Vanessa Napier

How to Choose the Best HSA Provider for Your Lifestyle

Andrea Basse — Tue, 14 Dec 2021 17:58:59 GMT

A health savings account (HSA) can be a practical part of your comprehensive money management strategy. HSAs provide a secure place to keep pre-tax money and let it grow tax-free. You can later use the cash in your HSA account for qualified health care expenses.

In addition to helping you save on medical costs, investing in an HSA can also benefit your finances in other ways. This article will provide an easy-to-understand overview of HSAs and why HSA contributions are worth incorporating into your budget or conscious spending plan. Finally, we give you an overview of your options in selecting an HSA.

What is an HSA account?

An HSA is a type of savings account where you can contribute money on a pre-tax basis, which you can subsequently use to pay for approved health care expenses. By spending pre-tax dollars from your HSA, you can ultimately save money on expenses like coinsurance, insurance copayments, and deductibles, reducing your overall medical bills.

However, to be eligible for an HSA, you must have a High Deductible Health Plan (HDHP). If you’re unsure whether your health plan qualifies, though, give your insurance provider a call. They’ll be able to tell you whether you have an HDHP and if you can pair an HSA with your account.

If you buy a health plan on the Health Insurance Marketplace, make sure to confirm that it’s labeled as HSA-eligible. HDHP plans usually only cover preventive care before the deductible. For 2022, the minimum deductible is $1,400 for individuals and $2,800 for families.

How do HSA accounts work?

When you contribute to an HSA, you have the chance to invest pre-tax dollars. This money can grow in your HSA without getting taxed, remaining in your account until you’re ready to use it for qualified medical expenses.

Essentially, it acts like a checking account and you’ll get a debit card you can use for those qualified medical expenses. The HSA money in the account balance then rolls over each year if it’s not spent and can earn interest, which also isn’t taxed. While there are annual contribution limits, they tend to be high: For 2022, individuals can put in up to $3,650 and families can put in up to $7,300.

What are the benefits of an HSA account?

The most obvious advantage of an HSA plan is that it can save you money on health care, which can be notoriously pricey in the United States. HSAs have financial advantages, too, including:

Similar to Roth IRA or 401(k) retirement accounts, HSAs allow you to take a tax deduction that can lower your income on your tax return. The money you put into the HSA isn’t taxed and reduces your annual earnings, meaning lower taxable income.
HSAs also offer tax benefits. Any investment gains made in an HSA, like interest, aren’t taxed. Withdrawals from the HSA likewise aren’t taxed if you use them for qualified health care expenses.
HSA funds never expire, so they can become a valuable component of your retirement savings. If you withdraw your funds for non-eligible expenses before age 65, you’ll be subject to a 20% penalty, plus, you’ll have to pay income taxes on the money you withdraw. However, after age 65, the penalty disappears. That said, you’ll still have to pay income tax on money you withdraw and use for non-eligible expenses. (Note that Medicare premiums are considered an eligible expense.)
Some HSAs allow you to invest and grow your money, for example, via mutual funds, stocks, and bonds. If you want to use this opportunity, make sure any HSA you open offers a broad array of investment opportunities, ideally low-cost funds. Also, check the administrative fees associated with investing.

How to choose the best HSA provider for you

Ideally, you’ll be able to qualify for HSA enrollment via your employer. That said, you can still leverage an HSA if you’re self-employed or a business owner. Regardless of your situation, there are a few things to consider when selecting an HSA, including:

Fees: Account fees might include investment fees, annual fees for maintenance, monthly fees for paper statements, and transaction fees, among others. Ask for a full schedule of fees. Some providers forego fees if you maintain a minimum cash balance.
Investment options: If you’re going to use your HSA to invest and grow your money, see which products are available. Options might include stocks, mutual funds, and bonds, among others.
Accessibility: Your HSA should provide you with a debit card that you can use to access your funds. However, some HSA providers make it easier to manage your funds than others — for example, via mobile apps. When comparing HSA online portals, compare traits like online bill pay, mobile deposits, e-statements, and text banking.
Insurance: If you opt for an HSA spending account, look for one with a federally insured bank or credit union (NCUA- or FDIC-insured). If the financial institution fails, you can get coverage for up to $250,000.
Interest rates: HSAs can grow interest, similar to a normal savings account. Compare interest rates between accounts to see what you can expect.

