Credit rating scale: How to get an amazing credit score

Your credit rating (or credit score) gives lenders an idea of how risky you are to lend to.

Credit score	What it means
800 – 850	Great.
740 – 799	Good.
670 – 739	Okay.
580 – 669	Bad.
300 – 579	OMG.

If your credit score is high, expect great interest rates on home loans, near-universal approval for credit cards, and an awesome dating life (it’s true: a higher dating score predicts a better dating life).

If it’s low … well, don’t worry. Because we’re going to show you a system to change that.

• What is the credit rating scale?
• Why does it matter?
• How do I check my credit rating?
• How to improve your credit score
  • Delete your debt
  • Keep your cards
  • Negotiate your limit
  • Automate your pay
• Improve your credit score = Big Win

What’s the credit rating scale?

The credit rating scale is a measure that helps lenders determine whether or not they should lend you something.

Your credit score affects interest rates, credit card approvals, and even things like whether or not you’ll get approved to rent apartments.

While there are different kinds of credit rating scales for individuals, the most commonly used one is the FICO score. FICO stands for Fair Isaac Corporation. They’re a data company that founded the credit scoring system back in the late-eighties.

Their scores are on a range between 300 and 850 and are determined by information found on an individual’s credit report. And there are THREE major credit bureaus that provide these reports:

1. Equifax
2. Experian
3. TransUnion

This means you can have three different credit scores at any time. Granted, the scores won’t typically differ that much from bureau to bureau.

The following pieces of information determine your actual score (courtesy of Wells Fargo):

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• How many types of credit in use: 10%
• Account inquiries: 10%  

Remember: The higher your score, the better it is for you.

Why does it matter?  

Here’s a credit score chart with ranges courtesy of Experian — and what they mean for you:

Credit score	What it means
800 – 850	Great! This is a fantastic place to be for your credit score. You should have no issue securing a home loan at low interest.
740 – 799	Good. Not perfect but certainly not bad either. Your interest rates will still be solid and you’ll still be able to secure things like credit cards, loans, and apartment rentals.
670 – 739	Okay. Though not terrible, you should still try to do what you can to improve your score.
580 – 669	Bad. This is when you should start worrying since now you’re considered a “subprime borrower.” You might be denied a home mortgage outright and interest rates will be high.
300 – 579	OMG. Abandon all hope ye who enter here. You’ll likely be denied for any loans and won’t be able to open up new credit cards.

So if you’re planning on taking out a loan or attaining credit of ANY kind, you’re going to want to make sure your credit score is in check. If you don’t, you might find yourself saddled with high interest rates and being denied simple loans.

How do I check my credit rating?

To check your credit score, you’ll need to travel thousands of miles through the nine levels of hell, Mordor, Siberia in the winter, AND make it past the topiary maze from “The Shining” before solving a series of riddles from a sphinx who will tell you your credit score in a dead language.

Oh wait, I’m sorry. That’s a typo. I meant checking your credit score is incredibly simple. In fact, there are a TON of sites out there that’ll give you your credit score for free.

Two good ones we suggest: Credit Karma and Mint.

Head to these sites and follow their instructions. Be prepared to enter basic info about yourself (name, DOB, social security #, etc.).

If you find that your credit score is great, congrats! Do all you can to maintain that score (we get to that below).

If your credit score is low though, have no fear. Here’s a system that’ll help you improve your credit score.

How to improve your credit score

Improving your credit score is all about 80/20 — do a small amount of work now and it’ll pay off in spades later.

And you don’t need to do anything crazy either. In fact, here are five keys that’ll help you move the needle on your credit score:

1. Delete your debt
2. Keep your cards
3. Negotiate your limit
4. Automate your pay

1. Delete your debt

Debt is one of the BIGGEST barriers preventing people from living a Rich Life. That’s why if you want to be able to start focusing more of your energy on earning more money and investing, you need to delete your debt.

You can do this using Ramit’s five-step system on getting out of debt fast.

Though there are a lot of nuances to this, here’s three quick tips from the system:

• Find out how much you owe. Though it seems obvious, a lot of people hide from their statements each month and don’t actually know how much they owe. This is playing right into the hand of credit card companies who want you to be in debt. Don’t do this. The first step to getting rid of your debt is being real with yourself. Find out exactly how much money you owe.
• Decide what to pay off first. Though some people believe you should pay off your debt with the lowest balance first, Ramit actually suggests you pay off the debt with the highest interest rate first. Doing so will save you more money down the road and can be psychologically beneficial when you see the biggest drain on your money go away.
• Tap into “hidden income.” There are a lot of different ways you can pay off your debt. One of our favorite ways is by tapping into hidden income to free up some money. This is money that you can negotiate from areas like your insurance, phone bill, or even your rent.

For the full system, check out our article on the five steps to get out of debt.

If you want even more insights on getting out of debt, check out Ramit’s old video on negotiating your debt.

2. Keep your cards

A lot of people erroneously believe that they need to get rid of their credit cards to improve their score. After all, credit cards are the reason people get bad credit scores. It would stand to reason that closing the accounts improve it … right?

Wrong. So very, very wrong.

Why? Because 15% of your credit score is determined by your credit history. So if you close accounts, you close that history.

This also negatively impacts your “credit utilization rate” (more on that later).

Of course, there are going to be times when you just need to close a credit card (travel hacking, interest rates too high, etc.). That’s fine so as long as you also make sure you’re not applying to a major loan within six months of closing it.

You want as much credit as possible when you apply for loans.

In general though, keep your cards open and put a recurring charge on them. This shows that your cards are active and keeps your credit history healthy.

3. Negotiate your limit

Your credit utilization rate impacts 30% of your credit score since it impacts the amount you owe.

And the formula for it is simple:

(how much you owe) / (total credit available)

Unlike your credit score, the lower THIS number is, the better.

Let’s look at an example: If you carry $1,000 debt across two credit cards with $2,500 credit limits each, your credit utilization rate is 20% ($1,000 debt / $5,000 total credit available).

If you close one of the cards, suddenly your credit utilization rate jumps to 40% ($1,000 / $2,500). But if you paid off $500 in debt, your utilization rate would be 20% ($500 / $2,500) and your score would not change.

When your credit utilization rate is low, it shows lenders that you don’t typically spend all the money you have available in your credit — which means you likely won’t default and they won’t lose money.

You can improve your credit utilization in two ways:

1. Don’t carry a lot of debt on your credit cards.
2. Increase the amount of credit available to you.

We’ve already hit the first part — so let’s take a look at a script to help you negotiate your credit limit with your card company:

YOU: Hi, I’d like to request a credit increase. I currently have $5,000 available and I’d like $10,000.

CC REP: Uh … why?

YOU: I’ve been paying my bill in full for the last 18 months and I have some upcoming purchases. I’d like a credit limit of $10,000. Can you approve my request?

CC REP: Okay. I’ve put in a request for an increase. It should be activated in about seven days. Anything else I can do for you?

Ramit suggests requesting a credit limit increase every six to 12 months. Only do this if/when you’re out of debt though.

4. Automate your payments

Let’s talk about my FAVORITE subject in the world: Automating your personal finance.

