How to cancel a credit card (without killing your credit score)

I have a credit card I'd like to cancel, but I don't know if I should. I'm afraid it'll hurt my credit score. Today I'm going to walk you through in real time as I evaluate this decision. Then I'm going to explain how to cancel a credit card, no matter why you want to do so.

I normally don't pay much attention to my credit score. I know that it ranges between 800 and 820, so I don't worry about it. With a score like that, I'm considered to have “exceptional credit”, and that's good enough for me. (Kim's very proud that she has a higher credit score than I do, by the way.)

That said, for the past several years I've been carrying a credit card that I don't want or need. It's a Chase British Airways card that I signed up for in 2011. It's a fine card, but I never use it because I have better ones. My primary credit card right now is the Chase Sapphire Reserve, which I use for 99% of my personal credit transactions.

Basically, I'm paying $75 per year — the British Airways card's annual fee — for nothing…except to maintain my credit score. I don't like it. I'd rather cancel the card and take a temporary hit to my credit. But is it bad to cancel a credit card? And if it's bad, how bad is it?

I've decided to document the process! Let's find out together.

My Current Credit Score

To start, of course, I need to learn my current credit score.

First, I visited Credit Sesame, a free credit-monitoring tool that I use maybe once or twice a year. When I last checked in January 2018, Credit Sesame said my credit score was 814:

Today, Credit Sesame says my credit score is 816:

My credit score has remained roughly the same over the past twelve months. (As a side note, I think it's hilarious that Credit Sesame thinks I should open lots of new credit cards to boost my credit score. Can you guess what the company's revenue model is?)

Next, I went looking for a second opinion. Because I'm a Chase customer, I have access to their “Credit Journey” feature, which provides free VantageScore monitoring. (VantageScore is a competitor to the popular FICO score. Both scores are numerical representations of your credit history designed to give lenders a quick way to evaluate whether or not to do business with you.)

Here's my current VantageScore according to Credit Journey at Chase:

Yay! It's the same as reported by Credit Sesame. As of today, let's call my credit score 816.

Credit Journey also gives you a one-year history of your credit score so that you can spot trends. Here's how my score has fluctuated over the past twelve months. (I'm not sure what's responsible for the recent downward slide. I haven't been doing anything with credit…)

For added insight, Credit Journey provides a credit overview so that you can see the status of various factors that go into making up your credit score.

This is useful, I suppose, but Credit Sesame's diagnostic tools are a little more robust. Credit Journey doesn't explain that my lack of credit diversity is the largest factor preventing me from having a higher score. Credit Sesame makes this very clear. (That's the red D in the screencap I shared earlier.)

Note: If you don't have a Chase credit card and don't want to use Credit Sesame, you can also get your free credit score from NerdWallet. The only catch? You have to create a NerdWallet account.

What Happens If I Cancel a Credit Card?

Perhaps most relevant for my current situation, however, Credit Journey allows you to simulate your credit score given a variety of changes.

• What happens if you take on a new loan?
• What happens if you cancel a card?
• What happens if you add a new credit card?
• What happens if one of your accounts goes to collections?

With the Score Simulator, you can see how certain changes will affect your credit score.

Unfortunately, this Score Simulator is a general-purpose tool. It doesn't let users exercise precise control over their input. So, for instance, I'm unable to model canceling my Chase British Airways card specifically.

However, I'm able to model what happens if I cancel my oldest credit card. Because I cancelled all of my cards when I was digging out of debt in the early 2000s, my oldest card is a Capital One credit card that I acquired in 2007. That's not too far off from the British Airways card that I took out in 2011.

To test what might happen if I cancel my Chase BA card, I toggled the “cancel your oldest card” switch:

Voila! I was instantly able to see that — according to this tool — canceling my BA card will, at most, ding my credit score by twenty points. The actual impact would probably be a little less.

My current credit score is great. According to one score simulator, cancelling a card will have a minimal effect on my score. So, why am I still nervous? I'm not sure. To assuage my fears, I contacted credit expert Liz Weston, author of Your Credit Score. “Does cancelling a credit card hurt your credit score?” I asked, and I explained my situation.

She wrote back with a nice, meaty answer:

It's actually hard to predict how big the impact will be and how long it will linger, but really you don't need to worry about it for number of reasons. Those include:

• When scores are as high as yours, even a larger drop in points wouldn't affect you on a practical level. Once your scores are in the 760 range, you typically get the best rates and terms offered by lenders.
• Credit score simulators are just that – simulators. They can estimate what might happen to your score(s), but the reality can vary. The outcome of an action depends on various information in your credit report.
• Scores take into account the average age of your “trade lines,” or credit accounts, as well as the age of your oldest account. That's why you often see cautions against closing the oldest account. However, age of accounts is a fairly small part of your score, and the damage doesn't happen immediately, since the closed account will continue to be reported and its age factored into your scores. A bigger deal when closing accounts is your credit utilization. Shutting an account removes the available credit limit from the calculations, and that may have a bigger effect on your score.
• The credit score you're looking at can (and probably will) differ from the credit score(s) a lender may use, which means the impact could differ as well. The formulas for VantageScore and FICO in general aren't the same. Plus, they each have been updated (in FICO's case, multiple times) and lenders may use older versions or ones that have been tweaked for their industries, such as the FICO Auto Score 8 for auto loans.

That's a fairly long answer to your quick question! In general, it's a good idea to avoid closing accounts when you're trying to build your scores or if you're in the market for a major loan. Once your scores are high, however, closing the occasional account shouldn't cause you undue worry.

Weston brought up a point I hadn't considered: Canceling a credit card affects not only my age of accounts, but also my credit utilization. I have a $20,000 credit limit on that Chase BA card, so cancelling it will mean that I'm using a larger percentage of my available credit.

That said, I don't actually carry any sort of credit balance. I pay my bills in full each month. As a result, my utilization should remain relatively low. Plus, if I do decide my score gets dinged too much, I'll take the Credit Sesame approach to building credit: I'll take out a new card, one without a fee.

How to Cancel a Credit Card

If I do choose to cancel my British Airways card, what's the process? Closing a credit card account is easy, but if you decide to do it, you should do it correctly.

If you plan to close several accounts, do one at a time. When choosing which accounts to cancel, first eliminate cards that charge you fees. Cancel new cards before old cards. (Remember: the age of the account affects your credit score.) Consider keeping cards that offer good rewards programs.

Before you cancel a credit card account, pay off the balance or transfer it elsewhere. Never attempt to cancel an account on which you still owe money. I've heard horror stories of banks raising interest rates on people who do this.

When you're ready, follow these simple steps:

1. Contact your credit card company. You might be able to cancel your account online, but most companies make this difficult (or impossible). You'll probably have to call. This so the sales rep can persuade you to keep the account open, of course. When this happens, remain firm. Take notes!
2. Send written confirmation. After the call, use your notes to draft a follow-up letter like this one. Mail it to the card issuer.
3. Check your credit report. After you receive confirmation that the card has been canceled, it may take several weeks for the change to be reflected in your credit report. It is your responsibility to verify that your report is accurate, so keep tabs on it. Like me, you may also want to monitor your credit score to see if there's any damage.
4. Once you're certain the account is closed, cut up your credit card! Hurrah!

Should you cancel your credit cards? Only you can make that call. Do what makes sense for you and your situation. If you think it's more important to maintain your credit score, and if you're sure you won't abuse them, then keep the accounts open. But I think it's a mistake to keep your credit cards if they cause you woe. (Plus, each open account is another possible source of identity theft!)

