Time is more valuable than money

It's a GRS tradition! Each year on Halloween, I publish a story about planning for death. Usually these are general articles about estate planning. This year's story is personal.

When my best friend died in 2009, one of my biggest regrets was that I hadn't made time to travel with him.

Sparky had previously asked me to join him on trips to Burning Man (in 1996) and southeast Asia (in 1998) and Mexico (in 2003). I'd declined each invitation, in part because I was deep in debt but also because I thought there'd be plenty of time to do that sort of thing in the future.

Turns out, there wasn't plenty of time to do that sort of thing in the future.

After Sparky died, I resolved to make the most of opportunities like this. Being in a better financial position helped. Having ample savings gives me the flexibility to join friends on short adventures or to explore the U.S. by RV for fifteen months without money worries. (Yes, I realize that's a fortunate position to be in.)

Here's an example. In 2012, my cousin Duane asked me to join him for a three-week trip to Turkey. Remembering my vow after Sparky's death (and remembering the power of yes), I agreed. That trip to Turkey is one of the highlights of my life so far. I'm glad I did it. It was worth every penny.

The Best Laid Plans

Early in 2017, Duane contacted me. “This fall will be the five-year anniversary of our trip to Turkey,” he said. “Want to have another big adventure?”

“Sure!” I said. So, we started planning.

We bought books, watched videos, and browsed websites. We invited Kim to join us. Over the course of several months, our plans crystalized. We'd fly to Paris, rent a car, then spend three or four weeks driving around France and Spain and Portugal, enjoying festivals, experiencing the grape harvest, and exploring ruins. (Duane loves ruins!)

In June of last year, I sent Duane an email. “I'm going to buy plane tickets tomorrow. Do you want me to buy yours?”

“Hold up,” he responded. “We need to talk.” He called me on the phone.

“What's going on?” I asked.

“Well, J.D., it's like this,” he said. “I have cancer. I've been having problems with my throat for a few months, but I thought that was because of indigestion or something. It's not indigestion. I have throat cancer.”

Long-time GRS readers know about the curse afflicting the men of my family. We die young because of cancer. My father died of cancer ten days before his fiftieth birthday. Duane's father died of cancer at age 51. Duane's brother died of cancer at 47. Now Duane was telling me that he had cancer at age 53. (Is there any wonder I fear I'll die of cancer in the next few years?)

“Holy shit,” I said. “Are you serious?”

“Yes,” Duane said. “And the prognosis isn't good. I need to start chemo as soon as possible, which means I won't be able to do this trip. You and Kim should go without me.”

We did not go without him. We discussed doing so, but felt like it wouldn't be the same. (Instead, Kim and I took the money we would have used to see France, Spain, and Portugal, and used it to remodel our new house.)

Fortunately, Duane's treatment seemed to work. His cancer went into remission. Although things were scary there for a while, his health began to improve.

Things Come Undone

Two months ago, at the end of August, Duane invited me to join him for a mid-week trip to the Oregon coast.

“Can I bring the dog with me?” I asked.

“Sure,” he said.

On a sunny Wednesday, we piled into my Mini Cooper and drove the ninety minutes to Seaside, Oregon. There, we walked on the beach, bought saltwater taffy, and ate clam chowder for lunch. We talked about a variety of nerdy things.

You see, Duane is a nerd just like me.

• Like me, he loves his videogames. (In fact, he likes videogames more than I do.)
• He's an avid player of Magic: The Gathering.
• He used to collect semi-official Canadian airmail stamps.
• For 20+ years, he's collected ancient coins. (By which I mean coins from before the birth of Christ.) His desk at the box factory used to be covered with uncleaned coins that he was soaking to remove centuries of dirt and grime.

Duane is also a money nerd. In fact, were it not for Duane, it's unlikely that I would be a money nerd.

In 1992, Duane was the person who introduced me to mutual funds. He convinced me to set up an automatic investment plan into some Invesco funds. I contributed $50 per month to five different funds, for a total of $250 per month. That lasted for four months until I cashed out to buy a new computer.

Duane introduced me to a variety of money books, most notably The Only Investment Guide You'll Ever Need by Andrew Tobias. He taught me a ton of other lessons about life and money, some of which I've shared here at Get Rich Slowly over the years. (The Duane story I most often mention includes this lesson: “It's not bad to want things…It's not want that's the problem, but the habit of constantly satisfying wants.”)

During our walk on the beach, Duane gave me the news that I'd been dreading. “My cancer is back,” he said. “I've been doing immunotherapy.”

“What's immunotherapy?” I asked.

“Well, it's an attempt to stimulate the body's immune system to fight the cancer. With chemotherapy, the drugs are fight the cancer. Immunotherapy is a newer treatment and its effects less well known. It's not as harsh as chemotherapy, but it's also not usually as effective.”

“How is it working for you?” I asked.

“It's too soon to tell,” Duane said. “But so far I'm hopeful, and so are the doctors.”

I wanted to ask what his prognosis was, but was afraid to ask. I thought maybe he'd volunteer the info. He didn't. Finally, several hours later as we were driving home, I got up the courage to ask.

“What do the doctors have to tell you about your current situation?” I asked. For some reason, whenever I talk about Duane's cancer, I call it his “situation”.

“Honestly, it's not good,” he said. “At the end of June, they told me I probably had three to six months left to live.”

“Holy shit,” I said as I did the math in my head.

“Yeah. It doesn't look like I have much time left,” Duane said.

The Farewell Tour

“So, I've been thinking,” Duane said as we reached the outskirts of Portland. “I'd really like to go to Europe this winter. I want to see the Christmas markets in Vienna and Prague. Assuming I make it to December, of course. Do you want to come with me?”

“Of course,” I said. “You let me know when and where, and I'll make it happen.”

I was thinking of all of the times Paul had asked me to do things with him and all of the times I'd said no. I didn't have the money then, and I didn't have the perspective of age. Now I have both.

Later that evening, I talked to Kim about Duane's situation. “Duane is one of my best friends,” I said. “He's being pragmatic about his situation and so am I, but that doesn't mean I'm not torn up about it. I want to spend as much time with him as I can before he dies.”

“I totally support that,” Kim said. “You do what you have to do, and we'll figure it out.”

Last week, Duane and I met for lunch. He's now at the end of his fourth month of “borrowed time”. Honestly, he looks and sounds great. But I can tell that The End is weighing heavy on his mind. “Do you still want to make the trip to Europe?” I asked.

“Absolutely!” he said. “My brother and his wife plan to join us. And their daughter and her husband. There'll be six of us.”

Over the past week, we've been sorting out details.

• I booked a moderately expensive round-trip flight to Berlin. (Moderately expensive because I'm being fussy. I only want one layover. I want the flights to be short as possible. I have a limited set of dates on which I'll fly.)
• Duane and his niece picked the cities we'll visit: Vienna, Prague, and Budapest. She made a list of potential AirBNB rentals. Yesterday, I booked lodging for the six of us.
• After everyone else has flown home, Duane and I will fart around Germany without any real direction or plans — just like we did in Turkey.

There's a part of me that wonders if Duane will be healthy enough to travel in five weeks. (I let him proof this post. When he did, he expressed the same concern.) Again, he looks great now, and he's continued to defy the odds over the past eighteen months. (He recently ran the numbers for me based on the survival rate for various stages of his cancer. I can't remember the exact figure, but he's already lived longer than something like 98% of people in his situation.) But I worry what might happen before the trip.

When my own father was diagnosed with cancer in 1989, he was given six months to live. He lived another six years. It's my deepest hope that Duane too will fight that long, but I'm also trying to be realistic about his situation. I think he is too. In many ways, this trip to Europe is a sort of farewell tour.

Time Is More Valuable Than Money

When all is said and done, this trip will cost each of us several thousand dollars. Under normal circumstances, that's a lot of money. In this case, it seems like peanuts.

My friend Grant Sabatier has a book coming out in early February. It's called Financial Freedom. I read it last weekend so that I could provide a blurb. (It's good! You should check it out when it's available.)

“If some ninety-year-old rich dude offered you $100 million to trade places with him, would you do it?” Grant writes at the start of the second chapter. “Of course not. Why? Because time is more valuable than money.”

You can always make more money…but you can't make more time.

This is not permission to spend lavishly on anything and everything just because you might get hit by a truck tomorrow. It is, however, an invitation to consider what's important to you and to focus on that. It's encouragement to get clear on your personal mission statement and to build your life around it.