This is IWT’s proven system that does a number of awesome things:

• Gets you out of debt.
• Helps you save for anything.
• Earns you money.

The best part? You do all of this passively. That means there’s no hassle of moving your money around, and no pain from seeing your money part from you.

And since 35% of your credit score is determined by your payment history, it’s important to automate your system so you pay your bill on time and in full each month.

For more information on how to automate your finances, check out Ramit’s 12-minute video where he goes through the exact process with you.

You should ideally be paying off your entire credit card balance each month, but if you can’t, you can still improve your score by paying at least the minimums, on time, every month.

Improve your credit score = Big Win

Take the time to start improving your credit score using the four systems outlined above — and to help you even more, I’d like to offer you something: The first chapter of Ramit’s New York Times best-seller “I Will Teach You to be Rich.”

It’ll help you tap into even more perks, max out your rewards, and beat the credit card companies at their own game.

I want you to have the tools and word-for-word scripts to fight back against the huge credit card companies. To download it free now, enter your name and email below.

Credit rating scale: How to get an amazing credit score is a post from: I Will Teach You To Be Rich.

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How to write a polite email asking for something

I want to show you an actual email someone sent me to ask for something that had me clamoring to call them.

With emails like these, I hope you appreciate the mental fortitude it takes to not go insane every day of my life.

But instead of just mocking the people who read my blog, I want to talk about the very best ones — the people who know how to politely reach out to VIPs and get a response.

The #1 key to asking for what you want politely

A lot of people think success is just a matter of “figuring it out” and reading a few books.

Top Performers know that they can leapfrog everyone else by getting personal advice from people who’ve already been through the fire. Ask any successful person how a mentor/advisor/expert has helped them, and they won’t be able to stop talking.

So how do you ask an elite level performer/VIP for help with something in a way that will actually get a positive response? Maybe it’s to get a recommendation for a job … or to get invited backstage to meet your favorite band … or even to get some advice on a tricky business situation.

The answer is to shift your focus from a “me” perspective to a “you” perspective. For example, years ago, I was hanging out with Charlie Hoehn, who’s worked with me and a lot of thought leaders like Tim Ferriss.

He told me how working behind the scenes has taught him about how to work with these kinds of people. “Everyone wants something from you guys,” he said. “Now I know how to stand out. Just don’t ask for anything! Actually add some value first.”

This “you first” approach is how I’ve been able to get the advice of best-selling authors, superstar CEOs, and all kinds of fascinating people.

Let’s take a look a look at that in action.

How to write a polite email asking for something

Here’s an email I received from a reader a while back. I called him within 60 seconds of reading it. See if you can find out why:

The reader was polite, considerate of my needs, and sold me on the benefits of working with him.

Let’s break down the anatomy of this email, though, so I can show you exactly why it works.

Step 1: Focus on the recipient

Remember: Your message to the important person should be focused on THEM. That’s the key to any polite email that hooks the reader in.

The reader above did this with a snappy and eye-catching subject line: I want to work for you for free.

YES. You have my attention.

He goes on lavishing me with compliments while sharing an example of how my advice has helped him.

What do you notice about that? It’s a genuine compliment. He’s not giving me superficial niceties like, “Your blog is cool” or “Awesome videos!” He says he has multiple ING Direct accounts, a Roth IRA, and an automated finance system set up because of me. THAT’S how you write a polite email.

Use the first one to two sentences to compliment the person you’re emailing and their work. Tell them how long you’ve been following them, what their advice has done for you, and/or your favorite post by them.

This will hook them into reading the rest of your email.

Step 2: Sell your benefits

Let’s face it, you’re trying to sell yourself here.

What benefits can you offer them? Why should they care?

Sometimes this comes in the form of a warm contact (more on this later). If you know of a mutual connection, you should name drop so the person you’re talking to knows how you know them. They’ll be much more willing to work with you if you both know the same person.  

For this email, my reader knew that I was looking for talented developers — so he sold me on that.

Guess what? That immediately set him apart from 99.999% of the crowd.

You’re going to have to do your homework if you want to leverage this technique. You need to know your VIP’s pain points and how YOU can solve them.

Go deep. Get inside of their heads. See what solutions you can offer to their biggest problems.

Be like Don Corleone.

Notice that they’re ramping up their YouTube presence and you’re a video expert? Tell them that and do it for them.

Can you take their social media game to the next level? Sell them on all the followers and traffic you can generate for them.

If you can’t come up with a specific solution, show the person you’re emailing you have XYZ skill that’ll have ABC benefit for them.

Step 3: Make saying “no” impossible

Your last step is to anticipate any objections or concerns they might have.

My reader knew I had a few projects I wanted to get to but hadn’t made time for them yet.

And while I could tell he really wanted paid work, he tells me that he’d “be happy just for the opportunity to network and receive a little advice.”

This made me saying no to him impossible!

He respected the power dynamic. After all, he reached out to me asking for my time.

And he showed this by being proactive, offering up his phone number, and also providing samples of his work from his website.

Also acknowledge how many emails they get by ending your email with this script:

“I understand you have tremendous demands on your time, and if you don’t have time to respond, no problem. But if you do, even a sentence would mean a lot to me.”

This gives VIPs an easy out if they’re too busy. Counterintuitively, it also boosts your response rate since you’re showing empathy toward their time demands. Remember, this email from the developer worked so well, I called him within 60 seconds of receiving his message.

Follow these steps, and you can see the same results.

I then encourage you to use the Closing the Loop Technique to follow up with your VIP two weeks after you get your response. You can use the following script:

“Hey, you told me ABC. I dug in. I discovered you were right, and so I took your advice and I just wanted to thank you. I’ll keep you updated a couple months from now about how the new XYZ is going.”

ACTION STEP: Contact your VIP

1. Brainstorm ONE busy VIP you’d love to contact, then shoot them an email.
2. In the comments below, share your story and the response you got.

Now I want to show you the four traits all great email introductions share that’ll get you responses.

The traits are simple — but 99% of people skip them. Don’t do this.

Trait #1: Reaches out through a warm contact.

As mentioned before, you’re going to have a better chance of someone responding if you name drop a mutual contact.

Why? This gives you social capital. If you know the same awesome people they know, they’ll want to work with you. Simple as that.

Even if you don’t think you have one, I HIGHLY suggest you search anyways. The results might surprise you.

Some good resources to check for mutual contacts:

• Facebook (Use the site’s mutual friends tool to see who you know in common)
• Twitter (Check out who they follow. Do they follow and engage with anyone you know?)
• LinkedIn (Leverage the site’s mutual connections tool to see who you both know)
• Their blog posts
• If they wrote a book, check the “Acknowledgements” page

Over the years, people have found mutual contacts with me through ALL of these resources.  

Trait #2: Explains any similarities we have.

This trait can automatically establish a connection with the person you’re emailing even if they’re a complete stranger.

Some examples of areas where you might share similarities:

• College
• High school
• Hometown
• Company
• Industry

Even if you’ve never met, if you both went to the same high school or are from the same town, you both immediately have shared experiences. This is powerful and crucial when getting someone to respond to you.

