33: Saving as a Working Musician
with Tiffany Soricelli
For young musicians, what are the most important areas of financial literacy?
The key areas that I start with for musicians around financial literacy is an understanding of cash flow. So cash flow savings and investments and taxes, because they all directly impact, you know, a career as a working musician.
Kellogg:
So let's talk a little bit about savings. Why are savings important?
Soricelli:
If you're self-employed, nobody's going to save for you. And so short-term savings is necessary to simply have the operational reserves for this career. If you are traveling, you have to front the cost of your hotel room many times before somebody reimburses you. And if you get a last-minute opportunity to audition somewhere, you got to jump on a plane, you have to have the financial capital to do that. A lot of musicians have to, you know, repair instruments, you know, increase, you know, or change or upgrade, and there's a ton of investment that comes with this career that nobody is doing for you. So you have to have the funds on hand to invest in the career.
But then from a long-term perspective, starting out, there's the phrase 'save early, save often' as a young musician getting started on your long-term financial security by investing and saving for yourself, saving for your own retirement, can-- nobody else is going to be doing it for you if you're going to be self-employed.
So beginning early and starting early allows you to take advantage of something that we call compound interest. So when you invest your money and we invested in the stock market because with inflation, I mean, before this year, inflation was going up at an average rate of 2.5% over the last 40 years. In the last four months, it has gone up more than seven and a half percent. So the reason that invest for long term time horizons is because your money that you are making today that you're going to use in the future. We need to put it in a place where it's at least going to keep pace with the cost of everything around us. So that's why we invest in the stock market. Now, when you invest early, you have the opportunity where-- every-- the interest on your investment or the growth on your investment, it's going to be small early on, but over time, the interest that your beginning investment makes each, each year will grow and you'll begin making interest on your interest and then interest on the interest on your interest. And that's how the compound interest grows over time.
So even if someone only puts in a little bit of money early on over time where they see the major impact is not in the first ten years but the last ten years. So if something grows by 7%, but it's you know, it's been having all of this compound interest all along, you're going to see a lot, lot greater impact.
And a lot of times young artists say, Yeah, I'm not making any money, how do I save? I know there's just not enough. And I like to argue, look, if you can live on 100% of whatever’s coming in, you can live on 98% of what I was coming in and take 2%, just 2%, or 1%. I mean, start small, but start and put it aside. You won't miss it. Whatever that amount is. And that system of constantly saving over time will build financial security that you'll have in the future. Something that I see with musicians as they begin to reach that stage where they would have burnout - and everybody's different in terms of their tolerance - but if you have been saving and you see your net worth growing and you see your savings and your retirement doing what it does from a from a psychological standpoint - and I'm not a therapist, but - it's a lot easier to, to deal with periods of inconsistency or letdowns or frustrations in, in the business when you're still saving, you're still hitting your own financial goals.
But if you've been sacrificing and if you've been, you know, burnt out and living from a scarcity position for a decade and a half, that frustration compounded with the fact of you're worried about your future, that's going to be the pressure cooker that people will eventually say, you know what, I can't, it's not working. I can't do it. So if you want to make sure that you're going to be able to weather those periods of frustration because there is frustration in every career, saving early and then saving often, and just having that be part of your financial system, your future self will thank you.
Kellogg:
A lot of musicians don't think about retirement somehow. They won't ever do it or it's so far in the future they don't have to think about it. What do you think is most important for a young musician to think about when they think of the word retirement?
Soricelli:
I would change the word retirement and, and say financial freedom. When do you want to have the freedom to choose to work because you want to, not because you have to?
In this career, a lot of times you can play until you don't want to play or you can perform until you don't want to perform anymore. And then you can teach because you love it. Or you can just never, never stop orif you want to be really fatalistic, just think, Well, I'm going to die before I get there. But one thing to keep in mind is that in the future I'm... so I'm, I'm a millennial. I'm an elder millennial, and the federal government is not going to be able to provide us with the same support that current generations of retirees are experiencing. We are going to have to save for our own needs in the future. Social Security will be there, but it'll be different and it'll probably be taxed differently. So in order to have autonomy and freedom and be able to live the life that you want and not, you know, on a government handout, you have to take the onus and the responsibly to be intentional around saving for your future and the future that you want.