Wednesday, 8 July 2020

7 Fact About Your 401k Investing

401k Investing

I royally screwed up with my 401k. I have literally lost thousands of dollars because no one told me certain things about investing. You'd think your employer or 401k servicing company would give you a little bit of education on what to do with your 401k, instead of just saying, "Oh here you go, good luck." But I guess as long as they stay out of the education business the more article that I can write. Look, I do not want to see you make the same bone-headed mistakes as me. So in this article, I will go through some things that you should know and mistakes to avoid when investing in your 401k. Some of these might be obvious to you but I guarantee there's at least a couple that you had no clue about. To be honest with you I am a little embarrassed to share some of these stories with you but I will do it anyways. Because I always have to remind myself that you don't know what you don't know, and I should not beat myself up about it. 



  • Just a disclaimer:  This article is for educational and entertainment purposes only. Nothing I say should be taken as financial advice. 


1. Avoid Investing In Your Employee's Stock

If you have a decent amount of your 401k invested in your employer stock then you might want to rethink your investing strategy. It is good that you are rooting for the company that you work for to do well, but this can turn really bad very quickly. When I think of investing for retirement, I like to be diversified. I don't want to have too many eggs in one basket because if something happens to that one basket, then you are in for a tough road going forward. Your main source of income already comes from the company you work for so your livelihood hinges on that company doing well. That's already enough risk right there. Don't mess it up by investing in their stock as well because that's just too much money riding on that one company. This is one of the main reasons I prefer to invest in low-cost total stock market index funds. I read an article in the Wall Street Journal where a guy named Gary worked at GE for 40 years. 


He retired with a pension and company stock valued at $280,000. A couple of years later the stock price tanked and that $280,000 instantly became worth $110,000. Our buddy Gary is now forced to find work in retirement and not by choice either. This is really scary to think about. Because of stories like this I've never owned and never plan to own any shares in the company that I work for, it is just not smart. 


2. Know-How Long To Be Vested 

You need to understand what it means to be vested if you have a 401k or your employer offers any sort of match. I learned this the hard way. Let's say your employer matches your 401k contributions up to 5%. All of that contribution money gets invested just like the rest of the money you invest. But it's technically not yours until you are fully invested. To be vested means you have full rights to some sort of benefit. In this case, it's your 401k contribution money. If you leave the company before the predetermined timeframe then you lost the rights to that benefit. So if you have to be vested for three years to receive all of the employer contributions and you leave the company after, we will say two years 11 months and 22 days. Then they will take back all of the money that they have been contributing to you and the gains on that money as well. So you are essentially investing that money for the employer you just left. Yeah, you've still been investing but that sucks that they are taking that money from you.

This basically happened to me years ago because I did not realize that this was even a thing. I have to be invested for three years and I left the company after about two years and nine months. When I went to my new job I started to transfer my 401k money from the old job and the numbers did not add up. I had thousands of dollars missing. I was like what the heck is going on. That's when I found out what it meant to be vested. If I knew about this then I probably would have found a way to stick it out for another couple of months to get the fully vested amount. I felt like such an idiot after learning about this. 


3. 401k And IRA Are Different 

Is that a 401k and IRA are different but kind of the same. In the past my thought process was if I have a 401k then there is no reason to invest in an IRA as well. They are both retirement accounts but a 401k is offered through your employer and an IRA is self-directed. So you have to go invest in your IRA on your own. As of right now, the maximum amount that you can contribute to your 401k starting in 2020 is $19,500 and an IRA is $6,000. You can also have a 401k and an IRA at the same time and in my opinion, you should taking advantage of both. This is one that won't make or break you but you are still going want to know about it so you are not surprised when it comes time for you to retire and you are wondering why some of your money is in this bucket. 


4. Employer Match Is Invested In Traditional 401k

The money that you receive from your employer match is always invested in a traditional 401k. Which means that this is pretext money. This also means that when you go to withdraw any of your employer's contributions when you retire, then that money will be taxed. For example, if your invest $1,800 per year into your Roth 401k and your employer matches $1,800, then that $1,800 that you invested will grow tax-free, while the $1,800 that they match and the investment gains on that money will be taxed once it's grown and you retire and you start pulling that money out of your 401k. If you leave this job and roll it over into an IRA then you have to roll it into a traditional IRA, not a Roth IRA. So if someone invests in their Roth 401k forever and they expect not to be taxed on any of the retirement money then they are wrong. Don't feel like you were getting screwed over here though because this is the case for everyone who works for a company that matches their contributions. You are not going to be able to change it. 


5. Invest Up To The Company Match

If you are not investing up to your employer's match then you are either an idiot or you are just not aware of how important it is to do so. I am guessing you are probably the ladder though because I don't think you are an idiot. The simple explanation is because it is literally free money. Think of a company match like giving you free shares of an index fund out of every single paycheck. Even if the shares of that index fund go down you still have those shares that will have the potential to grow and pay you dividends every single quarter. You also have to look at an employer match like a part of your compensation for working there, because it is. Just like your health benefits and vacation days as well. 


  • Let's go through a quick example, say your employer matches 50% of your contributions up to 6% of your annual salary. If you make $60,000 per year then you are eligible for them to match up to $1,800 for the year. Because 6% of 60,000 is $3,600 and they are going to match 50% of that which is $1,800. This means that you invest $1,800 and they will match you with $1,800. You can consider this an instant return because you are guaranteed to double your money as long as you invest up to that amount. 

I am a dummy and did not realize this when I started my first job so I did not bother investing because Dave Ramsey told me to put all of my money towards debt. Then of course I did my own research and realized he wasn't giving the best advice here. So I started contributing up to at least the match, even though I was still focusing on paying off my bad debt. Was this a bone-headed move on my part? Did I learn to not take Dave's advice at face value anymore? I sure did, but you don't know what you don't know. Don't make the same mistake as me and please invest at least up to your employer match and make sure you are fully vested before leaving the company.


6. Recognize The High Fees

You need to be aware of the fees involved with investing in your 401k. Now there are two types of fees that you need to look for.


Expense Ratio Of The Investment Offered Within Your 401k. 

This is going to be different for each investment option that you have. One thing to note do not just base your investment decisions on the one with the highest return over the past 10 years. You need to understand that what the holdings are within that particular investment, what the goal is of that fund, and how it aligns with your goals, and you need to pay attention to the cost to own that fund. I made the mistake early on in my investing career where I would just pick the one with the highest return and I did not even bother looking at the expense ratio or what was even in that fund. 

If you have got one fund that has a 10-year return of 16.5% and an expense ratio of .80% and a low-cost index fund that has a 10-year return of 16%, but an expense ratio of .03%. Then you may want to stop to think before you automatically chose the one with the highest return.

  • because you don't know the goal of that fund with the 16.5% return. 
  • you should be trying to limit your fees as much as possible. 

Just to be clear you should not only choose investment options because it has a low expense ratio. You need to understand what the goal of that fund actually is.


How Much They Are Charging You To Manage Your 401k.