If you have trouble with compulsive spending, it's best to cancel your accounts. Don't just cut them up, but cancel them. When I was having trouble with credit, I canceled my accounts, which bought me time to learn to manage money responsibly without an ever-present temptation to spend.

In the end, this all seems worth it to me. If I cancel my British Airways card, my credit score drops from 816 to 796 but I save $75 per year. Because I have no plans to make any moves that rely on my credit score in the near future, this sounds like a smart move. I'm going to do it!

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How I learned to stop worrying and love DIY

“Oh good,” Kim said when I rolled out of bed yesterday morning. “I’m glad you’re up.” She gets up at 5:30 for work most days, but I tend to sleep in. Especially during allergy season.

“Huh?” I grunted. It was 6:10 and I was very groggy. My evening allergy meds kick my butt. Plus, I hadn't had my coffee yet.

“Something’s wrong with the bathroom sink,” she said. “Look. It’s leaking. The floor is soaked.” She wasn't kidding. The bathmat was drenched. When I looked under the vanity, I was greeted by a small lake.

“Ugh,” I grunted. This wasn't how I wanted to start my day.

Kim kissed me goodbye and hurried off to work. I pulled on a pair of pants, poured some coffee, pulled out the vanity drawers, and got to work.

I was worried that I might have caused the leak when I replaced the sink's pop-up assembly last month, but no. The problem was obvious: The hot water line to the bidet (which I installed in October) had worked itself loose. (By the way, I love my bidet. Too much information, perhaps, but it's some of the best sixty bucks I've ever spent.)

Fortunately, the fix was simple. I reattached everything, then added a light layer of tape to prevent similar problems in the future.

Note: As a safety measure — to make sure I wasn't missing anything — I took photos of the issue and made a trip to the hardware store to ask their advice. They told me everything should be fine.

This might seem like a small thing to some folks but it’s a big deal in my world. You see, I’ve never really been a DIY type of guy. I used to get overwhelmed by home improvement. I felt unprepared, incompetent.

More and more, though, I’m learning that I can do it myself. It just takes patience and perseverance. And the more projects I complete, the more confidence I gain.

Learning to Love DIY

When I was younger, I avoided do-it-yourself projects whenever possible. As a boy, I never learned how to be handy around the house. I could program (or build) a computer. I could write. I could do accounting or analyze literature. But I couldn't replace a broken window or repair a leak.

My ex-wife and I bought our first house in 1993. Fortunately, it was in great shape. During our ten years in the place, there weren't a lot of things that needed to be repaired.

And when things did need work, they were obviously beyond our abilities. The water heater exploded on Christmas morning. The electric wall heater caught fire. We discovered an infestation of carpenter ants. These were problems I was never going to fix myself. We hired experts to solve them for us.

In 2004, we moved to a hundred-year-old farmhouse. The previous owner had lived there for fifty years and had done a lot of lazy repairs himself.

Because buying the place tapped nearly all of our financial resources, we were forced to handle some of the repairs and remodeling ourselves. We hired somebody to hang drywall for us, but we tore down the old walls ourselves. To fix the faulty wiring, we asked an electrician friend to help us find problems and make repairs. And so on.

Still, I didn't feel completely comfortable with DIY projects around the house. I did them when I had to, but mostly I tried to put them off — or to pay somebody else to solve the problem.

After our divorce, I deliberately sought a place where I did not have to deal with home improvement. I bought a condo. All exterior work was handled by somebody else. Sure, I was on the hook for problems inside my unit, but those were easy to foist on contractors. For five years, I completely avoided home repairs and home improvement.

When Kim and I bought our current country cottage, we had a chat. “You know you're going to have to do lots of DIY projects,” she said. “There's a ton wrong with the house — and that's just the stuff we know about.”

“I know,” I said. “But I'm older now, and I'm actually looking forward to developing my DIY skills. I have a better attitude. I think I'll be fine.”

You know what? I have been fine. After paying a small fortune to get the major things handled — roof, siding, floors — we've deliberately been taking on the day-to-day stuff ourselves. It's much slower this way, but it's also cheaper. Plus, it's more satisfying.

In the past eighteen months, we've:

• Painted several rooms in the house, and have plans to paint the others.
• Installed new molding and trim in several rooms.
• Painted the kitchen cabinets and installed new hardware.
• Replaced the kitchen faucet (on Super Bowl Sunday).
• Repaired the bathroom sink pop-up assembly.
• Replaced our only toilet.
• Installed a bidet attachment on the toilet.
• Built out the inside of a Tuff Shed to make it my writing studio.
• Built a porch for the writing studio.
• Stained our new back deck (which we did not build ourselves).
• Begun work on a fire pit for summer gatherings.
• Installed raised beds for vegetable gardening.
• Removed a cedar tree and planted a small orchard.
• Hung lighting in the laundry room.
• Installed a car stereo.

Some of these projects (the writing studio, for instance) were major. Some (like the laundry-room lighting) were minor. All of them have helped me gain confidence that yes, I can do things myself.

It's still no fun when I wake up to find that a leak has flooded the bathroom. But at least now I don't feel overwhelmed. I'm able to pause, think about what needs done, and then tackle the job. It's a totally different feeling than I had even three years ago. Three years ago, stuff like this would overwhelm me. Now, I almost love these DIY projects. (For real!) Maybe it's because I'm old.

Nine Steps to DIY Success

Yesterday as I was crawling under the bathroom sink, I thought about how I've learned to love DIY, how I've shifted from viewing these tasks as chores to viewing them as opportunities to learn.

As I fixed the leak, I made a mental list of the things I've learned over the past couple of years, the guidelines I follow to make sure my home-improvement projects are productive and fun instead of something I dread.

I believe these nine “rules” have helped me embrace the do-it-yourself mindset:

• Read the instructions. This point is obvious enough for some folks that it ought not even be listed. But for others, this is a vital first step. I know too many people who rush into DIY projects without bothering to read the directions that come with the parts, tools, or kits that they're using. Instruction sheets and manuals are tedious, yes, and they don't always make sense when you read them without context, but they also provide a vital framework for the project you're about to undertake. Don't skip this step!
• Tap your social network. While you may have never tackled a particular project, you probably have family or friends who've done something similar in the past. Draw on their experience and expertise. Ask questions. Seek advice. While replacing our kitchen faucet, I texted Mr. Money Mustache for help. When installing my car stereo, I asked my brother lots of questions. (He's an audio nerd.) When Kim and I work in the yard, I often ask my ex-wife for advice. And, of course, I'm not shy about posting to Facebook to draw on the power of the hivemind.
• Practice patience. DIY projects can be long and tedious. They can be frustrating. When I replaced our kitchen faucet, I was stymied from the start. The space was small. Tools didn't work or didn't fit. We had plans with the neighbors that put a time limit on the project. The old me would have been angry and irritable. The new me stayed calm. I forced myself to practice patience, to pause and think about the situation from a variety of angles. I had to make three trips to the hardware store. Ultimately, my patience paid off. I replaced the faucet and made it next door in time to watch the big game.
• Be methodical. Another reason DIY projects used to frustrate me stemmed from my lack of organization. As I disassembled things, I put them in a common pile. When it came time to put things back together, I was lost. Nowadays, I'm smarter. I put small parts in ziploc bags and label the bags so I know what they are and where they go. If it's not obvious what large parts are for, I label them too. At each stage of the project, I take photos with my phone so that I have a reference when I put things back together. I take notes in the manual to provide clarity in the future. Then I store the manuals in a drawer. Being methodical makes the process so much easier.

