Thursday, August 7, 2008

Having Money Saves You Money Pt.2

Have you ever gotten a real bargain on a nice used instrument? When I look back on the best deals I've ever gotten, I realize that there were usually two factors working in my favor. First, I had the full purchase price on hand, in cash, and was ready to buy when the opportunity arose. Second, the seller needed the money somewhat urgently. Now, I certainly don't advocate taking advantage of people, but my point is that musicians who don't have any money often wind up selling themselves short when financial pressure arises. How many friends do you know who have hastily sold a treasured piece of equipment in order to pay the rent? They often will later regret such a sale, and may even pay a premium to replace the same gear later. This cycle of behavior is what keeps pawnshops in business.

Last week, I described how having a financial cushion in the form of an emergency fund can give you peace of mind and cut down on some banking expenses. I'd like now to expand on that concept, and show you other ways that having money can save you money. For example, I'm sure you've noticed that many gas stations offer a discount for paying in cash, as opposed to using a credit card. This is because all merchants have to pay a fee to the credit card company for every sale charged on plastic. In fact, even with major purchases of musical equipment, etc. you can sometimes negotiate a lower price if you pay cash. You can almost certainly get a better deal if you buy in bulk, presuming that you have enough money on hand to buy in bulk. For example, I only buy bass strings once a year, but I buy a LOT of strings! This way, I typically can negotiate $5 per set off the cost of buying individual string sets at the local music store.

Now let's think bigger. If you start saving for your next car while your current ride is still relatively new, you could possibly avoid having to finance that next car. Obviously, paying full price in cash will give you a strong negotiating position on that purchase, and save you from paying interest on a car loan. But those aren't the only cost advantages. If you finance the car, you will be required by the bank to carry full comprehensive insurance coverage for the life of the loan. In the urban areas where most musicians live, that could more than double your insurance premiums! You might voluntarily choose to have extensive insurance coverage anyway, but if you have a nice emergency fund stashed away, you'll probably feel secure with somewhat lower coverage or a higher deductible (knowing that you can afford another car if necessary). Similarly, your life, health, and property insurance coverage needs will probably be reduced as your cash reserves increase further.

I could go on for days about other ways that having money saves you money, but I think you get the idea. I'm not trying to make you feel bad if you don't happen to be sitting on a pile of money at the moment, but I am hoping that you will get inspired to set aside a few thousand dollars to start an emergency fund. You might be surprised at how easy it is to continue saving, once you've gotten in the habit.

4 comments:

Steve Lawson said...

Doug,

it's so great to see someone else advocating staying well out of debt as one of the top ways to keep doing what you do - debt is the #1 enemy of creativity - it's a voracious beast that needs feeding. Saving up for what you need HAS to be the way if you're trying to live the self-employed life where monthly income fluctuates, and some months car payments are going to be impossible to make...

Good stuff, sir!

cheers

Steve

Epp Family said...

Hi Doug,

I love your blog and the ideas you're sharing. Great writing.

Barb

Jammin Dave said...
This comment has been removed by the author.
Jammin Dave said...

Anything you buy for your bands wesbite is typically cheaper in bulk (Your email list tool like aweber is WAY cheaper per year than per month). Your website host (like www.coolerwebsites.com/hostgator) is 5 bucks a month if you buy three years vs 7 bucks if you buy one month at time. Over 3 years thats 72 bucks saved. If you listen to Satelite Radio its another example (I thikn you save 3 bucks a month if you buy a year at a time).

A wise (rich) business owner once told me (and its so obvious and yet so true), "Pennies make dollars."

Dave Jackson
www.musicianscooler.com
Where Musicians Trade Adavice