I am fortunate enough to where I get charged a flat $5 fee every single quarter no matter how large my 401k balance is. But I have heard about some people's 401ks who are getting charged a lot more than that. Or even an ongoing percentage of their 401k portfolio. These expenses are the same for everyone across the company. Now you may not think that you have the power to get your company to do something about it but you probably do. If you notice that the management fees of your 401k are really high then reach out to your HR department and make them aware of what you're actually seeing. A lot of the times the higher-ups within your company are clueless. They were probably just pitched by a sales rep from one of these investment management companies and did not pay attention to how much their employees would actually be paid. If you're able to articulate how much these fees are costing all of their employees then you may be surprised at how willing they are to change companies or try to get the fees lower for you all. 

7. Increasing Contributions Regularly 

This mistake is easy for forget about. If you are not increasing your contributions on a regular basis then the future you going to want to punch you of today directly in the throat. You have done your research, you have educated yourself, you know what to invest in. So you adjust the settings in your 401k to invest 20% of your income and forget about it. The difference between increasing it by 1% every year versus only increasing it by 1% is an extra $1,700 per month you are screwing your future self out of. Yes, we are talking about a measly 1%. This is something that I do every single year no matter what. Whenever my income increases

I automatically increase my contributions by the exact same amount. I don't ever see that raise on a day to day basis, my overall wealth gets that raise. We should all be very aware of what our actions today are going to do for us in 20 or 30 years. That future person is just as if not more important than we are right now. It is our obligation to set him or her up for the future so they don't have to work until the day that they die. 





Alright, folks. Hopefully, you got some value from this article 

Tuesday, 7 July 2020

The Best Way To Invest Into A 401k, HSA, IRA

Invest Into A 401k, HSA, IRA

If you eventually want to achieve financial freedom or even financial independence, then you need to know how to invest your money properly. You know how there's a certain order that you need to go through when you want to wash dishes in a dishwasher? Rinse the dishes off so there's no food on them,  load them into the dishwasher, add dishwasher soap, run the dishwasher, unload the dishes. If you skip the steps of rinsing off the dishes or, I don't know, forgetting to add soap, then you will end up with plates and silverware that are not clean. It is the same thing with investing your money if you do it wrong. 

There is a certain order that you need to follow with investing, just like there are certain steps that you need to go through to have clean dishes. If you skip one of those steps without knowing why you are skipping a step, then you are going to pay for it later down the line. Unfortunately, your investments are not as forgiving as your dirty dishes are. In this article, I am going to go through the order that you should be investing to ensure that you have the maximal amount of money so you can achieve financial freedom or even financial independence in the future. 

If you don't have access to any of these on the list, then just skip that step and move onto the next one. Don't completely ignore it, though, because at some point it may be available to you so you should at least be aware of what you are going to do. Other than that you should not jump around from step to step. Think of this process as a row of buckets that you need to fill up. Once the first one is filled up, then you move onto the next one, and then the next one, and so on. At some point in this article, I will go through how I am personally working through this whole process. 


  • Disclaimer: Obviously nothing in this article should be taken as investment advice. Stick figure drawings are what I do professionally, so this article is for informational and entertainment, entertainment purposes only. Please do your own research and don't listen to a stick figure guy like me. 


Let's get started



Step 1. Build Up An Emergency Fund

This should technically be done as early in the process as possible, but it can be built up while you are still investing and going through the following process. It's tough for me to give you any sort of timing because it's smart to start investing as quickly as possible, but that emergency fund is going to save your butt more often than you know. This is one of those gray areas that you will have to decide for yourself. The stability of your job and whether or not you have a family will give you an idea of how much you need to carry. If you have a steady job like a teacher, then you might be fine with, we will say three to six months worth of expenses. Now if you have a sales job where income can drastically change throughout the year, then a six to the 12-month emergency fund would work best for your situation. 


Keep Money In High Yield Saving Account

All of this money should be put into a high-yield savings account. Do not, under any circumstances, invest this money. I know it's going to be extremely tempting because the stock market has done nothing but go up over the past 10 or 11 years and you feel like you could be earning so much more if it was invested in the market. But playing the stock market in the short term is a loser's game. You have no clue when you will need the money since it's there for emergencies. So, you have to assume it will be invested in the short term. 


Step 2. 401k Up To Match

Invest up to your employer's match. There is no gray area with this one. Under all circumstances, you should be doing this no matter what people like Dave Ramsey tell you. Let's say your employer gave you 30 days vacation, every single year, and if you did not use that vacation by January 1st, then you would lose it. Would you make sure that you used it all by January 1st? Of course, you would. Those are free days that you can't get back once the option is off the table after January 1st. It is the exact same thing as a 401K match. If you don't invest enough for them to match today, then you can't go back and get that free money from them later down the line. A $3,000 per year employer 401K match invested for 30 years at a 7% return comes out to over $280,382.36. This is a part of your compensation, just like your salary and all of the other benefits you receive from them. So, take advantage of that free money. 


Employer Match Money Goes Into Traditional 401k

One thing to note is that all of the money an employer contributes to you goes into a traditional 401K. So for example, if you are currently investing in a Roth 401K, then they will still match your contributions but, it will go into a traditional 401K. This is how it is everywhere, so you can't change it, you just gotta deal with it and be happy with the fact that they are giving you free money. 


Step 3. HSA (Health Savings Account)

This is the ideal bucket, especially if you treat it like it's a tax-free retirement account. Not many people think about it in this way, because on the surface, it looks like it's for medical expenses, which is technically true, but how you interact with it changes everything and leave you with insane amounts of money in retirement. The way to do this is to contribute to your HSA every year and avoid touching that money until you are retired. That means that you'd pay all of your medical expenses out of pocket instead of withdrawing money from your HSA account to pay for them right now. 

To take advantage of this, you will need to make sure that the money in your HSA account is actually invested so it has a chance to grow. If you are single, maxing out your HSA for just one year, letting it stay invested for 30 years, assuming a 7% return and never investing another dime would turn that $3,550 into over $27,000 of tax-free money. You save on paying taxes three different times. So, it's a triple tax saving.


  1. You don't pay taxes on the money when it's going into the account,
  2. You don't pay taxes on the investment gains, so in our example, that we just talked about,
  3. You don't pay taxes on the $23,000 gains 
  4. You don't pay taxes when you withdraw money from the account. For medical expenses.

It's very rare that the IRS gives you a chance to legally skip out on paying taxes once, let alone three different times. So, that's why this is such a powerful account if you use it properly. There's more you need to know before doing this,


Step 4. IRA (Individual Retirement Accounts)

It was honestly tough for me to put an HSA before a Roth IRA because I love everything about a Roth IRA, but that triple tax savings you get with an HSA is just too good to pass up and not contribute to first. If your income is over the Roth IRA limit, then this would be the time for you to look into contributing to a traditional IRA and converting it to a Roth IRA using a backdoor Roth IRA. If you are eligible to invest in a Roth IRA, then go for it. The reason I say that is because none of us have any idea of what the tax rate is going to be in the future, so I always say to put the tax, pay the taxes now so the money can grow tax-free forever. But once again, that's just my opinion, do your own research and do what you want. Plus, dealing with required minimum distributions from a traditional IRA is a little annoying.


