The Second Best Time is Now

Or, investing for retirement, even when you’re not perfect

You’re having drinks with a friend after an opening, and the topic turns to money. Life is expensive, the city is expensive, and the distant menace of retirement? Forget it. You turn back to your $14 cocktail and feel depressed.

But wait. Aren’t you the same person who is taking charge of her career? Aren’t you setting new goals, prioritizing your studio time, building your network, learning how to market yourself? You’re smart, and you’re tackling the other hard stuff. So why are you cheating yourself on the bigger picture? You can do this. No need to let the perfect be the enemy of the good here. There is an apt proverb about planting trees: The best time to plant a tree was twenty years ago. The second-best time is now.

But first, a little digression about beauty. And compound interest.

Sara Jones, drawing on paper, 2016.

This is a drawing by Sara Jones. Beautiful, right? It has a lovely feeling of calm about it. Remember this feeling as you read on about saving.

I think saving for the long term can be intimidating, because it seems that we’ll need so much money that we just get overwhelmed. It’s easy to focus on the short term (My rent is so high! Childcare costs are ridiculous! How can I really cut any of my spending? How is $100 a week going to make a dent?). It’s easy to think “I’ll do that later, when I have more money.” But the difference between starting now or ten years from now is bigger than you think.

Now look back at Sara’s drawing. See the curve? That’s the image that should be in your mind as you think about saving. That’s what happens to your money. Why? Because of your friend, Compound Interest.  

There’s a lot of great explanation out there about the benefits of compound interest. But if you’re a visual person, like me, it’s really in the picture. So here’s another one, this time with numbers:

This is a chart showing what compound interest does to a one-time $5,000 initial investment. Don’t let the details throw you - the curve is the important part. The light orange part shows the money you put in. The dark orange part is all growth. When you put money in a savings vehicle (like an Individual Retirement Account (IRA), invested in index funds, which have a historic average growth rate of 8% - more on this in a future post), compound interest works to multiply your initial investment over time.

Here’s how it works: Your 5,000 earns 8% interest, so at the end of year 1, you have $5,400. The next year, you make 8% not on 5,000, but on $5,400, yielding $5,842. It doesn’t seem like much yet, but the magic happens near the end. So this little bit of money, after 40 years of compounding, turns into $108,622.61. Now we’re talking.

Now what happens if you make your $5,000 investment an annual habit? Basically, this curve gets steeper. That means you grow real wealth. Check it out:

It’s important to notice the numbers here. The chart reaches into the millions now, not hundreds of thousands. And the light orange part, which represents money you put in, is growing each year, as you make your annual contribution. So in forty years, you now have $1,507,527.81.

Compound interest is your friend. It means you don’t need to save as much as you might fear you do in order to retire.

But what if you wait ten years to start? On the first chart, your $5,000 is worth over $180,000 after 45 years. But after 35 years, ie, ten fewer years of growth, it’s worth about $90,000. That ten years cuts the money in half. Now you see why the first principle of retirement saving is “start early.”

And as a tax professional, I will tell you that your annual contribution limit to a tax-sheltered IRA is even a little higher than in my example. The 2022 limit is $6,000 (and if you’re over 50, it’s $7,000). And you have until April 15, 2023 to contribute for 2022 (yes, it’s retroactive). Opening one is as easy as opening a bank account. I recommend Fidelity or Vanguard.

So don’t let perfection stand in the way of action. Maybe you can’t put aside as much as you’d like, but you can put aside something. But don’t wait for some elusive “better time.” Remember the proverb about the trees? The best time to save was twenty years ago. But the second best time is now.

Disclaimer: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.

Recession is a Golden Opportunity

“Should I be freaking out about the economy?”

You’re getting the message that there's bad stuff happening in the economy right now. Inflation. Gas prices. Groceries. Stocks tumbling. Crypto cratering.  But how these things touch your life can vary. You’re self-employed, and so you want to be sure that your business stays strong and you are managing your money well through potential choppy waters.

Do you need to freak out?

Hell no. In fact, you might even celebrate. 

If you know what to do, recessions present some of the best opportunities for you to maximize your money and stand out in your business. 

Wait, is that really true?

Absolutely. 

Ad costs drop. That’s a chance for you to get out in front of more potential clients. 

Stock prices drop. That’s a chance for you to “buy low.” It’s a sale on the stock market. I don’t know about you, but I love a sale. 

Small creative businesses like yours get distracted and lose their nerve. That’s a chance for you to hone your message, focus on your clients’ needs, invest in some new skills, and become the go-to business in your niche.

But of course if you have no savings, no cushion in your business, and no plan, you cannot optimize your business for a recession. This is the time for a financial plan. 

Good news: I’m here to help you with this.

I just hosted a training about managing the scary parts of a recession and optimizing your opportunities. And I’ve decided to make it available to you, dear reader, so you can feel more calm and in control.

WATCH: How to Thrive in a Recession

[NOTE ABOUT THE BONUS offer: in the Recession video, I mention a bonus 1:1 consult with me. That offer is no longer available as stated in the video. BUT, if you’re interested in it, you can still get a session with me by watching this class on How to Put Your Taxes on Autopilot and Grow Your “Freedom Fund” and joining the program using the fast-action bonus link. The 1:1 sessions with me, Hannah, are available so long as you join by August 15]

You create the culture. So what will you build?

Confession:
Like you, I struggled to wave the flag this weekend. Celebrating our nation's freedom felt heavy in the wake of the Supreme Court's deletion of womxn's right to bodily autonomy (which is tied to our economic autonomy).

And yet, I will still say something very unpopular:

I love this country.

