W. Smith, Second Baptist Church, and Will Makar.
Connect with Cody:
What steps are you taking towards financial independence?
Want to write a guest post for Thriving Musician? Send an email to [email protected]!