More Control Over Your Money

The reason that IRA is the next best thing to max out before you go back to investing in something like your 401K, is because you have full control over everything. You choose where you want to invest and there are a lot more options for you to choose from when it comes to equities to invest in. With a 401K, you are locked into having to use the platform your employer sets up for you, you have to deal with the fees that they charge you and your investment options are limited to only the ones that they offer. The one major problem with investing in an IRA is the fact that it is self-directed. So, you have to take all of the initial steps to set one up and most people don't do this. And I think that's either because they don't know about it or even know how to do it. Now, this could be a little bit intimidating if you don't know what you are doing.



Step 5. It Depends

Now we're heading into the territory of, it depends. Which one of these four you choose is all going to depend on you. 


  1. Build Up An Emergency Fund
  2. 401k Up To Match
  3. HSA (Health Savings Account)
  4. IRA (Individual Retirement Accounts)


You could potentially do all four at the same time or do a little bit of each, or just do one. But I would put them all on the same level just in case someone wants to choose one.


Step 5a. 401k Up To Current Limit

The first of the three is going to be maxing out your 401K up to the limit allowed which is right now, $19,500 per year. You would deduct $19,500 from whatever you contributed up to your employer match and that's what you would contribute in this portion or this bucket. Whether you invest in a traditional or a Roth 401K is going to be up to you. Now some people who are pursuing financial independence will contribute to a traditional 401K, then roll it into a traditional IRA, then convert it to a Roth IRA. 

Now that level of detail is way beyond the scope of this article, so just have an idea of which type of 401K that you will put money into. If you are not sure, then don't let that stop you from moving through this step. Just contribute to one while you spend a few weeks or a few months figuring it out. You are not going to make or break your future one way or the other while you gather more information, but you will if you are not investing at all.


Step 5b.  Real Estate Investing

Invest in real estate or start putting money aside to invest in real estate at some point in the future. I have friends who are bypassing their 401K just to buy real estate because that's how they want to generate money for themselves in retirement. And I don't see an issue with this at all. The people I know who have had a lot of success with real estate investing do it two ways. 


House Flipping

The first way is that they buy, make improvements on, then sell that property to make a profit. Now there's a lot more that goes into this sort of thing, so you might want to talk to someone who successfully does it, before giving it a go.


Rental Properties 

The second way is you could also think about investing in real estate through the buy and hold method, where you purchase an investment property, then rent it out as a way to build a consistent stream of cash.

If investing in physical real estate on your own is not something you are interested in, but you still want some of your money invested into real estate for diversification purposes, then you could always go the route of using a crowdfunded real estate platform. I personally recommend and currently invest in Fundrise. 


Step 5c. Invest Into Your Business 

Invest money into a current business you have or start setting money aside to start a business. I love it when people build a business on the side with a full-time job. I honestly wish that everyone did this because there are so many benefits. The tax benefits alone are insane and make me wonder why everyone does not start a business. Having additional income outside of your full-time job also gives you a little safety net in case something happens where you got laid off. It's a great way to ensure that you at least have a little bit of money coming in just to get you by. Another benefit a lot of people don't mention is that it gives you something to do that's more productive than just sitting around and watching television or YouTube videos all the time. If you enjoy what you do, then it starts to become your entertainment as opposed to work.


Step 5d. Pay Down Mortgage

Starting to pay down your mortgage or start saving for a home. Some people have the desire to pay off their mortgage because it helps them sleep better at night and there's nothing wrong with that. I, personally, have no desire to do this because my money is better invested somewhere else where I can get a higher return. If you want to do this, then absolutely go for it, I wouldn't call you stupid for doing it. 







Conclusion

Think of this like anything we didn't talk about already. They are going to be very specific to you and what you know, so I can't necessarily name any of them off right now. Maybe you know something about, we'll say, investing in art, or jewelry or something obscure like that. Hopefully, you enjoy reading this article and I hope you learn something from it

6 Mistakes When Saving Money For Early Retirement

Early Retirement

Who in the world wants to have to work until they are 70 plus years old? If you even make it to that point because you will probably be forced out of your job away before you hit that age. Over the past few years, I have made it a point to talk to people who are 20 or 30 plus years older than me to learn more about the things that they fear at their current age. And wow, wow, wow, did I get freaked out about what they were saying. One of the things that kept coming up is how they are extremely concerned about their employer, finding a way to remove them from the company to bring in younger, cheaper workers. Now to someone like me who's younger that sort of thing never crossed my mind but it totally makes sense. If this does not concern you now, then maybe it should. 

This is even more of a reason to pursue financial independence, well before the age of 70. That way, worrying about being forced out of your job isn't even something that crosses your mind but I bet there are things we are doing today that will prevent you from reaching financial independence or early retirement sooner rather than later. In an effort to help you make things easier on yourself, I am going to go through some ways that you could be sabotaging yourself, from ever reaching FI. My hope is that if I can get you thinking about these things now, you are going to be way better off going forward.

Financial independence is not just about giving you more time to do what you want, it is also about protecting yourself from outside influences, things that are outside of your control. You can keep pushing off thinking about what might happen in the future but I promise you, it's not going to stop coming. This should scare the out of you. 


Let's get into it right now. 


1. If You Watch The News

Mistakes When Saving Money For Early Retirement

The first thing that will surely hold you back from reaching financial independence, is if your actions are based on what the news is saying. The news cycle is absolutely insane. When the stock market is up, we get flooded with news about how it's at an all-time high so the next month Market Crash is coming, you should be so scared. On the other hand, when it's down, news starts flooding in about how it's going down even further or that it's definitely going to go up so invest your money right now. I am confident you are a very intelligent person so I know that you are aware of this. But all it takes is one of those little seeds to get planted into your head about how the stock market is going down. Then you are either going to invest your money or you panic sell all of your investments. Look, the stock market is more emotional than a teenage girl in the short-term. 


  • If you are only focused on what the market is doing today, next month, next year or in three years, then you've already lost. Investing for financial independence takes someone to have a very long-term outlook when it comes to everything. It's about thinking how your actions today are going to impact your life later down the line. The fact that your portfolio is up 25%, over the past two years does not matter. Tell me what it looks like over a 10 or 20 year period. 

I like to compare financial independence to the L, word, love. Anyone part of the FI movement should be pursuing a long-term relationship, not a one night stand. I mean, I guess technically you could fall in love with a one night stand but it's a lot less likely. Quit watching the news and quit taking action based on what the news is saying. We have to remember that news outlets are incentivized by the eyeballs that they attract, the more eyeballs, the more advertising dollars that they receive, and what gets clicks and eyeballs? Bad news dominates the media, like nothing else. Yeah, sure, we love hearing a story about how a little girl saved the dog in a tree but we are more likely to gravitate towards news on how the world is on fire. 

I don't care about what websites are saying about the US government and how much they like peaches. I don't care about that book by Dr. Seuss, called "Brexit" and I sure don't care about the US and Chinese governments, putting bands on trading Pokemon cards. None of these things are going to stop me from investing on a consistent basis, nor are they going to make me want to sell all of my investments. 