• Think outside the box. Sometimes you'll encounter situations where the instructions don't apply. Normal solutions don't work. When this happens, you'll have to be creative. You'll need to think outside the box. Using the kitchen faucet as an example again, none of the recommended methods would work to remove the old faucet. It was stuck, and there was no space to work with typical tools. In the end, I had to purchase a Dremel and cut into the collar, then hammer at it for five minutes before it came loose. It took a long time (and was frustrating), but it worked.
• Decide on rules for buying tools. The unfortunate reality of DIY projects is that they often require specialized tools. When I replaced the kitchen faucet, I needed a basin wrench. Then I needed a Dremel. When Kim and I re-seeded our lawn, we needed an aerator. Sometimes it makes sense to simply buy the tool(s) you need. (I know I'll use the Dremel again in the future.) Other times, it makes much more sense to borrow or rent. (I'm never going to need a $1500 aerator again, so I rented.)
• Do things right. It's tempting to cut corners when you do projects yourself. It's tempting to skip steps, to not work to code, to do the minimum required to get things working right now. Please, do your future self a favor: Do things right the first time. Yes, it takes longer and costs more, but it also means you shouldn't have to repeat the project. Plus, it's nicer for whoever inherits your work. The folks who owned our house before us seemed to live by the motto, “Why do something right when you can do it half-ass?” Kim and I inherited a stack of shitty fixes that have made life miserable for the past two years.
• When you're stuck, take a break. One reason I've avoided DIY projects in the past is that I inevitably get stuck. I reach a tricky and/or confusing step and become frustrated. This used to be a disheartening deal-breaker. Now, though, I accept this as part of the process. When I do get stuck, I take it as a sign to slow down — or stop. I go do something else for a while. I do more research on the interwebs. I re-read the instructions. I contact somebody I know who has done a similar project. I give time for the frustration to fade, then return to the project with fresh eyes.
• Have fun. Most importantly, enjoy the process. Accept it for what it is. Yes, you'll have moments of frustration. Yes, it sucks to make repeated trips to the hardware store. Yes, most jobs take two or three times longer than anticipated. Once you agree that this is part of what DIY is all about, you'll have a better attitude and be better able to enjoy the work instead of resent it. Plus, remind yourself that each time you tackle a task yourself, you're building a library of knowledge that can be applied to future jobs.

Here's another guideline: Keep the end in mind.

Home repair and home improvement can be annoying because there are other things you'd rather be doing. You could be hanging out with friends. You could be reading a book. You could be playing a game. The last thing you want to do is replace a broken window.

I've learned to consider the reason I'm doing the work. I know that when I replace the kitchen faucet, we'll no longer have to worry about leaks. Plus, we'll have a better, more attractive fixture. After we've spent six hours staining the deck, we'll get years of enjoyment from the space. Once I build out the writing studio, I'll have an ideal space to work in.

Don't focus on the drudgery of the moment. Remind yourself of the ultimate payoff.

Choosing DIY Just for Fun

Last weekend, I tackled a DIY project for fun (gasp). I installed a car stereo.

Three months ago, I bought a 1993 Toyota pickup for projects around our little acre. Fittingly for the era, the truck came with a tape deck. Unfortunately, I don't own any tapes. I purged the last of them over a decade ago.

Still, I couldn’t resist an indulgence. “I wonder if you can get Taylor Swift on cassette,” I thought to myself. I checked Amazon. Sure enough, if you’re dumb and determined like I am, you can order Reputation on cassette for 30 bucks. So I did.

When the tape came, I was disappointed to discover that while the radio worked fine, the tape player was busted. What to do? What to do? Should I write off the T Swift tape as a $30 loss? Or should I go all in, take the risk of buying a new tape deck?

I think you all know the (irrational) course of action I chose.

I found a $70 tape deck on Amazon and ordered it. Last weekend, as a birthday present to myself, I spent an entire day installing the thing — despite having no clue what I was doing.

The project was fun! (Frustrating but fun.)

I got to take apart the truck’s front console, puzzle out the messed up wiring (a previous owner had spliced new speakers incorrectly), connect the new tape deck, then put everything back together. On my drive to work at the box factory Monday morning, I cranked up the Taylor Swift. The dog was unimpressed but I had fun.

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It’s Okay to Take a Break from Investing

I recently stopped some of my Wealthsimple deposits, for a few reasons. Although my round-up investments are still linked, I’ve stopped my automatic monthly deposits. Part of me feels guilty, but I’ve spent a lot of time on the decision and am confident it’s best for my financial future – that is, as long as [...]

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#money #finance #investments

My life philosophy: 50 lessons from 50 years

Happy birthday to me! Today, I turn fifty. Holy cats, that's old! To celebrate, over the weekend I replaced the tape deck in my 1993 Toyota pickup so that I can listen to my Taylor Swift cassette. (You think I'm joking but I'm not.)

The funny thing is, I don't feel like I'm fifty. Okay, my body feels like its fifty, but my mind doesn't. I suppose that's something that everybody says as they get older: “I feel younger than my age.” But it's true!

To celebrate my 50th birthday, I'm going to indulge in my annual tradition. I'm going to share fifty nuggets of wisdom I've picked up during my life on this Earth.

I'm no wiser or smarter than anybody else. And I'm certainly no better. But I am an individual. I'm my own person with my own personal preferences and personal experiences. These have all jumbled together over the past fifty years to give me a unique perspective on life (just as you have a unique perspective on life). To quote my favorite poem:

Much have I seen and known; cities of men
And manners, climates, councils, governments,
Myself not least, but honour'd of them all;
And drunk delight of battle with my peers,
Far on the ringing plains of windy Troy.
I am a part of all that I have met…

So, these fifty nuggets of wisdom are things I've found to be true for me — and, I believe, for most other people. (But each of us is different. What works for me may not work for you.) These beliefs make up the core of my personal philosophy of life.

For obvious reasons, some of these notions overlap with the core tenets of the Get Rich Slowly philosophy. Plus, long-time readers will recognize this as an article I update every year on my birthday.

Some of these ideas are original to me. Some aren't. When I've borrowed something, I've done my best to cite my source. (And I've tried to cite the oldest source I can find. Lots of folks borrow ideas from each other. There's nothing new under the sun and all that.)

