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I was wondering what the significance of money and fans and all the different things money can buy such as clothing/instruments/tattoos/etc. is? I mean, I enjoy all things, they add to the game experience, but I was wondering if it did something practical in gameplay, such as opening up new challenges/cities/gigs or increasing the amount of fans and money you earn in gigs and so on.

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In practical terms, everything you can purchase is cosmetic and has no actual effect on your gameplay. The amount of fans and money you earn is mostly affected by whatever Agents you are using at the time. There is an achievement for hitting 1 million fans, but after that, it's mostly just flavor. The situation is the same for money, as there's an achievement for spending $100,000 in the Store, and after that, if you have enough to unlock everything and then do so, well, that's about it.

New challenges only open up for completing other challenges, and sometimes also when you download new song packs/albums. For example, if you buy the Rob Zombie 001 pack, you'll get a Rob Zombie challenge that opens up.

So in short, no actual gameplay change, it's all for flavor/visuals.

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Money allows you to buy things just to make you look good on stage or playing online, but fans do have an effect on gameplay. You need a certain amount of fans to be able to advance or unlock more places or challenges. Other than that, it's for feeling accomplished or scoring in online mode.

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