2. You Don't Have A Plan

Mistakes When Saving Money For Early Retirement

The next mistake that I see people make is that they think they are going to achieve something without any sort of plan. Sorry to break it to you people a vision board and reading that book, the Secret does not count as a plan. A guy I know was into that stuff and unfortunately, he's still not very close to achieving or I should say, manifesting his vision board. Listen up, your plan might not play out exactly how you thought and that is perfectly fine but at least you have some idea of what you are going to do. Things are going to change as time goes on and you will decide to adjust that plan which is perfectly normal. Kids will change the plan, getting married will change the plan and heck, for those millennials moving out of your mom's basement is definitely going to change your plan. Yes, I'm talking to you, my fellow millennials. 


Plan For Accumulation Phase

The first thing you need to have a plan to reach financial independence or early retirement is the accumulation phase of the process. This part is huge because it is going to help you gauge how quickly you will be able to hit your number. It's like digging a hole. The bigger shovel that you have, the more dirt you can scoop up at once. If you were only able to invest $500 in your 401k or IRA, then it is going to take you 38 years to hit that $1 million mark but if you quadruple that to invest $2,000 per month, then you will reach a million dollars in 21 years. Accumulating more money in this phase can be done in many different ways. Some of the more popular are making more money at your current job, getting a second or possibly a third job for the people who have the time and are not lazy. Starting a side hustle to make some extra cash or starting a side hustle that you intend to turn into a full-time business. 


Plan For Withdraw Phase

When are you going to need the money? How much are you going to need every single year to live off of? Answering these questions will help you decide what to do with your money in your accumulation phase. Once you have the money, you need to do something with it that will give it a chance to grow. You need to choose your investment vehicle or vehicles. One person might want to invest all of their money into the stock market, another might be investing in real estate, another could be starting a business that pays them a consistent income once they hit FI or someone could be doing a combination of all three. Once you choose how you will invest, you will be able to figure out the details of how you are going to get that money into your bank account every month. 


Post FI Plan

The last thing you need to think about when planning is what in the world are you going to do once you reach financial independence? You spent all of these years and countless hours pursuing this and now you are there so what is the plan? I know it sounds silly for you to even have to think about this but if you don't, then you will eventually end up feeling lost and depressed. Because work, whether you enjoy it or not, gives you a sense of purpose. Once that thing is gone, it'will free up a lot more time. 

What are you going to do to fill that time? And don't say just sit around and watch TV because that's not a fun life to lead. It could be some sort of volunteering or working out a lower-paying job just for fun or possibly even putting energy into a hobby that you've never had time for because your job was taking up so much of it. This part of the planning does not have to be at the top of your list of things to figure out as soon as possible because you will have time to think through it while you are in the process of pursuing financial independence. But it is something that you won't wanna push off until the very end. 


3. You Can't Procrastination

Mistakes When Saving Money For Early Retirement

Procrastination is going to be your downfall. If you are pursuing FI, then you can't be someone that says that they will worry about it later. Now has to be your new normal, you can get away with not doing laundry until it piles up and you have nothing to wear because the washer and dryer are right in the other room. So you can just do a quick load at the last minute. The solution to your problem can be reached in a matter of hours. 

But what about if you procrastinate, getting your finances in order to help you reach financial independence or early retirement? You will be screwed. You need to figure out how to increase your savings rate now. You need to understand investing your money now, you need to start working towards, earning more money right now. I am being facetious when I say to do all of these things right now because it's a little bit overwhelming. I agree, but you should at least start the process of tackling them one at a time. Finances are one of those funny things where if you keep putting it off and putting it off, then everything becomes more difficult to do. Don't believe me, talk to those 55-year-olds who have $75,000 of consumer debt or talk to those 55-year-olds who only have $20,000 saved for retirement. They have a really hard road ahead of them. 

Always remember that the cost of our good habits is in the present. The cost of our bad habits is in the future. You did not get fat by drinking three sodas yesterday, you got fat from drinking three sodas every single day, for the past three years, just like a 60-year-old, did not miss his chance of becoming financially independent because he did not focus on it yesterday. He missed the opportunity because he didn't take the steps to pursue FI and do smart things with his money over the past 30 years.


4. Not Willing To Pursue More Money

Early Retirement

If you are not willing to pursue making more money, then have fun retiring when you are 70 years old. Hope that works out for you. Achieving FI in a timely manner means increasing your income. Making money has to be your new hobby. Going out and getting hammered every weekend with your buddies or girlfriends, is not something you can do any longer. It can be from time to time but it's now going to be considered the exception as opposed to the rule for you. To pursue more money, you need to start thinking through the lens of a creator as opposed to a consumer. 

Consumers think about buying the iPhone or how they can buy the iPhone. Creators on the other hand and think about how they can take that money that would be spent on an iPhone and turn it into more money or take a small portion of that money buy an iPhone that's a couple generations old, then use the remaining money to invest it in something that will give them a return. Bonus points, if they use that iPhone to make more money.


5. You Are Afraid To Live Differently

Early Retirement

You will never reach financial independence if you are not willing to do things differently. There is no way around it. If you are not willing to go against the grain on your path to FI then this just is not the life for you and that's okay. But in 20 years, you cannot whine about your financial situation or the fact that you are still working because you decided not to do things differently and live outside of the box today. The person who plans to retire on time or even later has settled in their current ways.


6. Your Mindset Is Trash

Mistakes When Saving Money For Early Retirement

If your mindset is trash with a capital T then your FI results will be trash as well. The way you think about the things that happen in your life is everything. You can either take them at face value or put them through a filter that you've created for yourself. This filter is going to give you a chance to reframe the whole situation to help you process what's really going on. The unfiltered person thinks about how life is happening to them. 

The person who has created a filter for him or herself thinks about how life is happening for them. Here's an example, an unfiltered person would say, "I have a ton of debt and a negative net worth, "I won't be able "to reach financial independence for 20 years. "Why even bother pursuing it?" The filter person would say, "Dude, I'm going to be FI in 20 years, I will be 55 years old." That's 12 years sooner than the average person. Or I won't be able to reach financial independence for another 20 years when I am 55. What are some things that I can do to get there in 15 years? What can I do to get there in 10 years? Okay, I am going to take action to do that right now. 

Just like my grandpa always said, F your excuses because no one cares, so do something to change your outcome. 




Conclusion

Those are my 6 mistakes when saving money for retirement. Hopefully, you got some value from it.

Sunday, 5 July 2020

Difference Between Good Debt vs Bad Debt

 Good Debt vs Bad Debt

In this article. We will uncover why it sometimes does and does not make sense to take on debt to increase your wealth. to do that, I will go through the different types of bad debt along with good debt and Give you examples of each one and by the end of it, You will know how to leverage good and bad debt to your advantage. Now, I do not want you to get burned. So I am going to show you how to reduce your risk of losing it all when it comes to leveraging that good debt. 

