Sound Music Sound Money

There is Always Opportunity

2010-07-16T23:11:00.000-07:00

I forgot something. For the past several months, I have been biting my lip, resisting the temptation to go off on tangents and dilute the potential usefulness of the information in this blog. Of course, personal finance is a huge topic, and my humble blog is only intended to be a starting point for you, a basic introduction.

But amidst all the recent economic turmoil and insecurity, I have rediscovered something that I think is worth mentioning. There is always opportunity. All around you. In countless forms. And not just for established tycoons and lottery winners, but for you and for anybody else who has the creative vision and guts to go for it. Almost every country in the world now operates as a free market; indeed everything our society has amounted to came about through entrepreneurial risk taking.

Yes, it's a scary time to be adrift in turbulent economic currents. Yes, it's a scary time to be passively invested, or to be passively employed, hoping that your gig doesn't end abruptly. But there are winners in every economic cycle, even during major downturns. Instead of passively going along with "business as usual", try looking for an unmet demand that you can serve.

For example, during the Great Depression of the 1930's, record sales and small-combo work declined dramatically, but in response to the public's desire to escape from their hardship through recreation, many musicians adapted by commercializing their music, and the swing dance craze took off.

I have heard that fast food restaurants are doing very well these days, as an affordable (if not very healthy!) alternative to sit-down restaurants. A friend of mine runs a solar power company, and he's busier than ever now, as governments and businesses are virtually throwing money at alternative-energy sources.

Open your mind to the possibilities. Very often, economic downturns are a great time to start a business, due to lowered entry costs and decreased competition. Instead of squirreling money away in a 0.1% interest savings account out of fear, you could be taking charge of your own future and earning great returns if you identify an opportunity and put in the work to make it happen. Especially if you are young and have time to build your dream business, investing in yourself might be the best possible investment you can make.

Windfalls

2009-11-12T23:51:00.000-08:00

It can happen. Perhaps at some point you will get a big advance on a recording contract. Or maybe you'll inherit a pile of money from a rich uncle. Or you might score a lucrative touring gig with a major act for a few months. (I won't propose the lottery-winning scenario because I know you're smart enough to realize that buying lottery tickets is a total waste of money). For a lot of musicians, such a situation might be the first time to ever see a bank balance over 4 figures. Even a sum in the low 5 figures range might seem like an inexhaustible fortune to many people.

Of course, NO fortune is inexhaustible, and if you've never experienced handling very much money before, then I'm sorry, but you're even more likely to blow your lucky break. If you find yourself suddenly in possession of a large, unexpected sum of money, STOP! Don't run off on a binge just yet. The first thing you'll need to do is consult your tax preparer about your tax liability, which might take a bigger chunk than you would have guessed. Obviously, that portion of the money has to be set aside right away, unless you want to go to jail next year. The next best use for a windfall would probably be to pay off high-interest debt, if you have any.

Paying debt and taxes? That's no fun!!! Okay, it's understandable to want to splurge a bit, so I'll suggest blowing 10% of your new treasure on goodies: a vacation, a guitar, a gift for your parents, whatever you want.

At this point, the rest of the windfall should be thought of as somebody else's money. A typical musical career is characterized by lots of lean periods, interspersed with a few prosperous seasons (if you're lucky). Therefore, you should view this windfall as a head start on your long-term investment plan, and steward that money as though it belongs to someone else. Above all, don't assume that this level of income will continue into the future! The worst mistake you can make is to leverage your small fortune into a bigger debt. Music history is littered with the carcasses of bands who used their first record advance to sign up for million dollar home mortgages, only to be dropped by their record company within a short time, and foreclosed on shortly thereafter.

Only getting to indulge yourself in $10,000 out of a $100,000 windfall might seem like a raw deal, but think of it this way: If I offered you $10,000 for free, would you take it? Of course you would! Would you be happy about it? Of course you would! So just pretend that $10,000 was the entire windfall amount. Wisely investing the rest of the money will serve you much better in the long run than spending it now.

Small Steps

2009-11-02T21:55:00.000-08:00

Hello world, how have you been? I apologize for going AWOL the past couple of months. I've been working on some new projects, including co-teaching a music business class at L.A. Music Academy with my old friend, Chris Juergensen. Once again, Chris has set a great example and inspired me to redouble my own self-promotional efforts.

When I first decided to release a solo album, Chris told me that selling it wouldn't be too difficult. All I would have to do is commit to spending an hour a day working on promotion. Sounds easy, I thought. Naturally, when the CD first came out, I was filled with enthusiasm and made a respectable initial promotional push. But after a few months, my attention drifted and the salesman in me started slacking off. CD sales reflected my efforts, and I realized that this promotional stuff would require the same kind of long-term commitment that I have for playing my instrument.

I think most of the important things in life are that way, actually. Whether it's the pursuit of art, money, relationships, social reform, health, etc., all that anybody can do in one day is take a very small step forward. Neil Armstrong's first footprint on the moon really wasn't a giant leap. It was just the finish line at the end of a very long trail of small, incremental steps that led us there. There are no giant leaps, only small daily steps. And life is short, so if you want to cover some real ground, you can't afford to miss many days.

Here's an example you can probably relate to. If you practice a musical instrument for one hour per day, six days per week without fail for 40 years, that will still only amount to about 12,500 hours of total practice time over the course of a career. Not bad, but supposing you miss a day here and there? Or get busy with a day job and can't practice at all for several months? In fact, an hour a day is a pretty big commitment to make in the long run, and a lifetime's effort can easily be whittled down to very little progress if the commitment isn't really maintained.

Of course, priorities do change along the way, and we all have to choose between competing goals in our lives. But for the moment, I'm recommitting to direct more of my own small steps toward music promotion. Where are your steps heading?

A Few Lessons Learned

2009-07-10T23:54:00.000-07:00

Well, I've been preaching here weekly for a year at this point, and by now, I think you probably have a pretty good idea about my basic philosophy on financial matters. This blog was intended to be just a simple primer on personal finance for musicians, and going into much greater depth would defeat that purpose. Besides, I think I'm beginning to repeat myself. Besides, I think I'm beginning to repeat myself. From here on out, I'll be posting only when inspiration strikes or I stumble upon some exciting new financial insight. But for now, let me leave you with a few thoughts to chew on.

1. Stability = Prosperity
Also known as "a bird in hand is better than two in the bush". Most of my musician friends who suffer from financial trouble also have unstable gig situations. As I've mentioned before, it's tempting to drop your steady local gigs whenever a short-term, high dollar gig comes along, but that quick windfall might be followed by an extended period of NO income. You can do well by sticking with the steady work you already have and building upon that.

2. Don't Excuse Yourself
I constantly have to remind myself that I am fully, solely responsible for my own career. I know that I can't be all things to all people. I can't be a master of all trades and skills. But I can and should try. If the project you're working on requires computer skills, teach yourself those programs. If you're going to be living and working in a foreign country for a while, really try to learn the language. If you accept a gig, practice the material thoroughly, regardless of what the gig pays. Never excuse yourself from understanding what's going on. And never excuse yourself from doing your fair share of the work, even if you know that someone else would take up the slack for you.

3. It's Always Better to Know than to Not Know
Ignorance is not bliss. Ignorance is just ignorance, and it always has negative consequences. This is obviously related to the previous point. We all have limits to the information that we can absorb, and there are some facts that simply can't be known or are hard to face up to, but I can't think of a single circumstance in which I'd be better off not knowing the truth than knowing it. Always seek to be thoroughly informed, and you will make better decisions.

Economics 101 and Musicians

2009-07-03T23:42:00.000-07:00

My former Marketing professor used to say: "It's simple to be successful in business. Just find out what people want, and give it to them." He was right, but a lot of musicians (myself included) aren't generally inclined to follow that advice. We tend to look down on artists who pander to popular demand as being "sell-outs". Besides, popular music trends are notoriously unpredictable and most of us have a hard time molding ourselves to fit constantly changing music fads anyway.

Unfortunately for us, the free market doesn't care about artistic integrity. It's fine to be romantic and idealistic in your songwriting, but don't try to carry that mentality over into the business side of things or you will surely get burned. Capitalist free market economics always boils down to the very simple concept of supply vs. demand. If you want to know how any venture is going to work out, all you have to do is realistically figure how much supply there will be relative to demand for that product or service. It is really that simple. It's not about corporate conspiracies or lack of government support for the arts. As long as markets are truly free and competitive, it just comes down to supply and demand. That's why dealers of unpopular automobiles go bankrupt, while salesmen for the most popular models don't even bother to negotiate or return phone calls. They know that they have a hot product. All they have to do is sit back and the customers will come to them.

So what lessons should the independent musician draw from this? Well, for starters, I think we can all benefit from being realistic about supply and demand for our own services. If you're not already a superstar, then you're probably not in a position to sit back and wait for the customers to come to you. I'm a jazz musician, a service for which there is absurdly small demand! I try to do what I can to spread the word about gigs, but I have limited means to generate more demand. There continues to be an ample supply of good jazz musicians in my local market, though prospects are better for those who achieve the skill level necessary to ascend into the less crowded elite jazz musician market. Ultimately I realize that I have chosen a professional field in which the supply/demand equation is stacked against me, and I know that I am lucky to be working at all! If money were my main motivation, I'd probably be selling iPhones instead of jazz music.

Estate of Denial

2009-06-26T20:42:00.000-07:00

Nobody likes to dwell on thoughts of mortality, especially young musicians who are just trying to get established in the world. However, the recent untimely passing of artists like Michael Jackson and his longtime guitarist, David Williams, should remind us all of the importance of basic estate planning.

You might be thinking "I don't have any assets to worry about, so why does it matter if I die without a will?". It matters because somebody will have to deal with your estate (no matter how small) when you die, and probably one of your close relatives will get charged with the task. Do you really want to subject your family to the trouble of sorting out your financial affairs, on top of the grief they will undoubtedly already be dealing with? Besides, I'll bet you have at least one thing that you would like to leave specifically to a particular person, even if it's just an old family photo album or a cherished instrument.

Unfortunately, it can be somewhat costly to hire an attorney to create estate documents for you, but that is the surest way to get the job done properly in compliance with your state and local laws. If you own substantial assets like a house, have multiple dependents, or an otherwise complicated estate, I would really recommend that you spend a few hundred dollars and hire an attorney to create your documents.

On the other hand, if you are a typical young, single, musician with a simple estate, it might be adequate to use some inexpensive software or self-help books for creating basic estate documents. Here are a few links to check out:

Make Your Own Living Trust
Quicken Willmaker
Suze Orman's Will and Trust Kit

The basic documents most often recommended for estate planning are wills, living trusts, and living wills. A will is your official statement designating the person you want to take charge of your estate distribution and how you want your assets handled upon your death. Dying intestate (without a will) usually leads to the state taking charge and might result in long delays or in your assets being distributed in some way that you didn't intend. Requirements for wills vary in different jurisdictions, and often even properly written wills must go through official probate hearings in court before assets can be distributed. A living trust is basically a way of transferring property without having to go through court probate hearings. It is useful to enable quick transfer of assets after your death. A living will or health care directive is a document that specifies your desires about life-prolonging medical treatments in the event that you become incapacitated and unable to speak for yourself.

It's also a good idea to speak with your heirs and put in writing your wishes regarding funeral arrangements, any people who should be notified of your death, what they should do with your pets, etc. The more openly you discuss this stuff now, the easier it will be for them when you are gone. And I hope that's a long, long time from now. But I recommend that you start the discussion now.

Hold the Sauce

2009-06-19T23:14:00.000-07:00

Up-selling is the practice of trying to persuade a consumer to purchase a more expensive product, or additional related products and services. Salespeople are routinely trained to up-sell you into more than you bargained for because that is how a lot of retail businesses make most of their profits. It's also how you wind up spending more than you should, so stick to your guns and say "no thank you" to these types of up-selling scenarios:

1. When you purchase musical instruments, cars, or consumer electronics, you will almost invariably be offered an extended warranty at the time of purchase. I routinely turn down these warranties because a) I intend to take good care of my stuff, b) the things they are offering to cover may already be covered under the manufacturer's warranty or my own homeowner's/renter's insurance, and c) even if I do need additional warranty coverage, I can almost always find a better warranty deal from a third party rather than getting it directly from the seller of the product.

2. "Do you want fries with that?" "Would you like to try the special (for which no price is listed on the menu)?" "You can super-size it for only 45 cents extra." No thank you. No thank you. No thank you. The meal I ordered is really all I want. Ordering more is not only going to cost extra, it's going to make me overeat and feel uncomfortable.

3. Banks and other financial institutions may try to up-sell you into credit monitoring services, unemployment bill-paying insurance, overdraft protection, and all sorts of other costly extra services. Don't agree to these things unless you really read the fine print and conclude that it's a good deal and something that you really need.

4. Any kind of monthly recurring fee for a service that you are unlikely to use very much is probably a bad deal, even if the monthly amount sounds trivial. Your cell phone provider might offer you the ability to use your phone overseas for only $5 a month, but if you don't travel abroad very often, that basically amounts to throwing away $60 per year. And besides, the calling rates you pay will probably be high even if you do use the service.

All of these up-selling tactics only work on people who don't know what they want. As always, do a little homework in advance and you won't be vulnerable to such tricks.

The Monthly Trap

2009-06-12T20:51:00.000-07:00

How much is your monthly car payment? I'll bet you know the exact amount right off the top of your head. How much do you still owe on your car loan? I'll bet you don't know! Which is the more important amount of the two? That depends on your perspective. For the sake of getting through the next month without having your car repossessed, the monthly payment may be your immediate concern. But for the sake of your long-term financial health, total debt should be your primary focus.

Don't ever fall into the trap of thinking in terms of "how much I can afford per month". Thinking that way only ensures that you will never get off of the perpetual debt slavery treadmill. Sellers of big-ticket items like cars, appliances, houses, cosmetic surgery, etc. love to pitch their products in terms of monthly payments, because it makes them seem affordable. But ultimately, you will have to pay the total cost of that item, plus whatever interest they are charging on your loan, so you're better off just facing right up to that bottom line price from the beginning.