Here are fifty principles I've found to be true during my fifty years on this planet:

• Self-care comes first. If you're not healthy, it's tough to be happy. Before you can take care of your friends and your family, you need to take care of yourself. Eat well. Exercise. Nurture your mind, body, and spirit. Your body is a temple; treat it like one. If you don't have your health, you've got nothing.
• You get what you give. Your outer life is a reflection of your inner life. If you think the world is a shitty place, the world is going to be a shitty place. If you think people are out to get you, people will be out to get you. But if you believe people are basically good, you'll find that this is true wherever you go.
• Life is like a lottery. You receive tickets every time you try new things and meet new people. Most of these lottery tickets won't have a pay-out, and that's okay. But every now and then, you'll hit the jackpot. The more you play — the more you say “yes” to new friends and new experiences — the more often you'll win. You can't win if you don't play. That said, however…
• Luck is no accident. What we think of as luck has almost nothing to do with randomness and almost everything to do with attitude. Lucky people watch for — and take advantage of — opportunities. They listen to their hunches. They know how to “fail forward”, making good out of bad. [Via the book Luck is No Accident.]
• Don't try to change others. “Attempts to change others are rarely successful, and even then are probably not completely satisfying,” Harry Browne wrote in How I Found Freedom in an Unfree World. “To accept others as they are doesn't mean you have to give into them or put up with them. You are sovereign. You own your own world. You can choose…There are millions of people out there in the world; you have a lot more to choose from than just what you see in front of you now.”
• Don't allow others to try to change you. Again from How I Found Freedom in an Unfree World: “You are free to live your life as you want…The demands and wishes of others don't control your life. You do. You make the decisions…There are thousands of people who wouldn't demand that you bend yourself out of shape to please them. There are people who will want you to be yourself, people who see things as you do, people who want the same things you want. Why should you have to waste your life in a futile effort to please those with whom you aren't compatible?”

• Be impeccable with your word. Be honest — with yourself and others. If you promise to do something, do it. When somebody asks you a question, tell the truth. Practice what you preach. Avoid gossip. [This is directly from Don Miguel's The Four Agreements.]
• Don't take things personally. When people criticize you and your actions, it's not about you — it's about them. They can't know what it's like to be you and live your life. When you take things personally, you're allowing others to control your life and your happiness. Heed the Arab proverb: “The dogs bark but the caravan moves on.” [Also one of The Four Agreements.]
• Don't make assumptions. The flip side of not taking things personally is to not assume you know what's going on in other people's heads. Don't assume you know the motivations for their actions. Just as their reality doesn't reflect your reality, your life is not theirs. Give people the benefit of the doubt. [Another of The Four Agreements.]

True story: Before Kim and I moved to our current country cottage, the dog park near our home had a homeless problem. (And still does.) We early-morning walkers did our best to clean up camps when they were vacated, but it was a never-ending task. Once, I joined a new woman for a stroll down the trail. “Look at that couple,” she said, pointing to a man and a woman who were dragging a tarp down the hillside. “They just woke up and are packing up their camp.” I tried to tell her that no, they were regular dog-walkers who were pitching in to clean things up. She didn't believe me. “I'm going to report them,” she said. Classic example of a faulty assumption.

• Always do your best. Your best varies from moment to moment. Some days in the gym, for instance, I'm able to lift heavier weights than on other days. Some days I can run faster than usual; some days, I'm slower. That's okay. What matters most is that I give my best effort every time. No matter what you do, do it as well as you can. This is one of the keys to success and happiness. [This is the last of The Four Agreements.]
• Effort matters more than skill or talent. “Effort counts twice,” argues Angela Duckworth in Grit: The Power of Passon and Perseverance. Skill, she says, is talent multiplied by effort. The more you do what you're good at, the better you get. But achievement is the product of skill multiplied by effort. Effort counts twice. (This may be why psychologists say it's better to praise your child's efforts instead of her results. Praise her for spending time on her homework, not because she got an A.)
• Embrace the imperfections. If you do what is right, and you do your best, then there's no reason to feel bad about the outcome. Nobody's perfect. Don't beat yourself up if you make mistakes. And don't sweat it if other people get upset with you too. If you're doing the best you can, that's good enough.
• The perfect is the enemy of the good. Too many people never get started because they don’t know that the “best” first step is. You don't know the best guitar, so you never learn to play. You don't know which Spanish book is best, so you never learn to speak. You don't know how to bench press, so you never go to the gym. Don’t worry about getting things exactly right — just choose a good option and do something to get started.
• There’s no single “right” way to achieve success. Each of us is different. We have different goals, personalities, and experiences. We each need to find the tools and techniques that are effective for our own situations. There’s no one right way to eat, love, pray, or pay off debt. Don’t believe anyone who tells you there is. Experiment until you find methods that are effective for you. (Note, however, that there are wrong ways to do these things — steer clear of obvious bad choices.)
• Be present in the moment. Accept life for what it is, without labels or judgment. Yield to events; don't block them. Go with the flow. Nothing exists outside the present moment: Don't dwell on the past or worry about the future. Improve the quality of the here and now. When you do something, do that thing. When you're with somebody, be with them. Don't multitask. Put away the smartphone or the computer or the book. Be all there. [This is an ancient concept made popular by The Power of Now.]
• Spirituality is personal. The desire for one person (or group) to impose her (or their) beliefs on others is the source of much of this world's strife. Believe what you want, and let others do the same. “There is no need for temples, no need for complicated philosophies. My brain and heart are my temples; my philosophy is kindness.” — the Dalai Lama
• Be skeptical — but keep an open mind. Don't believe everything you hear — from others and from your own internal self-talk. Practice healthy skepticism. But keep an open mind. Don't automatically assume that everything is fake or false. Do your best to analyze the things you see and hear to determine whether they actually make sense.
• Don't yuck someone else's yum. Just because you don't like something doesn't mean it's bad. Pursue your passions, and let others pursue theirs. If you don't like something, fine. Don't make a big deal about it.
• You can't prevent every possible thing from going wrong. Don't even try. Instead, learn to deal effectively with minor problems. You'll build self-confidence, which will lead to an increased willingness to take calculated risks. (Similarly, you can't make everyone like you. It's foolish to try.)
• Be flexible. Goals are good, but single-minded devotion to a goal can often blind a person to other opportunities. And it's a mistake to cling to one path out of sense of obligation. If you enter law school and discover you hate it, then quit. Don't endure years of misery because you feel like it's expected of you. That's dumb. You have more options than you think, but you may need to slow down and open your eyes in order to see them.
• Be encouraging. Support the creative, positive actions of others. There are a lot of people out there who want to tell others what's wrong with their actions, why the things they want to do can't be done. They're quick to criticize small mistakes instead of praising the greater effort. Don't be this way. Do what you can — in ways both big and small — to help others achieve their goals. [Taken from Action Girl's Guide to Living.]