The beautiful thing about today's day and age is that we are fortunate enough to have access to choices. Many many choices, choices are extremely important because you and I are completely different. And you might not care about the things that I care about and some people will tell you to never go into debt for anything. But that's just not true in many cases, to truly understand the difference between good debt and bad debt. We need to look at both of them separately. Because sometimes depending on your particular situation. A good debt could easily be turned into a bad day very very quickly.



What Is Bad Debt

Bad Debt


Depreciate

To easily understand what bad debt is? Think about things that you borrow money for that will not give you some sort of return while carrying that debt. You could also think of it as things that will basically depreciate or are a sunk cost Depreciation stinks when you are not getting the return on that item.

Now Let's go through a couple of examples of bad, 


Car loans

By far one of the worst types of debt out there. It is an item that not only costs you money to maintain, but it greatly decreases in value at a faster rate. Especially if you buy new. And just so you know, it is financially Stupid, to buy a brand-new car so please do not be stupid. I know you are smart so you probably have not done it yet, and if you have, fix the problem.


Credit Cards

This one makes an appearance on both the good and Bad debt list and I will explain the good side in a minute. A credit card would be considered bad debt for Anything you put on your credit card it charges interest where those items are not Generating you a higher return than that actual interest rate. This can be anything you put on your credit card from that laptop To clothes, to even that gym equipment that I have in my garage if I would have charged it onto my credit card.


Student Loans

This might get me in a little bit of trouble by some people because you might disagree. But while you are borrowing student loans, they could be considered a good debt because the return on that investment Is coming in, in the form of knowledge. Once you were done with school and have a job student loans instantly turn into bad debt in my opinion. Very very bad debt, because the only way to get rid of those things is by dying or paying them off. Take your pick. Yes, there are loans that you took out to get a college education to hopefully make more money. But once you are done with that education and you have a job. It is not generating you a recurring revenue, your current job And experience are. There's also no guarantee that you will even get a specific return on your student loan debt. That's where things get a little bit weird, and why I question some of the things going on in our current education system. But we are not going to talk about that right now/


Mortgage As Bad Debt

The mortgage on your primary residency for most people is bad debt. You might be saying, why? well, that's because most people own a home for the sole purpose of needing a place to live. We tell ourselves the story that, Oh, my home is going to generate me so much money when I sell it. Okay, cool. When are you going to sell it? um, I don't know?. look, I understand that most buy a home in hopes that the value of that home will Appreciate. And that could definitely be the case, but while it's not generating you any money. And you don't have a plan to sell it when it hits a specific value, then it's bad debt. You are only hoping that it will give you a return on your investment when you sell it. Now, There's a lot of debate out there whether a home is a good investment or not, but that's outside of the scope of this conversation right now.

Here's a real-life example with me. I currently own a home with a very modest mortgage payment, I am not receiving any money from it because I don't have any roommates at the time, so my mortgage is bad debt. But my plan in the future is to rent this property out, at that point, it will be giving me a Recurring stream of revenue as long as someone is living there, at that point. It will hopefully be good debt.



That's the list of bad debts if you have any complaints that you want to file with me, leave a comment down below.

Let's talk about good debt good



What Good Debt

Good Debt

Appreciate

Good debt is used for one thing. To generate more money even though good debt can be considered good. There are always cases where this can turn into a bad debt that could ruin your finances. later on in this article. We will go over how to increase your likelihood that your good debt starts out and stays good. 

For good debt, think about those things that will give you return and appreciate. 


Credit Card

Credit cards are good debt. Credit card debt that can be paid off every month with the sole purpose of the reward benefits is always Good Debt. It could also be considered good Debt if your return on the money borrowed is at a higher rate than how much you were paying in interest.


Mortgage Investment

We've got a mortgage for some sort of rental property as good debt. If someone wants to start investing in real estate. Then debt will most likely need to be taking. Who in the world has hundreds of thousands of dollars just to dump into a couple of rental properties to start making money off of. Not many. So whether you are flipping houses or purchasing properties for the sole purpose of renting them out, this can turn out to be a very very lucrative way to leverage debt in your favor.


Business Investment 

I don't fully agree with this one, but I am not here to hide information from you because I don't completely agree with this thought process. Depending on the type of business, there does come a time where debt may need to be taken on to grow the business. This is not always the case. But this is usually the case when it comes to a business that sells, think of a physical product, now I am of the opinion that you should not take on debt to start a brand-new business. Period. I have a very hard time believing someone who says that you have to take on debt to start a business. You 100% Do not. I actually think that it's a very stupid move to borrow money to start a business when you don't even have a proof of concept. If you can not afford to start it up by funding it yourself or finding investors. Then you should try something else and come back to this idea when you have more money.



How To Reduce The Risk Of Good Debt

If you decide that you want to start working with good debt to try to increase your wealth, the first one we are going to talk about is of course the mortgage or rental properties as good debt.


Mortgage Investment

If you want to start investing in rental properties. Then you need to do one of two things or both, 


You Need To Start Small


Buy a property that you know has a high likelihood of making money. But the returns may be smaller than you would actually like, this first property can be a way for you to test out the waters. Just to make sure that this is something that you want to get into, It will also be a way for you to focus on the whole learning aspect of what goes into Property investing especially if you have not done it before.


Educate Yourself


I would even say find a mentor who has done this sort of thing before, there are all kinds of great resources out there to help you start learning about this area of investment.


Business Investment As Good Debt

I would recommend that you start small. That's my main Recommendation for you. First, you want to prove the business model and prove that you were selling something that people actually want while you were cash flowing the whole thing out of your pocket. Cash flow that business until you are to the point where you cannot grow without any sort of outside investment or an influx of cash through some sort of debt. Then before you accept any kind of money you have to stop and ask yourself. Okay. Am I content with the current revenue that I am making or am I okay with selling off some of the company or borrowing to speed up the process. That's going to be a very important question for yourself, That's going to be specific to you depending on your situation and what you really want because if you were happy with the current state of your business. And you are willing to grow slowly, then do not borrow money, or don't take outside investors.

I have cash flowed all of my businesses in the past, and I am glad that I did because some of them did not end up working out. So how bad would that have sucked, if I had taken out a bunch of debt and then failed? Let me answer that for you, It would have sucked really really bad. 






Conclusion

What comes down to is the fact that taking on debt is not the actual problem, the biggest issue that most have is getting their debts under control and learning how to properly manage money. And there's no shame in admitting that you are not good with money or that you have not been good with money in the past. Why in the world would you borrow more when you have not proven to yourself that you can properly manage debt. Getting your bad debts paid off and learning how to properly manage your money is the foundation of this whole thing. So if you don't focus on that first. Then you are just building a house of cards that will be more likely to fall down. So do you want to build your life on solid ground or a pile of sand?

10 Ways To Stay Motivated While Paying Off Debt

Stay Motivated While Paying Off Debt

I wanted to share with you my top 10 ways to motivate yourself to continue along with the baby steps. I follow Dave Ramsey's seven baby steps. If you don't know what they are, maybe you are just trying to pay off debt or you are trying to save money. Maybe you are trying to pay off your house. These are going to help you. These are 10 ways to help motivate you to stay on that path. You can go ahead and Google Dave Ramsey. But I just want to get right into the 10 ways to motivate yourself. 