It might not always be possible to avoid taking out a loan for certain purchases. If you're a performing musician, for example, you probably really do need to have a car, and sometimes it just might not be possible to get one without borrowing. Also, some kinds of debt, for items like real estate or education, may sometimes prove to be good investments for your future. So I'm not 100% opposed to all debt. But I am about 98% opposed to debt! In fact, I hate debt so much that I personally haven't had any outstanding loans since 1994. I just face up to the total cost of whatever it is that I want to buy, and if it's too much for me to pay in full, up front, then that means I can't afford it. That's really the bottom line.

Living debt free allows you to sleep better at night. It shrinks your monthly bills down to a size that is easier to keep up with, freeing more of your time for personal and creative pursuits. And it opens up the possibility that one day, if you save and invest and continue to stay out of debt, you might actually achieve true financial independence and not have to work at all! The alternative is to keep taking out loans and struggling to make minimum monthly payments, forever living under the shadow of your debt overlord!

One exception that I make in my staunchly anti-debt personal financial strategy is the use of credit cards as a convenient method of interest free payment. It is very important to point out here that credit card debt is one of the worst, highest interest forms of consumer debt. However, in the U.S., credit card companies are required to allow an interest free grace period for prompt payment in full every month. As long as you always pay off your total credit card bill within the grace period, you will pay no interest and benefit from the convenience of using a card to pay. And you will also be building a good credit history. For those who lack the discipline to restrain spending and always pay the full bill within the grace period, please ignore the preceding suggestion and cut up those cards instead! Debt sucks. Monthly payments are the tempting sirens that entice you into debt hell. Don't fall for it.

Lowest Price Doesn't Necessarily Equal Best Deal

2009-06-05T23:20:00.000-07:00

Regular readers of this blog know that keeping costs low lies at the heart of my financial philosophy. If there is a way to save a nickel on something, I will invariably find it. And while I still firmly believe that low living expenses are the key to financial success, I don't always advocate going for the rock bottom price on every purchase. Instead, for the sake of minimizing long-term expenses, I would suggest that thorough knowledge is essential to finding the best value among products or services.

Your local dollar store is full of examples of what I'm talking about. Have you ever purchased a $1 pair of headphones? That is certainly the lowest possible price, but there's no value in that purchase. Once you hear how they sound (if they produce any sound at all), you will realize that you haven't saved any money -- you've just thrown away a dollar! I don't mean to pick on dollar stores, actually I shop for lots of little items there, but only when I know that the quality is comparable and the price reliably lower than at other retailers.

When comparison shopping, it is very common to find that the cheapest available product is of considerably inferior quality. I suspect that we have all experienced this frustration of buying the cheapest item, only to immediately discover that it won't do. Then you have to go out to buy another one again, and you also waste more time shopping when you could have been home writing a song.

A lot of people go for the lowest priced junky product or service simply because they are too broke to afford the better one that will actually last and get the job done properly. If you're in that position, then you probably shouldn't be shopping at all, you should be saving up and researching the market until you can afford something worth buying.

Don't get me wrong. I'm not encouraging you to go on a first-class spending spree. In fact, there are many cases where the cheapest option is actually just as good as the most expensive option. Gasoline is a good example. There is virtually no difference in quality between the most expensive brand name gas and no-name discount gas, despite what some TV commercials might suggest. But you need to do a little research to find these things out. And once you are armed with knowledge of the market for a given product or service, you will also be able to negotiate for it with greater confidence.

Patience Shall Be Rewarded

2009-05-29T19:27:00.000-07:00

There is nothing costlier than instant gratification. Once in a while, you might get lucky and have a killer deal fall in your lap just when you need it, but generally speaking, whenever you go for the quick and easy option, you're probably getting ripped off. There is now a gourmet coffee shop on every corner in most cities, but it's the most expensive way to get your java. Buying concert tickets online and having them mailed to you could cost up to $30 in extra "convenience charges" versus going directly to the venue box office to purchase them. The local pizza shop gladly offers "free delivery", but you will pay full price for that pie, and you'll have to tip the delivery guy, too.

Those are just a few trivial examples of what I'm talking about. I come from a long line of serious bargain hunters, and we can be as patient as a spider in its web, just waiting to pounce when the right opportunity comes along. Eew! Sorry, that's a creepy analogy when I read it back! But hopefully, you get my point. I'll give you a couple more examples.

Last year, I decided to buy myself a really nice keyboard and get serious about playing piano. However, being a full time bassist, I couldn't really justify the $3500 cost of a state-of-the-art new keyboard. Rather than settle for a mediocre new instrument in my price range, I just started scanning the classifieds for a bargain on a great used one. And scanning.....and scanning....and scanning some more. Real bargains don't come along every day, but I had decided on my budget (between $500-$1000), and I was willing to wait. Finally, after a few months of searching, I found exactly the keyboard that I wanted, in excellent condition, for only $800. I already had the cash on hand, and I scooped it up on the same day the ad was posted. Cha-ching! That's $2700 I saved right there.

I have lots of friends who go to new car dealers to trade in their old vehicle and pick up a new car with "no hassle, no haggle". That is the quick and easy way to buy a car. It is also the sucker's way! A dealer will be happy to make your experience quick and painless, as long as he is giving you a lowball price for your trade-in, getting the maximum price for the new car, and probably shaking you down on the financing deal as well. No matter what kind of car you're looking at, you could save thousands of dollars, often $10,000 or more, by holding out for a bargain on a good used, low mileage vehicle of the same model. But you must be willing to wait, wait, wait, and scan, scan, scan. And also be willing to walk away from a lot of deals before finding your bargain.

Be careful not to get stuck in an emergency situation where you must buy that car today because you waited until your old car died on you, or you have to run to the overpriced local music store right before your gig, because you have completely run out of drumsticks. Without a little advance planning, you won't be in a position to hold out for bargains, so plan ahead for purchases. Then sit back and wait for the opportunities to come along.

More Miscellaneous Money Saving Tips

2009-05-22T22:31:00.000-07:00

Learn to Cook. I mean really cook great food. This may require a modest initial investment in some kitchen appliances, cookbooks, spices, and such, but it will save you a bundle in the long run if you have been eating out just because you're so sick of making macaroni and cheese. More importantly, learning to cook really fine meals is guaranteed to significantly improve your quality of life, and probably your health, too. It does take some time to prepare a good meal, but you can always make extra portions and eat the leftovers for several days. Yummy!

Periodically comparison shop for insurance. My health insurance premium went up 139% in the last 3 years! At the time I signed up for that policy, it was the best deal around. Fortunately, I'm still healthy as a horse, so I checked around and found a much better deal with another company that will save me hundreds of dollars per year without sacrificing quality of coverage. If you have serious pre-existing conditions or recent health problems, you might possibly be stuck with your current insurer, but you can and should occasionally compare deals on car insurance, rent insurance, etc. to make sure you are still getting the best deal available.

Take care of yourself! Do I even need to tell you that smoking, drinking, using drugs and lack of exercise are costly? I don't know anyone who can really afford to develop health problems these days, but we musicians especially need to improve our odds by staying fit. As with cooking, getting in shape will also yield quality of life benefits and probably improved musical performance.

Sometimes procrastination pays. In most cases, putting things off only causes bigger problems and costs you additional money, but not always. For example, the longer you can postpone doing laundry, getting the car washed, or getting a haircut, the longer it will be before you need to have it done again, right? Of course, taking this advice to the extreme would lead to bad hygiene! But the same principle also applies to getting a new car or a new guitar, so it's something to consider.

Ask for a better deal. Many Americans tend to accept whatever price they are quoted without question, when in fact most product and service fees are subject to some price negotiation. If your credit card company suddenly jacks up your interest rate, call and ask them to lower it. The worst thing that can happen is that they will say no, but it doesn't hurt to ask.

Don't Make it Personal

2009-05-15T21:35:00.000-07:00

I was once advised to treat my money as though it belongs to somebody else, as though I have a solemn fiduciary duty to protect and preserve it for my future self. Looking back, I think that is some of the best advice I ever got. Money flows in and out of our lives like water, and perhaps because of its intangible, liquid nature, it can be easy to adopt a casual, easy-come-easy-go attitude about it. But without a constant, vigilant effort to preserve money, again just like water, it tends to evaporate.

Don't invest for personal, emotional, or sentimental reasons. If you have some money, you may be approached by friends or relatives to invest in their business ventures. They will probably be very sincere and persuasive about the prospect. It might sound exciting, and you will naturally want to help facilitate their dreams, but this is the point at which you need to remember your duty to preserve money for your own future. I recommend that you think very carefully and do a lot of thorough research before even considering such a proposition.

First of all, partnerships often end badly. You might be best friends in the beginning, starting off with the best of intentions, but sooner or later, somebody will want out of the deal. When that happens, the remaining partners have to take up the slack, figure out a way to buy out the share of the exiting partner, etc. Even if your business venture succeeds, the stress of co-owning a business can really strain relations. Sometimes, if a friend borrows money he is later unable to repay, you might wind up losing the friendship, too, simply because he is too embarrassed or ashamed to face you again.

Secondly, the failure rate of new businesses is very high. If the proposed investment is a new venture, there is a good chance that your entrepreneur friend hasn't really done all of her homework and doesn't completely know what she's getting into. If it's an existing business with a good track record there may be better odds, but why do they need your money if they are already doing so well? In any case, sinking a significant portion of your money into one business is a violation of the basic principle of investment diversification, and puts you at unnecessary risk.

When I do embark on a private business venture, I prefer to go it alone, limiting my investment to an amount that I can completely afford to lose, and knowing that if things don't work out I will only have myself to blame. For the bulk of my money, I always remember that responsibility to preserve it first, and I stick with boring, safe, impersonal types of investments.

Find a Niche

2009-05-08T22:47:00.000-07:00

When I first came to L.A. back in the eighties, it seemed like everybody in this town was an aspiring shredder, complete with spandex, big hair, and Jackson guitar. I mean, there were more glam metal rockers here than there are Elvises in Vegas! It was a ridiculous overabundance of people all trying to get in on the pop culture fad of the moment. Of course, there wasn't nearly enough demand in the music business to accommodate the supply of rock bands in L.A. (still isn't, as a matter of fact), a state of affairs that led to the infamous "pay to play" phenomenon at Los Angeles nightclubs. We all know that when supply exceeds demand, prices fall, but did you know that when supply gets outrageously excessive, prices (i.e. musician's wages) can actually become negative? Don't let this happen to you!

How can you avoid such a fate? By finding a specialized niche. If you are trying to sound like the current Hip Hop chart toppers or American Idol winners, chances are that 1) that style will no longer be marketable by the time you master it, and 2) there are millions of other musicians aspiring to the same thing, so the competition for those gigs will be overwhelming. If, on the other hand, you devote yourself to mastering a less common or less currently popular genre of music, you may actually find it easier to get gigs and make money.

This seems ironic at first, but makes sense when one thinks about relative supply and demand. For example, when I lived in Washington, D.C., I was a member of a local Zydeco band...no, make that the local Zydeco band! Certainly, Washington is not known as a hotbed of Cajun and Creole culture, but there were just enough Louisiana-style dancers there to generate steady demand for live Zydeco music. And when they needed a band, we were the only game in town! There was never any shortage of gigs for us.

Here in L.A., I know one band that plays Hawaiian music exclusively. To be honest, they are not the greatest master practitioners of that musical style, but they have their act all worked out, with hula dancers, leis and everything, and they work constantly making good money. I have another friend who specializes in early rock and R&B style drumming. He has deeply studied this style, owns plenty of authentic vintage drums, and has made a name for himself as the go-to guy in an often overlooked older style of music.

A geographical niche might also work for you. L.A. and New York are surfeited with professional musicians, but some smaller towns and rural areas are starving for entertainment. Once again, if you are the only game in town, you will get all the gigs! However, in smaller towns, there also is often a shortage of musicians to fill out your band, so watch out for that potential problem. Good luck, and I'd be curious to hear from you about any unusual niche gigs you have experienced.

By the way, there is yet another new free resource listing links of interest and benefit to independent musicians. Please check out Music Nomad.

Negotiation Part 2

2009-05-01T21:03:00.000-07:00

Thanks for the helpful comments and tips contributed by readers to last week's blog entry! We have all learned some tough lessons through past negotiation experience. The important thing is to use that experience to your advantage in future deals. Here are a few more suggestions that I have on the subject:

1. Limit your own authority. You may have had the frustrating experience of bargaining with a car salesman at a dealership, and being told "I'll have to get approval from my manager for that price". This is a common ploy that is used to keep their price high. You seem to be bargaining with someone who lacks the authority to make price concessions, so you (the buyer) wind up making all of the concessions yourself. Of course, when you're buying a car, you should never tolerate this tactic. You should insist on negotiating directly with someone who has authority to agree on a price. But when you are selling your band's services to a club owner, the same kind of strategy can work to your advantage. If the client offers a fee below your asking price, you can tell him that you will need to consult with the other band members before agreeing to such a low fee, and chances increase that the busy club owner will make a concession on the spot just to get the deal closed promptly.

2. Play up your popularity. The music business is a lot like the fashion business. Everybody wants in on the latest fad, and nobody is interested in last year's products. We would all like to think that the service we offer is all about musical quality, but to a large extent, it is often about popularity, so the busiest bands often attract the best offers. If you seem to be really busy and in demand, clients will find you more appealing and also will feel like they have to compete (i.e. offer more money) to win your services. You should definitely let them know about all the great gigs you are currently involved in, but of course you must not lie. If you promise the manager that you can pack his club on a Monday night, you better be able to deliver.

