#4 What Should I Do With All This Money?

frugality getting started six figure guitar teacher Aug 08, 2021
personal financial advice for music teachers
Hello, Hello! It’s me again, The Pragmatist!
I think I’ve noticed a pattern with The Six Figure Guitar Teacher. He is one of those crazy people who gets obsessed with things and takes them to the extreme. He seems to be obsessed with being frugal, while simultaneously being obsessed with business and making more money. For him, being frugal isn’t just a means towards a goal, the frugality itself is the goal. He actually likes that bullshit! He also likes working relentlessly on his business and towards his goals of creating financial freedom for himself and his family. Hell, if you gave him a million dollars today he’d wouldn’t change a damn thing. He’d stick the money in his investment account and be back to work tomorrow as if nothing ever happened.
But for the rest of us who might find lifestyle changes difficult at first, let’s focus on the practical side of things and some numbers that will hopefully motivate you to take action.
As soon as you start cutting certain expenses you’ll notice that a few extra dollars start to build up in your bank account. You keep getting paycheques and the occasional lump sum from selling things on Facebook marketplace or eBay and it all goes straight into your bank account.
You goal from here on is to do some accounting and figure out how much money you need each fortnight for upcoming bills and living expenses and then to put the rest of your money somewhere useful. You need to put your money to work for you so that it either earns you interest, or reducing the interest you will pay on an existing debt. By clearing our bank account we're actually using a clever psychological trick that will help you build momentum a you become more frugal.
  1. By keeping your bank account balance low it will stop you making impulse purchases.
    I better not buy that $1500 fender Stratocaster because I’ve only got $400 in the bank and only one payday between now and when my next credit card statement is due. (plus you probably don't need that guitar right now anyway)
  2. You are keeping your money active
    Every dollar you have is actually a little person who will work for you 24 hours a day for as long as you own it. You do however need to put your dollars to work in a high interest savings account, or better yet an investment account like a mutual fund so that they can work hard for you. You don’t want your dollars sitting around like bum employees doing sweet F.A in a checking account.
For most people, the best way to put your money to work for you is: (in order of priority)
  • Paying off any high interest credit card debt that you have
  • Going into Superannuation (the Aussie version of 401K) so that you maximise tax benefits and government contributions
  • Paying off other debts like car loans
  • Paying off the extra principal on your home loan to get it paid off faster
  • Investing your money into a mutual fund like Vanguard so that you can get dividend paying stocks that give you a much greater return than your bank account.
  • Putting money into a term deposit or high interest savings account with your bank (make sure this is a last resort as it usually pays next to nothing in interest)
So there you go, the simplest most straightforward financial advice for the average Joe. Spend Less Money and Invest The Rest, first into reducing your debt, and then into investment accounts that will produce additional residual income for you in the form of interest.
After reading over 50 books on money, investing and personal finance, it can all be boiled down to the principles above. The Six Figure Guitar Teacher reads these books frequently so that you don’t have to, but if you do want to go ahead and read some of those books, you'll only get smarter and wiser!
Once you’ve got the basics down we’ll get far deeper into investing, and more importantly, taking what you’ve saved and investing it into your business. After all, the stock market can be expected to give you safe returns between 5% and 12% annual (we’ll call it a 7% average) meaning that for every $100,000 you have invested you can expect a $7000 return on your investment every year for doing literally nothing.
The real magic of the numbers comes when you calculate how much your annual living expenses are. If you can get the amount of money you have invested to give you a return higher than your cost of living, you don’t have to work anymore.
For example, if you have $900,000 in an investment account averaging a 7% return you’ll get $63,000 of passive income. If your cost of living is (a very high) $60,000 per year you already make enough money to cover the cost of your lifestyle without having to work. Hopefully you’re starting to see that the system we currently live in and the way we think about money and finance is all wrong.
We shouldn’t be locked into a fixed income and budgeting our life to fit into that income bracket. Instead we should be focussing on what we actually need to live our ideal life and then building up an investment account that provides enough passive income to cover our living expenses so that we can work towards having our lifestyle without having to work once we’ve earned it.
Of course, if you love what you do, you won’t ever want to stop working or retire, but work becomes more fun when it’s a choice. Plus, why would you stop working when you’re earning $100,000 or more on part time hours teaching guitar?
Maybe the Six Figure Guitar Teacher really has got it figured out. Maybe living frugally so that you can free up money to go into investment accounts or to be reinvested in your guitar teaching business is the way to go, because the quicker you build up your passive income, the quicker you free yourself from the 9-5 treadmill.

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