Finally, consider customer service for the HSAs when shopping around. You should be able to assess this via interactions when doing research. For example, if you try to get a full schedule of fees, how long does it take to get a response?

The best HSA accounts, by lifestyle

There is no one-size-fits-all HSA that’s perfect for everybody. For instance, a single person’s HSA needs may differ from a family’s. The great news is that there is a wide diversity of HSA options to suit different needs. Here’s a quick overview of the best health savings accounts.

Best no-fee HSA account

Lively has a noteworthy fee schedule and doesn’t ever charge for essentials like opening or closing accounts, transferring funds, or account maintenance fees. There’s no minimum balance required either. You also have the option to open a brokerage account with TD Ameritrade if you want to invest your HSA funds — no fees necessary.

Best HSA account for families

Further earns points for versatility, with three types of accounts: Premium, Value, and Select. This allows families to choose the option that fits their needs. Prices vary, with Further Value being the most cost-efficient (low fees of $1 per month). Further’s Learning Center creates transparency and makes it easy to discover HSA options.

Best investment HSA account

Fidelity offers varied HSA investment options, including bonds, ETFs, CDs, mutual funds, stocks, and more. You can manage your investments yourself or select a managed account. Fidelity also stands out for its low fees and accessibility. You can easily access your account via a mobile app or web platform.

Best no-minimum-balance HSA account

If you don’t want to stress about a minimum balance, HSA Bank is an option. However, there are other fees, such as for paper statements. HSA Bank also offers percentage-based investment fees. You can invest via TD Ameritrade or Devenir. Additionally, they offer flexible spending accounts (FSAs).

Best overall HSA account

The Fidelity HSA offers a good balance of security, transparency, and accessibility. There are no fees for basics like opening an account, overdrafts, or stopping payment. You can easily access your account via an online platform or mobile app. Plus, Fidelity’s deposits are FDIC-insured.

Fidelity also earns points for its comprehensive investment accounts. You can choose from a managed fund or handle your own investments. Additionally, U.S. ETF and stock trades are commission-free. You can also purchase fractional shares, giving you access to companies with pricier stock.

Take control of your financial future

Investing in a health savings account and leveraging the tax advantages is just one of the many ways you can make your money work for you. But just how much should you invest in an HSA? Drafting a conscious spending plan that’s tailored to your unique needs can help you figure it out.

Following this principle, you build a budget that isn’t about restriction but that lets you live a rich life with guilt-free spending on things you truly love. Find out more about how it works with the I Will Teach You to Be Rich six-week program. Get the knowledge you need to take the first step toward improved personal finances by downloading the first chapter of I Will Teach You To Be Rich for free below!

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How to Choose the Best HSA Provider for Your Lifestyle is a post from: I Will Teach You To Be Rich.

How to Calculate Monthly Expenses

Andrea Basse — Tue, 14 Dec 2021 16:54:59 GMT

Tracking expenses can help inform smart money management, ensuring you have clear oversight and control over your finances. While the thought of examining the money you spend may be daunting at first, this is one of the first steps in setting a monthly budget that works for you (i.e., one that covers your basic needs and wants without leaving you feeling like you’re living a life of denial).

When setting up your 2022 budget, try a “conscious spending” approach. Instead of scrounging to save money, allow yourself those treats you truly enjoy while cutting costs on those things that don’t improve your happiness or quality of life. This makes for a sustainable approach to saving, investing, and general money management and can result in a more stable financial future.

This guide explains how to calculate your expenses according to the conscious spending mindset.

What’s considered a monthly expense?