3. Consider the whole package. A steady gig in hand is worth two in the bush, so consider making some price concessions in exchange for stable employment. Also, be willing to barter and cooperate to reach a deal. For example, if the venue is running on a really tight budget, you could agree to play for $10 less per band member in exchange for free meals. Some venues provide a house PA system for your use, which will save you a lot of setup time and trouble. That kind of thing may be worth making some bargaining concessions. On the other hand, if you have to schlep your own PA, lighting rig and instruments 100 miles to the club, then you should explicitly list those expenses to the club owner as justification for asking a higher price.

Every gig is different, so it is important to think all of these things through and be ready to adjust your fees to fit each circumstance. Also, if you find yourself getting so busy with work that you become stressed, then that is often a sign that it's time to raise your rates. A problem we would all love to have! :-)

Negotiation Part 1

2009-04-24T23:51:00.000-07:00

Musicians complain constantly about being taken advantage of. Let's face it, most of us feel somewhat insecure about the strength of our negotiating position with employers, so we fail to drive a hard bargain, or perhaps fail to even negotiate at all. I'm no exception. Talking money is one of my least favorite parts of the job. It often seems as though the service that we provide is deemed frivolous or expendable. The bartenders, caterers, and waitresses all have to work, but the musicians get to play.....we probably shouldn't get paid at all!

The reality, however, is that competent professional musicians possess rare and highly developed skills which are essential to the success of the establishments that employ us. No disrespect intended to any other professions, but customers don't come to nightclubs to see the bouncers, they don't enroll in a music school because of its bookkeeper, they don't buy CDs because of the packaging, and they don't come to concerts to check out the engineer doing the monitor mix. It's the music that drives the business, and that's our department. Employers know this, and they are usually more willing to reward good talent than you might think.

There is no need to resort to cutthroat competition in order to be fairly compensated. Just bear in mind some basic principles and you should do fine. Remember that building a large network of good relationships will always be the key to your survival in music, so try to stand firm for your best interests while maintaining a sympathetic and cooperative tone. Here are a few key points to apply when negotiating:

1. Don't undercut yourself. Sometimes when I have a used piece of gear to sell, I catch myself setting a price based on what I imagine the buyer will consider a good price, instead of starting from a price that I wish to receive. It's like I'm negotiating against myself before the actual bargaining has even begun! Start higher than you think you can get and give yourself a chance to win a better deal. You'll be giving yourself room to compromise if necessary, and you might be pleasantly surprised at what the buyer is actually willing to pay.

2. Decide on your starting price and your minimum price in advance. If you get called upon to quote a price for a gig before you have thought everything through (travel and preparation time, equipment issues, etc.), you might feel uncertain about your bottom line, and that is a vulnerable negotiating position to be in. In such cases, I usually try to postpone the negotiation until I've had time to think out my position, or if pressed, I will simply quote a high price. I also have a rule of thumb that my time is generally worth $X per hour (a generous but not outrageous rate), so if someone proposes an unusual job that I haven't done before, I can simply quote them that rate and know that it will be worth my while if they accept.

3. Make small concessions. Let's say you're booking your band for a wedding gig. The client initially offers you $800 and you tell him that you normally charge $2000. These are your respective starting prices, and they don't mean much. You're both going to have to make concessions in order to reach a deal, but it's the next step that will determine the likely victor in this negotiation. If his counter offer is $850 and you respond with an offer of $1500, then two things have happened. First, he has signaled by his small concession ($50) that he intends to hold pretty firm to his price, and second, you have signaled by your large concession ($500) that you are willing to come down a lot more. The momentum of this negotiation is now definitely in the client's favor. Don't get in the habit of immediately saying "oh let's just split the difference". Start by making a small concession. Chances are the other party will follow with a large concession.

Next week, I'll share some more thoughts on the subject of negotiation.

Speculating vs. Playing it Safe

2009-04-17T23:41:00.000-07:00

Few investors think of themselves as gamblers. These days, most of us would be happy to just earn a modest rate of return on our savings, perhaps enough to fund a comfortable retirement someday. However, we often fail to recognize the risks we are taking with our money. For some reason, musicians seem particularly vulnerable to getting drawn into risky, unconventional investments, when in fact they would probably have been better served by the most boring, safe, bland investment choices.

Perhaps it's because we aren't accustomed to having any spare money to invest! For whatever reason, it seems that when a musician runs into a small windfall of cash, he is usually uncertain of what to do with it. And when you don't know what to do with your money, you're most likely to first get wind of whatever the latest investment fad happens to be. A great investor named James Gipson used to refer to this as the "cocktail party test". Generally speaking, whatever "hot" investment people are currently talking about at cocktail parties is probably already at or near its peak, and when any investment has recently performed outstandingly well, it then becomes more likely to perform poorly in subsequent periods. Two recent examples of this are real estate and commodity prices (like oil). Can you recall a couple of years ago when everybody was trying to "get in" on the real estate market? It turned out to be the absolute worst investment available at the time, though it seemed like the best based on recent performance.

Inexperienced investors who place their precious savings into such investments often do so without fully researching the investment first, and without any awareness that such outsized investment performance is almost never sustainable. If you don't fully understand a speculative investment before getting into it, you are violating the principle of good investment diversification, and essentially gambling with your future.

Avoiding losses is more important than boosting returns, because losses are hard to recoup. If a given investment returns -50% this year, then it will have to return 100% the following year just to break even! Of course, we all have to take some risk in our investments, but if you do some research, you'll find that over the long run, some of the most diversified, simple, conservative investments (such as some index mutual funds and government bond issues) provide very competitive returns with far less risk than the latest exciting cocktail party conversation subjects.

Networking

2009-04-10T21:54:00.000-07:00

How many professional musicians have you met or worked with? And how many of them did you get a business card from? And how many of those people have you spoken to recently? Every professional contact that you make is a potential doorway to future gigs. It goes without saying that you should always play your best and behave professionally on every gig, but once you have made a good impression on someone by performing well, it is a shame to let that door close by failing to exchange contact info. If you are afraid that offering your card to someone will make you seem too pushy, then simply compliment the other musicians at the end of the gig and ask for their cards. Invariably, they will ask for your card in return. I am constantly amazed by how few musicians carry business cards with them to gigs. Don't they want more work?

If you collect contacts regularly in this way, over time you will accumulate quite a large list of phone numbers. The music business really has no formal, civilized method for job placement, so these informal contacts are the primary way in which we get work. Therefore, your contact list is one of your most precious assets, and you should back it up periodically just as you do with critical computer data. Don't keep phone numbers only in your cell phone! One laundry mishap, and your whole network could be washed away.

Merely having a list of phone numbers won't guarantee you steady gigs, however. The busiest and most successful musicians I know all regularly tend their network like a garden. I have one busy friend with hundreds of contacts, and he has a policy of calling every person on his list at least once every six months just to say hello (and incidentally remind them of his existence). It's no coincidence that he works constantly, and has great relations with everybody he knows.

Other classic networking strategies include going out to see live music regularly, maintaining a content rich and up to date web site of your own, and of course, using social networking sites like MySpace.com. You do have at least a MySpace Music page with quality demo songs on it, don't you? Other great places to meet musicians and build your network are retail music stores and music schools. Networking is much easier these days thanks to the Internet and modern technology. It still requires an investment of time and effort, but making that effort may have a greater impact on your career than anything else you can do.

Buying Gear

2009-04-04T00:00:00.000-07:00

It's tax season here in the U.S., and most of us self-employed artists are tearing our hair out trying to sort through piles of receipts and cancelled checks. If you bought a lot of musical equipment last year, you might be congratulating yourself in anticipation of the advantage you will gain from writing off all of that gear on your tax return. It's important to realize, however, that the cost of that equipment is only partially offset by reduced taxes. Those equipment costs simply reduce the amount of your Net Business Profit, which in turn is taxed at whatever tax bracket you fall in. So if you're in the 15% tax bracket and you buy a $100 piece of equipment, your tax bill will be reduced by only $15. You didn't really think that Uncle Sam was going to completely subsidize that fancy leather gig bag that you splurged on, did you? I'm not sure how other countries treat equipment purchases for tax purposes, but I suspect it's similar in many cases.

So did you really need all of those new instruments and stage clothes you bought last year? Perhaps you did. This is one area in which I'm not quite as ruthless a cost cutter as in other areas of my life. I figure that as a full time musician, I spend a lot of time with my instruments, so having nice equipment makes a big difference in my quality of life. Also, I owe it to my clients to create the best sound possible; and the basic equipment costs that a musician bears are still relatively inexpensive compared to startup costs of, say, a restaurant business.

But it's important not to get carried away with this mentality. Don't kid yourself into thinking that the tax write-off makes it okay to go hog wild with equipment purchases. You are ultimately paying for all of that stuff with money that could have otherwise been invested for your future. Also, don't forget that most musical equipment depreciates in value fairly rapidly. Very few instruments actually increase in value over time. And above all, it's important to keep in mind that what really counts most is in your fingers and in your creative skills, not in some shiny new piece of gear.

Financial Black Holes

2009-03-26T21:11:00.000-07:00

"No matter how much I earn, it just never seems to be enough!" Is this you? I honestly don't like to tell people how to live their lives, but this week I am going to court controversy a little bit and talk about some of the most common money traps that people tend to get themselves into. The following ventures may offer you unquantifiable rewards, may even be necessary in your life, but they will almost always place a substantial and continual demand on your pocketbook. If you haven't already made these kinds of commitments, I simply suggest that you think long and hard before taking the plunge.

Cars - I know, I know -- you can't get your gear to the gigs without one. That is certainly true for most of us (although I lived and gigged all over Japan for seven years without a car and it's still possible in some urban places like NYC), but there is no reason to burden yourself with more car than you really need. Taking out a dealer-financed loan on a $40,000 SUV just to transport your guitar and amp around to gigs is a massive waste of money. Even most drummers can fit all their gear into a much smaller, used car and still make it to the gig just fine. I have written about this before, but it bears repeating because of the many ways it can sap your finances. Crunch the numbers before you buy your next vehicle, and don't forget to factor in repair costs, insurance, resale value, and fuel costs.

Recording Studios - Full disclosure: I own both a car and a studio! Well, at least my car and studio are of the small, modest-budget variety...but still, to tell the truth, I'd be better off financially if I hadn't spent the dough on either one. If you run a commercial studio and keep it booked sufficiently to earn a profit, then more power to you. However, even most of the long-established studios here in LA are losing money these days due to advances in home recording technology. And even those who are staying in business have to constantly spend money to keep their equipment and software up to date. There always seems to be one more piece of expensive gear that's needed!

Real Estate - There, I said it! For generations, most of us have lived under the dubious assumption that it's always better to own a home rather than rent. The recent collapse of the housing bubble makes it easy to jump on the anti-real estate bandwagon, when in fact houses are now more affordably priced than they have been in years. But I've always been a little skeptical about homeownership, and I still am. Simply scraping together a sufficient down payment to purchase a home does not guarantee domestic bliss. You will still have to contend with average home maintenance costs and property taxes amounting to over 3% of the house's value per year. At the current U.S. median house price of $170,000, that comes to over $5000 annually just for taxes and maintenance! That's not including payments and interest on the mortgage. If you can truly afford it and the housing market turns around sometime soon, then real estate might be a good investment to consider. But you had better be patient and prepared to shell out a lot of money while you wait for that equity to grow. If you're single and already have a cheap deal on rent, you might consider staying put and investing the difference in stocks, bonds, or other investments.

Children - Okay, now I know that this one is going to generate some hate mail. Let me just say for the record that I do like kids. I was even a kid once myself! But that doesn't change the fact that the single best predictor of personal bankruptcy is having children. The cost of rearing children today is astronomical, and I have personally witnessed many of my friends struggle with the pressure of balancing parental responsibility and a musical career. It's not impossible, but it is hard. And unlike illness, injury, vagaries of the economic cycle or natural disasters, it is a choice that you get to make for yourself. Of course, once you make that leap, there's no turning back. I'm not telling you what to do. I'm just suggesting that you give these things some thought.

Mutual Funds and Exchange Traded Funds

2009-03-20T22:08:00.000-07:00

Wait.... don't touch that dial! I know it's not a very titillating topic, and I also know that stock investing isn't very fashionable at the moment, but for the sake of long-term financial health it is a subject that everyone should know a bit about.

Have you ever found yourself with a little windfall of extra money and no idea how to invest it? Where did that money wind up? I think that most ordinary folks are a bit intimidated at the idea of picking stocks. How do I tell the good companies from the bad ones? When is the "right time" to buy in? For that matter, how do I even conduct the transaction?

Well, I'll let you in on a little secret: even the majority of professional economists and financial planners don't do much stock picking for their own portfolios. I don't either. In fact, I confess that I have never traded stock in individual companies, yet I have been investing in the stock market for over 15 years. How is that possible? Through mutual funds and exchange traded funds (ETFs). Basically, a mutual fund or ETF is a large pool of money contributed by many individual investors and managed by an individual or team of stock pickers, who do the research, make buy/sell decisions and handle the transactions on behalf of all the investors. Both mutual funds and ETFs charge a fee to their investors for this service. The fee for ETFs tends to be lower, but additional fees are charged for each transaction, so if you plan to buy or sell often, a mutual fund might be cheaper.

There may be several reasons that so many financial professionals choose mutual funds and ETFs over individual stocks. They may be trying to avoid potential conflicts of interest, or they might not have enough time to do adequate financial analysis and tracking of each investment. But I suspect the main reason is that they know the odds are against individual stock pickers. A lot of research shows that even the best professional stock pickers have a very hard time outperforming the stock market as a whole over the long run, so why not just settle for a mutual fund or ETF that samples the whole market? These are called index funds. They are cheap to manage, cheap to invest in, and that's where I keep most of my money.

Mutual Funds and ETFs can tremendously simplify the investment process for you, and offer you great diversification through one simple investment. All of these funds are consumer-friendly, with 1-800 numbers, nice websites, and easy to read statements. There are thousands of funds to choose from, and many considerations in choosing a mutual fund or ETF, but first I recommend reading my previous blog entry on the subject of fees, and then doing a little reading up on the subject of managed vs. index investing.

