Bass clarinets are expensive, aren’t they? I know in the scheme of things, they are nowhere near the cost of string instruments, or even some other wind instruments, but for a professional bass clarinet you’re going to spend upwards of $14,000. (And for those wondering whether to buy a student or pro model, read this post.)
I just received an email from a college senior ready to purchase an instrument for grad school, and looking for advice on how to pay for it. It got me thinking: my dad was a financial consultant (one of the earliest in the field, actually). I listened to him and my mom talk at the dinner table about it most nights. And while as a 5 year old I hated it, much of it stuck.
First, here’s the email I got.
This is [Homer Simpson] from the [Springfield] area. I wanted to reach out to you about purchasing a bass. I am starting graduate school in the fall at the [University of Big City], and I need a solid bass for my studies. Obviously, I have a financial barrier with that. So what would be the best way to tackle this? Ideally, I need a pro model bass. During my studies, I plan to work. So I would be able to handle a payment. What are your thoughts?
Great question. And one that I wanted put some thought into answering. (Quick note: I am by no means an expert on this stuff, so this is total layman’s advice. But it’s layman’s advice that came from sitting at my dinner table and having finances part of my daily dinner menu. And finally, if YOU are an expert in this stuff, please, please add your thoughts to the comment section below so we can all learn together.
With that, here’s my answer
As I see it, Homer, you have a few options to pay for your instrument:
Use consumer credit (i.e. your credit card).
Borrow from family.
Take out a loan.
Say NO To Credit Cards (if you can)
Using consumer credit is the worst option, period. Why? Because you typically pay the highest rates of interest, you cannot easily refinance, you can’t deduct interest payments from your taxes, and if you default, or pay late, it is one of the easiest/fastest ways to ruin your credit. Scared? Good. You should be. Treat consumer credit with the respect it deserves—it can kill you if you aren’t careful. Like Opioids. Fortunately, there are other options.
Borrowing From Family
This is a decent option if you have family who can support you. And by borrowing, I don’t mean “uh, lend me the money and I’ll pay you back when I can” — I mean actually filling out a formal loan agreement, one that outlines the interest and term (length) of the loan, penalties and late fees, default remedies, and so on. You don’t have to guess; there are templates online you can download—many of them for free. Check here and here and here to see if you like these options. Of course, you can also have a lawyer draw one up. It is worth spending the time (and even a few bucks) doing this right. It allows your loan to be separate from your relationship, provides provisions for issues that can come up, and is just the right thing to do for everyone involved. Even if your relatives are like, “yeah, don’t worry about it,” unless it’s an outright gift, take the official route. You’ll respect yourself for it, and they will, too.
Take Out a Loan
There are many, many types of loans out there—everything from usurious so-called “Payday loans” to business loans to mortgages. Here’s the way I look at it: if you’re going to borrow money, try to borrow it in a way where the interest payment benefits you. Wait—what? How can interest benefit you? It’s money you have to pay to the lender!
Well, in the United States, interest paid on personal loans, car loans, and credit cards is generally not tax deductible. However, you may be able to claim interest you've paid when you file your taxes if you take out a loan or accrue credit card charges to finance business expenses (keep that in mind, we’ll get back to it.) And, finally, interest on qualified student loans, which are used to pay for qualified educational expenses, is tax deductible.
For those kind of new to taxes, from Wikipedia:
A tax deduction is a way to reduce the amount of income that is subject to a tax. Tax deductions and tax credits both lower the amount of money a person has to pay in taxes. But they do it differently. A tax deduction is subtracted from a the gross income of a taxpayer. For example, if you had an income of $30,000 for the year, and you paid $10,000 in interest on your mortgage, your taxable income would be reduced to $20,000.
What this means is that this kind of loan reduces the amount of taxes you would have to pay. And, therefore the interest payments you have to pay on the loan are slightly offset by the tax benefit you get during tax season. Make sense?
If you can take out a student loan to help pay for it, you may be able to deduct the interest payment from your taxes. This is probably the easiest way to go, and generally the interest rates are lower.
But let’s go back to business loans. This gets a little more complicated, Homer. But trust me, it’s worth it. And it’s a technique that you can use for the rest of your working life.
Okay, so you’re about to go to grad school, but eventually you may start gigging and making money, right? RIGHT? Well, you might want to consider incorporating yourself now—think: Homer Simpson, LLC or TheBestBassClarinetPlayerInTheWorld, LLC—to take advantage of US business tax laws. The good news is that all business-related interest is deductible. Yes, even interest paid on credit card debt can be written off if the debt is specifically related to your business activities. There are details and rules, of course, but this is a huge benefit. Read this article for more info on that. I have personally incorporated myself, and while it’s a little more hassle at tax time, the benefits outweigh the hassle. This way, you can buy your bass clarinet —and every other business-related expense—on your credit card and deduct the interest from your business taxes.
You can also take out a business loan. These usually have higher interest rates than personal loans, but the good thing is that they separate your finances from your business finances such that, if you have to go bankrupt as a business, you are not ruining your personal credit. This is not to say I recommend you go bankrupt, but it does offer additional personal protection if things go belly-up. There are other benefits to having an LLC (i.e. incorporating) that have to do with Limited Liability (the “LL” of “LLC”) so spend the time to educate yourself if this seems like a good idea for you.
Anyway, thanks for taking a little trip down Finance Lane with me, and again, if you have any other tips or tricks, please leave them in the comments!