1. Make It Your Thing

Commit to the process. If you are comfortable, tell as many people as you can within your circle. Sometimes they may not be supportive, but sometimes it helps if you just say it out loud. And that will make it a reality. I truly believe that when you say it out loud, say it to the universe, then it happens. I don't know how or why but that seems to be the case. So make it your thing to pay off your debt.  Really commit to it. I promise it's going to help. And I think it's the most important, that's why I put it as number one. 


2. Get Involved Within The Community

You can go onto Facebook and join a whole bunch of Facebook groups. You can go onto Instagram, you can search hashtag debt-free community, and you can find a bunch of people who are going to be following the baby steps, doing the same thing as you. You can go onto YouTube, you can subscribe to channels like debt-free, and then interact with other subscribers within the comments to get to know people. You can go onto the YouTube chat box within the Dave Ramsey Live recording session of his radio show three hours a day, and you can interact with people there. There are so many different places to interact with people to get involved and surround yourself with like-minded people who are doing the same thing as you. They've got great ideas, and that will really help keep you on track. It will help keep you accountable as well if you ask them to. 


3. Take An FPU Class At Your Local Church 

This is a kind of community as well. It is to take Dave Ramsey's Financial Peace University course, or FPU. If you go and take that course, it's one night a week. You will get to know people within your own town or city in flesh and blood who are doing the same thing as you, who can help be your cheerleaders, help support you, help encourage you. Even if you've taken the course a long time ago, it might be helpful to go back through it. You can do it for free if you've already done it. And you can go back through and meet some new people, and that will help to motivate and encourage you to continue on the path. 


4. Look At Our Budget Daily

I look at my budget daily. It does not have to be a lot of time. I like to check in with my bank account, make sure that everything is as it should. And make sure there's nothing fraudulent on it. I think it's a good practice to get into looking at it every day. That way, you know, your whole life is not focused around it, of course, money is just a tool, but you are checking in daily, and then that will help keep your foot on the path as well.


5. Write Down Your Progress

I think it is so satisfying to check things off or write a line through things, so if you can make a list or a chart or whatever you want to do. If you are saving money, you know, every $100 saved, you can cross off $100 or $1,000 saved or $1,000 paid off, however you want to do it, either direction. Having a list where you can check things off or cross things off I think is really a good way to motivate. You can also do something, I've heard people say they have like a jar and every time they pay off a certain amount of money, they put a coin or a dollar or something in the jar, and then that way they can visually see the jar, which is good for kids, visually see the jar fill up as they are going along and making progress. So something to track your progress. Try to get creative with it if you want to. I'm not very creative, but if you can make some kind of chart or something that's colorful and fun, even better. 


6. Budget Some Play

What I like to call, mad money. Mad money is essentially some money that you have to do something fun with. That will help you from going stir crazy. It does not have to be a lot of money, but something that you can kind of, or you can call it to blow money, whatever you want to call it. But you have some money just to do something with that's fun, you don't want to be spending a ton of money on entertainment, but you want to be spending some money on some things that you enjoy so that way you don't feel like you are living like a monk. 


7. Be Careful What You Consume As Entertainment 

Find a show that is going to help motivate you with whatever baby step you are in. If you feel like you are sacrificing a lot if you are on baby step two and you are trying to get out of debt, try to watch things or consume things that are not going to make you covet bigger, better things. You want to keep your mindset. I watched a show where these guys were living in Africa I think for three months with like a dollar a day or something like that, and that was really interesting. And that was motivating. And motivating to see how others can live with very little. So surround yourself, consume things, consume entertainment products that are not going to tempt you away from what you are doing.


8. Listen To Dave Ramsey On The Radio Or His Podcast

I think that it will help motivate you. I like to listen to his rants if you want to go onto his YouTube channel. I get motivated by Dave Ramsey when he rants, that's my favorite. So more so than the debt-free scream. Some people love to watch or listen to the debt-free screams, and uh sometimes they motivate me, but mostly it's the rants. I just love it when Dave rants. So I would say listen to the radio show if you can, either on the podcast which is like On-Demand, whenever you want to listen to it. If you have an iPhone you can just go to the iTunes app, and you can find it there. Listen to that every day if you want to, or once a week at least I would say, just to keep your mind in the right, in-game mode.


9. Revisit Your "WHY" Often

Try to think about why you are doing this, why it's important to you. A lot of people say because they want to change their family tree, they want to do it so that their kids will have a better life. For me, it's I want to break that cycle of living in debt. I have a long line, a long family history of it, and it's deep, deep, deep. And I really, I do want to change our family tree, but also most important to me personally is that I want to have choices. A lot of my life I feel like because I've had debt since I was 16, you know I started out really young being told, advised to get credit cards, and I think it has robbed me of a lot of choices throughout my life so far. And I just want to be able to have choices. 


10. Sell Something

If you are getting in a rut, you are having a hard time, selling something, I hate doing it, I really have to admit that I don't like it. I don't like the process of going onto Craigslist, taking the pictures, and dealing with all the emails. People had to come and look at the product, whatever it is you are selling, but then once it sells, I just sold my giant six-seater buggy that I had. But once it sells and they take that item way, it feels good. You are like aw, I got an infusion of cash, and I just sold something around my house. So I would say try to find something to sell, force yourself to go through the process because it is motivating to get paid money for things you just have around the house. So try to sell something, and then that might help give you a little kick in the butt to keep going.






Conclusion

Those are my top 10 ways to stay motivated when you are going through Dave Ramsey's baby steps, or maybe you are not doing the baby steps, doing something else, but you are saving money or you are trying to get out of debt.

Saturday, 4 July 2020

10 Levels Of Financial Independence

Financial Independence

There are levels to everything. And with financial independence, it is no different. As you reach each level, the concerns will change, the successes will be different and the failures are always looming. Each one comes with a new set of questions, and it will force you, to look at things in a different way than you did not before. Not for any reason other than you have reached a new level, a good comparison would be what we all experience as we get older. When we are five years old, we might cry our eyes out because our ice cream fell off the top of our ice cream cone. But as adults, we just laugh at something like that. 

We are going to cover what the 10 levels of financial independence are, and some of the obstacles that you might face along the way. This is going to be a nice little guide, to get you familiar with what is coming down the pipeline on your fire journey. 


Level 1. Financial Dependency

It is where we are getting by with the help of someone else. For most of us, it's going to be a family member or a friend that's supplementing a portion of our income. That person might not be handing you money, but they might, for example, by letting you stay with them for free or allowing you to borrow their car or give you rides to different places. This is an area that we all start out in when we are young since that's when we're the most vulnerable. I have seen grown adults in this position as they are in the process of paying off debts, for example. Now moving back in with your parents to get your finances in order, is not anything to be ashamed of as long as it is not for an extended period of time. On the other hand, it starts to become problematic as we get older, if we are not careful. It is no fun and can be extremely demoralizing because you start to lose your sense of purpose since you are not able to take care of yourself without help. 