Yes, the stock market involves risk. If the phrase "past performance is no guarantee of future results" has scared you off in the past, think of what that ironically means today: next year might be a great year for stocks! The fact of the matter is that stocks still outperform every other kind of asset over the very long run, so it's unwise to dismiss stock investing entirely.

Banking

2009-03-14T00:12:00.000-07:00

So you've gone out and hustled up a bunch of gigs, and now you're looking for someplace to stash all of that cash. Where should you put it? You don't necessarily have to do all of your banking at the closest neighborhood commercial bank. In the United States, other options to consider include online banks, credit unions, savings banks, even PayPal!

Most of us musicians operate on an independent freelance basis, often receiving cash and checks from multiple sources. Every week, I get a stack of tiny little paychecks to deposit, so I need to have a convenient branch for day-to-day banking services. For this purpose, a checking account at the local bank is the way to go.

But frankly, keeping much more than your basic living expenses in a commercial bank account doesn't make sense these days. Have you looked at your bank's list of fees lately? I was recently charged $10 by my bank for receiving a wire deposit into my account. That's right -- they actually charged me a fee to accept a deposit! Many bank fees in recent years have been escalating at a double-digit rate, and when you consider the fact that they usually aren't even paying interest on your balance, there's no reason to reward them by depositing much more than the minimum balance.

For your larger, longer-term cash savings, consider opening an account at a credit union. Credit unions operate much like conventional banks, but are established and owned by groups of people with a common affiliation, such as a labor union or large employer. Many credit unions seek to expand their membership, so often they will accept you as a member even if you are not directly involved in the affiliated group. You will have to buy a token "share" of ownership in order to open an account, but because of the cooperative nature of credit unions, interest rates and fees are usually much more favorable than at conventional banks. Credit unions are also eligible for Federal deposit insurance, just like commercial banks.

Savings banks (and S&L's) are similar to commercial banks, and have traditionally offered somewhat more competitive rates. They have also traditionally gotten into more financial trouble, starting with the S&L crisis of the late 1980's and continuing with their large exposure to bad mortgages in the current banking crisis. Still, most deposits are insured, so you and I don't have to worry too much about it as customers.

Online banks, such as HSBC Direct and ING Direct, are giving brick-and-mortar banks a real run for their money. They reduce costs by not maintaining branches, and pass that on to you by offering very competitive rates. The downside, of course, is that you have to mail in all of your checks (unless you have direct deposit), and you give up the convenience of service at a local branch.

One other place you can keep some money is PayPal. Though it's not a bank (and not Federally insured), PayPal is now offering many of the same services as banks, including debit and credit cards, interest bearing accounts, and international money transfers. Personally, I'm looking forward to the day when all payments will be handled electronically. No more cash, no more checks, no more waiting in line at the bank on Monday afternoons, and no more absurd fees (hopefully)!

Be an Educated Consumer

2009-03-06T23:34:00.000-08:00

I was browsing at a major consumer electronics retail store recently when I noticed a young couple shopping for camcorders. They looked perplexed and wary as they listened to the 17-year-old salesman explaining the product selection to them. Now, I don't know how their shopping experience worked out in the end, perhaps they found the perfect product and were completely satisfied. But my immediate thought was that these poor folks look like sitting ducks. They obviously hadn't done their homework, and the odds of getting the best deal without having researched the product are never good.

I know what you're thinking. Who has time to do product research and comparison shopping? With internet access, it is really so easy to research products that, in my opinion, there is just no excuse for making uninformed, impulsive large purchases. Of course, if you're shopping for dental floss, then the amount of money at stake is trivial. But serious penny pinchers like me will at least do some quick checking online to compare prices on all but the smallest purchases. It only takes a few minutes to look up a product on Amazon.com or through convenient price comparison websites like NexTag.com or PriceGrabber.com.

Another benefit of online product comparison is that many retail websites allow users to post product reviews. The two main pieces of information I'm looking for when shopping online are prices and reviews. Reading through consumer reviews can save you a lot of trouble, maybe even help you avoid buying an inferior product that you would have wound up replacing anyway. Subscription services like Consumer Reports offer the ultimate in-depth, objective reviews, but I've had good luck relying on the free reviews at most major shopping sites.

The bigger the purchase, the more time you should dedicate to researching online. If you are relying on retail salesmen to educate you about cars or household appliances, then you are at a major negotiating disadvantage. Make sure that you have some idea of the range of features and prices available before you talk to any salespeople.

Also, watch out for web retailers who try to lure you in with a low price quote, and then jack up the price at checkout with unreasonable shipping and handling charges. And for the best bargains, don't forget about buying used through sites like eBay and Craigslist. I built half of my home studio with Craigslist purchases!

Rule of 72

2009-02-27T23:03:00.000-08:00

Ever wondered how much that music store line of credit is really costing you in interest? Or how much difference it will make to have your money stashed in a 4% Certificate of Deposit, as opposed to a 1% savings account? The Rule of 72 is handy for making quick thumbnail estimates of how interest accumulates.

First, I recommend reviewing my previous blog entry on the subject of compound interest. That can be a real eye opener for many people. Once you have an idea about how compound interest works, you start to understand how important it is to get the maximum return on your investments, and pay the minimum rate on your debt. Even a one or two percent difference can really add up over time.

If you are trying to make a decision or plan based on alternative possible interest rates and you don't have access to a precise compound interest calculator, just remember the following formula:

72 ÷ annual interest rate = number of years it will take for the balance to double

So, for example, if I invest $2000 at a compounded 6% rate of interest:

72 ÷ 6 = 12

In about 12 years, if I don't add or take out any money and the interest rate remains at 6%, my account balance should hit $4000. You can use the same calculation to estimate how long it will take your debt burden to double, or how long it will take for a given rate of inflation to double the cost of living.

I have been running a little experiment for some time now. In 1994, I put $100 in a credit union share account and resolved to make no more deposits or withdrawals until the account doubled in value. Well, it has been 15 years, and the balance currently stands at $168. Not too impressive, eh? That's because the average interest rate on that account over the past 3 years has been a paltry 1.07%. At that rate, it would take over 67 years for my $100 to double! Actually, my interest rate was slightly better in the '90s, so at the current rate, it should only take another 17 years. But that is still a total of 32 years! The lesson to be learned from this experiment: small differences in interest rates make big differences in results!

Getting Out of Debt

2009-02-20T21:06:00.000-08:00

Okay, here's a topic that many musicians can relate to! People get into debt for all sorts of reasons, but it's only recently that getting out of debt has become fashionable. If you are currently drowning under an adjustable rate mortgage that's way beyond your means, then I'm afraid I don't have any silver bullet solutions to offer you....perhaps the government will figure out some way to throw you a lifeline.

But if you are simply struggling with garden-variety consumer debt or student loan debt, then there are some proven strategies for getting yourself out of the hole. First of all, as the old saying goes: if you find yourself in a hole, stop digging! Avoid additional debt like the plague. If you continue to allow yourself to think of borrowing as a solution rather than a problem, you will never escape debtor status, regardless of your income level. Most of my blog entries up to this point have been about living frugally and saving money. All of those habits will help you to eliminate debt as well. Since consumer loan interest rates are almost always higher than any reliable rate of available investment return, you should view paying off a loan early as tantamount to earning a high rate of return. Think of paying off your 11% credit card balance as a generous 11% gift to yourself, because that's what it is! That's more enticing than almost anything else you could spend your money on.

Lots of people owe money to multiple creditors, and often don't know how to prioritize their debt payments, so they just make the minimum payment on each bill that comes. Minimum payments are for suckers! The minimum payment option is designed to draw out your debt and earn the creditor maximum interest from you.

The first thing you should do is to make a list of all your credit accounts and find out the interest rate for each one. You can continue making minimum payments on the lower interest rate accounts for now, but target the highest interest rate first, and pay as much as you can on that account each month until it's paid off completely. After that one is paid off, target the second highest interest rate account in the same way, and you should be able to pay this one off even faster, because you now have one less account to service each month.

This strategy requires focused commitment to eliminating debt, because as you pay off your outstanding balances, your available credit limit will probably increase and those old temptations may arise again. Believe me, becoming debt-free is a very liberating feeling. It really is the best gift that you can give to yourself!

Restructuring Your Business

2009-02-13T18:58:00.000-08:00

There's been a lot of talk lately about corporate downsizing and "trimming the fat". Perhaps you're in one of the unlucky bands who have already lost a steady gig when management decided to cut back on the entertainment schedule. It seems to be hitting everyone at this point.

Did you realize that you, too, are a business manager with downsizing alternatives? Sure, you are! Even if you operate as a sole proprietor, you may still be able to find ways to lower your costs of doing business and thus offer your clients better value. For example, you can:

1. Resize your act. If you normally perform as a five-piece band and the clubs are balking at your fees, you can offer to go out as a 3 or 4 piece for less money. The ultimate bargain is a solo act, but these gigs are usually limited to players of certain instruments (guitar, piano, etc.).

2. Cut back your hours/barter. Another deal you can strike with management is to play fewer hours for less pay, or agree to accept free food in exchange for giving up some pay. I'm not a huge fan of this option, because it may be hard to get back to the old pay scale once business improves again. Still may be preferable to having no gig at all, though.

3. Lay off middle management. If you have been getting most of your gigs through agencies, try contacting venues directly and booking more shows yourself to save on agency commissions. Of course, when dealing with a venue originally introduced to you by an agent, it would be unethical to later bypass the agent. Similarly, if local teaching studios have been booking most of your students for you, you might make significantly better pay by setting up your own studio and booking students yourself.

4. Renegotiate with suppliers. You should definitely be driving a hard bargain when making any equipment purchases these days. Don't be afraid to ask for a lower price! Most retailers are really desperate now, and they are very willing to negotiate.

If You Can Handle It Now, Handle It Now

2009-02-07T18:16:00.000-08:00

This simple motto has served my very well over the years in a number of contexts. The gist of it is that a good way to avoid the procrastinator's predicament is by dispensing with little tasks as soon as they come up. My rule of thumb is that, if it takes less than 5 minutes to handle something important and be done with it, then I will drop whatever I'm doing at the time to handle that task.

This might seem to contradict the importance of setting time-budgeting priorities. For example, I try to spend an hour every morning practicing piano. Nobody pays me to do it, it only happens because I make it a priority. But if, in the middle of my practice session, it occurs to me that I need to write a check or make a quick phone call, I will give myself a 5 minute break to take care of that. If it's under 5 minutes, then it's really not significantly cutting into my practice time, it's just a healthy, normal break. And handling it as soon as it occurs to me ensures that the task won't be forgotten.

This rule applies to a lot of money management issues. Balancing a checkbook, paying a bill, even transferring balances between accounts are all tasks that can be handled in almost no time, but how many of us let these tasks accumulate to the point of becoming an intimidating mountain of work? Remember, if you're letting too much of your money sit in a low-interest or no-interest account, then you're cheating yourself out of potentially significant annual interest income. It wouldn't take 5 minutes to write a check and transfer that money into your money market account.

Of course, there are many important tasks that cannot be properly handled in under 5 minutes, so time must be scheduled for dealing with bigger issues like devising a retirement plan. But you might be surprised at how many of life's tasks can be dealt with quickly and easily.

Insurance

2009-01-30T22:09:00.000-08:00

The type of person who chooses to embark on a career in the arts is, almost by definition, a risk-taker. Maybe not reckless, but certainly willing to take a chance on a less certain path in life. We also tend to get by on a pretty tight budget. So it's no surprise that lots of musicians don't carry even basic insurance coverage.

Your number one insurance priority should be health insurance. I once went for four years without any health insurance. I don't recommend that anyone else do that, but it was an especially lean period for me, and luckily, I didn't get sick. Eventually, I wised up and got myself a high-deductible individual policy, designed to be paired with a Health Savings Account (HSA). If you are basically healthy and have an adequate emergency fund set aside to cover some health costs, a high-deductible policy can keep your health insurance premiums surprisingly affordable. HSA accounts are a recent development in the U.S. They are like IRA accounts in terms of tax advantages, but you can take out money without penalty to cover your basic health care expenses each year. Those of you who live in civilized countries with nationalized health care can disregard the above discussion!

Also highly recommended to musicians is equipment insurance. You might think that your gear is covered by your homeowners or renters policy, but if you use the equipment professionally, or it is stolen or damaged on a gig away from home, you might be left high and dry. You usually need a separate policy or rider for your professional equipment, and it's typically pretty affordable. Obviously, all jurisdictions require you to carry auto insurance, and you'd be crazy to drive without it. But again, as with all other types of insurance, you should consider accepting higher deductibles or lower levels of coverage to lower your premium if you have an emergency account.

There are an almost infinite variety of insurance policies that you may not need. If you don't have a family to support, you should probably think twice about carrying life insurance. You might not even need renters insurance if you live a typical transient musician lifestyle and don't have a lot of valuable possessions. I usually don't opt for extended warranty coverage offered at consumer electronics stores or car dealers. Sometimes these deals just offer redundant coverage for defects already covered under the manufacturer's warranty, and often the seemingly small monthly premiums add up to excessive sums over time. Then again, if you're a klutz, or prone to losing your cell phones, maybe it's a good deal!

You might be getting the idea that I'm not enthusiastic about carrying lots of comprehensive, gold-plated insurance policies. You'd be right. In areas of life where you are vulnerable and really can't afford a loss, adequate insurance is essential, but don't try to insure 100% of the risk out of your life. It would probably take 100% of your money to do that!

Have Your Cake and Eat It, Too?

2009-01-24T16:36:00.000-08:00

I have some friends who only feel comfortable driving high-performance cars with leather seats. They are the same folks who always order the steak when we go to a restaurant. I drive a 14 year old Toyota Corolla and bring a bag lunch when I have to eat out.