Over the past few months, Duane has made a superhuman effort to spend time with his family and friends. This time together is important to him. More than that, I think that he knows it's important to us, the ones he'll leave behind. We love him. We don't want him to die — but we cannot control that. All we can control is the time we spend with him today. All we can do is build more memories.

Here's another anecdote I like.

Duane and I went shopping after our lunch date last week. We stopped at the Icebreaker store to look at expensive wool shirts for our trip to Europe.

“I have a curious relationship with money now,” Duane told me as he held up a $130 shirt. “I can't take it with me, so what does it matter if I spend it? If I want a $130 shirt, I'm going to buy a $130 shirt — even if I only get to wear it once or twice.”

Duane did not buy that $130 shirt. Duane is a frugal fellow. I don't think he could buy a $130 shirt even if he tried!

The post Time is more valuable than money appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2RpjflC

Should you pay off your mortgage early?

My friend Amy recently wrote with an interesting dilemma. “Should I pay off my mortgage early?” she wonders.

Amy has a high-paying job and has managed to save enough that she could be completely debt-free if she wanted to. And she kind of wants to! But is this the best choice? She's aware that this is a nice problem to have — but it's still a bit of a muddle. She'd like some guidance.

Here's an abridged version of her email:

I'm wondering if you have any advice for me related to paying off a mortgage vs. keeping it for tax purposes.

Here’s the basic rundown: I have $103,000 left on a 30-year fixed-rate mortgage at 3.95%. My monthly payment is $668 per month. I pay both my taxes and insurance out of pocket annually.

The past two years, I've made close to a quarter of a million dollars each year, and this year I will likely exceed that amount. This is a wonderful place to be. With no other debt, I'm contemplating whether I should completely pay off my mortgage in one swoop come November when I get my bonus.

I have advice coming from both sides. My accountant warns me against it, as I would have no other write-offs to offset my high income. However the freedom of being DEBT FREE sounds amazing, even if it comes with a high tax bill.

I would love your advice (or the advice of your readers, if this offers an opportunity to share with them).

My stock answer to this question — which I get a lot — has always been: This is a no-lose situation. Deciding whether you should pay off your house is a case where either option is awesome.

Mathematically (and financially), the best choice is almost always to carry the mortgage. However, many people receive a huge psychological boost from not having a mortgage. In other words, this is one of those situations where the smart financial decision and the smart psychological decision aren't necessarily the same.

Although Amy is asking specifically about the tax implications, let's start by examining the Big Picture.

The Pros and Cons to Paying Off Your Mortgage

Just so everyone is on the same page, here's a quick look at the pros and cons to paying off your mortgage. There are advantages and disadvantages to both choices. Are certain advantages more important than others? You make the call.

Here's why you might want to pay off your mortgage early:

• Whenever you pay off debt — including your mortgage — you earn a guaranteed return on your money. The stock market returns a long-term average of 6.8% (real returns), but average is not normal. There's a lot of risk involved investing in the stock market. If you're not comfortable with that risk, paying off your mortgage is a fine investment. More on this in a moment.
• I like to think of home equity as a “store of value”. When you pay down your mortgage, it's like putting money in the bank (albeit money that's harder to access). That equity can be tapped when needed. In the meantime, it slowly appreciates (assuming the value of your home increases).
• If you're currently paying private mortgage insurance — typically in cases where you have less than 20% equity in your home — then paying down your mortgage will help you eliminate that cost. This isn't applicable to Amy's situation, but it's something others might want to consider.
• There's absolutely a sense of relief that comes from being mortgage-free. You know that if things go to hell — you lose your job, the economy tanks, et cetera — at least you have a place to live.

On the other hand, there are reasons you might want to keep a mortgage for as long as possible. Here are some reasons you might decide you'd rather not pay off your mortgage:

• If you believe you can earn a higher rate of return investing elsewhere, then that's the most sensible choice. In our recent era of low mortgage rates and high stock market returns, for instance, the logical choice was to invest in the stock market instead. In the 1970s, though, when mortgage rates were high and the stock market was lethargic, this wouldn't have been a smart decision. (Here's a simple calculator that can help you weigh this decision.)
• Some folks — like Amy's accountant, apparently — believe that the tax breaks from your mortgage make it worth keeping. The home mortgage interest deduction, they say, helps to lower your obligation at tax time. While this is technically true, it's a poor trade. (You'll see why in the next section.) Still, as part of the Big Picture, it's an influencing factor.
• Although it's not often a consideration, inflation is actually your friend when it comes to a mortgage — especially a 30-year mortgage. I bought my first home for $108,000 in 1993. If I had kept that home and mortgage, I'd still be paying on it until 2023. But I'd be paying with current dollars, which are only worth about 57 cents compared to 25 years ago. Inflation is generally the enemy; with a mortgage, it's your friend.
• Finally, it can make more sense to keep your mortgage if you value liquidity. That is, if you want and/or need cash, keeping the mortgage can be the better option. Once you give your mortgage company your money, it's a pain to get it back.

Because of my own situation, I feel like that last point deserves a closer look.

You see, I've been without a regular income for more than five years now. I'm living off my savings. It's true that I have substantial savings (for which I'm grateful), but much of it is held in retirement accounts that cannot be tapped without penalty until I turn 59-1/2. (That's less than ten years away now!)

I have a roughly $300,000 nest egg to last me the next ten years. If the stock market falls, that number will shrink. There's a part of me that wishes I hadn't been required to pay $442,000 cash for this house last year. It'd make me feel better to have some of that equity — maybe half of it? — in the stock market and savings accounts instead.

As it is, I could be in a pickle if it turns out I need more cash.

The Home Mortgage Interest Deduction

Because Amy asked about the tax implications of paying off her mortgage, let's tackle that before we dive deeper.

Here in the United States, homeowners are allowed to deduct their mortgage interest from their income taxes provided certain conditions are met.

The basic conditions are relatively easy to understand. But as with anything tax-related, there are a lot of exceptions and complicating factors. For more info, consult this IRS guide to home mortgage interest deductions. You can also download the 17-page IRS Publication 936 in PDF form.

Let's assume that Amy makes (as she hopes) $250,000 this year. Using the income tax tables for 2018, we can see that her marginal tax rate would be 35%. (This means that the last dollar she earned is taxed at 35%.)

She'd be taxed $45,689.50 on her first $200,000 of income, then $17,500 (35%) on the next $50,000. Her total tax would be $63,189.50 and her effective tax rate would be 25.3%. (Her tax liability would be 25.3% of her income.)

Assume Amy pays $6000 in mortgage interest in 2018 (which seems reasonable given her $668 monthly payment). If she's able to fully deduct that interest, that means she's able to reduce her taxable income from $250,000 to $244,000. This would reduce her tax liability from $63,189.50 to $61,089.50 — a total of $2100.

This is the part that confuses many people. Income tax deductions reduce the amount on which you're taxed, not the amount of tax you owe. It's a subtle but important difference. (Tax credits reduce the amount you owe. Here's what the IRS has to say about the difference between tax credits and tax deductions.)

If the home mortgage interest deduction actually reduced Amy's taxes, she'd save $6000 this year. Instead, she's only saving $2100. For each dollar she pays the bank, the government is reducing her taxes by 35 cents. Sound like a good deal? If so, let's talk! I'd be happy to give you $35 in return for $100.

Like many others, I find the “you should keep a mortgage for the tax deduction” argument unconvincing. Here's how my accountant once put it: “You shouldn't look at the tax savings as a reason to purchase a home. It's only one component, and a minor one at that.”

The IRS website has an interactive tax assistant. As part of that, there's an automated interview that helps you determine what you're able to deduct for mortgage interest.

The Math of Paying Down Your Mortgage

Have you noticed that we keep talking about the “guaranteed rate of return” that comes from paying off your mortgage? Yet we haven't talked about what that guaranteed rate of return is. Let's take a moment to do that.

• If you don't itemize your tax deductions, your rate of return on prepaying your mortgage is simply your current mortgage rate. Let's say you have a mortgage with a 3.95% APR like Amy. Paying that down gives you a guaranteed 3.95% return.
• If you do itemize tax deductions, your guaranteed return is a bit more complicated to calculate. To do so, convert your marginal tax rate to a decimal and subtract it from one. Then, multiply that number by your mortgage rate.

Let's use Amy's situation to explain that last point.

Amy's marginal tax rate is 35%. If we convert that to a decimal, we get 0.35. If we subtract that from 1, we get 0.65. If we multiply that by her mortgage rate (3.95%), we get 2.57%.

If Amy were to pay off her mortgage early, she'd earn a guaranteed 2.57% return on her money.