• You are the author of your own life. Everyone has a story they want to tell you about yourself. Society tries to push a “standard narrative” on us about how life should go. Ignore these stories. If you don't like the story you're living, it's up to you to change the plot. You didn't write the beginning of your story, but you have the power to choose the ending. Choose and adventure you love instead of one that makes you unhappy.
• You don't need permission. When we're young, we wait for our parents and teachers to say it's okay to do the things we want to do. As an adult, you don't need permission from anybody else. Do you want to quit your job and travel the world? Do it. Do you want to learn how to ride a motorcycle? Do it. Don't wait for somebody else to give you the go-ahead. You are the only one who needs to give yourself permission to do these things.
• Don't let fear guide your decision-making process. My girlfriend Kim told me this on one of our first dates, and it echoes something my accountant once told me. He says that too many people make money moves based solely on the tax repercussions. “That's dumb,” he told me. “You should do what you want because you want to, not because of the tax hit.” This applies in all aspects of life. Make decisions based on what you want to do. Move toward something, not away from something.
• Action cures fear. Thought creates fear; action cures it. What we're actually afraid of is the unknown. We like certainty, and choosing to do something with an uncertain outcome makes us nervous. Taking the first step can be scary, but each additional step becomes easier and easier. When you act, you remove the mystery. Action creates confidence. It creates motivation. (Most people think motivation comes before action. They're wrong. Action leads to motivation.) [This is an old idea but this phrasing is from The Magic of Thinking Big.]
• Action is character. If you never did anything, you wouldn't be anybody. Superman is a superhero because he does heroic things, not because he talks about doing them. And a writer is a writer because she writes, not because she talks about writing. What we say doesn't matter; it's what we do that counts. We are what we repeatedly do. [From F. Scott Fitzgerald's notes on The Last Tycoon.]
• You're more likely to regret the things you don't do than the things you do. That's not to say you should be an asshole, or that you won't regret making big mistakes. But generally speaking, you're more likely to be sorry that you didn't introduce yourself to the barista at the coffeehouse, didn't go bungee-jumping with your friends, didn't stay in touch with your friends. [This is the central idea in The Top Five Regrets of the Dying.]
• Give without the expectation of return. Help other people — even if it costs a bit of money or time. Don't always expect a financial payoff. Don't get offended if your effort isn't acknowledged or appreciated. Help because it's the right thing to do, not because you want to be noticed.
• When good things happen to people you know, help them celebrate. Their success does not diminish you. Be happy when your friends and family achieve something cool. If a co-worker gets a raise, be supportive and not jealous. Approach life as if it were a win-win game. Because it is.
• Happy people almost never criticize, says Steven Pressfield in The War of Art. “If they speak at all,” he writes, “it's to offer encouragement.” This is true in my experience, as well. Being sarcastic and cutting doesn't mean that you're smarter than the people around you. Most of the time, it simply means you're an asshole. And that leads me to the next lesson…
• Staying in a relationship out of a sense of obligation or pity is not a good reason. Sometimes you really do have to walk away — from a friendship, from a family member, even from a romantic partner. Yours isn't the only story in this world; sometimes it's better to be somebody else's villain than to make yourself miserable.
• You have the freedom to choose how you respond to any event. In the classic Man's Search for Meaning, Victor Fankl writes, “Everything can be taken from a man but one thing: the last of human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.” He based this philosophy on his personal experience in a Nazi concentration camp. When that jerk cuts you off on the freeway, you get to choose if you'll get angry or give him the benefit of the doubt. When you get stuck behind the old lady in line at the grocery store, it's up to you how to respond. When those stupid kids next door vandalize your lawn, you get to choose how you feel about it.
• You'll be happier if you focus on efforts and attention only on the things you can control. Each of us has a large number of things about which we're concerned: our health, our family, our friends, our jobs; world affairs, the plight of the poor, the threat of terrorism, the current political climate. Within that Circle of Concern, there's a smaller subset of things over which we have actual, direct control: how much we exercise, what time we go to bed, whether we leave for work on time; what we eat, where we live, with whom we socialize. You'll be happier and more productive if you dedicate yourself to your Circle of Control and ignore your Circle of Concern. [This notion is part of Julian Rotter's social-learning theory of personality, but was popularized by Stephen Covey in The Seven Habits of Highly Effective People.]

• You can have anything you want — but you can't have everything you want. Everything is a trade-off. You have limited resources. When you choose to spend — time, money, brainwidth — on one thing, you're also choosing not to spend on others. Do your best to spend only on the things that matter most to you. Don't really give a rat's ass about Big Bang Theory? Then why are you watching it? Spend your time and energy on something you do care about.
• Make room for the big rocks first. It's easy to let your time and energy be sucked up by trivial errands and tasks. You find you no longer have space for the things you thought were most important. Don't do that. Always carve out time and attention for those people and activities you value most. If the house doesn't get clean because you were hanging out with a friend, so what? If you didn't mow the lawn because you went to the gym instead, that's a good thing. Tackle the important, then the trivial.
• If you want to avoid feeling overwhelmed, create margin in your life. Simplicity brings peace. Many people have tried to beat this into my head over the years, but it wasn't until I read The Life-Changing Magic of Tidying Up that I really understood. Every item you own, every meeting you schedule, every email you receive — every obligation in your life carries both psychic and physical weight. Traveling in an RV for fifteen months, I learned to love owning very little. It was freeing! And it was freeing too to not be a slave to a schedule. As much as you can, build margin into your life so that you can feel peaceful and free.
• Be your own advocate. Don't be afraid to ask what you want and what you need — especially if it's help. Too often, we struggle in silence when we could make our lives better simply by asking a question or two. Better to look ignorant for a moment than to remain ignorant for a lifetime. Don't wait for others to solve your problems. Be proactive. Find answers. Take action. Learn to help yourself.
• It’s always best to be proactive. In life, there are often default options. If you don’t consciously and deliberately choose something different, you get the default. When this happens, your life shapes you instead of you shaping your life. Most people go through their entire lives in default mode. They accept what life hands them without question. They're reactive. Choose to be proactive instead. If you don't set your own goals, somebody else will set them for you.
• Quality tools can make life better. For years, I equated low cost with smart spending. Now I know that's not always the case. Now, I'm willing to spend to buy high-quality things when I know I'll use them all the time. I have high-quality boots, for instance, and an expensive computer. I'm okay with that. I walk everywhere I go, so the boots are worth it. And my computer is my livelihood. The expense is worth it because it makes working a joy. For items used daily, buy the best. If you don't use it often, of if it's not important to you, buy the cheapest possible.
• The meaning of life is the meaning you decide to give it. Some people are searchers. They wander through life looking for answers…but rarely find them. Others accept without question what an outside authority tells them is true. I believe that the meaning of life comes from within, from the things that you lean to prioritize and value. Nobody is going to tell you what life should mean to you; you have to decide that for yourself.
• You are the boss of you. Your circumstances might not be your fault, but they’re your responsibility. Don’t blame anyone or anything else for your situation, and don’t expect somebody else to rescue you. If you don't like where you are, resolve to do what it takes to make a change.
• Don't compare yourself to others. I preach this often at Money Boss. Comparing yourself to others is counter-productive. Generally one of two things happens: You either feel shitty because you're not as good as the other person, or you feel superior because they're not as good as you. In reality, nobody is better than anybody else. We're just different. If you want to compare yourself, compare Present You to Past You — and do what you can to make Future You a better version of why you are today.
• You can't get rid of a bad habit; you can only change it. “You can never truly extinguish bad habits,” writes Charles Duhigg in The Power of Habit. “Rather, to change a habit, you must keep the old cue, and deliver the old reward, but insert a new routine.” He calls this the Golden Rule of Habit Change. To change your habit loop, you have to do something different when the habit is triggered. Let me give you an example: I used to be a stress-eater. I'd eat junk food — and lots of it — any time I had a deadline or a conflict with a friend. The act of eating soothed my mind. The stress was the cue (the trigger), and the rush was the reward. No surprise, this habit made me fat. I've managed to (mostly) change the habit loop by walking instead of eating. Now if I get stressed, I go for a walk. I get a similar rush for a reward, but my actions are healthier.
• Positive reinforcement is powerful. When Tahlequah performs a desired behavior — sitting, coming when called, being nice to the cats — we reward her. She learns to connect the treat with the actions we wants, and becomes more likely to offer them…even when we don't reward her. What's true for dogs is true for people too. Does nagging your spouse actually work? Probably not. (In fact, it probably has the opposite effect you intend!) But if you reward the behavior your want, you'll eventually see it offered without prompting. The same thing is true with children, co-workers, family members, and so on. [This is a fundamental principle of psychology. An excellent source for more info is Don't Shoot the Dog.]