Now, there's nothing wrong with living well, as long as you're living within your means. If you really value an expensive lifestyle, then there are careers which can support that: law, business, medicine, etc. But if you want to play music for a living, I'm sorry, but you may be setting yourself up for a lot of frustration. Let's face it, the music biz is not generally known as a gravy train, and if you went into it for the money, you're in for some unpleasant surprises.

It is certainly possible to earn a lot of money in the music business, but to consistently earn a lot of money is very rare indeed. There is nothing sadder, and sadly nothing more common, than seeing a talented musician reluctantly take a day job or even go bankrupt due to an overindulgent lifestyle.

The good news is that, if you can be content with a modest lifestyle, you can really prosper on a low income. Remember that what counts over the long run is not your income, but your savings. It's not what you earn, it's what you save. If you earn $30,000 a year and only spend $20K, then you're socking away a very respectable 10 grand per year.

As a matter of fact, you would be better off financially in the above scenario than if you had spent $70,000 out of an $80,000 dollar income. Why? Because people who earn $80,000 are in a higher tax bracket. In the U.S., an $80,000 taxable income puts you in the 28% tax bracket, while a $30,000 income puts you in the 15% bracket. Even major touring artists and large corporations recognize that it's advantageous to save a higher percentage of a lower gross income, and therefore they work hard to cut costs.

If you spend all of your time hustling to earn more money, then when are you going to get around to recording that solo album you've been planning for years, or take that advanced arranging and orchestration class you've been wanting to take? Finding contentment at a lower living standard can actually be very liberating in many ways.

I think that most of us tend to aspire to at least match the lifestyle our parents enjoyed when we were growing up. If you happen to come from a privileged background, then a musician's lifestyle might feel like a step down to you. Lifestyle is a very personal thing, and you have to be honest with yourself about what is going to make you happy. But remember that everything in life is a tradeoff, and money can't buy musical bliss. Good luck in finding your own comfort zone.

Financial Advisors, Sharks, and How to Tell the Difference

2009-01-16T23:29:00.000-08:00

Don't let confusion or intimidation about the investment world prevent you from securing your financial future. Many of the concepts you need to understand can easily be explained in plain English, and this blog seeks to do just that. But, ultimately, you will still have to make specific investment choices for yourself.

There simply isn't any one formula or "silver bullet" investment plan that is right for everyone. Professional investment advisors exist for the purpose of helping you sort out your own ideal investment mix. Unfortunately, as recent Wall Street scandals have shown, there are some unscrupulous people working in this business, so I'd like to offer some advice for helping you to pick an advisor.

Probably the most important thing to watch out for in seeking investment help is conflict of interest. Your advisor should be working with only your best interests in mind, so that's why I recommend that you avoid advisors who accept commissions or payment from mutual funds, insurance companies, or any third party. Look instead for a fee-only financial planner. These advisors may charge you a higher hourly rate for their time (or may not), but you get the assurance of knowing that they are really working for you, instead of essentially working as salesmen for someone else. If you have any doubt about this, don't hesitate to ask them directly whether or not they accept any sales commissions or third party compensation. There is also a national association for fee-only advisors, the National Association of Personal Financial Advisors.

Other important factors to inquire about include experience, training, track record, and investment style. After reading this blog and other investment advice, you may have already reached some conclusions about your own risk tolerance and investment preferences. Most good advisors are open to discussing these issues with you and honoring your personal wishes. Sometimes, people with very low risk tolerance get mismatched with an aggressive financial planner and wind up being taken on a roller coaster ride that they otherwise wouldn't have chosen to get on. Or the opposite kind of mismatch can happen, too.

Impressive past results and glowing reviews from satisfied clients are great, but remember that your own results may differ, and your personal needs may be different from the needs of those other clients. Don't look for hotshot performance or trendy investment choices. A good financial plan seeks long-term, stable, reasonable returns.

Also, be aware that there are no legal training requirements for financial advisors, but of course you want to find a knowledgeable one, so a Certified Financial Planner (CFP) credential, or at least a business degree, is probably a good thing to look for.

Ultimately, you don't have to hire a financial advisor. You could, for example, do some homework and calculating on your own, and then pay a modest sum to a fee-only advisor for a brief session to review and critique your plan.

Retirement Savings

2009-01-09T21:48:00.000-08:00

Okay, so the big consumption party ended in 2008 and now we're all ready to tighten our belts and get serious about saving, right? But where to begin? The whole concept of investing seems pretty alien and intimidating to most musicians and ordinary folks. I've already addressed some basic investing principles in last year's blog entries, but now I'd like to offer some advice on how to go about choosing your own specific investments.

You don't need a degree in finance to invest wisely and successfully over the long run. It may be wise to hire a financial planner, at least to help you get started, so next week I will discuss choosing your financial advisor. Everybody's individual situation is different, so getting an expert's opinion on your personal situation can be very helpful.

For starters, though, it's pretty safe to offer a couple of generalizations for beginning investors. First of all, I want to stress the importance of establishing an emergency account before embarking on longer-term investment plans. The recent volatility in employment and throughout the economy makes me appreciate my own money market emergency account more than ever. Without some cash to fall back on, it can be very scary to keep working as a musician in tough economic times.

Once your basic emergency account is established and funded, where should you invest next? Very often, experts recommend that you take advantage of any available tax deferred retirement plans before investing elsewhere. If you are a young, single musician, retirement might not seem like the most urgent financial goal to be worried about. But then again, if you plan on being self-employed for life, who do you think is going to be planning your retirement for you? If you live in America, you might be counting on Social Security. Personally, I hope that Social Security will still be around when I reach retirement age, but I'm certainly not counting on it. And even if the system remains in good shape, Social Security checks really don't amount to a livable income, so you'd better start saving for yourself.

Fortunately, in the U.S., there are numerous types of retirement savings accounts available with excellent tax advantages. These include Individual Retirement Accounts (IRAs), Roth IRAs, Simplified Employer Pension (SEP) IRAs, and 401k plans, among others. Basically, all of these accounts are somewhat similar to traditional pension plans, but are held as individual accounts, instead of being pooled together among many company employees, as in traditional pension plans. Since musicians are generally self-employed, the pension option isn't usually available (unless you qualify for the musician's union pension plan), so these other alternatives are available to us. It can be tricky to sort out the differences between these different account types, but they all have some things in common:

1. Money in these accounts grows without being taxed until you take it out at retirement, and in some cases, you can also deduct the amount of your annual contributions on your tax return. That is a potential double tax benefit, which might not seem like a big deal, but in fact it can have a dramatic compounding effect on your ultimate payout.

2. Your contributions are subject to some limited annual amount, which varies depending on your income and the type of account. This is why it's so important to start saving early in these accounts, because you may not be able to make up the difference later through bigger contributions.

3. Most of the money in these accounts may not be taken out until retirement age without paying a significant penalty, with a few exceptions for things like catastrophic medical expenses. This may seem like a disadvantage, but it actually forces you to preserve your own retirement savings.

4. Money in any of these accounts can usually be transferred ("rolled over") to another retirement account without penalty, as long as you follow proper procedures for the transfer. So, for example, if you quit working at a company with a 401k plan, you may be able to transfer your 401k account into a personal Roth IRA account.

For self-employed musicians, I particularly recommend checking into Roth IRAs and SEP IRAs. To determine the best account type for you, start by reading this introduction to the different account types. Next time, we'll discuss choosing a financial advisor to help you through the process.

A Few Money Saving Tips for the New Year

2009-01-02T18:50:00.000-08:00

You know that I love to look for bargains! Here are some more random tips that I've picked up for saving money.

Learn how to do basic maintenance on your own gear. If you're playing for a living, you really shouldn't be paying somebody else to intonate your guitars or to change fuses for you. Besides, the ability to do a quick truss rod adjustment can save your butt on a gig.
If you're going to a gig which will include long breaks or downtime, bring a book or something productive to do. Otherwise, you'll probably wind up going to waste money on overpriced coffee or fast food with the rest of the bored band members.
Use rechargeable batteries and AC adapters when possible, and keep a log book for battery changes. I know lots of musicians and soundmen who waste batteries like crazy. You don't want to get caught with a dead battery mid-gig, but it's easy to learn the average battery life for each piece of gear and change them on a reasonable schedule.
For Guitarists and bassists. Always wash your hands with soap before you play, and wipe down the strings with a clean cloth after every gig. Your strings will last a lot longer, but it only takes one song played with dirty hands to kill those strings, so this rule has to be followed strictly in order to really prolong string life.
Carpool to the gig. I once came down with a bad flu bug in the middle of a gig 60 miles from home. Thank goodness I had carpooled with the drummer, so I didn't have to drive myself home in that condition! Good companionship, good for the environment, good for your pocketbook.
For extended range bassists. Don't buy 5 string bass sets, as they are overpriced. Instead, buy 4 string sets in bulk and individual B strings separately. To save even more money, buy one B string for every two sets of 4 strings, and change your B string every other time you change strings. New B strings don't really sound noticeably better than old ones, anyway!
If the gig includes a free meal, arrive early and hungry to take advantage of it (though it is courteous to offer a tip to the server). If the gig doesn't include a free meal, eat at home first and avoid cutting into your profits. In my experience, bands don't usually perform their best on a full stomach, anyway.
Always have a friend who works at a music store! Not only will you benefit from rock bottom discounts on gear, but you will also undoubtedly get better service.
Need a white bow tie just for one particular gig? Check thrift stores for great deals on cool stage clothes.

Keeping Books

2008-12-26T21:28:00.000-08:00

Are you one of those self-employed musicians who only records income based on 1099 forms and only records expenses by throwing some receipts into a box for your accountant to deal with next year? I've been encouraging everyone to get a better handle on their own spending and saving habits, and the best way to do that is by setting up and maintaining some kind of systematic accounting records for your business.

If you've been sloppy in your past bookkeeping, the New Year is a perfect time to start fresh with a simple accounting system for all income and expenses. It can be as simple as resolving to write down each day's income and expenses on a written log before going to bed at night, or you can buy a program like Quicken, or try David Hahn's free Gig Tracker spreadsheet.

How much of your income you report for tax purposes is between you and the IRS, but I highly recommend that you get a clear picture of where your money is coming and going for your own sake. It's really a necessary first step before you can do any effective budgeting, and it also gives you a clear sense of your career progress relative to any goals you have set.

Also, please don't neglect to write down every possible business expense and keep all receipts! If you're not sure about something, write it down and check its deductibility later with your tax preparer. Business expenses are used to directly reduce net business income on US Schedule C tax forms, so every little expense makes a real difference in your bottom line tax liability.

Purposeful Giving

2008-12-19T23:19:00.000-08:00

This is the time of year when many of us get into the spirit of giving and donate our time or money to various charitable causes. It's also a time when many nonprofits conduct their biggest fundraising drives. Salvation Army bell ringers and toy drives for underprivileged children are as closely associated with the holiday season as poinsettia plants and Santa Claus. It feels good to chip in for a good cause, but how much thought do you put into it?

According to the National Center for Charitable Statistics, there are well over a million public charities in the United States alone, and the number is growing rapidly. Most of these organizations are ethically run by people with the best of intentions. Some are well funded and effective, others less so. The last time you gave money or donated your time to perform for a benefit concert, did you do any checking on the charity you were supporting? Neither did I, but I should have. If you think about it, charitable contributions are really just another expense in your budget, and there's no reason they shouldn't be subjected to the same sort of scrutiny as your equipment purchases or grocery bill.

Let me be clear: I'm not suggesting that you shouldn't give to charity. I am suggesting that it is wise to actively choose your charities, rather than passively let them choose you. It may feel awkward or wrong to refrain from pulling out your wallet when you get an unsolicited phone call from a good cause or are confronted directly by a fundraiser on the street. But giving charitably only to organizations that happen to cross your path is sort of like only buying the food that's prominently displayed at eye level on store shelves (often the most profitable items for the store, but not necessarily the best for you).

Please take some time to consider what causes are most important to you, and where you think the greatest need exists. It takes a little research to find the best charities to suit your values, but there are some great online tools available to help you for free. Please check out these sites for starters: Charity Navigator, Guidestar

And remember, if money is tight (as it is for many of us these days), donating your time or skills to a really worthy cause can be a great way to help make a difference at any time of the year. Best wishes to you all this holiday.

Good Will to All

2008-12-12T21:14:00.000-08:00

It's December, and I guess I'm getting a little sentimental. Every time the end of the year rolls around, it's natural to take stock of where we are and where we seem to be heading in life. Personally, I always find myself astonished that I've actually gotten away with another year of playing music for a living! The exact mechanics of sustaining such a career are a bit mysterious, but it definitely has a lot to do with personal relationships and good will.

It is a small world after all, especially in the music business. Word gets around fast, so even if you aren't altruistically motivated to be nice to people, you will certainly need to be agreeable simply for practical reasons. I like to think of my relationships with people sort of like gas tanks! Every person I know has a certain reserve of good will towards me, and every interaction I have with that person serves to either fill up or deplete that reserve. The goal is to maximize everyone's good will reserve towards me.

The funny thing is, although a good will reserve can be depleted very quickly and easily, there is virtually no way to rapidly build good will. It can only be built up to a high level through demonstrating steady, long-term positive attitude, ethical behavior, and reliability. Sure, referring someone to a high paying gig will score you some quick brownie points, but a one-time favor won't engender as much loyalty as years of showing up on time, or handling many small problems without complaint.

I have witnessed many cases of highly competent musicians gradually working their way up to positions of trust and gainful steady employment, only to lose it all over a single ethical breach. I've learned firsthand how easily good will can be destroyed through neglect, or by being unpleasant. In one case, I lost a gig because, after a particularly rough performance, I told the bandleader that I thought he needed to practice more. I've also lost gigs simply because I fell out of contact with the bandleader, or turned down one too many gigs. People have short memories, and allowing yourself to be forgotten is one way of depleting good will.