If another Stanford alum reached out to me and seemed genuine, I’ll almost always take a phone call, or if convenient, a coffee meeting. It’s that powerful.  

Trait #3: Cuts out the fat.

Check out this email I got a while back. It’s an absolute master class in bad email introductions.

Notice that in the second paragraph, he actually acknowledges that he should focus on ME (the busy person) … and proceeds to do the exact opposite!

On top of that, this was a very long stream-of-consciousness email.

Chances are, the person you’re emailing is probably very busy. As such, you’re going to want to make sure that your email isn’t wasting their time with any superfluous information.

Do that, and you’ll INSTANTLY eliminate yourself from their inbox.

Trait #4: Doesn’t outright ask for a favor.

This is something you should not do in an email introduction. That’s the opposite of polite.

Even if you’re just asking for help, it’s best if you provide the recipient an out so they don’t feel like you’re demanding something from them.

It’s always best to end an email acknowledging how busy they are and that they shouldn’t feel pressured into doing anything. Here’s a great script to do just that:

“I understand you have tremendous demands on your time, and if you don’t have time to respond, no problem. But if you do, even a sentence would mean a lot to me.”

See why that works? This gives your email recipient an easy out if they’re too busy. Counterintuitively, it also boosts your response rate since you’re showing empathy toward their time demands.

NOTE: The people who have reached out to me weren’t always the most socially smooth people. But the very best showed a remarkable level of preparation, which anyone can accomplish — but few actually do.

As a result, many of these people stood out among tens of thousands of others who left comments/emails/tweets. Not only do the very best Top Performers have an uncanny ability to reach extremely busy people, but they can turn a one-time meeting into a long-term relationship.

And over time, that is worth more than almost any technical skill or amount of experience.

Get what you want

I’ve just given you the five steps to asking for a favor and getting what you want. This strategy works for anything.

And if you want specific scripts for emails that get results too, I have five you can use to:

1. Set up an informational interview
2. Ask for recommendations for people to talk to
3. Cold email a stranger for advice
4. Pitch for a consulting gig or a job interview
5. Reach out to others in your company to get to know them

Just enter your information below, and I’ll send you these five word-for-word scripts for free.

How to write a polite email asking for something is a post from: I Will Teach You To Be Rich.

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The 4 Best High-Interest Savings Accounts in Canada

If you’re looking for a place to stash your cash to help it grow without the roller-coaster volatility of the stock market, your options are a high-interest savings account or a GIC. In Canada, we typically imagine the only banks available are “The Big 5” but truthfully Canadians have dozens of options — if they’re willing to go online. Many people are still wary of online banks even though more likely than not, they already do most of their banking online. Personally, the only thing that ever takes me to a physical bank branch is cashing US cheques, but I’ve since opened a US savings account so maybe that’ll be going by the wayside soon. In any case, a CDIC-insured online bank is as safe as a brick and mortar one, and they typically offer higher-paying products. If you’re wary of switching to an online bank, opening a savings account to […]

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When did you realize your money situation had changed?

The first time I remember my money situation really changing was when I got my first scholarship check for college. I realized if I could get one scholarship … I could get five … and then 10 … and then, pay my way through undergrad and grad school.

That totally changed the way I thought about going to college and money.

Other moments where I realized my financial situation had changed:

• I realized I could take a taxi instead of the subway on my way to a sweltering summer meeting
• I walked out of the grocery store realizing I hadn’t looked at the prices of anything — I just got what I wanted

I’m curious about your story: What’s the moment you realized your money situation had changed?

For example:

• The moment you ordered off the menu without looking at price
• The moment you decided to catch a taxi without thinking twice
• The moment you covered a round for your friends and didn’t worry after

Let’s have some fun. It would mean a lot to me to see your wins. Leave a comment and tell me what the moment was and what it meant to you.

When did you realize your money situation had changed? is a post from: I Will Teach You To Be Rich.

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The best savings account to open today

A good savings account allows you to effortlessly save for ANY financial goal:

• Weddings
• Engagement rings
• Trips to Paris
• Down payment on house
• New car
• Front row tickets to a Jay-Z and Beyonce concert

Whatever!

And when you combine it with automation, you create a powerful financial tool that allows you to save passively too. 

BUT all accounts aren’t created equal: beware of the Big Banks. Extortionate fees and terrible customer service make them a bad deal for most people. Instead you should get an online savings account.

If you’ve ever had a Big Bank, you know what I’m talking about: Minimum fees, overdraft penalties, crappy interest rates, and (my least favorite) mailing you dumb promotional material every. Single. DAY.

There are plenty of great online accounts to choose from too — but after evaluating many options I’ve boiled it down to one: Capital One 360.

The BEST savings account: Capital One 360

Source: Consumerist

This is the account I recommended in my book and it’s still the account I use today, years later.

Why? A few things:

• No fees, no minimums
• 1% APY
• You can do everything online in an ultra-simple interface
• No annoying upsells sent via postal mail = no paper cuts
• Links to your checking account via electronic transfer
• BEST PART: Sub-savings accounts (more on this later)

The account also comes with a lot of great online savings tools to help you keep track of your financial goals.

Overall, this makes Capital One 360 Savings the best deal for anyone who wants to take their personal finance goals to the next level.

How to open a Capital One 360 Savings account

Click here to get started with the Capital One 360 Savings. NOTE: It’s not an affiliate link. I’m not a rep for Capital One — just a happy customer.

Get ready to fill out a few forms with your personal information (name, address, DOB, etc.) as well as more private information (social security number). The process won’t take more than 30 minutes and when you’re done, you’ll be ready to get started saving.

BUT I have another savings account suggestion. It’s important to have multiple options.

Runner-up: Ally Bank Online Savings

Source: GoBankingRates

Ally is an online bank — and they’re a great choice for anyone looking for a solid savings account.

A few things to note:

• 1.45% APY
• No fees, no minimums
• Can create multiple accounts
• Easy online interface
• Interest compounded daily

Though Ally savings accounts don’t technically have sub-savings accounts, it does allow you to create multiple savings accounts that effectively do the same thing.

The “sub-savings” accounts of a brave IWT worker.

Click here to get started with an Ally savings account. It’ll be the same process as with the Capital One 360 savings account.

Once you do you’ll be able to open up multiple savings account on the same day. And having accounts where you can segment your savings goals is crucial to achieving them. That’s why I want to go into what exactly sub-savings accounts are and why they’re so important.

The importance of sub-savings accounts

I mentioned how psychologically important it is to have sub-savings accounts, rather than one lump “savings” area.

Check out this screenshot of my old sub-savings accounts:

You see why this matters?

If your friends call you up and say “Hey dude, let’s roll to Vegas this weekend,” you’re not going to be like, “Hang on guys … let me initiate a transfer from my ‘down payment’ sub-savings account, which should take 24-48 hours.”

You could … but you won’t.

This is a GOOD THING.

Using my automated personal finance system, I use monthly automatic transfers to funnel money into each of my sub-accounts. Now that these transfers are in place, I’m getting closer to each of my goals automatically, month after month, without having to remember to set money aside.

This is precisely how people get rich “passively.” You don’t see the money when it’s automatically withdrawn from your checking account and shunted to specific savings goals — you will never miss it. However, a few months later, you’ll be amazed at how fast you’re accomplishing your goals.