This is much, much less than the 6.8% real return Amy should be able to earn if she routed that money to index funds instead. The catch? As mentioned earlier, stock market returns are not guaranteed.

(I'm going to leave out compound interest vs. simple interest calculations because I've already spent too much time on this article. Suffice it to say that stock market returns compound while the returns from prepaying your mortgage do not. If you're dying to see a discussion of this, check out this article at Afford Anything.)

If you make your decision based only on math and logic, it makes sense to keep your mortgage as long as possible. But nobody makes decisions like these based purely on logic. Not even financial “experts”.

Want to know more about the math of paying down your mortgage? My buddy Todd Tresidder, the Financial Mentor, nerds out on this stuff. Follow that link to read his advice. The short version? He used to be in the “pay off your mortgage” camp. Now he thinks the opposite. (If you're a money nerd, Todd provides some of the best mortgage calculators I've found. Check them out!)

What the Experts Say

What do the actual money experts think about this debate? They're divided. Some think you should do what you can to pay off your mortgage early. Others think that's a dumb idea.

Here's a round-up of opinions from some of the money manuals in my library.

• Ric Edleman (Ordinary People, Extraordinary Wealth): Never own your home outright. Instead, get a big 30-year mortgage and never pay it off — regardless of your age and income. “Every time you send an extra $100 to your mortgage company, you deny yourself the opportunity to invest that $100 somewhere else.”
• Suze Orman (The Laws of Money): Invest in the known before the unknown. Paying off your mortgage offers a guaranteed return on investment. “You cannot live in a tax return. You cannot live in a stock certificate. You live in your home.” (Or on your private island.)
• Elizabeth Warren (All Your Worth): Save 20% of your income. Use 10% for retirement savings, 5% to accelerate your mortgage, and 5% to save for future dreams. “Paying off your home also does something many financial planners neglect to mention: It gives you freedom. Once that mortgage is gone, just imagine all the freedom in your wallet.”
• Dave Ramsey (The Total Money Makeover): Prepay your mortgage if you can, but only after you've saved an emergency fund, and only if you're putting at least 15% of your income toward retirement. Don't use a program designed by a broker; use your own self-discipline.
• Joe Dominguez and Vicki Robin (Your Money or Your Life): “Pay off your mortgage as quickly as possible.” This advice is from 25 years ago, when mortgage rates were higher. While writing this article, I emailed Vicki to ask if her advice is the still the same. It is: “My choice is to not have debt and to live in a house I can afford.”

I've read hundreds of money books during the past fifteen years. Many authors have commented on this issue. Some experts argue in favor of keeping your mortgage; other experts argue in favor of becoming debt-free. There's no consensus.

When I first wrote about paying off your mortgage more than a decade ago, I linked to a Yahoo! Finance article by Laura Rowley. That article has vanished, which is a shame. In that piece, Rowley offered some interesting background on this debate:

Why do so many people choose to put extra money into a mortgage when other options would likely increase their wealth? “This is really remnant of Depression mentality that has persisted from generation to generation,” says [one expert]. At the time, most mortgages had one- to five-year terms, with a lump sum payment due at the end.

“Any shock to income meant you couldn't afford your payment — mortgages were much more susceptible to economic uncertainty,” [the expert says], and roughly one-quarter of Americans were unemployed during the Great Depression. “It's fine to pay down your mortgage if it gives you peace of mind, but you should recognize what that peace of mind costs.”

Rowley is suggesting that the “pay off your mortgage if you can” mentality is the product of a scarcity mindset. It's a decision born out of fear. Keeping the mortgage, on the other hand, is a sign of an abundance mindset, a belief in a positive future. (Do you agree with her?)

What My Colleagues Say

Yesterday, I polled some of my colleagues who write about real estate. These folks live and breathe housing and mortgages, so they know their stuff. I was curious what they thought about paying off a mortgage early.

My pal Coach Carson said:

My wife and I have debated this exact question on our personal residence. We love the idea of simplifying our lives and reducing our risk. But thus far we've decided not to.

Overall, I see paying off your mortgage early as a decision that balances peace of mind (low risk) and growth (return). The more weight you give peace of mind, the more likely you are to pay off your mortgage early.

Scott Trench, the President of real-estate site BiggerPockets and author of Set for Life, told me:

Whether you should pay down your mortgage is less of a mathematical problem and more of an emotional one.

• If I'm in wealth accumulation mode, or trying to operate my decision-making for the largest amount of long-term wealth possible, I'm going to invest in an alternative rather than pay down my mortgage.
• However, once out of wealth accumulation mode, paying down a mortgage seems to be hugely popular. A paid-for home can make a huge difference in the amount of cash flow needed to fund your lifestyle.

I go into a bit more detail about the math behind paying down a home in this article.

Finally, here's advice from Mindy Jensen, host of the BiggerPockets Money podcast (and Mrs. 1500 Days):

Most people overlook the incredible power of having a paid-off mortgage. I can sleep just fine while still having a mortgage, but some people get the heebie-jeebies having any sort of debt at all.

However, if you'll do something with this money that can return a higher yield than your current mortgage, it's a no-brainer to not pay it off.

We've saved enough money to pay off our mortgage at any time, yet continue to keep the mortgage because we can make more money investing in the stock market (or investing in real estate) than we pay in interest to the loan. Our rate is 3.25% and we will keep it for the entire length of the mortgage.

Among my friends who make their living from real estate, there's more of a consensus than there is among traditional money experts. The real-estate pros all say the same thing: From a mathematical perspective, it's best to keep the mortgage. But from a mental perspective, sometimes the best choice is to pay it off.

Conclusion

There are some corners of the interwebs where people are flabbergasted that you'd want to carry a mortgage. A lot of folks think that if you can pay off the debt, it's a no-brainer. They're wrong. The math argues in favor of keeping the mortgage.

As my friend Amy has discovered, however, this decision is more about mindset than it is about math. And sometimes even the math makes paying off the mortgage the best choice.

• In the unlikely even that you're carrying an adjustable-rate mortgage, paying it off is a smart idea, especially now that rates have begun to rise.
• If you wouldn't otherwise use the money productively — if you'd simply spend it on consumer goods, for instance — then you should absolutely prepay your mortgage. Keeping the mortgage is only a smart financial choice if you put that money to work for you!
• If you're nearing retirement, it probably makes sense to pay off your mortgage. Generally speaking, you want to reduce risk as you get older. Eliminating the mortgage is one way to do that. Some folks argue that paying off your house is actually another form of retirement saving.
• If your mortgage debt is a heavy psychological burden, it probable make sense to get rid of it. Becoming mortgage-free means you're also free from the time and energy spent managing the mortgage. This is a real benefit, even if you can't put a number on it.

There you have it, my friends, 3000 words on whether or not you should pay off your mortgage early. And in the end, the answer is: It depends.

The bottom line is this is a no-lose situation. Both options are good. If you're fortunate enough to have the cash to pay off your mortgage, and if doing so would make you happy, then you should pay off the house. Otherwise, keep the debt and put the cash to work elsewhere!

The post Should you pay off your mortgage early? appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2yGNltX

The best of both worlds: How to find quality products without spending a lot of money

Our recent three-part discussion on choosing quality over price has been interesting. (If you missed it, here's part one, part two, and part three.)

It's clear that most of you money bosses value quality, but not all of you are willing to pay a premium to obtain it. And some GRS readers don't think it's ever worth paying more to buy the best. (In fact, some folks think this philosophy is foolish.)

One thing we all seem to agree on: It's always best to pay less.

I've shared a few of my strategies for finding cheap quality items over the past week, and various GRS readers have chimed in with theirs. But these tips and tricks are scattered across three articles comprising thousands of words. Today, I'm going to pull everything together in one place.

Here's a compilation of this community's favorite ways to find quality products without spending a lot of money.

Consumer Reports

As I mentioned earlier this week, I'm a lifelong fan of Consumer Reports. I subscribe to both the magazine and the website. (It's a business expense, so it's easy to justify.) Consumer Reports does a fantastic job of demonstrating how price and quality aren't always correlated.

Here, for instance, are there current top five space heaters. (I need to get a better one for my writing shed.)

As you can see, an expensive Dyson heater ranks second on the list at $450. But the top Vornado heater is just one-third the price. And the fourth-place heater, which has decent quality, can be had for just 10% of the Dyson's cost (and one-third the cost of the top heater).

While the Consumer Reports magazine is great, I like the website even better. It's easy to find whatever you want. You can sort products by different criteria. You can create comparison lists. And, best of all, each product has its own specific page (including reader reviews!). A subscription to CR online costs $35 per year.