Always, always, always stay on good terms with everybody whenever possible. If you have to leave a gig for any reason (even if it's because you hate the gig!), try not to make it personal. Don't let people walk all over you, but leave your bridges unburned, because frankly, there's no advantage to be gained from burning them. Exercising patience and tolerance in all of your relationships will serve you in good stead as you advance to better gigs, where positive attitude is a prerequisite. It's also better for your blood pressure! Peace.

Keeping Investment Costs Low

2008-12-05T21:09:00.000-08:00

Okay, admittedly not the most mouthwatering topic to most musicians, but trust me, it's important and easy to understand. What are investment costs? These are the fees that all those vilified Wall St. guys make their living from. If you trade individual stocks, you will pay a stock brokerage fee every time you buy or sell (thus, the broker has an incentive to get you to trade often). If you put your money in mutual funds, an annual fee (called the "expense ratio") will be deducted from your account, and you might pay additional fees (called "loads") whenever you buy or sell shares. Even if you decide to put your money in a "free" savings account at your local bank, they will get their piece of it by offering you a lower interest rate than they are getting when they lend that money back out.

It is reasonable for qualified investment professionals to charge something for their services, especially when they are helping you to monitor your portfolio and choose wisely between different investments. But there is no need to pay exorbitant fees for such services, and many investment advisers are still getting away with charging too much in my opinion. Fees in the range of 1.5% or close to 2% per year are not uncommon among mutual funds and portfolio managers, even at times like this when returns are poor.

1.5% may not sound like much, but over time, fees like that can significantly reduce your returns. For example, let's say you have $10,000 to invest for 10 years:

Mutual Fund A
Expense ratio: 1.5%
Annual gross return: 10%
After 10 years, you'll have: $22,610

Mutual Fund B
Expense ratio: 0.5%
Annual gross return: 10%
After 10 years, you'll have: $24,782

That's $2172 more that you could have collected just by selecting the fund with a lower expense ratio. That's a 9% difference in only 10 years! Notice that both funds had the same results in the market. In reality, different funds will vary in performance, but the funds with higher fees don't necessarily perform better. The only difference here is that one of the funds managed to negotiate a bigger cut for themselves. The difference is magnified further over longer periods of time. Also, this example assumes that neither fund is charging you a load for buying or selling shares. That would reduce your results even more.

Ultimately, it's up to you to pick your investments based on a number of criteria. Investment cost is only one of those considerations. But let me leave you with one final thought: A mutual fund manager overseeing accounts worth $50 million (small by industry standards) will earn $500,000 per year by charging a one percent expense ratio. Isn't that enough?

Thanksgiving

2008-11-28T19:40:00.000-08:00

Just a few personal reflections this week in the spirit of the holiday:

I'm thankful to be healthy, happy, and doing what I love for a living.

I'm thankful for the excellent mentors and role models who have helped point the way for me.

I'm thankful that progress doesn't come easily, because that means there is always potential to improve, and every accomplishment brings greater satisfaction when you know you have really worked for it.

I'm thankful for the good will, fun times and huge inspiration I get from so many amazing music business friends.

I'm thankful to realize that I don't really need very much, and the world is providing more than I need.

I'm thankful for the freedom to be my own boss and choose my own course in life.

I'm thankful that economic necessity has forced me to be less prideful and take gigs that made me learn and grow.

I'm thankful for all of the lessons yet to be learned, and for all of the creative works yet to be unveiled.

Best wishes to all of you this season!

Investment Diversification

2008-11-21T22:22:00.000-08:00

In a recent blog entry, I emphasized the advantages of pursuing multiple musical income sources: higher total income, greater income stability, and increased networking opportunities.

The same principle applies to investing your hard-earned money. Maintaining a diversified investment portfolio basically means not putting all of your eggs into one basket. Remember when you told your parents that you wanted to be a musician, and their first reaction was to tell you to make sure you have another skill "to fall back on"? Well, I didn't like to hear it either, but looking back, I have to admit it was probably good advice.

In a similar way, betting most or all of your precious money on a single investment can be risky. If, for example, you choose to invest in stocks, most experts recommend holding stock of at least five to ten different companies to achieve reasonable diversification.

If you had invested all of your money in Lehman Brothers Holdings one year ago, you'd be broke right now because they went bankrupt in September. Few could have predicted that such a large firm, with a long and reputable history, would have been brought down so quickly. Even many highly trained and experienced professional investors regrettably invested in Lehman recently, so none of us are immune from making these kinds of mistakes.

If, on the other hand, you had invested half of your money in Lehman Brothers, and the other half in Star Scientific, Inc. (which has had a great year), you'd be roughly breaking even at this point. You would still be under-diversified, in my opinion, but this example illustrates the fact that even a little diversification is much safer than none at all.

As a small, individual investor with limited information, it can be hard to compete with the pros at picking good individual stocks or other investments. Perhaps even more importantly, brilliant artists like myself are too busy honing our creative genius (joke) to be bothered with monitoring the day-to-day performance of every stock and constantly worrying about timing our trades just right.

For people like us, there are mutual funds and ETFs. A detailed discussion of these investment vehicles is a subject for a future entry, but suffice it to say that they offer diversification in a simple package to the small time investor. Mutual funds and ETFs of the low cost index variety offer the ultimate in diversification.

If diversification is so great, why aren't all investors super diversified? The short answer is that they think they are smarter than the rest of us. If you are smart enough to only pick the winners and time every transaction ideally, then you can do better with an undiversified portfolio. Unfortunately, VERY FEW investors can pull this off with any consistency. Like, virtually nobody. Lots of people found this out the hard way recently when they tried sinking all of their money into real estate at the wrong time. They weren't diversified, and they bet on the wrong horse.

I'll be honest. Most types of assets have been losing value lately, so even diversified investors are getting burned. But just as a musician with multiple steady gigs can afford to lose one of those gigs, a well-diversified investor can avoid losing the whole enchilada when a few stocks go south.

Saving Is the Green Thing to Do

2008-11-14T21:14:00.000-08:00

In this blog, I spend a lot of time talking about the merits of cutting expenses. Judging from the latest retail sales figures, it seems like a lot of folks are getting on this bandwagon, albeit reluctantly. A slumping economy and tightening credit have finally checked our great appetite for consumption.

But reducing consumption isn't all about deprivation or stinginess. It's really about clearing the clutter from our lives in order to focus on what's really important. At the risk of sounding overly philosophical or New Age-y, I would like to suggest that consuming less might actually be good for you, and good for the world. Here are just a few ways in which you can be kind to the environment while improving your own bottom line:

Drive a smaller car (or NO car). The vehicle will cost you less to buy and insure, and you'll spend less money on gasoline while producing less CO2 . It will still get you to the gig on time, and will also be easier to park when you arrive there.

Buy in bulk via the Internet. A little comparison shopping online almost always yields the best price available, and you will save gasoline and time wasted on trips to retail stores. Fewer people driving to stores means less traffic and less pollution.

Use it Up! I know sax players who will buy a box of reeds, use the best one and throw the rest away because they are "too green". Couldn't they use those for practicing, or put them on a shelf until they age nicely? By the same token, every time I put fresh strings on my gigging bass, I transfer the old strings to my practice/teaching bass to milk a little more life out of them. That's less junk for the landfill, and lower equipment expense for me.

Live in a smaller house or share space with roommates. Rent will be lower, and you will use less electricity and gas. Cleaning a small house requires less time and less use of environmentally unfriendly detergents and cleansers. You'll also have less space tempting you to fill it up with unneeded stuff.

Recycle and buy used items. I use ice cream container lids as drainage trays for my houseplants, and worn out clothes as rags for washing my car. Musical equipment can often be found at half price by buying used. The more stuff we can keep out of the landfill now, the better off we will all be in the future.

In contrast to the above advice, many politicians and economists are now praying for an increase in consumer spending to restart the stalled economy, but the fact is that over consumption is what got us into the current crisis in the first place. We must start living more efficiently, for the sake of the environment as well as for our own long-term financial health.

Market Timing and Opportunity

2008-11-07T19:05:00.000-08:00

I hope that some of you who have been reading this blog for a while may be feeling persuaded to seriously start investing for your future. The questions that naturally follow are what should I invest in, and when? This first step is especially scary to take at a time of such great economic crisis as we see today. All but the boldest investors have been scared away from the stock market.

I am always reluctant to tell people specifically what to buy, or when to buy. Variances in the risk tolerance and the current and future financial needs of individual investors make it unwise to offer blanket investment suggestions. But I will go out on a bit of a limb here and point out that, historically, the darkest of times have usually offered the best investment opportunities. In other words, when everybody else is panicking and selling, investment prices get driven down, creating opportunities to invest at bargain prices.

This scenario certainly describes what is going on currently in world stock markets. The S&P 500, an index tracking the share prices of the 500 largest U.S. corporations, is down 40% from one year ago. Of course, there are real, legitimate reasons for stock prices to be declining (such as sagging corporate profits), and there is also the possibility that significant continued losses may still lay ahead.

I certainly wouldn't encourage anyone with a very low tolerance for risk to jump onboard this roller coaster right now, but please bear in mind that most of us have precisely the wrong instincts for buying and selling at the "right time". It is enticing to get onboard when we see that an investment has recently performed well, and it's scary to buy or hold on to an asset that has been losing money.

In general, I suggest resisting such instincts and simply investing what you can on a regular basis, then holding those investments for the long term, regardless of current market conditions. Don't try to gamble your way into the market all at once, but don't allow yourself to be frightened into inaction, either. There will never be an obvious "safe time" to buy, and if you wait for such a time to arrive, you will probably have already missed out on substantial market gains.

One more word of caution: please don't invest more money in stocks than you can afford to lose. Musicians especially need to establish and maintain a financial safety net before speculating on riskier investments, and the current recession may bring unexpected gig losses. Good luck navigating your way through this storm, and remember that every upheaval also brings opportunities.

How Did We Get Into this Mess?

2008-10-31T21:43:00.000-07:00

In the spirit of the political season, I'm going to get up on my soapbox today and do a bit of lecturing. There has been an awful lot of finger pointing, rationalizing, and denial going around lately with regard to all of the economic turbulence we are experiencing. Even many experts seem genuinely at a loss to explain exactly what went wrong and how we have come to this. Lots of musicians and other ordinary folks are feeling like helpless victims of those who "control the system".

Well, this may not be a popular thing to say, but I personally feel that we all bear responsibility, collectively and individually, for the financial condition we find ourselves in at any given time. Most people reading this blog are living in capitalist democracies, with a great deal of freedom to engage in free enterprise as they please. But with such freedom comes the responsibility to educate oneself and stay informed on financial matters. If you don't basically understand how a capitalist economy works, how can you expect the system to work to your advantage?

The good news is that anybody with a junior high school education can easily learn the essential principles of responsible personal finance. It's really not as complicated as most people think. Yes, professional investors do use fancy statistical analysis tools to evaluate markets and investments, but the average investor can generally get by pretty well using just basic arithmetic. I've long felt that a basic personal finance course should be a required part of every high school curriculum. I have no idea why this is considered a taboo subject for public education, and I'm convinced that with such training, the average citizen would wind up in far better financial shape. And if each of us individually kept our financial house in order, the overall economy would function a lot better.

I'm also convinced that if ordinary citizens had a better grasp of responsible money management, we would be more likely to hold our elected leaders accountable to maintaining responsible government budgets, instead of the rampant deficit spending we currently see in governments around the world. Let's face it folks, we've been resistant to learning about money for too long, and that ignorance is now coming home to roost. Things will only get better when we all start getting smarter about personal finance.

Inflation: the Savings Killer

2008-10-24T21:51:00.000-07:00

What a time to be writing a personal finance blog! I can't recall a time when there have been so few attractive investment options. As virtually everybody has heard by now, traditional investment vehicles such as stocks, bonds, real estate and commodities are all in very bad shape lately. Most of the people with money these days seem to be mainly concerned with safely hoarding whatever they have left, opting for ultra safe, low interest cash equivalents like U.S. Treasury bills.

But stuffing mattresses is really never a good investment plan. This discussion will get slightly technical, but it's important that you understand the concept. The problem with hoarding cash is inflation. Inflation is the investor's enemy, slowly but surely eroding the value of your hard-earned savings. I can remember when I started playing bass in the mid-80's, a set of bass strings cost $10 at the local music store. Nowadays, the same set of strings runs around $18. That's almost double what it used to be, but to tell the truth, I hardly noticed as the price incrementally edged up over the years. In the same way, a nest egg of X thousand dollars, which might seem impressive by today's standards, will surely go less far ten or twenty years from now.

In the United States, most economists consider a "normal" rate of inflation to be somewhere in the neighborhood of 2-4% annually, and the government manipulates interest rates and other monetary policy tools to try keeping it around that level. Actual inflation rates, however, can vary considerably. If I assume that the government will be effective in maintaining inflation at, say, a 3% level over my lifetime, then I must earn consistently at least 3% on my investments just to prevent my savings from eroding. And if I eventually plan to live off of those savings, I will need to earn even more.

The problem with cash equivalent investments is that interest rates often barely keep up, or actually fail to keep up with inflation. My money market account is currently paying only 2%. The way things are going, it doesn't look likely that interest rates will be going up significantly any time soon, but even under the best of circumstances, cash equivalent investments rarely exceed inflation by very much.

Historically, investments such as stocks and bonds, although they involve more risk than cash, tend to outpace inflation by sufficient margins to actually grow your nest egg over time. It is certainly scary to invest in such things at times like this, but the prospect of eventually retiring with a severely stunted cash nest egg is even scarier to me. I suggest taking another look at my previous blog entry on the related subject of compound interest. Then try playing around with some numbers using these online inflation and compound interest calculators.

There is another new source of good career advice for musicians online. Please have a look at the Musician Wages website.

Diversify Your Bad Self!