By the way, it’s possible to simulate sub-savings accounts with any savings account (for example, by manually creating your own “sub accounts” in Excel).

But I like Capital One 360 and Ally because they just do it for me. Why give yourself another financial chore to think about? Don’t take more than five minutes deciding. Just pick one and move on.

I cover the use of sub-savings accounts in more detail in my blog post “Sub-savings accounts: How to save for anything in 3 steps.” It’s an incredibly powerful way to make your savings more streamlined and purposeful.

Don’t chase rates — look for these 3 things instead

The two accounts I suggest above are great — BUT they’re just my recommendations. Do your research and look into what works for you.

Let me offer you another word of advice though: Don’t be a rate chaser.

A lot of people ask about the 4-5% interest rate that ING and other high-interest banks used to pay, which I quoted in my book. Unfortunately, those interest rates are variable, meaning they change with the economy. As a result, many online banks don’t offer the same rates they used to.

However, do NOT waste your time chasing rates. A 1% difference on a balance of $10,000 is $8.33/month. That’s a small win and hardly worth your time.

If you write me and say, “But Ramit, XYZ bank has 0.2364% higher interest rate. LOL! U R WRONG!” I am going to (1) mock you, (2) make you my “troll of the week” on Instagram so my followers can mock you too.

Instead, you should be looking at three things when searching for a good bank:

1. Trust. This is one big thing Big Banks (e.g., Bank of America, Wells Fargo, Chase) lack. I know because I had a Wells Fargo account (aka Wells “Let’s open millions of fake accounts” Fargo) for YEARS because their ATMs were in my area — but I’ve since learned better. You can’t trust banks that do skeezy things like double charging you for using other ATMs or nickel-and-diming you through minimums and fees. Their offers should be clear and easy to set up.
2. Convenience. Your bank needs to be convenient — otherwise you’re not going to be able to take full advantage of it. You need to be able to get money in and out and also transfer it easily. You can make sure that a bank is convenient by browsing around its website and making sure that they have a reliable customer support team.
3. Features. The best high interest savings account is going to be the one with other great features like prepaid envelopes for depositing money, sub-savings accounts, and online savings goals tools.

Find a bank with those three things and you’re set for life. Once you do, it’s time for you to automate your finances to optimize your savings potential.

Automate your finances and save for ANYTHING

I. Talk. About. This. A. LOT. But that’s only because it’s the best way to invest, save, and earn money. This system allows you to automatically send your money where it needs to go as soon as you receive your paycheck.  

And it’s simple: Each month, your paycheck is automatically divvied up and sent exactly where it needs to go (pay bills, pay rent, invest, save, etc.) without you needing to touch it. This allows you to save for any goals passively, making it easier to save than ever.

To find out more on how to automate your finances, check out my 12-minute video explaining it here:

If you want to cut down the time it takes to save for your goals even more, I have something for you:

The Ultimate Guide to Making Money

In it, I’ve included my best strategies to:

• Create multiple income streams so you always have a consistent source of revenue.
• Start your own business and escape the 9-to-5 for good.
• Increase your income by thousands of dollars a year through side hustles like freelancing.

Download a FREE copy of the Ultimate Guide today by entering your name and email below — and get on your way to accomplishing your savings goals.

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A no-BS guide to early retirement

Early retirement represents a Rich Life for many — a time when you can relax, not worry about work, and focus on the things that really matter to you.

But getting there isn’t easy.

Here’s how much you’ll need to save based on your yearly expenses.

ANNUAL EXPENSES	HOW MUCH YOU NEED TO SAVE
$20,000	$500,000
$30,000	$750,000
$40,000	$1,000,000
$50,000	$1,250,000
$60,000	$1,500,000
$70,000	$1,750,000
$80,000	$2,000,000

Some people are able to retire in their 50s, 40s, or even 30s by hitting their savings number as soon as possible — but doing so takes dedication, focus, and the right systems.

And while I don’t believe that you HAVE to retire early in order to live the life you want, I want to show you how to get there— if that’s what a Rich Life means to you.

• Step 1: Find out how much you need to retire early
• Step 2: Cut costs to save aggressively
• Step 3: Invest to grow your money
• Step 4: Earn more money

This is a no-BS guide to early retirement. There are no shortcuts or magic bullets to this. Just hard work. Once you’re finished, you’ll find that you’re going to be able to take advantage of retirement (whatever that means to you) earlier.

Step 1: Find out how much you need to retire early

How much you need to save is entirely contingent on how much you spend. This is important because this will be money that you’ll be relying on for the rest of your life (assuming you don’t have another income stream).

To come up with how much you need to save, we need to look at three numbers:

1. Income. How much you make a year after tax.
2. Expenses. How much you spend each year. This includes everything that you might possibly spend money on in the year including rent, utilities, groceries, clothes, insurance, gas, etc.
3. When you want to retire. What is “early” for you? This is the timeline for your early retirement plans. How are you going to know how much to save each month if you don’t know exactly when you plan on retiring?

NOTE: All these numbers are malleable. Life likes to occasionally throw a wrench into your plans and you won’t always make the same income or have the same expenses … and that’s completely fine. What matters is that you roll with the changes and adjust your plan accordingly — even if that means your retirement plans are pushed back a bit.  

If you’ve been reading this blog for a while, though, you’re a Top Performer — which means you’ve already implemented a few systems that allow you to know exactly how much you’ve been earning, spending, and investing.

If you haven’t, that’s okay. I suggest checking out my Ultimate Guide to Personal Finance to help you get started on this.

Once you have all these numbers, you’ll be able to come up with a proper monthly savings rate. This is the percentage of money you’ll be putting away each month in order to hit your yearly goal.

Luckily, you don’t have to strain too hard with back-of-the-napkin math, as there are trillions of retirement calculators.

This one is my favorite. It leverages The 4% Rule (aka the safe withdrawal rate). This helps you get the amount you’ll need in order to retire — allowing you to withdraw 4% of your savings each year without touching the principal.

To find out how much YOU need to retire with The 4% Rule, you simply need to:

1. Find out how much you spend yearly. This includes everything that you might possibly spend in a year including rent, utilities, groceries, gas, etc.
2. Multiply it by 25. Or however many years you anticipate being retired.

ANNUAL EXPENSES	HOW MUCH YOU NEED TO SAVE
$20,000	$500,000
$30,000	$750,000
$40,000	$1,000,000
$50,000	$1,250,000
$60,000	$1,500,000
$70,000	$1,750,000
$80,000	$2,000,000

Remember: This is just a rule of thumb. In fact, many are quick to point out the flaws of The 4% Rule. That said, it can give you a good idea of roughly how much you need to save.

Play around with the calculator until you’ve come up with a savings and withdrawal rate that works for you.

“But Ramit,” I can hear some of you say now. “These numbers are way too daunting. There’s no way I’ll be able to save that much every year!”

That’s why we’re going to help you with BOTH the savings and earning sides, by showing you exact systems to do both.

Step 2: Cut costs to save aggressively (with scripts)

Chances are, after entering your information in the retirement savings calculator, you’re going to want to make some adjustments to your expenses in order to save more each month. Luckily, I have a number of systems that can help you reach your savings goals.