• Create your own certainty. Don't allow yourself to be dependent on the choices and actions of others. I call this “Michelle's Law” after my friend who taught it to me. But I have another friend — Jenn — who talks about “ensuring success”. When she's working on something important, whether it's a relationship or a vacation, she always follows up to make sure that what she expects to happen will happen. This philosophy is akin to the idea that you should trust, but verify.
• Choose happiness. Do work and play that brings fulfillment. Spend time with people who build you up, not those who bring you (and others) down. Strip from your life the things that take time, money, and energy, but which do not bring you joy. Focus on the essentials.
• Time is more valuable than money. You can always make more money…but you can't make more time. This isn't 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.
• It's never too late to be great. It takes time to achieve anything worthwhile. But just because you haven't started yet — or haven't reached the level your aiming for — doesn't mean you can't or won't make it happen. Don't be daunted by audacious goals. Are you fifty and want to run a marathon? Start training. Are you sixty and only now thinking of retirement? That's okay. Better late than never. Are you seventy and want to write a novel? Do it. History is filled with examples of folks who achieve great things later in life. [This argument is made persuasively by Tom Butler-Bowdon in his book, Never Too Late to Be Great.]
• Be yourself. This is the most important thing I've learned during my 49 years of life. For too long, I tried to please others. I tried to be and do the things I thought they wanted me to be and do. As a result, I was unhappy. And most of the time, my actions didn't have the results I thought they would. They didn't make others like me any better. Instead of trying to please others, now I'm just me. I'm honest about who I am and what I want. Maybe some of my old friends don't like who I've become. That's okay. I've made plenty of people who do like who I am.
• “Everybody is talented, original and has something important to say.” — Barbara Ueland, If You Want to Write.

This isn't a comprehensive list of my beliefs, but it's a fair survey of my life philosophy. It has evolved from my philosophy when I was forty or thirty. And I'm sure that my philosophy at sixty will have changed in ways that I cannot foresee right now.

Also note that although I really do believe these things to be true, I also struggle with them. I'm human, just like you. I don't always live up to my ideal self.

How many of these ideas do you agree with? Which do you disagree with? More to the point: What are the core ideas that make up your personal philosophy?

The post My life philosophy: 50 lessons from 50 years appeared first on Get Rich Slowly.

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Should You Lease or Finance a Car?

Should you buy or lease a car? If you have to ask, you should probably buy. Leasing can make sense in some circumstances for some people, but for most, actually owning the car is a better financial decision. My car buying experience I bought a car last summer. I opted for a 3-year-old, pre-owned vehicle [...]

The post Should You Lease or Finance a Car? appeared first on Money After Graduation.

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7 best income generating assets to invest in today

Below are seven income producing assets that you can invest in to start earning you passive income.

I’ve split the list up into two ways: Safe and risky. The former are assets I consider to be more conservative and proven that you can start investing in. The latter are a bit more aggressive — but can yield great results if done right.

Safe income producing assets to invest in

These are conservative, low-risk income producing assets. The trade-off to its low volatility though is that you won’t earn as much as more aggressive assets. It’s still a good idea to have a few of these in your portfolio to ensure proper diversification.

Asset #1: Certificates of Deposit (CDs)

A certificate of deposit, or CD, is a low-risk financial investment offered by banks.

How they work is simple: You loan the bank money for a set amount of time known as a “term length” and you gain interest on the principal during this time.

A typical term length is anywhere from three months to five years. During this time, you won’t be able to withdraw your money without taking a penalty hit. BUT it’s pretty much assured that your money is growing at a fixed rate.

The interest rate varies on how long you are willing to invest for. The longer you loan money to the bank, though, the more you can earn.

And since CDs are insured by the FDIC up to $250,000, they’re incredibly low risk.

But there are a few drawbacks:

• Inflation. The average inflation rate in the U.S. over the past 60 years is 3.7% — which stands on the high end for most CD interest rates. This means you can actually lose money if you keep your money in CDs because of inflation.
• Low aggressiveness. If you’re young, that means you can stand to be a lot more aggressive with your investments (because you have more time to recover from any losses). Your potential for growth is much higher. This allows you more wiggle room to invest in riskier assets and potentially earn more money.
• Length of investment. You might not be able to part with your cash for a long time — especially if you have other financial goals in the near future (buying a home, vacation, weddings, etc.).

If you want a low-risk investment that ensures you peace of mind, CDs might be for you.

Asset #2: Bonds

Much like CDs, bonds are like IOUs. Except instead of giving it to a bank, you’re lending money to the government or corporation.

And they work similarly to CDs as well — which means they’re:

• Extremely stable. You’ll know exactly how much you’ll get back when you invest in a bond.
• Guaranteed a return. You can even choose the amount you want a bond for (one year, two years, five years, etc.).
• Smaller in their returns, especially when compared with aggressive investments like stocks.

If you want to know exactly how much you’re getting back, bonds are a great investment.

For more check out our article on bonds here.

Asset #3: Real estate investment trusts (REITs)

The U.S. Congress established real estate investment trusts, or REITs, in 1960 to give people the opportunity to invest in income producing real estate.

REITs are like the mutual funds of real estate. They’re a collection of properties operated by a company (aka a trust) that uses money from investors to buy and develop real estate.

They’re a fantastic choice if you want to get involved with real estate investing but don’t want to make the commitment of purchasing or financing property. Like with most blue-chip stocks (more on those later), REITs pay out in dividends.

REITs also focus on a variety of different industries, both domestic and international. You can invest in REITs that build apartments, business buildings, or even healthcare facilities.

(NOTE: There are some taxable implications for REITs.)

In all, they are a straightforward way to get involved with real estate without having to eat the upfront cost of buying property. To get started, go to your online broker and purchase a REIT like you would a typical investment.

One I suggest? The Vanguard REIT ETF (VNQ). This is Vanguard’s ETF fund that tracks a REIT index from MSCI Inc, a noted investment research group.

If you don’t know how to do that, that’s okay! Check out our article on mutual funds to find out exactly how you can open one.

Risky income producing assets

The following are riskier investments that might require more active management on your part. The earning potential for these investments is high. If you put the time and effort into these assets, you might find yourself with a nice sum of money to show for it.

Asset #4: Dividend yielding stocks

Some companies pay out earnings to their shareholders each quarter via dividends. These are known as “blue-chip stocks” and tend to be reliable and able to weather most economic downturns.

Many investors like to add a few dividend paying securities via blue-chip stocks in their portfolio to ensure that they receive earnings consistently throughout the year. And while some like to hand pick individual shares to invest in, you can get started by investing in index funds that specialize in high-yielding dividends.

A few suggestions below:

• Vanguard Dividend Appreciation Fund (VDAIX)
• Vanguard High Dividend Yield Index Fund (VHDYX)
• Vanguard Dividend Growth Fund (VDIGX)
• T. Rowe Price Dividend Growth Fund (PRDGX)

Asset #5: Property rentals

Renting out property seems simple enough:

1. Buy a house or apartment building.
2. Rent out the rooms to tenants for a nominal fee.
3. The rental checks come in like gangbusters each month while you sip piña coladas and make passive income.

Hell, that DOES sound awesome — but it’s also a complete oversimplification. In fact, renting out property is anything but relaxing. That’s because you’re responsible for all facets of the building you’re renting out as the owner. That includes repairs, maintenance, and chasing down tenants who don’t pay you rent.

And god help you if they do miss a rent payment. If that happens, you’ll have to find another way to pay your monthly mortgage payment.