I have seen people get stuck in this position, and become a little too comfortable in it. There's a guy that I know who is in his mid-30s and still lives with his mother. He has never gotten his license before and has no desire to either. By the way, he is a very capable person, but he's just fallen into this slump, and his mom is allowing it to happen. Since this is the bottom though, there's only one way to go, and that's up. If someone is at this level, then it should be a top priority to get out of it as soon as possible, to start building up some confidence. 


Level 2. Break-Even Point

Level two is where you have enough money to cover all of your bills. Think of it as the break-even point. Well, this sounds like it is the ideal situation, it's a little deceiving. Breaking even is good if you are only playing the game to keep your head above water. But it is not if you are trying to become financially independent. It's like playing the same level of a video game over and over and over and over, without progressing through the whole game. On top of this, you can continue to earn more and more money over the years, yet still, continue to break even. This is due to lifestyle inflation. Your income always seems to match your spending, which is why we see people who are rich because of their high income, but not wealthy. There's nothing to show for this success except a bunch of expensive things, that nobody really cares about. Just like my grandpa used to say about these people, they have a big hat, but no cattle.


Level 3. No Consumer Debt

This is where you don't have any consumer or student loan debt. All of the money owed on credit cards, cars, and any kind of debt like that is completely taken care of. If you have a car lease, then I'd even consider that debt as well since you are bound by a contract to pay a certain amount to the dealership. Before I hit this level, I remember thinking to myself that there is no way, I'd ever live without a car payment. People can not buy cars with cash, that's insane. They need to have so much money on hand. Fast forward to today, this level is usually the biggest hurdle for a lot of people. I know it was for me and the $82,000 debts that I had personally racked up. I worked really hard for years, to achieve this one. It takes a ton of focus and effort to get to this level. But once you are there, things start moving in a positive direction. You start to get that small taste of freedom, and it becomes absolutely addictive. You've got to be careful at this stage though, because it can be super easy, to fall back below this level. 

If you have not built those proper habits around to only spending money that you have, then your consumer mindset will start to creep back in. At this stage, your net worth might actually be in the positive. But if you have a mortgage out on a home, or you take one out after this level, then it's back in the red. Now, this is not always a bad thing though. So we will talk about that in just a minute.


Level 4. Personally Insured

The next level of financial independence is where you have enough money set aside, to get laid off from your job, for at least three to six months. Think of this as creating a little personal insurance policy for yourself. If someone having enough money to buy a car with cash, then you can only imagine how impossible I must have thought that it would be, to save up enough money, for three to six months worth of expenses. Sounded like some Voodoo black magic ancient pyramid type. I admit that this is probably going to take a minute to set enough money aside, to cover your normal expenses. But once you get there, you start to get a little taste of what financial freedom really feels like. That freedom you feel from being in a position, to not get super stressed if your income drops for a short period of time, is one that the majority of Americans can not even conceptualize. I should also mention that you have to be careful not to get too cocky at this level because it can get a little risky if you are not careful.  

Since you have this big wad of cash, sitting in a high-interest savings account, it can be easy to dip into those funds and start living a little bit beyond your means. Now is not the time to start making it rain or letting up on the gas. If anything I'd say to start working harder. Celebrate for a minute, then get back after it. 


Level 5. No Mortgage

If you are not already in the positive Net Worth area, then by the time you hit this level, you should be. And that's because your mortgage will be paid off. For most, their biggest debt is their home. and it's what keeps their net worth in the negative for the longest time. Paying off your mortgage early is more of a personal choice than anything. For someone like me, I have zero interest in ever paying off my mortgage early. Now I still have a positive net worth, even while having the mortgage since my assets are worth more than my liabilities. This is all calculated into my financial independence numbers though. I plan on renting this house out that I am in right now, once I move to the next house, that I purchased, that I will live in for a short period of time, before renting that one out and moving on to the next one. But paying off the mortgage on your personal residence, can free up a ton of cash every month, and make you feel a little bit more secure since that's one less payment that you have to worry about. 

There is of course a cost to having a ton of cash equity, tied up in a home. But you can not put a price on the financial security that you get from owning your home outright. 


Level 6. Exponential Growth

The exponential growth stage, and it's one of the more entertaining stages because you start to see your money grow like crazy. Since you've wiped out your consumer debt, built a nice little three to a six-month nest egg, and have no mortgage payment, you are left with a buttload of cash. Because you are pursuing financial independence, you already know that that additional money needs to be deployed into income-producing investments. Those investments could be index funds within the stock market, real estate, businesses, or anything like that. 


Level 7. Mini Retirements Status 

When you are able to take one or multiple mini-retirements, then that's how you know that you've hit the next level of financial independence. You don't have enough money to be able to completely leave work yet, but you've built up enough cushion in your numbers, to be able to leave work for next extended period of time, so that you can test out the life that you want to lead when you eventually leave your job for good. Many people do this so that they can be sure that they are going to enjoy what they plan on doing. Could you imagine working towards ePhI, so that you and your significant other can buy a boat and sail the ocean when you've never actually done it before? That could be a disaster waiting to happen, and a huge letdown, to find out that neither of you can handle being at sea for very long because you're constantly sick.

Level 8. Financial Independence Below Current Living Expenses 
If you have enough money to leave work, with the goal of living on less money than you do now, then that's the next level of financial independence. This could be where your income, for example, is $200,000 per year, but you hit an amount, where you can leave work and live off of $40,000 per year. It's going to take some life adjustments to make it happen since you are used to that high income, but if you were prepared for it, then there is nothing to worry about. Even hitting this level and continuing to work, will basically eliminate all financial stress that you have because if you want to one day, you could just get up and leave from your job. 


Level 9. FI At Current Living Expenses 

Once the numbers match up to where you can leave work, and not change your financial lifestyle, you've reached the next level. It would be like if you are making $90,000 per year, and you also have enough income-producing investments, to cover that same $90,000 per year, that you would earn from your job. This is the ultimate goal for everyone since there's not much adjusting that you have to do at all in terms of how much you are spending. 


Level 10. FI Above Current Living Expenses 

It is when you are able to leave your job and live above your current standard of living. It's the ultimate because not only can you leave your job forever, if you'd like of course, but you can also spend more money when you leave your job. I know it sounds insane, but it's possible. You could technically hack the system with this by moving to a very, very low cost of living country, using the geo arbitrage method. 






Those are the 10 levels of financial independence, I hope you found some value in it

5 Ways To Reach Financial Independence

Financial Independence

Options are great, especially when it comes to deciding whether or not you want to continue working. Now being in a position where you can actually choose whether or not you want to work any longer is called financial independence. But to get to a point where you can choose whether or not you want to work, you will need to build up enough money over time so that you can live comfortably without having to answer to a manager that you work for. In layman's terms, we basically need to move enough money from somewhere else and into your pockets as quickly as possible. So in this article, we are going to go through the different paths that will help you reach the coveted title of financial independence or early retirement in a way that makes sense for you. 

Keep in mind, as I go through these that I always recommend you choose to pursue at least two of these paths. The more paths that you choose to pursue, the faster you will reach financial independence. When working towards the goal of FI, it is important to have the mentality of if two is one then one is none. Not only will it help give you a backup plan or a safety net, but it will also put you in a position to capitalize on multiple opportunities and speed up the overall process. 