Negotiate your bills

It’s a little-known fact that you can negotiate your bills. In fact, with a single phone call, you can potentially save THOUSANDS of dollars annually on things like:

• Bank fees
• Your rent
• Car insurance rates
• Cell phone plan
• Gym membership

…in order to put away more money for retirement.

It’s incredibly simple too. The system boils down to doing 3 things in order to negotiate your rates.

It goes like this:

1. Call up the company.
2. Say the following: “I’ve been a loyal customer for X years, and don’t want to leave because of a financial problem.”
3. Ask them: “What can you do for me to lower my rates?”

This formula will change with each company that you call, but the framework will be the same.

Check out my video on how to negotiate your bills for more on this topic.

If you want even MORE negotiation strategies that can help you save thousands a year, here are a few of my articles on negotiating that’ll help you bring your expenses down fast.

• How to get your overdraft fees waived
• 4 steps to negotiating lower car insurance — with scripts
• How to negotiate your rent

Implement the A La Carte Method

Often times we overspend on so many things we never actually use. This is especially true when it comes to things that require a monthly subscription.

And this is money that can go towards our investments for early retirement.

That’s why I’m a big proponent of the A La Carte Method. The system requires you to cancel all discretionary subscriptions — things like:

• Spotify
• Netflix
• Gym memberships
• Magazines

…and buy what you need a la carte.

So instead of paying $8.99 a month for a Netflix subscription that you never have time to watch anyway, buy the movies or shows you want on Amazon and iTunes.

Instead of getting another issue of The New Yorker sent to you and letting them pile up on your coffee table (and let’s be honest, you only have those there to impress your guests), buy the magazine when you want to from your local bookstore.

Or, instead of dropping $10 a month on Spotify Premium, just buy the songs you really want on iTunes or Amazon.

Of course, this isn’t for everyone. I encourage you to use this if you find yourself short on cash and wondering why you can’t save more money each month.

If, after about 2 months, you find yourself spending enough money on these items to justify the subscription, by all means pick it up again. If not, then you’ve saved.

For more systems and tips on saving, be sure to check out “How to save money,” where I detail even more techniques for painlessly cutting expenses.

Once you’ve cut your costs down to allow you to save enough each month, it’s time to grow your money.

Step 3: Invest to grow your money

Now that you’ve freed up some expenses in order to save more, you need to put that money to work for you through smart investments.

My suggestions? Two things:

1. Invest in a mutual fund that tracks a low-cost, diversified index such as the S&P 500.  
2. Invest in a health savings account.

Continue investing in your traditional retirement investment vehicles like your company-matched 401k and your Roth IRA as well. (You can invest in mutual funds here too!)

But your priority will shift because traditional retirement accounts penalize you if you withdraw before the age of 59 ½, whereas a mutual fund through an individual brokerage account won’t.  

In order to purchase mutual funds, you have three options.

Retirement accounts

Both your Roth IRA and 401k allow you to invest money into mutual funds. You should take advantage of this, but if you want to retire early you’ll likely need to do a bit more — because withdrawing early from a Roth IRA and 401k hits you with a sizeable penalty.

Financial institutions

Banks, credit unions, and stockbrokers offer avenues to invest in mutual funds. In fact, there are plenty of fantastic brokers that offer a wide variety of mutual funds for you to choose from. My suggestions:

• Charles Schwab
  Brokerage phone #: 800-435-4000
  
• Vanguard
  Brokerage phone #: 877-662-7447

Both of these places offer high quality index funds and have fantastic customer support teams who are ready to answer any questions you have regarding their funds.

So sign up online for an investor’s/broker’s account now. Afterwards, find out what index funds they have and start investing. I suggest investing in the S&P 500. For Schwab, the symbol is SWPPX, and for Vanguard, it is VFINX. You can buy the fund just like a “normal” stock.

The mutual funds

Some funds allow you to create an in-house account wherein you can buy and sell funds offered by other firms — though you might run into extra fees if you decide to go this route.

If you want more information on mutual funds, I’ve written up a primer all about mutual funds that’ll help you make a sound decision when purchasing one.

Mutual funds are just one investment vehicle you should have for your early retirement strategy though. If you really want to take retiring early seriously, you need to get a health savings account.

Health savings accounts (HSA)

These accounts are an absolute must-have when it comes to early retirement.

HSAs are savings accounts provided for people enrolled in high deductible health insurance plans. Plus they combine all the best parts of Roth IRAs and 401ks.

How? Simple: You can contribute pre-tax income into the account and withdraw the money tax-free when you pay for qualified medical expenses.

AND when you turn 65, you can withdraw the money without incurring any penalties. This makes HSAs a powerful, crucial tool when it comes to investing for early retirement.

As of writing this, you can contribute $3,450/year for individuals and $6,850/year for families to an HSA. By maxing it out each year, individuals can effectively reduce their taxable income by $3,450.

Step 4: Earn more money

In the immortal words of UFC champion and boxing’s most famous amateur, Conor McGregor:

Get in. Get rich. Get out.

Get in. Get rich. Get out.

— Conor McGregor (@TheNotoriousMMA) August 12, 2014

If you want to truly be able to invest more money into early retirement, the best way to do that would be through the incredibly powerful combination of saving AND earning more money.

That’s why I created something for you that I think you’ll really like: The Ultimate Guide to Making Money. 

In it, I’ve included my best strategies to:

• Create multiple income streams so you always have a consistent source of revenue.
• Start your own business and escape the 9-to-5 for good.
• Increase your income by thousands of dollars a year through side hustles like freelancing.

Download a FREE copy of the Ultimate Guide today by entering your name and email below — and get on your way to early retirement.

A no-BS guide to early retirement is a post from: I Will Teach You To Be Rich.

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How to talk about money with your significant other

One of the most important money choices you make has nothing to do with picking stocks, or opening accounts … it’s about who you choose to spend the rest of your life with and how much you share (or don’t share) their views on money and living a Rich Life.

It’s a messy, uncomfortable thing to think about and something people only acknowledge in private (if even then) … so it’s the PERFECT topic for IWT.

That’s why I asked my friend Kristin Wong (who writes about money for Lifehacker, New York Times, among other places) to bring it down to earth … and share exact questions, scripts, and psychology for having a productive conversation with your partner.

She has a new book out, “Get Money: Live the Life You Want, Not Just the Life You Can Afford,” that talks about this stuff and more.

Take it away, Kristin.

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People are more comfortable talking about their love lives than they are their financial lives. And I should know, I’ve asked.

Years ago, I hosted a woman-on-the-street video series for MSN called “Sex by the Numbers.” It involved hitting the streets of Los Angeles and asking people about their relationships and sex lives. You’d think it would be an awkward topic for people to discuss, but you’d be wrong. I learned more about where, how, and with whom people were getting it on than I ever wanted to know.

A personal finance editor who followed my work enjoyed the series and asked if I would produce similar videos for her, but centered around money instead of relationships. “Hell yes!” I said, because I thought it would be so much easier to talk to people about their finances.

Oh man, I could not have been more wrong.

