Guitarist’s Guide to Getting Rich!

Or at least getting a handle personal finance so you stop being one of those lame “artists” terminally broke, in debt and sponging off the girlfriend’s patience!

I’m a guitar teacher for the most part. I’ve got a few irons in the fire, such as my line of guitar shirts & posters, and a few other investments that I hope do well for me down the road. But I live in a tiny condo with a mortgage that I’m going to have for a very long time. I’ve got bills, I’ve got some debt. I’m not rich by any stretch. As I’m writing this it’s July, generally my slowest time of the year, money’s pretty tight, a vacation unlikely. What the heck does a humble guitarist like me know about getting rich if I’m far from it? Honestly, I’m just a musician who’s done a bunch of fantasizing after reading dozens of “be a millionaire” books along with a bunch of personal finance ones.

Yet for all of my complaining and worries things have managed to work out for many years. I’ve never had to take on a job doing something I would hate (fingers crossed), I can sneak in a decent vacation here and there, I didn’t have to sell my cat to science when she hit me with a $900 dental bill last year. I’m not as comfortable as I’d like, but I can sleep at night and continue doing my artist stuff, like putting out new music, producing little films so I can score music to them, etc. Yet I see or hear about musician comrades mentioned above, broke, living off their girlfriend’s couch, bouncing from job to job, still dreaming about the big payday fame and a record contract will bring them. Hey, dream away…but consider bringing your head out of the clouds just enough to prepare for a future where disaster WILL strike at some point, a future that could be prosperous whether you become a wealthy rock star or not.

(And for the record, I’m ripping off these ideas from all the personal finance books I’ve read. But hey, you’re not going to read those anyway, so I’m highlighting various points I found useful.)

First thing first, you gotta pay taxes. In particular, I’m talking to the self-employed types who don’t have taxes taken out of their paychecks. Yeah, you can play the dumb artist rebelling against the system by not paying, but at some point they’re going to track you down for pulling that crap, then you’ll be stuck with some gargantuan bill that you’ll have to pay with interest (criminal that they can do that), plus penalties, plus another fee if you pay it in monthly installments–which you likely have to do because you didn’t get your record deal yet. But here’s the cool thing…you can deduct all sorts of expenses that non-self employed folks can’t (mainly because they’re not getting socked with self-employed taxes), such as…

Musical gear and accessories. Everything from new guitars to iTunes downloads. You need to be careful, as “lavish and extravagant” purchases like that Jimmy Page Les Paul Custom might raise red flags.

Studio expenses.

Office expenses (you know how much I spend at Staples every month on office supplies???)

Health insurance and medical bills.

Car expenses (specific mileage related to paying gigs–be careful!)

Meal expenses…50%, I think.

A bunch of others I’ll remember months after I finish this blog, so Google it.

A lot of this information might be totally obvious to some of you, but I’m blogging about it anyway because there was a time early in my teaching days when I didn’t know about it. I was paying health insurance for years, not knowing I could get a tax break for it. And you can’t go back to the IRS and say, “Hey–I overpaid my taxes for five years! Can I get some of that back?” Unfortunately it seems like they can do that to us.

By the way, don’t forget that I’m NOT a tax expert. This article is largely for entertainment purposes only (though hopefully not fiction), so contact the tax experts.

Speaking of insurance, you should get it. For your car, for your health, maybe even for your gear, if you have stuff that would break your bank to replace. Personally, I wouldn’t take out insurance on a couple grand worth of guitars, amps and pedals. You’d take a big hit if they were stolen, but you’d recover quickly. It’s a different story if you have a room full of vintage gear and a Pro-Tools rig pushing the five-six figure range. But if you’re in that zone you probably have the smarts to have insured it already…right? RIGHT???

I’ve ranted about health care in other blogs. Our system is so desperately broken on so many levels it sometimes makes me want to raise up a mob and storm through the offices of every insurance agency, giving those bloated assholes noogies that will leave lifelong redspots on the tops of their heads. The truth is you’re going to get screwed by health insurance if you’re self-employed. It will cost too much and you’ll still have to foot most of the bill for most of any service you need. My current plan is almost $200 a month with a $5000 deductible. So a doctor’s visit only costs me $40 if I go to my plan doctor, but medicines often push towards $100 for a month’s supply (ask your doctor if there are any generic/cheaper alternatives when the prescription is being written out because with the varied costs and deductibles, they don’t know what’s cheapest for YOU and will prescribe the first thing that comes to mind) But get this–if I go to the emergency room or one of those “urgent care” centers, I have to pony up roughly a hundred bucks to see the doctor plus ANOTHER hundred for walking into the facility! That’s NOT including any medications prescribed! And if I need serious medical attention in that emergency room, hoo-wee, I’m screwed for up to $5000.