So, just what qualifies as an expense? At its core, an expense is anything that you are spending money on — it’s the money that’s going out, not coming in. This could include essentials like rent, utility bills, gas, food, child care, and health insurance, as well as nonessentials, like beauty treatments, entertainment (e.g., your Netflix subscription), and travel.

Since many expenses (like rent) are inherently calculated on a monthly basis, most people make monthly budgets. This is also a manageable time frame to work with if you are employed and paid in a set period once or twice per month. A monthly budget is also easier to manage than an annual budget since you have a smaller period to keep track of.

To make your conscious spending plan even clearer and easier to adhere to, it’s best to break it down into four distinct categories:

Fixed costs
Investments
Savings
Guilt-free spending

Examples of fixed-cost monthly expenses

Fixed costs refer to expenses that you can’t forego. These are the things that you can’t eliminate because, let’s face it, you can’t really live without them. Although you can rarely cut fixed costs completely, reviewing them can help you find ways to reduce them. They could include:

Housing costs like rent, renters insurance, or mortgage payments
Utilities like electricity, gas, and water
Food, including groceries, takeout, and restaurant dining
Transportation costs like gas, car payments, or public transportation tickets
Internet
Cell phone bills
Health insurance

Examples of investments as monthly expenses

Putting money into investments that grow can help your money keep up with inflation. While some investments perform best long term, there are also short-term investment possibilities. Investments could include monthly payments into the following:

Retirement accounts like a 401(k) or Roth IRA
Bond funds
Stocks
Certificates of deposit (CDs)
Money market accounts (MMAs)
Treasury bills

Examples of savings as monthly expenses

Savings can be used for various purposes. You can set up sub savings accounts to divert money for these distinct needs, making it easier to keep track. Possible types of savings include extra money for:

An emergency fund for unforeseen expenditures, from health care bills to computer repairs
Big-ticket purchases, like a down payment on a house or car
Predictable expenses that aren’t paid as frequently (e.g., car maintenance)

Examples of guilt-free spending as monthly expenses

Finally, with the above essentials taken care of, you have your guilt-free spending left. This is the stuff you buy that you don’t necessarily need to survive but that improves your quality of life and brings you joy. Examples could include:

Clothing
Dining out
Travel
Entertainment

How to calculate your monthly expenses

Calculating your monthly expenses doesn’t require a pricey personal finance manager or a complicated budget calculator. Start by simply making a list of all the money that goes out every month — you can use an expense-tracking app to keep track if you’re not sure — or just look at your last three months of bank statements. Then, divide your expenses into the categories described above. Any expense should fit into one of these labels.

Divide expenses into budget categories to establish a budgetary guideline. Some people stick to the 50/20/30 rule, for example, which dictates that 50% of monthly income (after taxes) should go toward obligatory expenses, 20% should go toward repaying debts (like student loans) or savings, and the remaining 30% should go toward everything else.

It’s up to you to establish a conscious spending ratio that fits your needs and lifestyle. Once you’ve categorized your expenses and come up with a percentage-based budget, you can finetune your spending. For example, let’s say your household income is $60,000 a year after taxes. That’s $5,000 per month. Here’s how you might calculate your monthly expenses based on the percentages for your four categories:

Overview of Monthly Expenses
Category of Spending	Percentage	Total
Fixed costs	50%	$2,500
Investments	10%	$500
Savings	20%	$1,000
Guilt-free spending	20%	$1,000

Keep in mind that your spending plan may evolve with time. For example, you may get a promotion and make more money, which means it’s time to rework how you’ll categorize it. Alternatively, you might incur new expenses, like personal loans, each with its own unique interest rates, terms, and lender repayment plans. These points will change your budgeting template significantly.

Understanding your own “money dials”

As you determine how to structure your spending plan, it’s helpful to understand your “money dials.” Basically, these define why you spend money the way you do. Ideally, you will be spending money on things you actually love — if you earn more, you can turn up the dial on that kind of guilt-free spending. People may get excited about different things, from spa treatments to luxury goods to travel.