Clearance and Close-Outs

Another technique I use to pay less for quality items is to shop clearance and close-out sales from brands I trust. (Or, for electronics, I check out refurbished items.)

On those rare occasions that I shop for clothes, my first stop is always the clearance racks. This is true whether I'm in a high-end store or a discount retailer.

Some stores, such as REI, have amazing clearance racks where you can find great clothes for as much as half off. The selection is usually relatively random — it's end-of-season stuff or unpopular items — but if you're able to find something you need, you can save big bucks.

(Another tip for REI: Wait for your store's annual “garage sale”, where they gather up all of the returns and remainders to sell for cheap. If you're handy, you can buy a $120 pair of pants for $12 because it has a broken zipper. Fix the zipper, and you've saved a wad of cash!)

Retailer websites are a slick way to find these clearances and close-outs. Again, selection can be limited, but the prices are good. Here are the sales pages from companies the GRS community likes:

• Apple refurbished items
• Birkenstock
• Icebreaker
• Keen
• Land's End
• L.L. Bean
• Marmot
• Merrell
• Otter Box
• Patagonia
• Pendleton Woolen Mills
• REI
• Reima (children's clothing from Finland)
• Stetson
• Timberland
• Zwilling (source of Henckels knives)

On a related note, one reader pointed to a list of brands that deliver consistent quality at the “You Look Fab” fashion blog. In that article, the author notes: “Price is not a good indicator of quality, and for the most part, neither is the brand. The best we can do is make discerning decisions about quality before purchase, launder with care, and hope for the best.”

Hot tip! Even websites without a sale or clearance section often have sale or clearance items. If you can't find a dedicated page for discounted items, simply type “clearance” into the search box. Here, for instance, is the result of searching for “clearance” at Dr. Martens. (If “clearance” doesn't work, sometimes “sale” does.)

Reader Suggestions

Those are my top tips for buying quality items for less. When I need to buy something, I check Consumer Reports first to narrow my options to top performers at reasonable prices. For products that CR doesn't cover (such as clothing), I look for clearance items.

There are other ways to go about this, of course. Here are some other things GRS readers do to pay less for the good stuff:

• Several readers shared that they mitigate the cost of quality by intentionally choosing products that carry lifetime warranties. While this doesn't reduce that actual upfront cost of the product, it does mean that you'll never have to buy it again. (In theory, anyhow.) This sounds like a great strategy for organized people. Me? I'm not so organized. Maybe I should start a spreadsheet to track the things I own that carry lifetime warranties!
• In the GRS Facebook group, Michelle Wigg suggests setting up on alerts on eBay and Craigslist for the items you want. Then, be patient. Judy Blanc uses EstateSales.net to track down sales in her area. (She says she finds better deals in “normal nice neighborhoods” rather than mini-mansion areas.)
• A number of GRS readers recommended Wirecutter, a site owned by The New York Times. From the site: “Wirecutter is a list of the best gear and gadgets for people who want to save the time and stress of figuring out what to buy. Whatever sort of thing you need—tableware or TV or air purifier—we make shopping for it easy by telling you the best one to get.”
• At Fincon last month, I learned that I'm not the only fan of The Luxe Strategist, the blog about “personal finance for people who like nice things”. This site has a dedicated following among financial bloggers precisely because it tries to answer the question, “How can you buy quality items without spending a fortune?” Here are two Luxe Strategist articles related to our current discussion: A practical guide to shopping for high-quality clothes and How to find hidden gems at thrift stores.
• Speaking of thrift stores, that's probably the most common way people find good stuff for less. I live near an upscale consignment store called Simply Posh. When Kim and I need new clothes, we try to check there first. If you're patient and willing to buy used, you can save huge amounts of money while still enjoying quality clothing. And thrift stores are good for more than just clothes. In the past, I've bought great tools, furniture, electronics, and more at thrift stores. (And I've donated great stuff too!)

To wrap things up, I've got two final tips from an email conversation with reader RayinPenn.

First, he suggests knowing what to buy when: “Timing is everything…getting a great deal may require waiting.” Pricing on many items is cyclical — even for items like paint and mattresses! Here are “best time to buy things” guides from Consumer Reports and from Lifehacker. (I should put together a similar guide of my own!)

Second, Ray says that before he and his wife buy anything, they check to see if a coupon is available. (My girlfriend does this too.) You can often find coupons for things you wouldn't expect. Ray writes: “A few years back, I wanted a greenhouse. I found the one I wanted for $1,100…[My wife] jumped online and BAM!, a 10% off coupon was out there.”

I'm no coupon expert — maybe I should do some research and write an article! — so I'll point you elsewhere for info on how to find coupon codes online. (I think all Kim does is type “[productname] coupon” in Google, but I could be wrong.)

Okay, that's it, I promise. I'm done writing about the relationship between cost and quality! (At least for a little while haha…)

The post The best of both worlds: How to find quality products without spending a lot of money appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2ESh2xJ

The boots theory of socioeconomic unfairness

When I wrote about my $80 pajamas, I never imagined it'd spark a three-part series of articles. Yet here we are.

• On Monday, I wrote about why I chose to buy high-quality pajamas. (I've been wearing them all week, by the way. They're awesome.)
• On Wednesday, I published a follow-up piece that explored the “buy it for life” philosophy, and explained why sometimes it makes sense to shop based on quality instead of price.
• Today, I want to spend a little time exploring the ethical implications of buying expensive items.

Quality tends to come with a price. While there are ways to mitigate some of these higher costs — buy used, wait for sales, etc. — if you want to buy new quality items, you're going to pay a premium.

Because of this, quality is often something reserved for the rich. If you have money, you enjoy the luxury of being able to buy quality items (if that's what you want). If you're struggling with money, if you're still in debt, then it may be difficult for you to prioritize quality over price.

Like so many things in life, this is fundamentally unfair. But that's how things are.

The Boots Theory of Socioeconomic Unfairness

In our discussions earlier this week, two different GRS readers pointed me to the Boots Theory of Socioeconomic Unfairness, which is derived from this passage in a Terry Pratchett novel:

The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes' ‘Boots' theory of socioeconomic unfairness.

This is an astute observation.

Quality costs more in the short-term. In this example, purchasing quality boots costs $50 instead of $10. However, the economics reverse over time. When you look at cost per use (or similar metrics), quality items eventually become less expensive — sometimes much less expensive.

That catch — the reason for this “socioeconomic unfairness” — is that if you're poor and/or struggling to make ends meet, you cannot afford to pay for quality. You're forced to choose the cheapest option…which is actually the most expensive option.

If, on the other hand, you're wealthy, then you have the luxury of being able to absorb the initial expense and allowing time to reduce your cost per use.

Going back to my pajama example, I had been buying the equivalent of $10 boots. Each year, I was spending $20 to buy a new pair because the old ones were wearing out. Because I'm in a position to afford it, I decided to buy the equivalent of $50 boots. I spent $80 on high-quality sleepwear in the hopes that it will last years instead of months.

If these PJs make it through four years, I'll have reached a break-even point with the cheap pajamas. (And, as an added benefit, I will have received much more pleasure from them.)

Does all of this make sense? If not, maybe a graph or two will help.

Socioeconomic Unfairness, Illustrated

I spent thirty minutes producing the two lousy charts below. Despite the poor quality, I believe they do a good job of illustrating the boots theory of socioeconomic unfairness.

Both charts cover a period of ten years. The red lines represent the total amount spent on boots during that decade. The blue lines — which are pretty worthless, I'll admit — illustrate the cost per month.

This first chart illustrates the cost of purchasing cheap boots:

As you can see, there's a low initial outlay to buy cheap boots, but the total amount spent on boots grows at a steady rate. What you cannot see is that the cost per month hovers at just above $1.67. (Every six months, the monthly expense hits $1.67. Then, when new boots are purchased, the cost per month increases.)

The second chart shows the cost of purchasing expensive boots:

Here you can see that there's a high initial outlay to buy expensive boots — but the total amount never changes. It stays constant over the decade of ownership. Meanwhile, the cost per month drops sharply. It's very high at first, but eventually declines to less than fifty cents per month.

Some implications from these two charts:

• At two-and-a-half years, the costs of ownership are identical. (That's what my fancy arrows are trying to indicate.) At this point, the cheap path will have cost $50 — the same as the expensive path. The cost per month at this point is $1.67.
• After two-and-a-half years of ownership, the cheap boots become the expensive boots and the expensive boots become the cheap boots. From this point forward, the “cost-of-ownership gap” slowly widens with each passing month.
• By the end of ten years, it will have cost four times as much to purchase cheap boots than to have purchased the expensive boots. The cost per month for the cheap boots will be $1.67; the cost per month for the expensive boots will be 42 cents.