Why? Because I love you.

If you're reading this, you create culture.

The thing about American culture is that there is so much of it that is so awesome. That reflects the best of this country. Our values. Our creativity. Our inclusivity. Our highest aspirations. Our vision for a better world.

When you get in a Lyft in another country, you hear Cardi B playing. People will quote Ted Lasso to you, or talk about Hamilton, The New York Times, or the latest Thor movie.

Our influence is massive. And culture creates change. (To get real nerdy, it opens the Overton Window)

Here are a few of my favorite reasons to love this country:

Shirley Chisholm
Jad Abumrad
Jon Stewart
The Rev. Dr. William Barber II
Cardi B
Adam Davidson
Raja Kumari
Beyoncé
Kara Walker
Dolly Parton
Rachel Rodgers
Ezra Klein
James Turrell
The Obamas
Chana Joffe-Wolt
Seth Godin
2 Dope Queens
Tig Notaro
Sarah Silverman
Amanda Gorman

I bet you've got a similar list, and I bet it comes to you easily.

Part of the reason we get to hear so many voices of people from historically marginalized groups is that we have managed to push for change in organizations both public and private to gain more access and voice and platform.

That work has opened up a lot of doors. But it is far from done.

I've dedicated myself to teaching the skills of financial autonomy to you, the culture maker, and the historically marginalized person, because you create the culture.

And so you change the world.

I believe in you so much, that I've made this my life's work. I want you to secure and hold onto your economic power. So you can have a bigger impact with your work.


I want you to do the self-care of getting your tax + money foundation solidly underneath you.

In service of that today, I made you a video.

You've already downloaded my Visual Guide to your Deductions.

(You haven't? Here are the links for you again. Pick the one that fits you best:

Artist

Designer

Maker

Creator

Performer

Creative Business Owner/Entrepreneur)

So I made you this 5 minute video with some quick tips for how to use the guide to set yourself up.


So now I’ll toss the question back to you:

What is the country you want to see?

What is your vision?

What is the culture you’re creating?

I'm gonna say it again.

I love this country.

Why? Because I love you.
In love and solidarity,

Hannah

My two worst mistakes, plus a Visual Guide to Deductions

This last year has been hard. I’ve learned a lot, and gained a lot, but I’ve also lost a lot. (Hair, sleep, and 4 employees)

I want to tell you a brief and vulnerable story about my business, as a way to frame my gratitude to you, dear reader.

During the pandemic, Sunlight Tax grew a lot. There were 3 new tax bills passed, and I got busy making courses, writing articles and offering workshops on how these bills would affect you - the creative person doing that important empathy-building work. My audience grew as a result, and a lot of people joined my program, Money Bootcamp. These things are wonderful.

But I made some mistakes.

Mistake #1:

My pricing was based on working alone. And this was fine when I worked alone, but once so many people joined my program, and I could no longer serve everyone by myself, I needed to hire people to help. And once I did, I quickly realized that my prices could not support my employees and myself. And that entered me and my employees into a cycle of overwork and then burnout. Feel free to take notes, because I don’t want this to happen to you. I see this all the time in other small businesses, and it only really crystallized for me once I did it myself.

Mistake #2:

Another mistake I made was projecting revenue into the future. I thought my growth in sales would continue the way it did in the height of the pandemic.

It did not.

This was not just disappointing. This left me with too much work to get done, and not enough sales to cover payroll. I lost sleep, I lost hair. Obviously, I also lost money. My husband shook me, looked into my eyes and said, “I cannot be the only one you talk to about this. This is too much. You need to get a therapist.” And once my employees burned out, which they quickly did, I lost employees.

So this year, I launched my program a lot. I know that my program is excellent, and I know that it is valuable to the people who are the right fit for it. But launching is exhausting both for me and for you.

People got a lot of emails.

And if you got all of them, and you’re reading this now, you’re still here.

So, I just want to say, thank you.

(But also: it is 100% ok to unsubscribe if you want to! And if you don’t like my emails, you absolutely should)

Some of you write me to tell me how my work has been meaningful or helpful to you, and that is what keeps me going when things get this hard. It’s you.

I am a creative person first and foremost, and being in community with creative people like you, and helping you figure out the tax/money part so you can make more of your work in the world - that is the whole reason I do this.

So today I want to give you a gift of thanks.

I often talk about artists, but my creative family is much bigger than art per se. So, I decided to expand my Visual Guide to Tax Deductions to help those of you who are in adjacent fields.

Below, you can download a Visual Guide to Tax Deductions for:

Designers
Performers
Artists
Makers
Creators and
Online Business Owners/Creative Entrepreneurs

These are updated for 2022, and each is tailored to the needs of your field. Makers has the rules for COGS. Online business includes things like coaching and retreats. You can print it out, and post it by the spot where you do your numbers.

Thank you so much for being here with me. You’re making the world better, and I'm glad to be in your company.

Warmly,

Hannah

Podcast episode: Losses are normal, and debunking the itemizing vs business deductions misconception

Hard years can include—and almost universally DO include—year one. So, we expect you to have a loss year one. A lot of artists feel guilt and shame that they don’t make money at first. But, neither did Uber. Neither did that restaurant you ate dinner at last night. That’s normal.

-Hannah Cole

This week, Hannah talks about how losses are normal for art businesses, and why artists don’t need to feel so bad about them. Plus, an explanation of itemized deductions vs. business deductions (hint: don’t throw out those receipts!). All of this in part 2 of a 2 part podcast interview on The Passionate Painter podcast.

You can listen to episode 2 right here.

If you missed episode 1, listen to that first here.