You CAN make money from renting out properties (many people do!). It’s just that doing so can negatively affect your finances in a BIG way. Check out our house poor article for a good example of that.

If you’re interested in purchasing properties to rent out, be sure to check out our article on buying a house for more.

Luckily, with the rise of services like Airbnb, you can just rent out a spare room in your house and not worry about buying a separate apartment unit. You simply sign up for the platform and take advantage of short-term rentals. You’ll still have to deal with certain pains of property management but you’ll be able to leverage property you already own (e.g., spare bedroom in your house).

Asset #6: Peer-to-peer lending

Also known as “crowdlending,” peer-to-peer (P2P) lending allows investors to essentially act like a bank. You loan money to others via a peer-to-peer lending platform (such as Lending Club), and later they pay you the money back with interest.

Unlike a bank though, the person seeking the loan doesn’t have to deal with financial background checks or incredibly high interest rates due to things like bad credit history.

P2P lending isn’t without risks though. In fact, relying on someone with crappy credit to pay back a loan might be one of the riskiest financial investments you make. But if you’re willing to devote yourself more to learning about the platform and use money you don’t mind losing, it could be a very fruitful financial investment.

Asset #7: Creating your own product

This is one of my favorite ways to make money. Not only is it low cost but it’s also easily scalable — meaning the sky’s the limit for your earning potential.

And you don’t need engineering or carpentry skills to create your own product either. In fact, you probably use products every day that you can create too:

• E-books
• Online courses
• Podcasts
• Webinars
• Whatever!

These digital information products are perfect ways to earn money without sacrificing overhead.

BUT they come at a cost: Your time and energy. Not only do you actually have to create the product, you also have to make sure that the product will sell.

That’s why we’ve devoted our sister site, GrowthLab, to helping entrepreneurs create, grow, and scale their businesses. Check out the site today for more information on how you can get started with information products too.

Earn more money today

Income producing assets are a great way to supplement your income through your investments.

If you want to learn how to make even more money, my team and I have worked hard to create a guide to help you earn more today:

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 start earning more today.  

7 best income generating assets to invest in today is a post from: I Will Teach You To Be Rich.

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How to make a million dollars (with advice from actual millionaires)

We spoke with two millionaires who were able to earn their money through a powerful combination of two things:

1. Investing and saving
2. Earning more money through side hustles

And we’ll show you exactly how to do both. But first,

Introducing: The real millionaires we talked to

Our millionaires are…

Luisa Zhou

Luisa had a great job with a healthy six-figure income, but she decided one day that she wanted more.

That’s when she started her first side hustle consulting people in digital advertising, and now teaching aspiring entrepreneurs how to launch their own business the right way.

She’s since scaled her business and was able to earn a whopping $1.1 million in sales in less than 11 months. You can read about her journey here, on our sister site GrowthLab.

Shannon Badger 

With three kids to take care of, Shannon knew she had to really learn the art of the grind in order to quit her job and take her freelancing seriously.

That’s how she was able to grow her freelance CPA consulting hustle into a full-fledged business (Badger and Badger CPA) that she runs with her husband. It’s helped earn her her first million dollar year in 2017.

“It was a huge mentality shift to how much can I ramp it up while still working full time in my other job,” she says. “There’s a quote by Dave Ramsey that goes: ‘Live like no one else, so you later can live like no one else.’ My husband and I were really disciplined when we got started, and it made the process less difficult.”

And now, these two millionaires are going to divulge their strategies on how they got to where they are — and how you can do it too.

How to make a million dollars

Remember, our two millionaires were able to earn their money through a powerful combination of two things:

1. Investing and saving
2. Earning more money through side hustles

Though you can actually make a million dollars on investing and saving alone, you can watch your net worth explode if you combine them both — which I suggest you do.

Part I: Investing and saving

Step 0: Get out of debt

The number one barrier preventing people from living a Rich Life is debt.

That’s why this is Step 0. Before you even think about investing, saving, or earning more money, you need to take steps to get out of credit card debt.

“A [freelancing business] is not the solution to your money problems,” Luisa says. “If you’re struggling to pay your bills or are in debt, the first thing you want to do is get a job that can help you. That’s the easiest way to really help you first.”

That’s why getting out of debt was also a priority for Shannon when she and her husband/business partner first got married.

“When my husband and I were first married, we were really disciplined about getting out of debt and saving,” Shannon says. “We paid off all of our debt out of college. We paid off all of our car debt. And now we’re paying off our house.”

Paying off your credit card debt is one of the most important investments you can make into your Rich Life. I’ve written extensively about this before, both on the blog and in my New York Times bestselling book.

If you’re in debt and want to learn more about my system, I highly suggest you read my article on how to get out of debt fast.

Step 1: Save money for when you need it most

By saving money, you give yourself the freedom to earn more money.

That’s why it’s important to set savings goals.

To find out how much you need in your emergency savings fund, you simply have to take into account three to six months worth of:

• Utility bills (internet, water, electricity, etc)
• Rent
• Car/home payments
• Food/groceries

Basically, any living expense that you have should be accounted for.

You should also start an account exclusively for your emergency savings fund. Most banks allow you to create a sub-savings account along with your normal savings account. (You can even name them too!) So create one for your emergency fund.

And you can start putting money into the account through my favorite system: Automating your personal finances.

The process only takes one to two hours at the most, but once you set it up, you don’t have to worry about it again.

AND it’ll save you thousands of dollars over your lifetime.

Here is a 12-minute video of me explaining the exact process I use below.

Step 2: Invest in your future

Investing your money is the best way to guarantee you become a millionaire. In fact, I promise you, if you follow the systems below you will eventually become rich.

Shannon knows that too.

“My husband and I have been putting 10 – 15 percent of our earnings into our retirement accounts for a while now,” she says. “We also have a 529 plan for each of our kids.”

When it comes to accounts for retirement, you have two options:

1. 401k
2. Roth IRA

These are retirement accounts. That means you’ll be able to accrue gains with big tax advantages with one caveat: you promise to save and invest long term. That means you can buy and sell shares of almost anything as often as you want as long as you leave the money in your account until you get near retirement age.

Let’s take a look at each one.

401k: Free money from your employer

A 401k is a powerful retirement account offered to you by your employer. With each pay period, you put a portion of your pre-tax paycheck into the account. That means you’re able to invest more money into a 401k than you would a regular investment account.

But here’s the best part: Your company will match you 1:1 up to a certain percentage of your paycheck.

Say your company offers 3% matching. If your yearly salary is $150,000 and you invest 3% of your yearly salary (~$5,000) into your 401k, your company would match you that amount — doubling your investment.

Check out the graph below that illustrates this.

This is free money!!! If your company offers a match, you should ABSOLUTELY take part in their 401k plan.  

For more on 401k’s, be sure to check out my article on how the account is the best way to grow your money.

But 401k’s are only one part of the equation when you want to start saving for retirement. The other account you should get is a Roth IRA. And ideally, you have both.

Roth IRA: The best long-term investment

A Roth IRA is simply the best deal I’ve found for long-term investing.

Remember how your 401k uses pre-tax dollars and you pay income tax when you take the money out at retirement? Well, a Roth IRA uses after-tax dollars to give you an even better deal.

With a Roth, you put in already taxed income into stocks, bonds, or index funds and pay no taxes when you withdraw it.

For example, if Roth IRAs had been around in 1970 and you’d invested $10,000 in Southwest Airlines, you’d only have had to pay taxes on the initial $10,000 income. When you withdrew the money 30 years later, you wouldn’t have had to pay any taxes on it.