For example, if you are passionate about health and fitness, your gym membership is a worthy monthly cost. If you have kids but enjoy an occasional romantic night out with your partner, paying for child support like a babysitter is a great investment. The point is to not deny yourself the things you love. Learn more about money dials and how to determine your own.

A new approach to financial success

Tallying up your monthly expenses might seem scary. However, it’s important to realize that tracking your expenses doesn’t mean you’ll suddenly have to stop spending on things that make you happy. You can still be financially savvy while making expensive purchases. The key to success is taking a structured approach and essentially becoming your own financial advisor.

Instead of viewing money management as a means of restricting yourself, look at it as a way of better organizing your money so you can get the most out of it. It can also eliminate possible fears related to money — which make conscious spending even harder to handle. A critical step to being able to manage your money intelligently is being able to talk about it openly. Find out how to make conscious spending work for you.

How to Calculate Monthly Expenses is a post from: I Will Teach You To Be Rich.

Everything You Need to Know About Managing Your Money in 2022

Andrea Basse — Tue, 14 Dec 2021 15:49:26 GMT

A new year is an opportunity for a fresh start. From losing weight to starting a new hobby, there are a few resolutions that people frequently come back to again and again when determining what they want to change about their lives. Improved financial stability is another goal that we all seem to strive for consistently — but often fall short on.

Only 19% of Americans have enough cash saved to cover three to five months of living expenses in case of an emergency, for example. And although we’ve previously recommended three to six months’ worth of expenses on hand, we’re now encouraging 12 months since the pandemic has proven that your situation can change drastically at a moment’s notice. The point is, if you feel overwhelmed because you’re not in the best place financially, you aren’t alone.

The good news? 2022 offers many opportunities to improve your money management and attain greater stability and long-term financial health. The key to success is strategic planning informed by a fresh point of view. This new mindset starts with knowledge, from understanding your “money dial” — why you spend the way you do — to mastering networking and improving your money-making opportunities.

Taking the time now to learn the basics of money management will set you up for success in 2022 and beyond. This guide provides essential tips and practical insights on how to take advantage of the many new opportunities available to people financially, from freelancing to investing. Ready for a brighter and richer 2022? Let’s get started.

Benefits of money management on your life

At its most basic level, money can provide you with life’s essentials, like food and shelter, and can help you avoid the risk of having unmet needs. This can help safeguard against stress and anxiety, improve the odds of general contentment, and give you greater control over your life’s circumstances — another factor in determining happiness.

Beyond this, money can also help you experience life to the fullest, allowing for opportunities like travel. Financial stability further helps you achieve certain goals, like investing in yourself either through education or by improving your health. In these ways, money can create a sense of fulfillment and achievement, boosting your overall sense of well-being. We call this concept “living a Rich Life.” It’s not just about accumulating wealth, but using your money to do the things you’ve always wanted to do.

That doesn’t mean you have to be a multimillionaire. Good money management is an important life skill that can help you make the most of your income. Taking the time to educate yourself about the topic will benefit you in many ways. Here are some advantages of prioritizing money management:

Get better control of your finances: Discovering that you’re running short of cash at the end of the month is never a fun feeling. With money management skills, you’ll have better oversight of expenses and spending, helping to improve control of your finances.
Achieve financial goals: You likely have some big purchases you’d like to make that will require extra money, whether it’s a trip overseas or a new car. Improved money management will allow you to more efficiently and effectively save for these financial goals without feeling like you have to scrimp and lead a life of denial to get there.
Improve your oversight of debts: Whether you have student loans or unpaid credit card bills, odds are you have some debt to your name. Sharpening your financial skills will allow you to take a smarter approach to debt by, for example, helping you to pinpoint which ones are best to pay off first.
Prepare for the unexpected: Life can often throw a curveball when you least expect it. Whether your car needs repairs or it’s time for a new laptop, these unexpected expenses can be costly. Improved money management can help you save, ensuring you have an emergency fund when issues arise.
Greater peace of mind: Money-related anxiety isn’t fun! A whopping 60% of people report feeling stressed when they think about their personal finances. Wouldn’t it be great to not cringe when you consider the sum in your checking account? Improved money management can help bring you that peace of mind by improving your general financial stability.