Note, however, that there's risk involved. The expensive boots aren't automatically the better deal.

If something happens to the expensive boots during the first two-and-a-half years of ownership — they're lost, they're stolen, they're damaged, they're destroyed — then they forever remain the most expensive option. The cost per month never reaches the break-even point.

But here's where another aspect of socioeconomic unfairness comes into play. We already understand that it's tough for a poor person to save enough to buy the expensive boots. What happens if the boots are stolen after only one year of ownership? The rich person is frustrated, but she's able to replace the boots (with another expensive pair). The poor person, on the other hand, isn't able to self-insure. If the poor person's boots don't last thirty months, he's doubly screwed.

This is another example of how the rich get rich and the poor get poorer.

The Value of Mindful Spending

Here's the thing, though. Even if you're struggling to get by, even while you're trying to get out of debt, it is possible to prioritize quality with some purchases. You can't spend a lot to buy the best every time you make a purchase, but you can absolutely target the items that are most important to you.

I'm a big fan of conscious spending, the notion that you should give yourself permission to spend on the things that are important to you but cut back hard on the things that aren't.

In my own life, for instance, I recently opted to purchase a hot tub. This wasn't an easy decision. Hot tubs are expensive. Building a deck to surround the hot tub is even more expensive. Yet I recognized that Kim and I would get a lot of value from owning a spa. And we have. In the five months we've owned it, we've spent over 500 hours in the thing! Our cost per use is still high — about $14 per hour — but it will decline with time.

This is an example of a luxury purchase that's aligned with my own habits and values. No, it's not a necessity. But Kim and I are receiving a lot of value from this.

On the other hand, I choose not to own a fancy car. While it's fun to ride in them once in a while, I have little desire to have a modern vehicle. Buying a new car doesn't match my habits or values, so I get by with my 15-year-old Mini Cooper. (And Kim drives a 20-year-old Honda Civic.)

These are examples of conscious spending in action.

The same principle can be applied to deciding whether or not to buy quality.

If there's a tool you use every day, for example, one that's an important part of your work or home life, then I believe it's fine to pay more to buy quality. You might disagree, but I don't view this as consumerism. In fact, I see it as the opposite of consumerism. You're trying to buy less in the long term, not more.

Let's use the boots as an example again. If Vimes purchases the cheap boots, he'll buy ten pairs and spend $200 over ten years. If he purchases the expensive boots, he'll buy one pair and spend $50 during that period. Which option is embracing consumerism? Which is actually an example of frugality and thrift?

After you've managed to build a nest egg, you have the freedom to apply mindful spending to most aspects of your life. You can buy $80 pajamas. You can buy a hot tub. You can spend more for quality luggage.

You don't have this sort of freedom if you're struggling to get by — thus the “unfairness” portion of Vimes' socioeconomic theory — but you can (and should) exercise mindful spending on a selective basis, for those items that are truly most important to you. Like boots.

Socioeconomic Unfairness in Real Life

This week on Twitter, one of my followers took me to task. @PenninRay believes that by arguing in favor of high-quality, expensive luggage (and by purchasing a hot tub), I'm pushing people toward consumerism, that I'm working to undermine my own message. I disagree.

There's no doubt that Ray is correct when he suggests that consumerism — our obsession with the acquisition of Stuff — is a problem, especially for those who are still in debt or otherwise struggling with money.

Where Ray and I disagree, however, is what constitutes consumerism. He seems to be arguing that certain purchases are always consumerist in nature. (I could be wrong here. It's tough to get nuance on Twitter.) My argument is that, due to socioeconomic unfairness, what's a poor decision for one person might be a fine decision for another.

If this were 2003, if I were still $35,000 in debt, then buying a hot tub would absolutely be a foolish decision. But it's not 2003 and I'm not $35,000 in debt. It's 2018 and I have a substantial nest egg. It may not be fair, but I believe buying a hot tub — especially when that purchase is aligned with my habits and values — is perfectly fine for the J.D. of 2018 even though it would have been stupid for the J.D. of 2003.

Perhaps, like Ray, you disagree with me.

I believe that money is a tool. Like any tool, it can be used to build or to destroy. If you've managed to accumulate some cash, what's the sense in having it if you don't use it to improve your life? To me, that seems like having a workshop filled with tools that you never put to use.

While it may not be fair that some folks have a workshop filled with tools and others don't, if you do have the tools, there's nothing wrong with using them to build the life you want. If you can afford quality and want quality, then buy quality. If you can't afford it (or don't want it), then exercise caution and restraint.

The post The boots theory of socioeconomic unfairness appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2SnXOma

This Stock Market Correction Is The Best Time To Start Investing

At market close last week, we entered stock market correction territory with a decline of more than 10% in only 1 month. For new investors, or even seasoned investors who have lots of capital tied up in the market, this drop can seem dismal. There’s nothing quite like logging on to your brokerage account only [...]

The post This Stock Market Correction Is The Best Time To Start Investing appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2CRSQJ6
#money #finance #investments

How to Save and Invest When You’re a Broke Student

One of the most challenging times to start building wealth is when you have no income. But there are ways to save and invest when you’re a broke student. Since I started working for Money After Graduation, the energy spent on money management skyrocketed. I’ve always loved budgeting and living my life according to a [...]

The post How to Save and Invest When You’re a Broke Student appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2z936tb
#money #finance #investments

How to borrow from your 401k — with 3 alternatives

A 401k is one of the most powerful investment vehicles for retirement — and it’s IWT’s favorite thing ever for several reasons:

1. Pre-tax investments. You don’t get taxed on the money you contribute until you withdraw it at retirement age. This means you have more money to compound and grow.
2. Free money with employer match. Most companies will match your 401k earnings up to a certain percentage. It’s basically free money!
3. Automatic investing. The investments you make are taken from your paycheck automatically each month — which is a HUGE psychological benefit.

With all these awesome benefits though comes a cost: You can’t withdraw any of it until you hit the age of 59 ½.

If you do, you’ll be subject to taxes on your withdrawal as well as a 10% penalty from the federal government.

This, my friends, is the monkey’s paw. It’s the deadly consequence of King Solomon’s golden touch. It’s the deal that you must carry Madame Zeroni up the mountain or you and your family will be cursed for always and eternity.

Borrowing from your 401k shouldn’t be done lightly. In fact, you really shouldn’t do it at all since dipping into your 401k can severely slow down your retirement goals.

Instead, save it for clear cases of emergencies like medical bills, urgent car repairs, or home repairs.

While a 401k offers a lot of benefits, you need to be diligent and avoid withdrawing early — lest you suffer the consequences.

BUT there is a way to borrow money from your 401k without incurring these penalties: 401k plan loans.

What is a 401k plan loan?

A 401k plan loan is one of a few ways you can borrow money from your 401k early without incurring a penalty.

While 401k plan loans will vary depending on which plan your company offers, a few rules are constant:

• The maximum amount you can take from your 401k is 50% of the vested account amount.
• You may borrow no more than $50,000.
• If 50% of your vested account amount is less than $50,000, you can withdraw up to $10,000.
• You must repay the loan within five years.

You’re “borrowing” the money from your future self when you take a 401k loan — and your future self is going to want that money back with interest.

That’s because when you take the money out, it’s no longer compounding and accruing interest. This means you will lose the gains on any amount you borrow. The interest rate is there to compensate for the loss in gains.

Now let’s take a look at how to borrow from your 401k.  

How to borrow from your 401k

Since the exact stipulations for your 401k plan loan will vary from employer to employer, you’re going to want to call the plan provider and ask them these basic questions:

• “How much interest do I have to pay?” As said before, the interest amount will vary from provider to provider. Make sure that the interest along with the principal won’t dip into your living expenses.
• “Can I pay back through payroll deductions?” Most plan providers will allow you to automatically deduct the amount you borrowed from your paycheck.
• “Can I continue to invest while my money is borrowed?” Some providers won’t allow you to invest into your 401k until you’re finished paying off what you borrowed — which might affect your decision to do so.
• “What happens if I leave my employer before the loan is paid?” Very important question. Typically, you’re on the hook for the rest of the loan balance within 60 days of leaving your job.

Once you have the questions answered and you’re sure that you want to take a loan from your 401k, applying is pretty straightforward.