2008-10-17T20:29:00.000-07:00

One popular misconception about the music business is that most musicians make their living exclusively from live performances, or exclusively from studio session work. I'm not sure why people tend to make that assumption, but I suppose it may stem from the fact that most people only see and interact with us on stage. In spite of this romantic myth, the reality is that virtually all full time musicians these days earn their income through multiple activities. In fact, I can't think of any players who limit themselves to gigs only, and I know hundreds of successful musicians all over the world!

There certainly must be exceptions to this generalization, but I would argue that even if you can make a good living through gigs alone, you will still be limiting the potential extra income and job security that greater diversification could offer you. Think about it. If you are playing a 4-hour steady gig 5 nights per week, that is still only a 20-hour work week -- why waste your daytime hours? Here is a list of less commonly considered money making ideas for musicians:

Doing music clinics at local schools
Instrument/equipment rental
Rehearsal space rental
Teaching music lessons
Playing on recording sessions
Producing recording sessions
Selling time in your home recording studio
Live sound engineering
DJ work (blasphemy!!!)
Licensing original music
Selling original CDs or band merchandise
Booking other bands
Cover band gigs (if you're an original artist)
Solo gigs (if you're already in a band)
Accompanist work
Music copying and arranging
Daytime gigs at churches, coffee houses, etc.

There are really countless ways to be compensated for your musical abilities. If you thoroughly researched and explored all of these opportunities, you could keep very busy making a good living, and you would also be better positioned to endure the loss of any one of your gigs. Let's keep our eyes open for unconventional or unexpected gigs, and please post a suggestion here if you think of any that I missed!

Making the Most of It

2008-10-09T21:33:00.000-07:00

Just a few quick thoughts today about how to handle an economic/market downturn. A recession is usually a great time to:

Hunt for bargains on goods (including used and new musical equipment)
Hunt for bargains on stocks and other investments
Offer a special sale on your CD or band merch
Reexamine your lifestyle to cut costs and eliminate inefficiencies
If gigs are slow, use spare time to practice/exercise/improve skills/learn to cook
Possibly increase insurance coverage (crime goes up during recessions)
Re-establish connection with former musical contacts
Volunteer/go to friends' gigs/vote/host a jam session/build goodwill
Simply enjoy life and do something to make a difference

A recession is generally a bad time to:

Quit or start complaining about your gig
Try selling off used gear or other goods
Panic and sell investments at market lows
Assume that the market has bottomed and rush into a big investment
Not face up to your personal financial circumstances (this is ALWAYS a bad idea!)
Budget based on overly optimistic assumptions about income
Give in to depression or fear

Hey, it's not so bad, you'll get through this. And remember, we musicians are actually kind of lucky in that most of us have multiple sources of income, leaving us less vulnerable than someone who depends on a single employer for his entire livelihood. Feel any better? :-)

Dollar Cost Averaging

2008-10-02T21:38:00.000-07:00

In my first few blog entries, I introduced some of the basic, common principles of personal finance: keeping costs low, paying yourself first, taking advantage of compound interest, starting an emergency fund, and defining investment goals. I consider these to be the most essential concepts for any long-term financial plan.

Another commonly mentioned principle that I have not yet discussed is dollar cost averaging. This is the practice of investing a fixed dollar amount at regular (often monthly) time intervals. So, for example, if you have an annual investment goal of $5000, you would transfer $417 into your investment account on a fixed date every month, as opposed to writing one check for $5000 at the end of the year. Many consumer investment accounts, such as mutual funds, offer an option to set up these regular investment transfers for free.

The standard rationale for dollar cost averaging is that it reduces the risk of market timing on your investment return. Tradable assets (like stocks and bonds) go up and down in price daily, but if you put in the same dollar amount every month, you will automatically be buying more shares when prices are low, and fewer shares when prices are high.

Studies have shown that even sophisticated, professional money managers tend not to be very good at timing their investments ("buying low and selling high"), so why should Joe Musician expect to be any better at timing his purchases? Actually, the data is somewhat mixed regarding typical returns through dollar cost averaging as opposed to other investment schedules, but the fact that average investors should avoid the temptation to time the market is generally undisputed.

I would argue, however, that there is a more compelling reason to employ dollar cost averaging in your financial plan. It is the ultimate "pay yourself first" tool. If you know that $417 is going to be automatically deducted from your checking account on the 15th of every month, then you will view that as simply another bill to be paid and you'll be forced to budget accordingly. If, on the other hand, you put off investing and plan to just write a $5000 check at the end of the year with all of your anticipated lucrative holiday gig income, you might come up short. For this reason alone, I think dollar cost averaging is a great way to invest.

Is the Sky Falling?

2008-09-25T21:15:00.000-07:00

The past two weeks have seen some of the greatest financial volatility and dire predictions of modern times. Even some of the most savvy investment experts seem on the verge of real panic as bad mortgage investments lead to broad problems throughout the economy.

Many of my friends are asking me "are we on the brink of another great depression?" Of course, I don't have a crystal ball and I don't know how bad things are going to get in the months to come. But I do know one thing: those who have been consistently saving money and living within their means will weather the coming storm better than those who haven't.

It's easy to get cynical and angry about the reckless Wall Street practices which led to this mess. I am as angry as every other honest investor about the collateral damage my portfolio is suffering as a result of greedy investment banker speculation. It makes me sick to think that taxpayers will be required to bail out these criminals.

But that is the nature of our globalized free market economy. Just as the rising tide of 2003-2007 lifted all boats, so the current economic contraction threatens to lower all boats to varying extents. Like it or not, we are all very interconnected these days, and in the long run, the upside of that global network outweighs the disadvantages.

Rest assured that the people involved in the riskiest speculation during the housing boom will suffer the most painful consequences in its aftermath, with or without a bailout. Those of us who have been conservatively investing and staying out of debt all along will also get hurt, but to a significantly lesser extent. The people who stand to suffer the most are those who never saved anything at all, and thus have no safety net to fall back on when times get tough.

This is not the time to abandon your savings plan. Just as you will have good days and bad days in your instrumental practice regimen, you can also expect to go through peaks and valleys on your path to financial independence. Remember that long-term winners persevere through thick and thin, knowing that there will be ups and downs along the way.

Staying Local, Staying Loyal

2008-09-18T23:20:00.000-07:00

It's always taken a certain amount of courage to embark on a musical career, and now seems like a particularly daunting time, what with all of the current instability in the music business and the economy in general. One strategy to improve your odds for long-term stability is through cultivating steady relationships with employers in your local music scene.

Too many musicians view local gigs as mere stepping stones on the way to stardom, but I've found that if you really make the effort to cater to the needs of your local benefactors and show loyalty to them, you can gradually build up a rewarding variety of steady work for yourself. With this in mind, here are some suggestions for your consideration:

Do's
1) Keep a positive attitude and be open to the gigs available to you locally
2) Consistently be there for your steady gigs when they need you
3) Stay in regular touch with all of your local contacts
4) Be prepared, considerate, and punctual on EVERY gig (even the cheap ones)
5) Get to know your clients and be responsive to their needs
6) Do favors for people and express your gratitude for favors received

Don'ts
1) Don't sub out your gig every time you get a better paying offer
2) Don't leave town for extended periods (people will stop calling)
3) Don't cop the attitude that a gig is beneath you
4) Don't be stubborn; if a club owner or bandleader wants something different from you, try to accommodate him
5) Don't sacrifice a long-term, decent paying gig for a short-term, great paying gig

If you can maintain this kind of attitude, you won't lose many gigs. And as you hold on to your existing gigs, you will fill up the holes in your schedule with more steady work. This should all eventually add up to a decent and relatively stable income. I'm not suggesting that you should be a pushover or that you should never aspire to anything bigger, but if you can't maintain a great attitude on local gigs, don't expect to get offered any bigger opportunities. Use the challenges and frustrations of smaller gigs to develop your constructive, pro attitude.

By the way, I was recently interviewed for the very informative music business podcast Musicians Cooler. Please check it out for many great tips:

http://www.musicianscooler.com/

The Modern Renaissance Musician

2008-09-12T19:28:00.000-07:00

New technological advances offer unprecedented power and opportunities to musicians. With affordable, powerful new software and global Internet access, anyone can effectively create and market music. But you must first be willing to master this technology in order to reap its full benefits.

I'm no different than most of you reading this blog: all I really want to do is sit around writing and playing songs all day. But when it came time to make my solo album, I immediately knew there would be a lot more to it than that. I could have hired a producer, engineer and recording studio to handle the whole recording process for me. I could have hired a graphic designer to design my album artwork, promotional materials and website for me. I could have hired a promoter to get airplay and sell the album for me, etc., etc. All of these things cost money, though...a LOT of money!

D.I.Y.

In order to make the kind of album I wanted to make and stay within a reasonable budget, I had to wear many of these hats myself. That meant setting up a home studio, buying and learning to use professional recording software, designing and maintaining a new website, and devoting time to promotional activities. It is a lot of work, but I have saved a fortune by doing these things myself, and picked up some valuable new skills in the process.

Perhaps you're intimidated at the prospect of using recording or web site design software? Often, you'll find that these things aren't quite as hard as they might seem. Also, remember that even if you hire a "pro" to do it for you, you might still not be satisfied with the result, but you're stuck with it. If you do the recording, designing, etc. yourself, then you can keep working at it until you achieve the desired result. As they say, if you want a job done right, do it yourself!

Having said all that, doing absolutely everything by yourself can be overwhelming, and there are some jobs that may be best left to experienced professionals. For example, I am of the old school opinion that nothing beats real, live experienced musicians (as opposed to loops or sequences) for backing tracks. Many also feel that the cost of hiring a professional photographer is money well spent. You might be able to barter or call in some favors from friends with the needed skills. But don't be too quick to delegate all of the work to others. Remember, your music is like your kids: nobody else will ever care about it as much as you do, so try to take personal responsibility for as much as you can handle. Good luck!

P.S. I just discovered another cost-cutting music fanatic like myself! Please check out Bob Baker's free e-book on money saving tips for musicians:

http://www.bob-baker.com/buzz/recession-proof-music.html

Time to Dream

2008-09-04T18:42:00.000-07:00

Okay, most of my blog posts up to this point have essentially been exhortations to be disciplined and save money. Doesn't sound like much fun, does it? And what is the point of saving money anyway, when I could walk out the door and be hit by a bus tomorrow? Well, the point is to achieve my dreams, most of which will require money. And since I probably won't get hit by a bus tomorrow, some kind of plan seems in order.

So now I'm going to ask you to dream -- something that musicians are generally pretty good at! Dream about your future. What kind of lifestyle would you like to achieve, and by what age? Where would you like to live? Do you plan to get married, or put kids through college? How long do you expect to keep working? Some of these goals may not yet be clear to you, or may change as your life progresses, but try to picture your future as best you can. Estimate roughly how much money each goal might require (taking future inflation into consideration), and divide your goals into short-term, medium-term, and long-term categories.

It can be shocking to add up how much you will spend over a lifetime! It can also be pretty impressive to estimate how much money you will earn in a lifetime. If you're a musician, chances are good that the lifetime earnings estimate will appear lower than the lifetime expenses estimate! But you can make up the difference through investing, if you plan wisely.

Getting a handle on your future money needs will allow you to gauge how much you'll need to put away each month in order to achieve your short, medium and long-range goals. It will also help you to choose the appropriate mix of investments to meet your goals. Generally speaking, it is usually wise to choose lower-risk investments for shorter-term goals. For example, if you plan to buy a new car next year, you probably shouldn't put all of your savings for that car into highly volatile oil futures. If you did, there is a chance that you could double your money quickly, but there is just as good a chance that your money could suddenly evaporate right when you need it. One year definitely falls within the short-term time frame, and safe investments like Certificates of Deposit are usually best in such cases.

Musicians may have one advantage over the rest of the population in terms of investment goals. Many of us actually love our jobs, and don't necessarily want to retire young. The longer you keep working, the less ambitious you will have to be with your retirement savings goal. On the other hand, some musicians have their peak earning years when they are young, and may be somewhat less able to earn and save substantial money later in life, even if they decide to keep working. It can be difficult to predict your future money needs precisely, but you will certainly need some money! Try to estimate as realistically as you can, reevaluate your plans from time to time, and save accordingly so that you aren't caught shorthanded when those expenses arise.

Pay Yourself First

2008-08-28T22:38:00.000-07:00

Q: What do losing weight, mastering a musical instrument, and saving money have in common?

A: The decision to do it is easy, but it's hard to get started, and even harder to maintain.

Actually, saving money may be the easiest of these three goals, because it really requires very little time and exertion once you get started. The key is consistency. A little bit of money saved every month will move you toward financial independence more surely than relying on occasional financial windfalls, in the same way that practicing for an hour a day will lead to more musical progress than practicing intensively just on weekends.

How can you save money consistently when everything else in your life takes priority? You can't. That's why you have to treat your monthly savings amount as a bill which must be paid (to yourself). In fact, you should think of it as your most important bill, to be paid first before all other obligations. Pretend that there is a scary loan shark or mobster invoicing you for it each month......better not disappoint him!

Even if you're only putting aside $50 per month, you should pay yourself first. Your rent, utilities, and other bills get paid because you have to pay them, right? Treat your savings the same way. And remember, as I mentioned in an earlier post, we are talking about long-term savings here, so it's important to send the money off to a separate, "do not touch" account each month.

Many mutual funds and other investment vehicles offer automatic investment plans, in which you designate a fixed amount to be automatically deducted from your checking account and invested each month. That is the ultimate in pay yourself first investing, because you can't even use the excuse that you ran out of checks or missed a monthly contribution because you were too busy. This strategy also enables you to use dollar cost averaging (subject of a future post) to reduce market timing risk.

Give some thought to what your long term savings goals are and how much you could realistically manage to "bill" yourself for monthly. Once you start this kind of plan, you will need to take it seriously and commit to it.

By the way, the same principle could also be applied to getting out of debt faster. For example, you could decide that your self-imposed "minimum payment" for every credit card bill will from now on be 20% greater than the actual minimum payment stated on the bill.