The benefits of improved money management are clear. Best of all, the key to getting there doesn’t have to cost a thing — it’s all about enhancing your knowledge and changing your behaviors accordingly. Read on for some actionable tips for improving your personal finances in 2022.

How to control your finances in 10 steps

Imagine how your life would change if you woke up tomorrow and:

You knew exactly how much money you had
Your bills were paid on time
You invested your money for retirement automatically
You had an extra $1,000 to spend or invest in whatever you wanted
You had leftover income to spend on what you love — guilt-free

This isn’t just some pipe dream. You can have all this as long as you implemented the right mindset and systems, which we’ll teach you below.

10 tips to help manage your money in 2022

Modern money management is often focused on complex Excel sheets, strict budgets, and — above all — restrictions. Many of us are ingrained with the idea that, if we’re going to achieve financial stability, we need to lead a life of denial. This is also why many of us fail in money management — a life of constantly saying “no” to everything is, realistically, not sustainable.

So, what’s the answer? Comprehensive money management doesn’t just look at numbers in a spreadsheet. It also tackles the psychology that accompanies financial literacy. Some people are so stressed about their finances that they are simply afraid to tackle them, for example, while others shy away from the topic because it’s convoluted and confusing.

A clear-cut, holistic approach to money management can help. Here’s a quick, step-by-step guide to enhancing your financial literacy and improving your money management. By following these tips, you’ll gain a deeper understanding of how to best make your money work for you.

Start by understanding your current financial situation

Before you can overhaul your finances, you need to get a sense of your baseline. What assets do you have? What debts do you have? What are the interest rates and terms for those debts? Has your financial situation changed in any significant way recently (e.g., you’ve gotten married or divorced or have been left an inheritance)? Write it all down to get a clear overview of where you stand.

Examples of assets include real estate, pensions, stocks and bonds, savings accounts, retirement accounts, and tangible items like cars, boats, jewelry, computers, and furniture. Examples of debts include credit cards, vehicle loans, student loans, and mortgages. A clear overview will make it easier to create a spending plan and guide savvy financial decisions.

For example, let’s say you’re trying to decide whether you should pay off your student loans or invest. It will help to calculate the interest on your loans versus what return you can expect on a reliable investment. This also requires understanding what type of student loan you have and which investments you might pursue. Before you get into those details, you’ll need a basic understanding of your current finances.

Reconsider your preconceived beliefs about money

Although we don’t realize it, our lives are often controlled by invisible scripts — narratives we tell ourselves that influence the way we approach life’s opportunities and challenges. For example, an “invisible script” that has long dominated society (but is now being questioned) is that you have to get a college degree to be successful.

Most people also have invisible scripts about money ingrained in them — like the idea that investing is only for the top 1%. Such false narratives can help contribute to anxiety around money. Coupled with worries about a lack of cash, this can result in a general fear of money and dealing with it. The result? Zero financial planning. Identifying your false ideas about money is the first step in destroying them. Here’s how to start.

Instead of outlining a budget, consider “conscious spending”

Once you have a detailed overview of your current finances in hand — and you have identified some of those false narratives that are holding you back — you can start developing a new approach to money management. Start by drafting a bulletproof budget, which will help guide where your money goes. You can build a solid budget using four key categories: fixed costs, investments, savings, and guilt-free spending.

You might be surprised to see “guilt-free spending” as part of your monthly budget. This is part of the key to promoting conscious spending. In fact, you might want to nix the term “budget” and go with “conscious spending plan.” This is just as much a shift in mindset as it is a practical change. It’s about identifying expenditures that you enjoy while ditching those costs that don’t bring you joy.