1. Nine To Five

Financial Independence

We all know these people, you might even be one of these people because I know that I am. But it is those people who are in the trenches, digging dirt, pushing paper, banging away to get the keyboard, who are working their booties off just to set some money aside every month to eventually leave the rat race. As tried and true as this method is, it will usually take a little bit more time to achieve FI, since raises are only on average about 3% per year, your income is capped to a certain extent and it is really tough to substantially increase your salary by staying with the same company. I am not totally knocking someone who stays with the same company for long periods of time but from a financial perspective, it's not a smart move. 

A good way to level up your income in this area is to go work for someone else. Now, based on my experience and other people that I know, if you do that, then I guess you'd easily see a 10 to 20% pay raise every time you move to a new company. Staying loyal to an employer and working your life in one place forever worked out for people like our parents and grandparents. But in today's world, it is completely different. Corporations are not loyal to us so there's no reason for us to be loyal to them. Of course, absolutely work your butt off while you are there but never stop keeping an eye out for new opportunities. 

One of the worst things that you can do for your income is a state with the same company for long periods of time. Especially if you are younger, always be looking to level up. 


2. Side Hustler (V1)

Side Hustler (Creator)

The next path to financial independence is through side hustling by working for someone else. It is that feeling that you have on the side that you like to spend a little bit of time with the outside of your main chick or your main dude, no, I am not promoting cheating but you understand what I am saying. In this case, you are technically not cheating but you are getting your fix of in this case some extra cash. Now that extra cash is going to be put towards reaching financial independence. This is something you spend your free time doing when you are not at your main gig. I have a ton of friends doing this right now and I love watching it. A handful of them are full-time teachers with families but before they go to work, after work and on the weekends, they spend their free time crushing it by teaching students overseas on the internet. With a side hustle where you work for someone else, the risk is extremely low and I would consider reward between average and above average. 

This type of work is what I like to call the weekend warrior. You found a company that's willing to let you work limited hours based on your full-time job hours. I will have to admit that I have a soft spot for my weekend warrior type people out there because I did it for years and years. I was out there working three jobs, seven days a week, 80 hour weeks sometimes to scrounge up enough extra cash to pay off my bad debts a lot faster. In this case, your main focus and the extra cash would be put towards pursuing financial independence. People will look at you from the outside and think you were absolutely insane but that's okay, it just means that you were pursuing something that they are not or just don't understand. 


Age Is Irrelevant For FI

When most to learn about what financial independence is, they assume that if they can not achieve it by their 20s or 30s, then there's no point in even trying. This is one of the biggest misconceptions associated with FI because it could not be further from the truth. I'd actually argue that most people won't actually achieve this lifestyle until their 40s or early 50s. Financial independence retire early is nothing more than a simple math equation. You figure out how much you need to live on once you leave work, then work backward. At that point, you only need to solve for two different things. First, how you are going to get your money to start stockpiling it and second, how you are going to grow it between now and the day that you start needing it, how you are going to grow it takes a little bit of strategizing on your part. 


3. Side Hustler (Creator)

Side Hustler (Creator)

A side hustle but specifically a side hustler who focuses on creating things and working for themselves. I'd also consider it another type of weekend warrior pursuit. Since it is usually something that you do on the side outside of your nine to five job. Evenings and weekends will be filled up with working on this type of pursuit. If you try to do it without the main job, then your income is going to take a huge nose dive for some time, that's why I suggest working on it while still holding a stable job. The scope of this path is very broad since there's a lot of different ways that you can take it, think of anything where you are creating value for other people, and being compensated for that in some sort of way. The first thing that you need to choose is the platform to create on. This could be through a website, social media, or an email list. 

Now next, you would need to, of course, create content around a specific topic and figure out how you'd plan on getting compensated for the work that you do. I always recommend starting out with a topic that you already know something about because it is super easy. I will have to admit that this path is a high risk, high reward one, there is no guarantee that you will make a ton of money at first or even at all. I am not saying this to discourage you but I am saying this out of the personal experience. I've been at this sort of thing for years and years trying out different creator type side hustles.


  • I have gone through multiple pursuits and can technically only call one of them a full-blown failure. I tried starting a clothing company with two guys and it failed miserably. I take full responsibility for that failed attempt at starting that side hustle. A few years ago, I also started a company with three of my buddies. We created a product from scratch based on a need that we thought that people had. I eventually left that company to pursue other things and our prediction was correct because today that company does millions and millions of dollars in sales every single year. 

There's a pattern in all of these side hustles that I have been a part of that I want you to take note of. No matter how good or bad that went, I kept trying. Some of them might stop because I was not interested in them any longer, some of them were not catching on fast enough so I abandoned them and one of them just straight up failed. You have to employ the mindset of someone who never stops trying to pursue something new. There is too much opportunity out there to call it quits after just one side hustle that did not work out or that you just ended up not being that interested in. 


4. High Salary 

Financial Independence

This could include someone like a lawyer, doctor, software engineer, business owner, executive, or any sort of job like that. I know there's probably a lot of people who are rolling their eyes out there, thinking to themselves, well, obviously this is going to be the easier path because they are already making a ton of money but it is good to always remember that having a higher salary introduces a whole host of potential roadblocks. To get to a point where you are earning a high salary, you might have had to spend insane amounts of money on education. Doctors and lawyers are easily racking up hundreds of thousands of dollars in student loan debt. On the other hand, we might have a high salary employee who did not rack up a ton of student loan debt but still feels the need to keep up with their coworkers who have over-inflated their lifestyles to where they make multiple six figures and are still broke. 

The more disposable income you have, the easier it is to unintentionally let your lifestyle increase to where it reduces your chances of ever becoming financially independent. I have mentioned before how my savings rate is 70% and let me tell you, I really understand how easy it can be to let your spending get out of control if you are not careful. It has taken me years to get to the point where I am a lot more intentional with my money. If you are a little new to pursuing financial independence or early retirement and this is something that you get better at over time. As long as someone with a high salary can put their ego aside and not buy that huge house, those fancy-schmancy clothes and the nice car then they will be extremely successful at reaping the rewards.


5. Real Estate

Real estate investing is one of those paths to financial independence that has had me excited over the past year. Nothing sounds more appealing than the consistent income stream from monthly rent payments. Although there is a steep learning curve at first, it is a path that I think anyone pursuing fire should consider. Real estate is not going anywhere. Everyone needs somewhere to live and not everyone is in a position to purchase a home. If you are someone who wants to invest in real estate but does not feel totally confident yet, then you can always use something like Roofstock, it's an online marketplace for investing in single-family rental homes. 

Real Estate

They have lists of houses all across the United States that are ready to be purchased by an investor like you. Think of it like Turnkey Real Estate, they have property managers set up to handle all the day to day dealings with tenants. In most cases, the houses that you purchase already have tenants in them. It's probably the simplest way to get started with investing in real estate. 





Those are the 5 ways to reach financial independence. hopefully got some value from it