I’d ask strangers basic questions — such simple questions! Questions like, “Are you saving for retirement?” They would look at me with some serious side eye, like I was trying to sell them Amway.

One guy in Burbank asked, “Who are you with?”

People hate talking about money with just about anyone, not only some random woman on the street, but also the people they’re in a relationship with. For many couples, money isn’t a topic on the discussion table. Four in 10 married people don’t even know how much money their spouse makes! And 40% of couples don’t even talk about money before they get married. The problem with this is, money issues are a huge predictor of divorce. It’s not just important to talk about money in your relationship, it’s absolutely crucial if you want to give your relationship a fighting chance.

Icebreakers to get the conversation started

Once you know your relationship is getting serious (or if you’re already there), you need to sit down with your partner and talk about your past, present, and future money situation. Sometimes these conversations happen organically: you decide to shack up and must now figure out how you’ll split rent, for example. Perfect time to talk money!

It’s not always that easy, though. Sometimes you need an icebreaker. Here are a few easy scripts you can use to jump-start a money conversation in your own relationship:

• To avoid unpleasant surprises down the road: “Before we talk about moving in together, we should talk about our finances.”
• To ensure your partner doesn’t feel judged: “I’d like to share my money situation and goals with you, and I’d like to learn about yours.”
• To ensure you’re committed: “Since our relationship is getting to the next level, I’d like to get to know more about your finances, and I want to tell you about mine.”
• To set the tone that money is important to you: “A secure financial life is important to me. Let me tell you how I handle money, and you can tell me how you deal with finances.”
• To approach the conversation casually: “I know so much about you, but I don’t know about your financial life.”

People can be very defensive about their money issues and money is a topic loaded with embarrassment and judgment, and no one likes to be embarrassed or judged. The above scripts work well because they’re not accusatory. You’re not shining a lamp in your partner’s face and interrogating him. This is a two-way street: you’re offering to share your financial situation as well.

Topics you need to discuss

Once your partner is on board with the discussion, there are a handful of important topics you need to discuss. You’ll want to talk about your financial past, present, and future.

Your financial past: Talk about any debt you’ve struggled with in the past. Did you pay it off? Did it go to collections? Also, what was your family’s financial situation growing up? It seems like overkill, but ask any mental health professional and they’ll tell you: our childhood experiences play a huge role in our future habits. So it’s important to understand your partner’s early experiences with money and how they might shape their present view of it.

Try these scripts:

“What are some of your earliest memories of money? My family struggled with money, did yours?”

“What about debt? Did you ever have trouble with credit cards like so many people do?”

Remember: these can be touchy topics, so keep the conversation objective by focusing on the fact that many people have past money issues!

Your financial present: Talk about any financial goals you’re currently working toward, or any setbacks you might be struggling with. Are there any big expenses you’re paying for at the moment? Talk about your income and how you budget too.

Try these scripts:

“My financial goal is [insert goal here], what’s yours?”

“Right now, my biggest struggle is my student loan [or anything else you struggle with], what’s yours?”

“Let’s talk about how we budget and compare notes. My income is $50,000 a year, and my expenses are about $2,000 a month.”

Your financial future: Finally, share your goals for the future. These don’t just have to be money-specific goals, like “open a retirement account.” Talk about your dreams, like if you want to buy a house, raise kids, go on an epic vacation, whatever. All of those things cost money, so finances will inevitably be part of the picture.

Try these scripts:

“Someday I’d like to retire in Costa Rica. I’m trying to max out my 401(k) now to make that happen someday. What are your goals for the future?”

“My dream is to buy a home someday. Right now, I’m paying off my student loan, and I don’t know if it will happen anytime soon, but it’s something I’m researching. What about you? What are some things you want to accomplish in life?”

It’s kind of cheesy, but you could even try the old, “What would you do with a million dollars?” question. Is it corny? Kinda. But it can offer some interesting insight in how someone deals with and thinks about money.

To make things even easier, use this checklist with specific topics to discuss.

YOUR FINANCIAL PAST	YOUR FINANCIAL PRESENT	YOUR FINANCIAL FUTURE
🙿 Credit cards you’ve opened 🙿 Loans you’ve taken out 🙿 Foreclosures, bankruptcies, debt that’s been settled or charged off 🙿 How you’ve dealt with money in the past 🙿 How your parents dealt with money when you were growing up	🙿 Outstanding debt you owe 🙿 Debt you’re actively paying off, including credit cards, student loans, mortgages 🙿 Interest rates on those debts 🙿 Your income or salary 🙿 Money owed to you 🙿 Active financial accounts 🙿 Your budget 🙿 Your money personality	🙿 Debt payoff goals 🙿 Savings goals 🙿 Retirement goals

You need to hit on these topics whether you’re talking about money for the first time or in an established relationship. For example, my husband and I try to have a regular discussion about money every two or three months, just to make sure we’re still on the same page and our short-term and long-term goals haven’t changed. Of course, past financial issues will always be there, but your financial present and future goals can certainly evolve, and probably will.

Whenever you sit down and have the conversation, use this checklist as a guideline for stuff to talk about.

Find your money “script”

In “Get Money,” I interviewed Dr. Brad Klontz, a financial psychologist who identified four behavioral scripts that most of us follow when it comes to managing our money. In psychology, a “script” is simply a set of habits, beliefs, and opinions you hold. When it comes to money, those four scripts are:

Money avoidance: You prefer not to deal with money at all. Maybe you think it’s not important, it’s superficial, or it’s greedy. For whatever reason, money is not something you think about.

Money vigilance: You’re incredibly watchful and mindful of your financial situation. Many money vigilant people are also super frugal. They track their spending meticulously and may have a hard time buying things.

Money status: Money status people place a high importance in the symbolic value of money. They might be quick to believe the net worth equals self worth. For them, money is a symbol of status.

Money worship: Money worshippers often believe money will fix their problems. They chase money and thoroughly consider its role in every decision.

None of these scripts are inherently good or bad. Any of them can completely work against you or totally work in your favor — you just have to know how to deal with them. It’s a lot easier to deal with your behavior when you identify it, so sit down with your partner and try to identify both of your money scripts.

Think about how they hold you back and how you might use them to your advantage. For example, if you worship money, you might be inclined to take on a job that’s making you miserable just because it pays slightly more than another job. You might need to reconsider prioritizing your, y’know, happiness. On the other hand, money worship might mean you’re willing to invest your cash, while your money vigilant partner hoards it in a low-interest savings account. You can have more than one script, too. Chances are, you’ll identify with one script way more than the others, but you can be a money worshipper and still have habits of a money vigilant person.

Sit down and figure out where you stand together. Below are a few questions you can ask when pinpointing your own money scripts together. I know, it seems kind of silly, like you’re taking a Cosmo quiz together, but I promise you, this is an eye-opening exercise if you take the time to answers these questions seriously and thoroughly.

What was it like growing up for you around money? What was your socioeconomic status?

What did each of your parents teach you about money?

What are your biggest financial fears? What are your most important financial goals?

When I first read about these scripts, I realized I was a huge money vigilant person, while my boyfriend at the time (now husband) was a complete money avoider. Everything made so much sense! I was obsessed with frugality; he wanted a bigger apartment no matter the cost. No wonder we bickered.

