Perhaps the most widely held (and dangerous) financial misconception among musicians and other relatively low-income earners is that "it takes money to make money", or that investment is a subject relevant only to those at some elusive, undefined higher income level. On the contrary, saving and investing are crucially important for everyone, especially those of us who opt to have a career in the arts.
Why? Because financial trouble is the number one factor forcing talented artists into premature retirement. As a musician, I recognize that my average lifetime income is likely to be on the low side. Sure, I might get lucky and enjoy some period of commercial success, but statistically that is unlikely to last for very long even if it happens. Therefore, I need to be more financially savvy than the average Joe in order to wind up equally well off in old age.
In future blog entries, I will try to pass on various financial lessons I've learned over the years, both through personal experience, and from observing others. For now, I'd like to start with my favorite phrase: it's not what you earn, it's what you save. I'm going to beat you over the head with this one, because in my opinion, it just sums up everything for us artists. The point is that virtually anybody can save at least some money, and establishing that saving habit is infinitely more important in the long run than earning a big income. I know lots of people with six figure salaries who don't save a dime, and I know people earning $25,000 who save thousands of dollars every year. Who do you think is going to be better off in retirement?
Keep Expenses Low
I'm not saying that you shouldn't seek to maximize your income. Given a choice between two nice, steady gigs, I'll usually take the better paying one. But I might not have two nice gigs to choose from. In other words, raising income isn't always something you'll have control over, but expenses are generally within your control. Beyond a very basic subsistence level (food, shelter, clothing), I am mainly concerned with keeping my expenses low. For example, most of my musician friends eat out almost daily while running from gig to gig. If you plan instead to bring along a bag of dried fruit or nuts, let's look at how that adds up over time:
Fast food: $4.50x18 meals/month = $81
Bag lunch: $1.50x18 meals/month = $27
Savings from bagging it = $54 per month ($648 per year)
If the $648 annual figure doesn't impress you, consider that investing that amount at an 8% annual return for 20 years would add up to over $32,000! And that's not even counting the money you will save on future doctor bills and cholesterol lowering drugs! I've been applying the expense lowering principle for years, and this simple change in perspective really does make saving money surprisingly effortless for me. And believe me, I don't earn a big income! Many people might scoff at such a notion, but first ask yourself: Have I really paid attention to where my money is going, and done everything possible to minimize my expenses?
I'll offer many more specific suggestions in future blog entries about how to keep expenses low and get on course for a better financial future. For now, I would suggest taking an accurate account of your own cost of living, and please share any ideas you come up with for keeping those costs down.