But how screwed would I be if I DIDN’T have insurance? Even more so. I’d lose the discounts these facilities have arranged with my insurance company (though many facilities are dropping insurance companies altogether, tired of their bureaucracy of paperwork, but that’s for another blog). The trick is to talk to your insurance company about what the cheapest options are, learn the system best you can so you don’t get, uh, totally screwed, since you’re probably going to get screwed quite a bit anyway. I went to a local hospital for a simple blood test awhile back, just a basic AIDS/STD test to see if I was still healthy and was charged almost two hundred bucks. Called Blue Cross and they said I could have gone to one of their preferred labs for a fraction of the price…not to mention a filmmaker friend who said he had the same test done at a FREE clinic. So do a little homework if you can. You’re going to spend a ridiculous amount of money on health insurance. It’s a drag. Hell, it’s simply wrong! But if you get hit by a bus or get a long-term illness would you rather pay the $5000 deductible and $200/month or the $100,000+ bill for not being insured?

If anyone has read this far they’re probably thinking I’ve ripped them off for not talking about how to become the Donald Trump of guitar players. You want the secret? I’ve read countless “how to be a millionaire” books that wouldn’t share this secret with you–and I’m giving it to you for free! Here we go…

Stop spending money.

Start investing money.

Right now you’re pursing your lips together, going pbbbbbbbb. But how many times this week did you…

1. Buy a Starbucks?

2. Go out to lunch or dinner?

3. Buy drinks at the bar? A round for your friends? (Hey–don’t be cheap! That’s a quality gesture in moderation!)

4. Buy ANOTHER guitar?

5. Buy a $6 magazine each month that you can subscribe to yearly for $20?

Not all of these are weekly examples, but you get my point.

Do the math. You get a $3 latte daily, that’s $21 a week, $84 a month and $1008 a year. That kind of money could get you one of the high-end Strats in the Fender line. No, you don’t have to give up your coffee–I don’t. I buy once or twice a week, if at all. Other months I’ll buy a pound of beans for ten bucks and make many cups of coffee that ends up being way cheaper than $3. I’m thinking of buying a latte machine, which might be expensive at first, but will pay itself off down the road if I never have to go into Starbucks again.

This isn’t about being a cheapskate miser. Those people are miserable to hang around with. It’s about being practical, enjoying life without being stupid with your money. How many people do you know who are constantly broke, whining about their money situation and yet they always have this giant latte in their hands? “Skipping my coffee won’t make me rich.” Skeptics will say…because they’re ding-dongs looking for reasons to argue instead of ways to save a few dollars here, a few there and–hey! There’s a little more money to buy the things you REALLY want!

Most of the personal finance books I’ve read talk about the horrors of credit card debt. It’s true, interest rates pushing twenty percent. Yet so many folks will buy that new Marshall head because Guitar Center gave them SUCH A GREAT DEAL, then throw it down on the Mastercard, pay it off over a year or two and not realize that the amp technically cost them over $4000 by the time they pay it off. It’s understandable…the credit card companies probably don’t want you to understand that, seeing how they mail us so many documents in tiny print. Dave Ramsey, a cool financial/get out of debt expert, suggests paying off your credit card and destroying it, which isn’t a bad idea for some. Since I pay mine off each month (or transfer bigger stuff to my lower interest home equity line of credit and pay it off ASAP), I like the tiny cushion ONE piece of plastic provides in my wallet. THINK…is it really worth buying all that stuff now when it will cost more later?

Musician’s typically live paycheck to paycheck, no money leftover. Then disaster hits, the dental bill, car accident and there’s no money to pay for it. So they have no choice but to put it on the credit card, thereby creating another cramp in a lifestyle that often has a bunch of sacrifice to begin with. Barely any money to pay that off that dental bill, so you make the minimum payment on the card, then another expense hits you, and another. Then you MUST purchase the Les Paul you found on Ebay because it’s such a great deal, so you pull out the credit card again. If you’re cool with that and accept the fact you’ll always have massive debt, then hey, enjoy life. But at some point you won’t be able to complain about how “The Man” is keeping you down.