You’ll likely be able to do it online via your 401k plan provider’s website or your company’s benefits portal. If this isn’t the case, you might have to contact your company’s human resources department where they’ll take care of it for you, or you’ll have to fill out some paperwork.

There are no credit checks and no crazy bureaucratic paperwork you need to fill out. You just need to have the money to borrow.

This makes it incredibly easy — and also tempting — to dip into your 401k for many financial matters. Is it worth it though?

The benefits of borrowing from your 401k

Avoid borrowing from your 401k as much as possible. A little later, we’ll give you some alternatives to doing so — but there can be a few upsides to getting a 401k loan.

First, if you’re in an emergency and require money within a few days, a 401k loan can give you access to potentially $10,000 – $50,000 (depending on how much you have).

You can take out a hardship withdrawal, which allows you to attain money from your 401k in certain cases. However, this comes with a 10% penalty and you’ll have to pay taxes on it. So a 401k loan can be an attractive option in financial emergencies like unexpected medical expenses.

Also a 401k loan can be a better alternative than turning to a bank or other creditor for a loan. Since you’re borrowing from yourself, the interest you pay back goes to you instead of a third party.

Getting a 401k plan loan is also much simpler than attaining a loan elsewhere, since there are no credit or background checks.

And if the five-year repayment time isn’t enough time for you, some 401k plans allow for an extension on the loan term if you’re using it for certain purchases such as your first home.

“But wait, don’t I lose out on gains if my money is withdrawn and not compounded?”

That’s a solid fear to have, hypothetical straw man. When your money isn’t invested, you’re not going to make gains on it — but as we stated above, that’s what the interest payments are for.

Those are the benefits of borrowing from a 401k plan — now what about its drawbacks?

The downsides of borrowing from your 401k

As we mentioned in the previous section, there’s a chance that you lose money on the compounding gains even with your repayment if your investment gains are more than your interest.

Let’s take a look at a simplified example:

Imagine there are two investors: Derek and Cindy.

Both contribute about $5,000 / year to their 401k, which experiences 8% interest growth each year.

However, in the 10th year of investing, Derek decides to borrow $50,000 for a new home. How much do you think he slowed down his savings?

Derek by retirement age: $793,185.99.

Cindy by retirement age: $1,296,318.82

Derek’s going to be behind Cindy by $503,132.83 because he borrowed from his 401k!

Guess what? If Derek quit or was fired from his job, he’d be expected to pay back the entire loan within 60 days.

And if you default on the 401k loan for any reason, the loan will be subject to income tax as well as a 10% penalty from the federal government if you’re under the age of 59 ½.

For example, if you borrowed $50,000 from your 401k and were only able to pay off $20,000 before you were let go from your job and forced to default on your loan, you’d be taxed on the entire $30,000 you owe AND be forced to pay a fee of $3,000 (since that’s 10% of the amount you owe).

On top of all that, the loan payments you make are made with after-tax money. So it won’t make the same amount of money when all is said and done.

But perhaps the biggest downside comes psychologically. Once you dip into your 401k once, you’re going to be MUCH more likely to dip into it again. Treating your 401k like it’s a regular savings account is a terrible habit to get into. Before you know it, you might be exhausting everything you have for retirement due to a slippery slope of bad financial decisions.

With the penalties and potential for lost gains, borrowing from your 401k just isn’t worth it most of the time.

3 alternatives to borrowing from your 401k

Borrowing from your 401k should remain a last-case scenario due to many of the risks involved. Instead, there are three IWT-approved alternatives you should turn to instead of borrowing from your 401k.

They are:

1. Dip into your emergency fund

An emergency fund is money tucked away for surprise — and pressing — expenses (i.e., an emergency).

A good rule of thumb is having enough money for three to six months of living expenses in the fund to hedge against financial emergencies.

What’s a financial emergency? Two things:

1. Surprise expenses. This includes things like unexpected medical bills, car repairs, home repairs, etc.
2. Loss of income. This includes things like quitting or being fired from your job.

If you don’t have an emergency fund, that’s okay. Move onto either of the next two methods for an alternative. If you want to learn how to create one, head over to our article on how to build your own emergency fund and get started today.

2. Go a la carte to cut out expenses

This is a good way to free up potentially hundreds of dollars in just an hour.

Conservative estimates reveal that Americans spend over $1,800/year on subscription services alone. These subscriptions are perfect areas to cut out to save money.

We’re all about the Rich Life here at IWT. That means spending on the things you love — while ignoring all the rest. Be honest with yourself: Do all of your subscription services really add to your Rich Life?

Probably not. And because of that, you’re overpaying potentially hundreds of dollars a year for things you don’t actually care about.

I’m talking about those Blue Apron boxes you let go bad in your fridge.

Or that Netflix subscription you haven’t touched since the last time you “chilled.”

Or that subscription to that wine club that’s just cluttering your house with unopened bottles of wine.

This is why we suggest the A La Carte Method.

It’s simple: Cut out all discretionary subscriptions and buy what you want a la carte.

• Buy the shows you want to watch on Amazon or iTunes for $1.99.
• Buy a day pass for the gym each time you go (around $5 – $10).
• Buy songs as you want from Amazon or iTunes for $0.99 each.

Use this if you find yourself short on cash. After two months, you can take stock of what subscriptions you can justify.

3. Negotiate your bills

Did you know you can negotiate many of your bills and save hundreds more a month?

In fact, you can save money on things like:

• Car insurance
• Cell phone plan
• Gym membership
• Cable
• Credit card

The steps are incredibly simple too. You just need to call these companies up and follow this script:

• Call them up.
• Tell them, “I’m a great customer, and I’d hate to have to leave because of a simple money issue.”
• Ask, “What can you do for me to lower my rates?”

Check out Ramit’s video on negotiating your bills for more on this topic.

Take control of your personal finances today

If you want even more systems on saving money, check out our article on how to save money today.

Like I said before, borrowing from your 401k should be your last option when it comes to emergencies. And if you’re in one now, the last thing you want is for someone to be lecturing you about what you should have done.

Instead, I’m going to give you a gift — something that’ll open the doors to a solid financial foundation upon which you can build your Rich Life:

The Ultimate Guide to Personal Finance

Along with the things you learned in this article, I’ll also show you our systems for earning and investing your money. Just enter your name and email below and I’ll send it straight to your inbox for FREE.

How to borrow from your 401k — with 3 alternatives is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2CGEbk8
#money #finance #investing #becomerich

How to freelance: 5 steps to profit

Learning how to freelance is the first step toward an unlimited earning potential.

It’s a wonder why more people don’t do it — especially when there are so many good reasons to:

• Flexibility. Choose when and where you want to work, and who you want to work with.
• Scalability. Earn as much or as little as you want. Eventually, you can even leave your 9-to-5 to freelance full time.
• Creativity. Flex your creative muscles by diving into a freelance hustle that uses your passions. That means you can make money and *gasp* have fun while doing it.

Getting started isn’t as difficult as you’d think either. All it takes is the right systems.

How to freelance in 5 steps

Luckily, I have that system. It’s the same one that I’ve used to start I Will Teach You to Be Rich and it’s the same one that I’ve used to help hundreds of thousands of people to earn as much as six figures in their freelancing career.

And now, I want to show it to you too.

Step 1: Find a profitable idea

It’s amazing how many people get tripped up at this stage. In fact, it’s the most common reason I hear for why people don’t start their own side business.

“I don’t know how to find a good freelancing idea.”

When I hear this, I just want to grab the person by the shoulders and shake them while screaming, “But you already have a lot of good ideas!!!”

In fact, you can find your perfect freelancing idea by answering four simple questions about yourself:

1. What do you already pay for?
   
   

   We already pay people to do a lot of different things. Can you turn one of those things into your own online business?

   Examples: Clean your home, walk your pet, cook you meals, etc.

2. What skills do you have?
   
   

   Now, what do you know — and know well? These are the skills you have that you’re great at — and people want to pay you to teach them.

   Examples: Fluency in a foreign language, programming knowledge, cooking skills, etc.

3. What do your friends say you’re great at?
   
   

   I love this question. Not only can it be a nice little ego boost — but it can also be incredibly revealing.

   Examples: Workout routines, relationship advice, great fashion sense, etc.

4. What do you do on a Saturday morning?
   
   

   What do you do on a Saturday morning before everyone else is awake? This can be incredibly revealing to what you’re passionate about and what you like 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 find a business idea.

Step 2: Find your first client

Finding clients can be a mystery of fantastic proportions for beginner freelancers. After all, where do these generous, money-giving gatekeepers of work live? How can we find them?

