Taking Control

Welcome to the Actor's Finance Workshop. For the next eight weeks, this column will explore the basics of personal finance.

First of all, let me tell you where I am coming from in terms of personal finance. I am writing from the perspective of someone who learned the hard way what financial education can offer a life. By ignoring any responsibility for my own financial situation early on and believing that I would worry about it when I "made it" (in this case the it being the money that came along with career advancement), I became someone who built up a huge debt with no idea of the actual total of that debt. I had months upon months of not knowing how much money was in my checking account. I thought credit cards were valid forms of payment for items I couldn't possibly afford. I displayed all the other behaviors that go along with the denial and, honestly, fear of financial awareness.

Since that time, I have become someone who has put money in IRAs, who knows exactly how much debt she has, who has built a small but solid nest egg, and who knows where her money is coming from and what she is going to do with it. I am someone who has a plan, and a plan is the thing that is going to bring you toward security and financial well-being. You must be responsible to yourself. You must be informed and aware that you have the power—with knowledge and honest application—to create a life that takes care of you. Then, if there are difficult and hard times, you have a cushion and you have a plan of action.

Empowerment. That's what this series of articles is about. Empowerment for the actor. It is most certainly needed at those times when we feel the least powerful. The commercial strike has been with us for a long time now, and our pocketbooks are tighter than normal. This is the time when we should educate ourselves. We must learn that we can take control. Then you will come to know that you do have power over your finances, that you can build wealth and live an artistic life.

This series of articles will be broken into different chapters. It is called the Actor's Finance Workshop because it is giving you the opportunity to act on the principles that are outlined by these words. No recommendations for stocks or any kind of specific financial advice will be given; instead, you will be offered the tools to find the answers that are most comfortable for you. This is a basic lesson plan for becoming financially solvent. It will include the opinions of various financial specialists who have been interviewed with their specific expertise in mind. Whether you are young and just starting out or have years behind you, this is an opportunity to learn new things, to relearn those things that you may have forgotten, or to solidify those things that you suspect to be true.

Game Theory

Obviously, it is important to have money. But, for many, the acquisition of money is a very complex, fearful subject better left undiscussed and ignored than dealt with in a structured, systematic, and targeted manner. Money is the one thing we as a society don't like to discuss. We'll more readily report our illnesses and family woes than our financial portfolio to someone. For actors, who make the majority of their living at one point or throughout their career in one or more ways other than acting, there is also an emotional association of guilt, shame, and anger that is then applied to the earning of money.

That's a great deal of weight to add to what Michael O'Shaughnessy, author of The Millennium Woman—A Guideline to Personal Security and Financial Prosperity for Today's Woman, feels is really a game that anyone can win. He writes, "Acting is an unfair game—the rules change, the players change. Finance is a game that always works. And the ultimate thing money does—it doesn't guarantee you happiness, it does one thing—it buys us the ability to make decisions with our time, to do whatever we want to do. If you have one million bucks in the bank, you can do whatever you want. Money buys you time—not health, not happiness."

So, to look at this game that anyone can win, we must first address the rules. We must become educated. Sheila Moore, founder and principal of SJM Enterprises in Sherman Oaks, feels that the biggest fear around wealth building is income—or lack thereof.

"Most people have a deep fear of insufficient income because they never gave enough thought to what they wanted their income goal to be and then created a plan of attack to achieve it. This is a dilemma because then they are always caught with that fear and anxiety." Moore strongly feels that setting an income goal and working toward achieving it is something that should be plotted out every year. "Income is a flow concept measured over time. It should be assessed once a year. Then, you can create new targets and new understandings of income based on life changes. It's almost invigorating to look at it in this way. It's about a strong, systematic approach. Looking at income and setting goals around it will improve your net worth."

Know Your Net

Great! But what is this thing, "net worth," and how do we go about determining it? Basically, net worth is your total assets minus your total liabilities, which then equals your total equity. More simply, it's the difference between what you own and what you owe. This is information, this is knowledge, and this is power—because then you know where you are financially and can determine where you want to go. You can begin your plan of action.

When determining net worth, Moore suggests you first look at all the items in your life that have monetary meaning and value (marketable value). Divide them into two groups: the things you own (property, automobile, etc.) and portfolio investments (stocks, bonds, savings, etc.). You can also look honestly at things that you feel have marketable value, such as appraised art or antiques. But be honest with yourself. Something that you feel has great value may not have any actual value to the market (most jewelry, clothing, etc.). Moore said, "[Determining] assets is fun because you own them. Start with portfolio investments. Pick up the statements, find the balances. Include your IRAs, pension funds, etc. Real property is the next step. Here you have to find comparables. Call a real estate agent or look in the paper using the characteristics of your property and the neighborhood to see what sold recently and for what amount. This is important to know because values don't always go up. With automobiles, don't use the Blue Book, look in the Recycler. Anything else—furniture, etc.—do a conservative estimate on it, unless it's been accurately appraised."

Next is the category of liabilities, or what you owe. Be very clear and honest about this. Possibly this is the most difficult step for some people. Actually writing down the debt makes it more real and terrifying. But the truth is, once it's on paper in front of you, that is the first step toward eliminating it, the first step toward "owning" it. You'll soon use your creativity and imagination to make choices that will put you in the driver's seat to steer yourself toward freedom from debt. So write down the debt—the credit cards, loans (auto, student, mortgage, personal), etc. The most accurate way to get these numbers is by calling the creditor for a current balance or looking at your latest statement. Then subtract your liabilities from your assets. This is your current net worth.

What if the difference is negative? Don't be disheartened. Remember that knowledge is power, and now, possibly for the first time, you actually know where you stand. Moore said it "shows where the attention needs to go. You have six months to work for a target to the next stage (you should do this twice a year). Let's think about what you want the assets to be. The long-term goal is that the source of funds will come more from the equity (you) and less from building additional liability. Control the liability and build up the equity so you don't have to rely on liability [in the future] when making a change of assets." Although we will discuss goal setting in week five, it is important to see how net worth can begin the process of setting goals.

So, your assignment for this week is pretty clear. Estimate your net worth. Have fun with it! Gather the information and know that you are taking the steps toward controlling an aspect of your life that truly is in your hands. You may find information that surprises you, you may learn something that depresses you—just keep in mind what Michael O'Shaughnessy had to say: "It amazes me how simple this game is. If you play money as a game by these simple rules, you'll do very well at it."

Simple Rule No. 1: Know your net worth. BSW