Oh, and by the way, your $10,000 would have turned into $10 million.

That’s an exceptional example, but when saving for retirement your greatest advantage is time. You have time to weather the bumps in the market. And over years, those tax-free gains are an amazing deal.

How to open a Roth IRA account

To open up a Roth IRA, find a brokerage account. There are many out there, so I highly suggest shopping around and taking a look at the options out there.

Certain factors you want to consider when looking at brokers can be:

• Minimum investment fees
• Customer service
• Investment options
• Transaction fees

A few brokers I suggest, though, are Charles Schwab, Vanguard, and E*TRADE.

These brokers offer fantastic customer service and are well-known in the investment community for their great stock options.

Special note: Most brokers typically have minimum amounts for opening a Roth IRA, usually $3,000. Sometimes they’ll waive the minimums if you set up an automatic payment plan depositing, say, $100/month.

Also, it’s worth noting that there’s currently a yearly maximum investment of $6,000 to a Roth. (This amount changes often so be sure to check out the IRS contribution limits page to keep updated.)

Once your account is set up, your money will just be sitting there. You need to do things then:

1. First, set up an automatic payment plan so you’re automatically depositing money into your Roth.
2. Second, decide where to invest your Roth money; technically you can be in stocks, index funds, mutual funds, whatever. But I suggest investing your money in a low-cost, diversified portfolio that includes index funds such as the S&P 500. The S&P 500 averages a return of 10% and is managed with barely any fees.

For more, read my introductory articles on stocks and bonds to gain a better understanding of your options. I also created a video that’ll show you exactly how to choose a Roth IRA.

NOTE: After you invest in your retirement accounts, you can actually stop right there. After many years, your money will compound and earn you well into the millions if you continue investing.

Say you’re 25 years old and you decide to invest $500/month in a low-cost, diversified index fund. If you do that until you’re 60, how much money do you think you’d have?

Take a look:

$1,116,612.89.

However, if you want to be able to hit a million dollars sooner than that, there’s only one really good option: Earning more money through a hustle.

Part II: Earning more money

The reason earning money is one of my favorite ways to get to a Rich Life is simple:

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

If you’re willing to put in the work and develop a hustle that’ll scale and grow, you can earn as much money as you want. And while there are a lot of ways you can make more money, my favorite way is by starting a freelance hustle.

That’s what Shannon and Luisa did, and they’re going to show you how.

Step 3: Find a million dollar business idea (it’s easier than you think)

One very common misconception about starting your own freelance hustle is that you need to come up with the “perfect” idea to do it — when that couldn’t be further from the case.

“People think that they need a cool crazy idea like the next Facebook to make a significant amount of money,” Luisa says. “But what most people don’t realize is that they already have the skills to make a million dollars.”

I know it’s difficult to imagine that you might have profitable skills already — but you do. In fact, Shannon has a perfect solution to find out those skills: Look at what your friends ask you to help them out with. That’s how she got her start as a freelance CPA consultant.

From Shannon:

“I had a colleague who needed help sorting through her finances. She asked me to help her out, and she became my first client. Then I had another friend who started a law office and needed help, so I helped them out with all of their accounting. I’d meet with them to make sure that they were still compliant and help with their tax returns.

It just started with helping people as a hobby, but then my husband pointed out that I was getting clients without even trying. Eventually, I was able to start a freelancing business from it.”

That’s not the only way you can find a profitable freelancing idea either. There are actually 4 questions you can ask yourself right now to find an idea you can leverage for your hustle.

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 I promise you you’ll find a great freelancing idea.

ACTION STEP: Find a profitable idea.

Spend about 10 – 20 minutes now writing down five answers for each of the four questions above. Once you’re done, congratulations — you now have 20 potential business ideas that you can grow into a flourishing side hustle.

For now, just choose one business idea. It’s okay, you can always change it later. For now, we’re going to just try one out and try to find a client with it.

Step 4: Find your first client

In order to start earning money, you need to find the people who will give you money for your ideas.

But the question is…how? Where do you find these people?

For Luisa, that meant going online and finding out where her clients lived.

“I spent a lot of time on Facebook groups talking with potential clients answering their questions about advertising,” Luisa says. “That’s when I found my first client.”

You can do the same thing.

Ask yourself:

• Who is my client?
• Where do they go when they want to look for a solution to their problems?
• Where are they ALREADY looking for solutions to their problems?
• How can you connect them to your service?

At this point, you’re also going to want to niche down your market in order to really tailor your services and draw in customers.

“Stay in your niche,” Shannon suggests. “We had a few instances where we veered from the niche and we paid for it dearly. It might feel cheesy to sit down and figure out what your target market is or what your goals are for the company, but you have to do that. All that legwork needs to be done upfront. It’s just practical.”

So think about who’s an example of a client who might want to buy your product.

A few questions to jumpstart your research:

• How old are they?
• Where do they live?
• What are their interests?
• How much do they make?
• What books do they read?

Using this information, find out what your clients need by going to the places they go.

For example:

• Want to pitch to moms that blog about children? Go to The Mom Blogs and start with the ones under “Popular Blogs.”
• Looking for physical or massage therapists within 50 miles of your house? Yelp should get you started easily.
• If you want to do large dog grooming and sitting, well there’s probably a local pet store or dog park near you where owners are all congregating just waiting for you to offer them a solution.

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

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

Once you find a potential client, you’re going to want to reach out to them and pitch your services.

ACTION STEP: Find a client and email them (with scripts).

Find your client using the information, I’ve outlined above. Once you’ve done that, you can reach out to them using this handy script:

CLIENT’S NAME,

I saw your post on X and visited your website. I noticed that you’ve recently started using videos too.  

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.

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.

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

If so, would it be okay if I sent you a few ideas on how to help?

Best,

Ramit Sethi

A few takeaways:

• There is zero fat in the pitch. Every word counts and is needed to help really sell the benefits of working with you.
• Don’t mention payment. There’s nothing that will kill a potential client’s interest in you more than pushing prices on them before they’re ready.
• Stress the benefits. This email shows the client why it would be in their best interest to buy from you in the third paragraph.

Once you get a client using this email, congrats! You just secured your first client — but it doesn’t end there. You need to actually do the work for them, and that means continually adding value.

Step 5: Invest again — but this time, in yourself

Investing takes many shapes. It’s not all stocks, bonds, and retirement accounts. Investing can also be in yourself — and it’s something you need to do if you want to earn a million dollars. Be continually curious.

From Luisa:

“I’ve always been big on investing [in myself]. Even in my previous businesses it’s been a lot of me putting in the cash into my business. I invested in my site. I invested in a copywriter to teach me how to make copy. I invested in someone to teach me how to make sales calls.

Thankfully, I knew what I didn’t know, so I invested heavily in those things. I’m not a big risk taker. But I do believe in calculated risk. After all, I am my best asset. My top priority is myself or my business.”

I love this. It hits on an idea that all IWT readers should embrace: Be continually curious.

Ask questions when you don’t understand something and don’t be afraid to seek out more information through books, courses, or schooling. It’s only then that you can hope to truly live your Rich Life.

That’s why my team and I have worked hard to create a guide to help you invest in yourself today: 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 start blowing up your net worth today.

How to make a million dollars (with advice from actual millionaires) is a post from: I Will Teach You To Be Rich.

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