People like to tell you that if you and your partner are not on the same page about money, it’s not going to work out. That’s not necessarily true. The thing about relationships is: the issue you THINK is the problem is never the ACTUAL problem. You know when your girlfriend complains that you never get her flowers and so you go get her some flowers and she’s like, “Wow, you don’t get it?” Well, you probably don’t. Flowers aren’t the issue, it’s about your gratitude and appreciation for her.

It’s the same with money. There’s always a bigger issue, lurking deeper: intimacy problems, a lack of respect, poor communication.

You and your partner will most likely have different views on money, but that doesn’t mean you’re doomed. If you can communicate and respect each other’s views, you can work together. But again, you have to know what your money views are in the first place! So go ahead, sit down, and answer those three questions together. Revisit them every so often, too, because things change. These days, my husband Brian is the vigilant one.

In other words, putting a label on our habits makes it easy to see how we might conflict with money. It also helps us to avoid those conflicts in the future.

How to avoid a blowout

Yes, your relationship can work out even if you and your partner have polar opposite ideas about money. But that doesn’t mean you’ll never fight about it.

Here’s a pro tip: when you have these money meetings (some experts call them “money date night,” but ugh, that’s so corny, I just can’t), have them in public. Sit down over coffee or at your favorite restaurant and talk about these things. It’s easy for a discussion about money to turn into a fight about money, but when you’re in public, you’re a lot more mindful about this. After all, no one wants to be the couple who gets into a fight about money at Starbucks or Buffalo Wild Wings, so you’re more likely to keep the conversation cool.

Aside from that, here are some tips to help keep the discussion in check:

• Remember: there are multiple ways to manage or think about money. Your partner’s might not match yours, but that doesn’t necessarily mean he or she is wrong.

• Focus less on trying to explain stuff to your partner and more on trying to understand them. That doesn’t mean you can’t speak your mind, but if you both prioritize understanding each other, you’ll set the conversation up for success.
• Agree to take a time out if the conversation starts to get ugly.

• Maintain eye contact. This is an easy trick our marriage counselor taught us for avoiding fights. If you’re not making eye contact, that sends a subtle message that you’re angry and you don’t care what the other person has to say. So try not to have these heavy conversations in the car!

Money is not a sexy topic to talk about. (And I’m sorry, calling it “money date night” does not make it better.) Your partner probably won’t be turned on when you start talking about the student loan debt you’re still paying off. But if you’re head over heels for this person and you want your relationship to last, money has to be part of the conversation.

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Kristin Wong is a freelance writer and journalist at the New York Times, New York magazine’s The Science of Us, and Lifehacker. Her book, “Get Money: Live the Life You Want, Not Just the Life You Can Afford” is available now.

How to talk about money with your significant other is a post from: I Will Teach You To Be Rich.

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Financial independence: 4 steps to save $1,500,000

Financial independence is the moment when your investments start paying more than your expenses. Once that happens, you’re “free.”

Free from having to work for a living.

Free from having to worry about paying rent on time.

And free from a TON of other financial obligations.

BUT how long would it take the average American to become financially independent?

Assuming you earn $75,000 a year and your annual expenses are about $60,000, you need to save roughly $1,500,000 to become financially independent.

When you’re done picking your jaw up off the floor, I’ll let you in on the process of how to get there:

• How to reach financial independence
  • Step 1: Set a goal using the 4% Rule
  • Step 2: Choose your FIRE lifestyle
  • Step 3: Earn more money
  • Step 4: Cut costs mercilessly
• The Ultimate Guide to Making More Money

How to become financially independent

Financial independence is all about two things:

1. Cutting costs
2. Earning more

And you don’t have to wait until you reach “retirement age” to do it. In fact, there’s a massive community of people who devote themselves to financial independence/early retirement (FIRE).

Sounds great, right?

Well, it can be — but you have to do it right.

That’s why we talked to two experts (Physician on FIRE and The Mad Fientist) who have achieved financial independence about what it’s really like and what systems they used to get there.

There are no slick tactics or sexy ways to go about this. If you’re the average American who needs $1,500,000 to hit your FIRE goal, you need to work hard and be determined. There are no shortcuts with this.

Let’s jump into our first step:

Step 1: Set a goal with the 4% Rule

We’re using the $1,500,000 goal based on the average salary and living expenses of Americans. If you want to find a number more specific to YOUR situation though, you’ll have to use the 4% Rule.

The 4% Rule is known as the “safe withdrawal rate,” or the amount of expenses you should be able to withdraw from your savings each year when you retire without touching the principal. (This number is based on a study from Trinity University.)

Finding out your safe withdrawal rate is the first step to learning how to become financially independent.

So how do you find out how much you need to save? Do two things:

1. Find out how much you spend yearly. This includes everything that you might possibly spend in a year including rent, utilities, groceries, gas, etc.
2. Multiply it by 25. Or however many years you aim to retire for.

This will give you enough expenses to withdraw 4% for years and years to come.

Here’s a handy chart to show you how much you’ll need to save based on possible yearly expenses.

ANNUAL EXPENSES	HOW MUCH YOU NEED TO SAVE
$20,000	$500,000
$30,000	$750,000
$40,000	$1,000,000
$50,000	$1,250,000
$60,000	$1,500,000
$70,000	$1,750,000
$80,000	$2,000,000

Using the above information coupled with your annual after-tax income, you’ll be able to come up with an annual savings rate (i.e., how much you need to save each year).

Luckily, you don’t have to strain too hard with back-of-the-napkin math to figure it out, as there are a bunch of retirement calculators online. This one is our favorite. It outlines exactly how many years it’ll take to save depending on your savings rate.

Play around with the calculator until you’ve come up with a savings rate that works for you. After that, you’ll know exactly how much you should be saving every time you get a paycheck.

“In terms of the percentage, I suggest you save 65% of your after-tax income,” says Mad Fientist. “That may seem like a ton — but it’s possible. I averaged around 75% to 80% when I was saving.”

Meanwhile, Physician on FIRE suggests you should actually save about 50% of your income to go towards your goals.

“When pursuing FIRE,” PoF says, “keep in mind that you’re locking yourself into the same lifestyle as when you reach financial independence. [So] if you’re making too many frugal choices that don’t jive with your persona, start living the way you want to and base your FI target on that.”

Remember our example using the average salary and expenses? Looking at the chart, we know now that the average American needs to save about $1,500,000 in order to retire early. Our savings rate will then be about 32% of our annual income each year in order to save enough money to retire early (we’ll go into how long it’ll take later).

Everyone that goes for FI has to decide something important: Should you try to live as frugally and retire as early as possible and minimize your expenses, or would you rather take part in the finer things in life but retire later?

Luckily, there are two communities that embrace FIRE in different ways that can help you decide.

Step 2: Choose your FIRE lifestyle

There are typically two schools of thought when it comes to financial independence: leanFIRE and fatFIRE.

Though they sound more like weight loss supplements or descriptions of my latest mixtape than systems for financial independence, there’s no need to be intimidated by them.

