At the end of my fourth year of college, I had a realization: I was almost $20,000 in debt in student loans, and I felt like I had not gotten $20,000 worth of good out of my schooling. This was not the school’s fault but my own for not understanding what a loan (or an education, frankly) was. So for the fifth year, I worked my tail off so that I could graduate with some sense that my money had been… well borrowed.
Once I graduated, I consolidated almost immediately into a 7.25% fixed rate loan. I had no idea what interest was or that this was a fluctuating number that could go down. My interest payments were $136.50 per month and the interest rate was locked in forever regardless of what the market might do. Ouch.
Then one day, I was biking to my mom’s house with the radio playing through my Zune. Ben Stein’s voice came on, and my understanding of money was forever changed. I did not know it then, but that was a transformational moment for me. This is part of his transcript:
You have to make sure your assets always balance your liabilities. If you’re working, you have to know that your savings in stocks, bonds, real estate, annuities, are going to equal your retirement liabilities. And this is a gargantuan responsibility for most of us. You have to know that you’re not going to be able to count on Social Security for much, that Medicare will probably be insolvent in 20 years or less. That means a lot of weight on your shoulders, young Americans. You have to learn to assume it, know what the yields on stocks usually are, what advantages there are to investing offshore. You have to learn what skills can’t be lost to technology change or to foreign competition. You have to learn how to work hard at what counts — supporting your family by developing the human capital that pays the bills and adds to saving.
-Ben Stein (quoted from www.marketplace.org)
As with most important moments, it was both scary and inspiring. Thus, began my quest to learn about personal finance.
As singers or artists of any stripe, unless we have some money lurking in the background that is holding us up, we must pay for most of this ourselves. Headshots, plane tickets, agent fees, college tuition, voice lessons, accompanist fees, coach fees, contest fees, pay-to-sing programs, food, shelter, health care and so on all add up to one hell of a bill. How will you do it?
It is not easy to answer, and each one of us must make some serious choices. This may require some patience if you have $0. Some ideas to begin with:
- Avoid debt, most especially in the form of credit cards. Learn what interest is and read up on the abusive practices that credit card companies heap upon their customers.
- Budget AND track spending. Actually write your budget down every month and make decisions about where your money is going. Then write down every expense to make sure it’s only going where you decided that it should.
- Avoid stupid fees. Bank fees are sneaky and can be avoided. Speeding or parking tickets cost real money. Find dumb fees that are sucking away at your financial sanity.
- Save for purchases a little at a time. I use ING Direct where I can easily set up extra savings accounts and name them what I want. One is for the emergency fund, one is for any possible tax liabilities, and one is for headshots. Find your own way.
- Have an emergency fund. Most financial experts suggest 3-6 months of living expenses. This may be hard so set small goals like $500 or $1000 that can be hidden away.
- Consider saving for retirement. If you are committed to singing professionally, then you may also be committed to never having a 401k plan or any employer sponsored retirement plan. If you are young, you can soften this blow by saving $50 or $100 per month in a Roth IRA or some similar investment vehicle.
- Learn about money.
Ignorance is not an option here. It is just too dangerous. Talk with someone you trust, find books, and find trustworthy websites. On this site, I will be slowly adding a list of blogs and sites whose advice I feel is trustworthy, but they often disagree with each other. It is then your responsibility to be informed enough to make whatever choice is best for you.