Luckily, there are a variety of different places you can look if you’re a beginner. Here are three great places that I’ve used and my students have used to find great clients.

1. Craigslist (yes, that Craigslist)
2. Networking events
3. Where your clients live

Contrary to popular belief, Craigslist isn’t just for sketchy encounters and weird sales listings. It can also be a great place to find quality clients.

Why? When a business posts a job listing for freelancers on Craigslist, they’re not getting top quality responses. In fact, the people who respond to them are typically so bad that you just need to be a little bit better than them to stand out.

This doesn’t just apply to Craigslist either. You can do this with any job board.

Here are a few suggestions of great sites freelancers can use to find business:

• Writers: MediaBistro.com, Upwork.com, FreelanceWritingGigs.com 
• Illustrators/Designers: 99designs.com, Designs.net
• Programmers: Toptal.com, Gun.io

The second place you should look: Networking events.

I know, I know. Some of us would rather spend our time listening to a lecture about the importance of brushing your teeth than be at a networking event.

However, a good networking event will be flush with opportunities to find connectors. Notice I said connectors and not clients. A connector is someone who can introduce you to potential clients.

That’s right. You’re not going to actually be looking for leads at these events.

Here’s a good script you can use to connect with a connector:

“Hey, if you know of anyone who’s looking for a video editor, let me know. Here’s my card. You can pass it along to them.”

Of course, you should mold the script to fit your individual situation.

If you live in a big city, networking events are a dime a dozen. If you don’t, that’s okay. There might be a few in your area happening occasionally.

Be sure to check out event boards like the following for great opportunities for networking events.

• Meetup.com
• Eventbrite.com 
• Facebook

The last place I suggest beginners look: Where potential clients live. 

No this isn’t your potential clients’ physical houses, you weirdo. I’m referring to the places online and in real life where your potential clients might frequent.

Instead, you’re going to go online to the places where potential clients might frequent. It’s what Luisa Zhou, entrepreneur and writer for GrowthLab, did to help her earn $1.1M in 11 months.

From Luisa:

I started spending all my free time hanging out where my potential clients were online (free Facebook groups) and directly engaging with them by sharing valuable content and answering any questions I could about advertising.

That’s how I got my first client. A woman I’d been helping for free — answering her questions about how to set up a basic advertising campaign — asked me how she could work with me, and when I told her the price — $5,000 for six months — she said, without missing a beat, “I’m in.”

You can use the exact same framework for your potential clients.

• Are you a graphic designer? Find a Facebook or subreddit group for small business owners who need your services.
• Are you a writer for a niche industry? Start answering questions on Quora regarding your niche.
• Maybe you’re a video editor. Find online groups for bloggers looking to expand their content media.

No matter what you choose, you need to make sure you stay engaging and provide high-quality answers to your potential client. By doing this, you build your brand and make connections you would never have otherwise.

Once you have a client lead, it’s time to use a script to vet them.

Step 3: Pitch your talents

Now we get to the fun stuff: Pitching. You’re now going to craft an email pitch that’ll sell your services to a qualified lead.

Yes, marketing and selling your skills can be intimidating — but it’s much simpler as long as you remember to sell benefits.

Remember the old marketing saying, “Buyers don’t want a new bed. Buyers want a good night’s sleep.”

Some great examples of this:

Here are the five things you need to sell the benefits of your services in an email:

1. The introduction. You’re going to want to build rapport by introducing yourself and how you know about the client.
2. The offer. Talk about them. What do you want to do for them? Why are you good for that role? You’re going to want to do some research on the organization to see what they need help with.
3. The benefit. Walk them through how your work will benefit their company. Are you going to free up more time for them? Are you going to maximize profits by X amount?
4. The foot-in-the-door. This is a classic technique that utilizes an old psychology trick to get the client to agree to a small agreement so you can ask for a larger agreement later.
5. The call to action. Be clear with this and ask them if they would like to proceed. The call to action is a critical part of this script.

When it’s all put together, it’ll look something like this:

CLIENT’S NAME,

[Introduction] I read your article about X and noticed that you’ve recently started using videos on your website.

[The offer] I’ve been doing video editing for three years and I’d like to offer to help you edit your videos and get them optimized for the web.

[The benefit] That would make them look more professional and load faster, which is important for your readers. And you’d free up time that you could use to create new content.

[The foot-in-the-door] We can discuss the details, of course, but first I wanted to see if this is something you might be interested in.

[The call to action] If so, would it be okay if I sent you a few ideas on how to help?

Best,

Ramit Sethi

Step 4: Charge a good rate

There are no hard and set rules when it comes to charging a rate, which makes it a perfect breeding ground for anxiety and nervousness for freelancers.

My suggestion: Don’t worry too much about this part — at least at first. It’s more important that you get started at all than making sure your rates are perfectly tuned.

With that said, there are three methods I suggest for finding a good starting rate:

1. Drop Three Zeros Method
   
   

   Take your ideal salary, divide it by two, and then drop three zeros from it. Boom. You have an hourly rate.

   For example, say you’d really like to earn at least $80,000. Just take out the three zeros from the end, divide by two, and you now have your rate: $40/hour.

2. Double your “resentment number”
   
   

   I love this one because it’s both really interesting and effective. Ask yourself: What’s the lowest rate you’ll work for that’ll leave you resentful of your work?

   Say you’ll work for $15/hour at the VERY LEAST. Just double that number so now you’ll earn $30/hour.

3. Do what the next guy does
   
   

   This method is incredibly simple: Go to Google and search for the average hourly rate for whatever service you’re providing. You’ll get a good sense of where to start when you’re charging your clients.

Once you start earning, it becomes much easier to take on more or less work to get to an earning amount you’re comfortable with.

Step 5: Invest in yourself

Remember: You’re going to make mistakes when starting out and that’s okay! I’d rather have my students screwing up pricing or pitching than never getting started at all.

That’s why I want to offer you something to help you get started even more: My FREE 15-page guide to finding your first client: Hustle Your Way to the Top.

In this guide, you’ll learn:

• How to get inside your potential clients’ heads
• How to overcome the automatic “no” and score big wins by deeply understanding your prospects
• How to use psychology to identify the most likely customers and get them to say yes

I’ll also show you the one huge mistake freelancers make so you can avoid it and separate yourself from the rest.

Just enter your info below and get the bonus lesson today.

How to freelance: 5 steps to profit is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2qa3xPF
#money #finance #investing #becomerich

The CIBC Aventura Card is The Ultimate Traveller’s Card

When it comes to traveling, the right credit card can make the difference between a good trip and a great one. Not all travel credit cards are created equal! From trip cancellation insurance to access to airport lounges, what perks are offered by your credit card can make or break your trip. Many people shop [...]

The post The CIBC Aventura Card is The Ultimate Traveller’s Card appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2q2e3bR
#money #finance #investments

How much should I have in my 401k?

I’ve talked about the 401k a few times before.

[cue montage of every single time I scream at you to get a 401k]

That’s only because the 401k is one of the most powerful investment tools at your disposal.

Whenever I mention it, though, someone inevitably asks me the same question: How much should I have in my 401k?

It’s a solid question — but answering it is a little tricky. Let’s jump in to see roughly how much you should have in your 401k at the ages of 30, 40, 50, and retirement age.

How much should I have in my 401k?

There’s no one-size-fits-all answer to the question, “How much should I have in my 401k?” Though you should start investing in a 401k as soon as possible, some people might not get that opportunity right away — and that’s okay. The point is to do it when you can.

When you do finally start investing, there are a few good rules of thumb to help you make a sound decision on how much you should have in your 401k.

• By 30 years old, you should have at least one year’s worth of income in your 401k. That means if you make $60,000, you should have that much saved in your 401k.
• By 40 years old, you should have at least three years’ worth of income in your 401k. That means if you were making $80,000 by the time you turned 40, you should have at least $240,000 saved in your 401k.
• By 50 years old, you should have at least five years’ worth of income in your 401k. This means if you increased your income to $100,000, you should have $500,000 saved up in your 401k.
• By retirement age (65 years old), you should have at least eight years’ worth of income in your 401k. That means if you increased your income to $150,000, you should have $1,200,000 saved up in your 401k.

Of course, these are just rules of thumb. That means they only give you a rough estimate of what you should ideally have by the time you hit these ages. They do not take into account your individual income and experiences.

In reality, there’s no one hard answer to how much you should have in your 401k — and anyone who tells you otherwise is either lying to you or just doesn’t know.

