Saturday, January 29, 2011

Harping on the same old soapbox/bandwagon/tune...

I know I promised that last instalment would be about diversification, but since this is still a shiny new blog, I'm going to take a moment here to remind you again (well... attempt to beat you over your head with) about the importance of starting early.

Yes, I know it's hard.  Yes I know you don't have enough money left over at the end of the month, and yes, I know you have debts.  I have some debt too!  It's not unreasonable to be in debt when you're in your 20s and 30s.  (Even in your 40s and 50s if you're buying a house)

The most important part is getting into the habit of not spending every last red cent with reckless abandon as soon as you get the cheque from the gig.  (Or even worse, if you spend it BEFORE thanks to your not-so-handy credit card)

If you're carrying a balance on your credit card, I have no sympathy for you, because you're a stupid MORON! Have you stopped to check your credit card bill lately?  Have you seen how much they are charging you?  Just because a store has a 50% off sale is pointless if you buying on your credit card.  You quickly lose all that "savings" (off an inflated mark-up no doubt) thanks to your sloppy spending habits and poor skills paying off the FULL balance of your card every month.  Honestly people, you're being charged 19.99% interest on your card... And some of you brilliant people are being charged 29%!!!!

Debt makes me cry!

Accidents happen and life happens.  I know.  But if you can't pay that card off in less than 3 months (so the card STOPS charging you interest) then you're an idiot for making a foolish purchase.

Now, not all debt is bad.  If you can get a line of credit from your bank, they should only charge you about 5% at today's rates.  If you can borrow at this rate then ok, you're not an idiot.  If you can get a decent size line of credit than this can be your "emergency" fund until you have enough cash on hand to do it yourself.

Also your brokerage might offer you "margin" on your CASH account.  (The taxable one)  Which can be a great tool since yes, you are borrowing money but you're using it to invest.  If you can invest in something that pays out at 8% (and typical margin rates right now are 4.75%) then you're making 4.25% using borrowed money.  The interest charged is tax deductible against the earnings.  So a starving artist like myself can almost completely eliminate any taxes owed on my taxable gains.  (Now set your damn stops on your margin purchases!  If you ride them into a black hole, you're still responsible to pay it all back!)

Now, back to my original point of this post: start early and stick with it.

I did some rough calculations for a few of my friends whom I work with on a quasi-regular basis.  (As regular as you could possibly expect in the music world)  A few of them are young couples about to (or recently have) embarked on married life and some of them are single folks who are often tempted by crazy nights out and the party scene.  If you can muster $25 a week and start before you turn 25 and continue to invest this until you retire you will have over $1,000,000 to live off of by retirement age.  Now that might not seem like a lot, but $1,000,000 invested the way I'm investing would yield $7000 to $10,000 a MONTH to live off of without even touching the principal.  And I'm not investing in crazy risky shit either.  (I do a bit of crazy shit only to keep me interested and make a few bucks on the side)  And my investment choices should cover inflation too, so you'd be living large in your retirement and all it would cost you is a measly $25 per week.

How hard is it to come up with $25 a week?  Well sadly for some of my friends it is VERY tough.  But how many times do you go out to eat any given week?  One restaurant meal with a drink or two easily costs more than this.  So why not eat at home and just go out for coffee/desert with your friends instead?  Or if you find yourself in restaurants almost every night then you're making a CHOICE to be poor.  Learn to cook dammit.  It will save you THOUSANDS of dollars a year.

I'm not saying you should be a hermit.  You should go out.  You can go out.  Just put that $25 per week away first and go out on the town with what's left over.  $25 isn't that much of a sacrifice these days, but in the long run it can add up to easy-street when you no longer want to, or no longer can work.

Now if you're truly pathetic, and can't come up with $25 a week, try to do $50 a month.  That's about how much your cell phone costs you right?  $50 a month can grow to over $400,000 by retirement age if you can start before age 25.  (That gives you income of $3000 to $4000 per month at retirement time)

Now if you're devastatingly poor and can only come up with $25 a month?  That's not a horrible life either.  Provided you can start BEFORE you have turned 25.  $25 a month will take some more aggressive investment techniques, but if worked properly you'll have $2500 or so a month in income.

Please start now.  You don't have the time to wait for better work or more work...  You're in the arts dammit!  It NEVER gets any better.  (Well, almost never)  We'll always be under the squeeze for smaller budgets, smaller seasons, smaller orchestras, smaller grants.  Either new education campaigns need to beat people over the head with the importance of art and artists, or our society will be a dull, boring, and nearly lifeless bunch of people consuming crap until the world is depleted.

Start now... You won't regret it.  Have you ever heard an elderly person complaining about how they started investing too early?  No...  Nor will you ever hear it.  If you start early you might just do well enough so that you don't have to work until you're 103 years old.  Imagine, financial freedom... It is possible and not unrealistic.

Next time: diversification.  (For real this time)

Disclaimer: My opinions are my opinions and mine alone.  If you use them for your gain GREAT!  Lets celebrate over a beer.  (You're buying)  If you're wiped out by following my advise then I'm sorry YOU messed up.  Did you read the fine print?  You can't sue me anyway since this is just my opinion and like you I have no money either!

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