Failure to Plan = Plan to Fail

2008-08-21T18:26:00.000-07:00

Whether you realize it or not, opting for a career in music almost always constitutes a choice to operate as a sole business proprietor. For U.S. tax purposes, you will be treated as an independent contractor, and will usually reap none of the benefits of employee status. You should also check with local government jurisdictions to find out about business licensing requirements (yes, I'm serious). But most importantly, you need to understand that every new business needs a plan to succeed, and yours is no exception.

How much money do you have to start with? How long will that money last while your business is getting established? What market (i.e. what kind of gigs) are you targeting? What skills/contacts/equipment will you need to compete in that market? What are your overhead costs? You should think through as many of these details as possible in advance. Ideally, you should even write out a formal plan of action with specific objectives and deadlines for yourself. If you're not sure what will be necessary, then seek out advice from others who have already successfully established themselves in the field.

Let's face it; most musicians are not very business-oriented people. I'm guilty, too. Frankly, the thought of going out to clubs to network and schmooze makes me groan. But that's how gigs are gotten, so I do what has to be done for the sake of staying in music. When you are a sole proprietor, you have to look out for yourself, because nobody else will be looking out for you. It's not that they don't love you! But, trust me, everybody else in this business is simply too busy hustling their own gigs to worry much about you. Truthfully, there are many generous and kind folks in music, but it's always best to operate on the assumption that you are fending for yourself.

Getting established and keeping the gigs flowing on a monthly basis usually keeps us all sufficiently preoccupied, but don't forget about long-term plans. Breaking your act into higher paying gigs, budgeting for a future album project, and saving for your eventual retirement are the types of goals which often fall by the wayside for lack of planning. Remember: if you don't do it yourself (or hire someone to do it), it won't get done.

The good news is that you are your own boss! You can set whatever kind of schedule you wish. You don't have to take any gigs or work with anybody you don't want to work with (but don't be too picky). You can take a vacation whenever it suits you. You can be however ambitious you want to be, and you don't really have to answer to anybody else.

Your business will grow and change and move in unexpected directions. Be open to different opportunities, and be flexible enough to remain viable for the long run. To the extent that you have a plan and keep revising and implementing it, you will have better odds of achieving the kind of results you want.

Seeing the Whole Picture

2008-08-13T14:21:00.000-07:00

For the past several weeks I've been taunting you with the many advantages of accumulating a nest egg. If you're like most folks, you may protest that it's all you can do to keep up with current bills, and saving money seems like some kind of distant dream. Perhaps you have fallen into negative savings, and just eliminating your debt seems like an ambitious goal. Wherever you currently stand, I assure you that the benefits of becoming a net saver will be worth the effort of getting there, and your future viability as an artist may depend on it.

In my experience, the majority of people who feel helpless over their financial situation have one thing in common: they don't clearly see their whole financial picture. In other words, they just deposit whatever money comes in, and pay whatever bills arrive. They might get around to balancing the checkbook once in a while, but this still doesn't provide complete, clear comprehension of where all the money is coming from and going to.

A great way to really get a clear picture of your personal cash flow is by writing down every transaction for a month. Divide a sheet of paper into two columns at the beginning of the month. Every time you deposit a check, earn cash at a gig, or earn interest on a bank account, describe the transaction and write down the amount in one column. Every time you pay a bill, get a haircut, or buy a pack of gum, write it down in the other column (a small notepad may be convenient to carry around for this exercise). You must write down everything!

At the end of the month, tally up each side and spend some time analyzing the cash flow. For example, what percentage of your total expenses was fixed amounts like rent? Which source of income produced the highest total revenue? How much did you spend on food? For musicians, it may be necessary to repeat this exercise over several months to get an accurate picture, since our income flow can vary seasonally. Don't forget to factor in periodic expenses, like quarterly estimated income tax payments.

There are so many things you can learn from this exercise. Most people are surprised mainly by the breakdown of their expenses. Once you realize how much you are spending on debt interest or Starbucks, you may be inspired to make some changes! You might also be surprised to learn who your best benefactors are. Most musicians have multiple income sources, but sometimes the best paying gigs aren't the steadiest sources of income, or don't really amount to the best wage when you consider the hours and effort required.

The exercise I've just described is kind of like a "reverse budget". It's a chance to honestly assess your natural earning and spending tendencies. Obviously, this is a great launching point for taking control over your finances by resolving to make certain changes. Do some calculating to see where you could cut back on expenses or focus on more lucrative work to maximize the monthly positive cash flow (hint: lowering expenses is usually the key). You may need to formalize the new plan in the form of a budget. This is the first step to taking control over your finances. Whether you are trying to climb out of debt, or trying to save your way to financial independence, you must first see clearly where all of your money is coming and going.

Having Money Saves You Money Pt.2

2008-08-07T09:02:00.000-07:00

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.

Having Money Saves You Money Pt.1

2008-08-01T22:17:00.000-07:00

I hope this summer finds you all busy with gigs, saving like the proverbial ant, because we all know that when gigs dry up next January, the grasshoppers among us will be going hungry!

Thanks for all of the comments since my last post. Some have expressed concern over recent underperformance of traditional investments like stocks and CDs. While I'm not in the business of recommending specific investments or prognosticating about market ups and downs, I want to emphasize the importance of taking a long-term investment perspective. The fact is, the overall U.S. stock market has averaged more than a 10% return over the past 20, 50, even 100 year periods. So a year or two of low or even negative returns shouldn't be cause for most investors to panic.

Some folks, however, probably would like to see a more immediate benefit. That's why today, I'd like to offer further savings encouragement by explaining how even a modest nest egg can quickly make your life easier. How much is a "modest" amount? Of course, that depends on your individual situation, but my rule of thumb is that a single person with little or no debt should shoot for having at least a $10,000 emergency fund to begin with. I can clearly remember when I first passed that milestone years ago. I certainly wasn't rich (and I'm still not), but I immediately felt significant peace of mind from having that "cushion" to fall back on. This feeling has never left me, and has actually given me more confidence to take chances in my musical career. Honestly, I'm not sure that I would still be persisting as a musician today if I wasn't confident that I could get through a slow period of gigs.

You can surely save up 10 grand. It might take a couple of years, you might even have to take a day job for a while, but you can get there. Now, once you have that emergency money, you must resolve not to touch it, except in true emergencies (examples: hospitalization, your car dies suddenly, etc.). Recording your next CD is NOT an emergency. To avoid depleting your emergency fund, it's important to keep the money in a separate account from the checking account used for your day-to-day living expenses. Many people use a savings account. I also recommend looking into money market savings accounts for this purpose, which often pay superior interest. And if you do dip into the emergency account, replenishing it must become top priority.

All of the above is common, standard personal finance advice. But here is the often unmentioned, really cool thing about having a little financial cushion: it actually saves you money! No more bank fees for overdrafts, bounced checks, or falling below the minimum balance. On the occasions when you do have a real emergency, you won't have to resort to credit cards or high interest loans. Your emergency fund can even serve as collateral if necessary. These savings add up significantly over time, and once you start to see the advantage of having a nest egg, you will probably get inspired to step up your savings toward other goals. Next time, I'll discuss more ways that having money can save you money.

Compound Your Prospects for Success

2008-07-28T12:22:00.000-07:00

Thank you for the many positive responses and great feedback on my first blog entries! There have already been several requests for advice on getting gigs and promoting independent music. I do intend to touch on these topics in future posts, but for now may I suggest checking out a new book on that subject by my friend and successful independent artist, Chris Juergensen. For now, my highest priority is conveying the importance of getting started now with your financial plan.

My father was never the longwinded lecturing type, but when I was in college, he handed me a short booklet explaining basic principles of good personal finance, telling me "I wish someone had given me this advice when I was your age". I took the advice to heart, and 20 years later, I'm really glad that I did. The booklet is unfortunately no longer in print, but I found a scanned copy of it online. Some of the numbers are out of date, but the essential principles are still the same.

What did I learn from this book? Most importantly, I learned that starting early with a savings plan will almost certainly make life much easier later on. The main reason for this is the way that compound interest works. I can see your eyes starting to glaze over already. Boring? It's actually quite exciting once you see how the money stacks up.

When you invest over time, the growth of your money is compounded by earning interest not only on your initial investment, but also on the interest you earned in previous years. You earn interest on your interest, and the longer you stay invested, the more dramatic the effect becomes. Here is an updated example based on the booklet mentioned above:

Early Start Musician
Invests the maximum $5000 annual contribution in an IRA (retirement account) at a 9% compound rate of interest for 6 years starting at age 25, then adds nothing more to the account for the next 14 years.

Late Start Musician
Spends $5000 a year on guitar effect pedals and stuff that he doesn't really need for 6 years, then starts investing $5000 every year into the same IRA at 9% for the next 14 years.

Here's how their accounts look with interest accumulated over 20 years:

Age--------------Early Start Musician---------------Late Start Musician
26---------------------5450----------------------------------------0
27---------------------11390---------------------------------------0
28---------------------17866---------------------------------------0
29---------------------24924---------------------------------------0
30---------------------32617---------------------------------------0
31---------------------41002---------------------------------------0
32---------------------44692---------------------------------------5450
33---------------------48715---------------------------------------11390
34---------------------53099---------------------------------------17866
35---------------------57878---------------------------------------24924
36---------------------63087---------------------------------------32617
37---------------------68765---------------------------------------41002
38---------------------74954---------------------------------------50142
39---------------------81699---------------------------------------60105
40---------------------89052---------------------------------------70965
41---------------------97067---------------------------------------82801
42---------------------105803--------------------------------------95704
43---------------------115325--------------------------------------109767
44---------------------125705--------------------------------------125096
45---------------------137018--------------------------------------141805

Our "late starter" puts in $70,000 and doesn't even catch up with the "early starter" (who only put in $30,000) until age 45! Now, I don't mean to alarm anybody or label people over age 25 as "too late". On the contrary, I just want to emphasize the importance of starting to invest sooner rather than later. For anybody who is older, the urgency of getting started is even greater, but it's never too late to start.

Saving Without Sacrifice

2008-07-24T21:04:00.000-07:00

As dark clouds loom over the near term economic horizon, even my rich friends are looking to tighten their belts. Here in Los Angeles, frugal living is suddenly in style. I see this reflected in substantially lighter highway traffic, as people consolidate trips and start carpooling to reduce gas consumption. Times like this can be scary, especially for anybody living close to the financial edge, but it's also a great time to establish good new saving habits. Habits which hopefully will last beyond the next market rally.

In my previous blog post, I explained my philosophy of "it's not what you earn, it's what you save". In the future, I'll go into greater detail about the many advantages of focusing on expenses rather than income, but for today, I thought I'd start by offering some practical, specific cost-cutting tips. Here are a number of examples of ways to keep your costs down without undue suffering:

It's the Little Things that Matter

- My favorite example: most people in Southern California (and many other urban areas) don't drink straight tap water. You can opt for spring water home delivery or purchase bottled water at the supermarket, at a cost of between 50¢ and $2/gallon. Or you can bring your own bottles to a drinking water vending machine and pay 20¢/gallon. Tap-mounted filters are another good money saving option. If you drink four gallons per week, this will save you $62 to $374 per year, and you're still drinking the same amount of quality water!

- I mentioned it last week, and I'll say it again. Excessive eating and drinking out can break your budget quickly. Instead, bring along a healthy snack or your own water bottle, and the savings can easily add up to $50-$100 a month.

- Use a site like www.gasbuddy.com to find out where the cheapest gas stations are in your area, then make a habit of stopping to fill up every time you pass one of those stations, even if your tank is still half full. If you drive 12,000 miles/year and get 25 miles per gallon, paying 10 cents less per gallon would save you about $50 per year, without having to cut back your mileage.

- If you take your car to a full-service carwash once a week, you might pay $7 to $15. Go to a do-it-yourself coin-operated carwash and get it done for $4, or better yet, wash it with your garden hose at virtually no cost. You'll get some good exercise out of it, and save $150-$780 annually!

- Try shopping online. You can find everything from CDs to clothing online nowadays, and usually at the best possible price, if you do a thorough search and compare deals. You'll save gas and time by not driving from one retail store to the next. Yes, you will usually have to pay shipping costs, but this is often offset by tax savings and lower prices from online retailers.

Don't Forget the Big Ticket Items

- Consider buying a good, low mileage used car instead of a new car at the dealer. You can save thousands of dollars in depreciation, while still getting almost the same useful life from the vehicle. Of course, it goes without saying that compact cars are usually more economical, in terms of both gas costs and insurance/maintenance. Do you really need a big truck to move your musical gear? If so, then exactly how big does it need to be?

- Shop around for a good deal on rent. Right now, as people are bailing out of homeownership in droves, rents are generally going up. But there are always good deals to be had on rent, for those willing to do a thorough search. It's worth the trouble, because once you find a deal, you can ride it out for years, saving many thousands of dollars over time.

- Reexamine your insurance coverage. This is a very personal issue, and everybody's situation is different. But you might be surprised at how much money you can save by getting comparison quotes from different insurance companies. Considering a higher deductible (for those with a comfortable emergency fund stashed away - subject of a future blog) is another way to lower costs. Compared to many of my friends, I am saving hundreds of dollars every year on car insurance alone.

Saving hundreds or thousands of dollars on a single transaction feels good, but remember that saving $100 per year on a dozen smaller expenses (like drinking water) would still add up to $1200 in your pocket at the end of the year. Who couldn't use 1200 bucks?

It's Not What You Earn, It's What You Save

2008-07-16T16:45:00.000-07:00

Do you remember MC Hammer (or am I the only one here old enough to remember him)? He was a wildly popular hip-hop artist in the late eighties, selling over 15 million albums worldwide and earning well into the tens of millions of dollars. Within 10 years of his first hit record, Hammer declared bankruptcy. Contrast that with the case of my former mentor, Patrick, who has worked in obscurity as a jazz musician -a jazz musician!- for decades, and managed to accumulate a comfortable fortune of millions through shrewd real estate investments.

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.