I could pull up a bunch of figures and show you how much someone in their 20s or 30s is saving — but that would be a complete waste of time for two reasons:

1. It’s impossible to compare two investors fairly. Everyone has their own unique savings situation. That’s why it’d just be dumb to compare the Ph.D. student saddled with thousands in student loan debt with the trust fund baby who just snagged a cushy six-figure corporate gig the first month out of college. They’re both going to save very differently, so it’s not worth comparing.
2. Most people aren’t financially prepared for retirement. The American Institute of CPAs recently released a study that found that nearly half of all Americans aren’t sure if they’ll be able to afford retirement. That’s even scarier when you consider the fact that many people overestimate how much of their nest egg they’ll be able to use once they actually retire.

So instead of worrying about minutiae like how much you “should have” saved, focus on the future. What’s important is that you:

1. Do your research. Which you’re already doing by reading this article.
2. Be disciplined. This means consistently putting away money.
3. Start early. The best time to get started investing was yesterday. The second best time is right now. So just get started and don’t worry about the rest.

That’s why it’s so important you understand exactly what your 401k is — and why it’s so important to your retirement strategy.

What is a 401k?

A 401k is a powerful type of retirement account many companies offer to their employees. With each pay period, you put a portion of your pre-tax paycheck into the account.

It’s called a “retirement” account because it gives you huge tax advantages if you don’t withdraw your money until you reach the age of 59 ½ (retirement age).

And there are several benefits to having a 401k account:

1. Pre-tax investments. The money you contribute to a 401k isn’t taxed until you withdraw it at 59 ½, which means you have much more money to invest for compound growth. If that money was invested in a normal investment account instead, a portion of it goes towards income tax.
2. Free money with employer match. Most companies offering 401ks will match you 1:1 up to a certain percentage of your paycheck. Say your company offers 5% matching. If you earn $100,000/year and invest 5% of your annual salary ($5,000), your company would match you $5,000 — doubling your investment. It’s free money!
3. Automatic investing. With a 401k, your money is taken from your paycheck and invested automatically, which means you don’t have to go into a brokerage account to invest each month. This is an excellent psychological trick to keep you investing.

Check out the graph below that illustrates this:

So a good answer to how much I should have in my 401k is at least enough to get the employer match. And really, there are only two reasons for you NOT to invest in a 401k:

1. You’re trapped on a desert island and the employee benefits are lacking.
2. Your current employer doesn’t offer a 401k.

If your employer does offer a 401k plan with matching, be sure to call your HR rep and sign up for it as soon as possible.

If your employer DOESN’T offer a 401k plan, sign up for it still anyway (but you’ll want to hold off investing in it — check out my video below for more info).

When you do, you might start to wonder how much you should have in your 401k. And the answer depends on a number of factors.

How much CAN you contribute?

Much like the Roth IRA, there is a limit to how much you can contribute to a 401k. Unlike a Roth IRA, however, you can contribute MUCH more.

As of 2018, you can contribute up to $18,500 each year to your 401k if you are under 50.

If you are over 50, you can contribute up to $6,000 more, for a maximum of $24,500/year.

When compared to a Roth IRA, where you can only contribute up to $5,500/year, this is an amazing opportunity — especially since your pre-tax money is being compounded over time.

How much SHOULD you contribute?

How much you should actually be investing each month depends on a system I call the Ladder of Personal Finance. It looks at three areas:

1. Your employer’s 401k match. Each month you should be contributing as much as you need to in order to get the most out of your company’s 401k match. That means if your company offers a 5% match, you should be contributing AT LEAST 5% of your monthly income to your 401k each month.
2. Whether you’re in debt. Once you’ve committed yourself to contributing at least the employer match for your 401k, you need to make sure you don’t have any debt. If you don’t, great! If you do, that’s okay. You can check out my system on eliminating debt fast to help you.
3. Your Roth IRA contribution. Once you’ve started contributing to your 401k and eliminated your debt, you can start investing into a Roth IRA. Unlike your 401k, this investment account allows you to invest after-tax money and you collect no taxes on the earnings. As of writing this, you can contribute up to $5,500/year.

Once you’ve contributed up to that $5,500 limit on your Roth IRA, go back to your 401k and start contributing beyond the match.

Remember, you can contribute up to $18,500/year on your 401k if you’re under 50. So you should have no issue continuing to invest in your 401k.

And if you are able to max it out, please be sure to give me a call. We’re going out for drinks on you.

“But Ramit, why would I max out my Roth IRA before my 401k if it’s so good?”

There’s a lot of nerdy debate in the personal finance sphere about this very question, but my position is based on taxes and policy.

Assuming your career goes well, you’ll be in a higher tax bracket when you retire, meaning that you’d have to pay more taxes with a 401k. Also, tax rates will likely increase in the future.

The Ladder of Personal Finance is pretty handy when considering what to prioritize when it comes to your investments. For more, check out my less-than-three-minute video where I explain it.

Invest early for a Rich Life

I’m not a crotchety old man complaining about millennials and their fidget spinners — but when I see numbers like these:

The Hills is still on, right? Right?

…it’s hard not to scream at young people about the importance of investing.

A few takeaways from the chart:

• The youngest employees both participate and contribute the least to their 401k even though it’s best to start as soon as possible.
• The oldest people (age 42 and up) contribute the most aggressively.
• Less than one-third of young people participate in 401ks.

Couple that with the fact that 1 in 3 of ALL Americans has saved nothing for retirement, and you have a recipe for a very frustrated Ramit.

It’s not hard to understand why. After all, it can seem difficult to invest and save when you’re:

1. Young
2. Have limited willpower
3. Would rather not have to deal with your finances

If you’re reading this, though, you’re probably a Top Performer — which means you want to rise above everyone else and start investing well. You know that the best way to invest is to do it as much as possible each year — with the ultimate goal of maxing out your contributions and finding your own answer to how much you should have in your 401k…

…but how do you do that?

Earning more to live a Rich Life

The answer to “how much should I have in my 401k” is an important one — but it’s not the only way to ensure your financial future.

I’m going to let you in on a little secret. One that has helped me and thousands of others live their Rich Life:

There’s a limit to how much you can save, but there’s no limit to how much money you can earn.

Many people don’t understand this and because of that, they’re content with contributing very little to their retirement accounts. When they actually retire, they’re surprised when their nest egg is a lot smaller than they thought and they have to get a job as a Walmart greeter to pay for their condo.

If you realize that your earning potential is LIMITLESS, you can truly get started working toward living a Rich Life today.

I recommend three ways to start earning more money:

• Negotiate a salary raise. 99% of people are content with not asking for a salary raise. So if you are willing to negotiate, that puts you in the 1% and showcases to your boss that you’re Top Performer willing to work hard for more money.
• Start a side hustle. One of my favorite money making tactics is starting your own side hustle. We all have skills. Why not leverage those skills to start earning more money in your free time?
• Practice conscious spending. If you want to be rich, you have to start spending money like a rich person. No, I don’t mean going out and buying a Corvette. I mean spending money consciously so you know exactly how much you have to spend each month — while earning money passively.

I want to help you get started on one of these tactics today: Negotiating a salary raise.

I know, I know. The word “negotiation” tends to dredge up images of people screaming at each other about numbers until one of them gets their way — but the reality isn’t like that at all!

Negotiations take finesse, practice, and will power. If you’re able to master the lost art of negotiations, though, a world of saving and earning can be opened up to you.

That’s why I want to offer you my Ultimate Guide to Getting a Raise and Boosting Your Salary.

I created this all-inclusive guide because I was sick of the awful advice that we find masquerading as legitimate negotiation tips.

Stuff like:

• “Act more confident.”
• “Wear a tie!”
• “Make eye contact but not like too much eye contact.”

UGH.

So I decided to give you real talk and provide the word-for-word scripts to get your boss to actually WANT to pay you more money.

In my Ultimate Guide, you’ll learn:

• Exactly how to crush salary negotiations even if you’re nervous or inexperienced.
• Word-for-word scripts that’ll have your boss jumping to give you a raise.
• How to stop being shy.
• Case studies: How Karen got a $10K raise when she was making just $13/hour.
• The secret technique to make even the most stubborn bosses say “Yes!” to raises.

You’re going to see actual students negotiate — and watch me teardown where they go RIGHT and WRONG.

By the end, you’re going to know the exact tactics to earn more money.

Enter your info below and get the PDF for free today — and start earning the salary you deserve.

How much should I have in my 401k? is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2gmDOyk
#money #finance #investing #becomerich