Then again, there are those of us who do our best to save and be practical, yet we still get hammered by life, the IRS, those things that keep us from getting ahead. If I had the answers I could put a nice infomercial on cable and talk to the audience from my yacht, “You want to make lots of money? Have fancy boat like this? Just from playing guitar all day!” But I came across a piece of advice that–again–is totally obvious to some, but was completely off the radar for a musician like myself…

Create an emergency fund!

What a concept! SAVE money for the disasters in life that will definitely strike at some point. I’m no saint, I still have debts and paycheck to paycheck issues, but I was determined to put a small chunk of money into a new bank account, reserved ONLY for those moments when I need a root canal and my car breaks down in the same month. I won’t be happy about paying those bills, but at least I won’t have to put them on my credit card, where they become more expensive through accrued interest. $1000 bucks will cover a big chunk of unfortunate surprise. Do ANYTHING you can to save a grand, cut back on the lattes, make the minimum payment on your plastic for a bit (not a good long-term practice, but you have a goal). How hard is it to save that much? I know, easy to say for me, a single male, goofing off on his blog. But am I wrong?

If you’ve STILL been reading this blog you might be wondering about the “getting rich” part I mentioned. I’m not a Wall Street expert and whatever I ramble in the next few paragraphs could be the best advice ever or completely worthless if the market collapses. But from all of my reading, this advice on wealth building makes sense…

Invest in a retirement account.

Save money every month and invest it in the market–among other things you can research down the road. You won’t get rich quick…in fact, it will be boring and slow. But think about the power of compound interest. Say you invest $1000 in a Roth IRA (a retirement account that you can withdraw from after age 59 1/2 as long as you’ve had it for at least five years) and it goes up 10% in one year, so you now have $1100. Don’t do anything and let’s say it goes up another 10% the following year…meaning you’ve now made 10% of $1100, which means you now have $1210. This is very crude math (hey, I’m a guitar teacher!) and the market goes through all sorts of ups and downs. But over time it goes UP. And you wouldn’t put just $1000 into this account and expect insane riches to appear. You’d put a little money in there each month, a hundred here, five hundred there. So you’re adding money on top of money that’s growing in the market, then the new money grows with the old money and so on. I’ve read that if you start an IRA when you’re 18 and invest the yearly maximum ($5000 for folks up to 50, $6000 for those older) you’ll easily be a millionaire when you’re 59 1/2. Start in your 20s or 30s and there’s a good chance you’ll build a nest egg in the high six figures. And here’s the cool part…in a Roth IRA that money has already been taxed, so you don’t have to pay any taxes taking it out in retirement!

Where do you start in the investing world? All sorts of places: Read Investing for Dummies, pick up a money magazine (or subscribe to keep your costs down), hit up the library’s finance section. At some point you’ll find a text that makes sense and you’ll start getting ideas as to what’s best for you.

What am I doing? Among other things, I have a Roth IRA in a Target Retirement 2035 account. It basically consists of a few different mutual funds: An index mutual fund holding American stocks, a similar fund holding international stocks and another fund invested in bonds, which are generally considered lower risk. The whole account is weighed mostly in the first two stock funds because I’m still young enough to deal with market ups and downs, but as I get closer to my retirement (around 2035) the account will start shifting assets into the safer bond fund. All I gotta do is invest a little bit each month and the company running the account diversifies the money for me, so I don’t have to obsess with stock reports and crazy business math beyond my time and interest. I continue monitoring my investment learning about personal finance, but it’s not as hard to invest as you might think.

The fact is, most musicians aren’t going to have pensions waiting for them at retirement. You gotta start building your own cushion now, while you can still do your part in the workforce.

I pitched this to one of my teenage guitar students once, got the typical teenage answer, “But I want that million NOW, not when I retire.” Here’s my take…what if you don’t get the record deal or win American Idol? What if you simply pursue the dream, have fun along the way and reach old age without hitting the jackpot? Wouldn’t you rather have a nice chunk of money (half a million or more) waiting for you in retirement so you could continue making music? Or chase down the retirement dreams that will eventually arrive, such as traveling the world? Or simply be able to pay for the expenses later in life, such as health issues, helping kids with college tuition, etc.?

But if you just want to be one of those musicians who only lives for the moment and has to work for his entire life until he drops dead on his day job…well, as long as you’re happy it’s all good. Personally, I’d rather pursue my dreams and build up a decent nest egg that will hopefully make my retirement years the best years of my life. And if I suddenly got to be a big Hollywood composer then it would be an awesome bonus along the way.

Remember, I’m just a guitarist still learning, trying to get educated. You should do the same.

~ by keithmoore1 on July 18, 2008.