“LeanFIRE and fatFIRE are just terms for how much you plan to live on when you retire,” the Mad Fientist says. “There’s no ‘better’ way. Just test out your spending until you find a method that works for you.”

While both have the same goal of achieving financial independence, aspects such as how much you spend, save, and even quality of life can be affected by which approach you choose.

leanFIRE

This approach requires you to have a low spending rate each year (typically less than $40,000/year).

“To be leanFIRE is to subsist on a comparatively low level of spending — much like most of us did in college,” PoF says.

This means adopting a frugal lifestyle and sacrificing certain “luxuries” like cars. It can even determine the places in the world you can live in (it’s easier to live cheaply in Norman, Oklahoma, than NYC for instance).

On the other side of the coin, there’s a FIRE movement that aims to keep up the benefits of financial independence while still retaining a life of semi-luxury: fatFIRE.

fatFIRE

FatFIRE is the system of financial independence that allows you to live a more “high-class” lifestyle. But it takes longer to complete.

“FatFIRE is to be financially independent on a more typical level of spending,” PoF says. “I’d say to qualify as ‘fat,’ your anticipated spending should probably be somewhere north of the national average.”

According to PoF, that’d be an annual spending rate of around at least $80,000. “That lends itself nicely to a round number of $2 million saved to have a budget with a 4% annual withdrawal rate,” he says.

This is the practice that PoF embraces — and his reason might convince you to pursue the lifestyle as well.

Let’s assume you don’t want to sacrifice your $60,000-a-year lifestyle and want to save enough money to get there. You’ll need a higher rate of saving AND earning to do that …

… which brings us to:

Step 3: Earn more money

Do you know how long it’ll take you to save $1,500,000 on a salary of $73,000 and a savings rate of 34%?

More than 26 years.

That’s a long time, and if you want to retire early, you might not want to wait that long.

Luckily there’s a way to DRASTICALLY shorten that time: Earning more money.

Earning more allows you to increase your savings AND speed up your financial independence goals. While there are a lot of ways to make more money, the best way is starting a side hustle. It’s a big win. 

Below are our resources that have helped thousands of readers start their side hustles:

• How to make extra money on the side
• How to find your first client
• 42 side hustle ideas

To help you get started, today, I want to show you how to find a great side hustle idea. It’s one of the biggest barriers preventing people from starting their own business and making extra income. You can find a great idea by answering four simple questions about your life:

1. What do you already pay for? You pay people to do plenty of things in your day to day (drive you places, make you food, etc.). You can turn these services into your own side business. Examples: Clean your home, walk your pet, cook you meals, etc.
2. What skills do you have? All of us have skills that we do well — and there are plenty of people out there who’ll want you to teach them those skills too. Examples: Fluency in a foreign language, programming knowledge, cooking skills, etc.
3. What do your friends say you’re great at? This is a great question. It’s great to reveal exactly what people will pay you for (and it’s a good ego boost). Examples: Workout routines, relationship advice, great fashion sense, etc.
4. What do you do on a Saturday morning? This question shows you what you’re passionate about and love to spend your time on. Examples: Browsing fashion websites, working on your car, reading fitness subreddits, etc.

Find an answer to those questions and you’ll be on the same path as thousands of our students who have found a profitable business idea.

Step 4: Cut costs mercilessly

A lot of us tend to DREAD the idea of cutting costs — and with good reason. Thoughts of not being able to go to your favorite fast food restaurant or your father yelling at you when you change the thermostat just a fraction of a degree often crop up.

 

But Mad Fientist suggests you focus on paying for the things you love and cut out all the rest.

“Scrutinize and be conscious of your spending,” he says. “If you see a nice BMW you think you want consider one thing: You could have the BMW or you could be a year closer to not having to work for anyone ever again. Framing it that way helps. It’s not like you’re saving. You’re working towards your financial freedom.”

Conscious of your spending. Conscious … spending…

…I wonder where I’ve heard that before?

Conscious spending allows you to know exactly how much money is in your bank account to spend without you worrying about having to make rent and pay the bills, because it’s already been done for you.

How? Through automated finances. This is the system where your paycheck automatically divvies up and transfers to where it needs to go as soon as you receive it.

Here’s a 12-minute video of Ramit explaining exactly how to do it.

NOTE: If you’re pursuing financial independence, you’re going to want to adjust the percentage of money you put away to savings when you implement your plan. You can choose to save around 65% like Mad Fientist suggests, or you can choose to put half your paycheck into your savings like PoF encourages. Or you could go a different route. It’s all up to you and your savings goals.

Using a conscious spending plan also allows you to not sweat the small things you like.

“Realize that the small stuff is just that — small stuff,” PoF says. “The biggest expenses are the big stuff like housing, transportation, and travel. Don’t rent or buy too much home, spend too much on a luxury auto or lengthy commute, and learn to be comfortable at a Comfort Inn.”

Remember: cut things you DON’T care about, to focus on the things you do. Don’t just indiscriminately cut everything.

You can also learn to cut costs by leveraging retirement accounts that give you amazing tax advantages.

If you want to find out more about awesome accounts like the Roth IRA and 401k be sure to check out our articles on the topic:

• The world’s easiest guide to understanding retirement accounts
• 401k: The single best way to grow your money
• 4 keys to early retirement

But for now, I want to talk to you about an account with fantastic tax leverages you might not have heard of before: health savings accounts (HSA).

According to the Mad Fientist, HSAs are “tax-advantaged savings accounts available for people who are enrolled in high-deductible health insurance plans.”

He continues, “HSA account holders can contribute pre-tax dollars to the account and can then withdraw money from the account, tax-free, when paying for qualified medical expenses.”

So you contribute tax-free money AND withdraw tax-free money.

As of writing this, you can contribute $3,400/year for individuals and $6,750/year for families to an HSA. By maxing it out each year, you can reduce your taxable income by $3,400.

In 2018, the contribution limits for both individuals and families will go up to $3,450 and $6,900 respectively.

Sure, you can’t take the money out other than to pay for certain medical expenses — but when you turn 65 you can without incurring any penalties.  

That means all that tax-free money is yours, effectively lowering your taxed income over your lifetime by $3,400/year.

“You should do all that you can to legally reduce your tax burden,” PoF explains. “If you max out your workplace retirement accounts and an HSA [Health Savings Account], you can deduct a significant sum from your taxable income. There’s only so much a wage earner can do, but do all that you can to pay the least and save the most.”

Once you have your retirement accounts set up, you’ve taken steps to cut costs, and you’re ready to earn more money, congrats! You’re on the road to early retirement.

Now I want to offer you something to dramatically cut down the time it takes to save for retirement even MORE:

The Ultimate Guide to Making More Money

This guide will give you the exact systems you need to help you earn extra income on the side and eventually achieve financial independence (if you want it).

You’ll find our tactics to:

• Create multiple income streams so you always have a consistent source of revenue.
• Start your own business and escape the 9-to-5 for good.
• Increase your income by thousands of dollars a year through side hustles like freelancing.

Download a FREE copy of the Ultimate Guide today by entering your name and email below — and start your financial independence journey today.

Financial independence: 4 steps to save $1,500,000 is a post from: I Will Teach You To Be Rich.

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