Automate your finances where you can

Smart money management doesn’t have to mean keeping an eye on your finances all the time. Automation plays a critical role. Automating your finances — such as contributing to a savings plan or a 401(k) — helps prioritize those contributions without you having to think about them. You can also automate basic expenses like your rent and utility bills.

This then leaves you with the assurance that’s what is left after all that automation is for guilt-free spending. Technology can help with automation — for example, you may be able to set up monthly payments in online banking. There are also handy budgeting apps you can install on your mobile phone to track spending without having to constantly focus on the topic.

Cut out things you don’t need

The principle of “conscious spending” isn’t about encouraging overspending. Rather, it’s about focusing your spending on those things that truly enhance your quality of life. With the help of a budget app, you can get an idea of where you’re spending in your “guilt-free” category. Take a deep dive into those products and services. Which of them do you truly value? Which ones can you cut?

For example, let’s say you have subscriptions to Netflix, Hulu, and Amazon Prime. Do you actually use all three? Or maybe you tend to spend a lot of groceries — but then aren’t motivated to cook and let your produce spoil. What about getting easy-to-make meal prep kits delivered instead? Also, look into how you can reduce necessary costs like your cell phone bill. Do you really need all that data if you’re always on Wi-Fi?

Figure out ways to bring in additional income

Boosting your financial stability isn’t just about adjusting spending — you can also adjust how (and how much) you earn. Thanks to technology, there are more ways than ever to generate additional income. From turning a hobby into a way to generate cash to starting your own business as a side hustle or even making money as an artist — the opportunities are endless.

Your means of generating additional income can also be more mainstream. If you’re currently employed, is there wiggle room in your salary? Are you due for a step up the ladder? Check out these tips for asking for a promotion. Alternatively, if you’re not excited about your current role, maybe it’s time for a career switch. Identifying your dream job and mapping out a path to get there can also improve earnings.

Invest your money (if you aren’t already)

It’s important to save money so you have accessible liquidity in your bank account in case of emergencies. Having enough money to cover unexpected issues, from a new phone to a medical bill, is critical. However, you don’t want to push all of your extra money into savings. This is especially true at a time when interest rates are low, which remains the case as we enter 2022.

Investing allows you to set aside money so that it grows steadily, setting you up for a brighter financial future. Instead of leaving your extra cash stagnant in a savings account, it can increase over time. While you might not see great gains in the short term, this is a great way to prepare for retirement — and to keep up with external factors like inflation.

If you don’t have an investment strategy in place, this may be a daunting prospect. Don’t stress. Investing doesn’t have to mean you’re potentially gambling away your money on uncertainties. Look for reliable types of investments to start, such as contributing to a 401(k), opening a Roth IRA, and then opening a non-retirement investing account.

Here’s a short video that will walk you through how to get started.

Revisit your financial situation regularly

Just as the financial field is always evolving, your personal financial situation is likewise going to change over time. The conscious spending plan you make at the start of 2022 may not make sense anymore by the second quarter. If your financial situation shifts in a practical way (e.g., you get divorced, get a promotion, or get an inheritance), revisit your spending plan.

Even if your financials don’t change substantially, your personal situation might, which means it’s still worth revisiting your money management plan. For example, if you used to spend a lot of time watching TV but have cut back, you might be able to save money every month on costs like Netflix, Prime, or another streaming service. As you evolve, your financial goals will likely evolve, as well. It’s good to be aware of it.

The most important aspect of money management: start now

Managing your money better isn’t about cutting out everything you love. In fact, you can still enjoy the things you love. It’s more about shifting your mindset and reviewing your cash flow to ensure that you’re balancing your guilt-free spending with savings. Changing your relationship with money may also require shaking off preconceived ideas about it. Getting your hands on the right educational tools is a good start toward debunking myths you’ve likely heard in the past.

You don’t just want to start saving. You also want to consider how to boost your income. Understanding your earnings potential is a good place to start (here’s a quick quiz to figure it out). We offer loads of resources to help you implement the steps above, from books to blogs. With these tools, you can get the knowledge needed to pave a path toward a brighter financial future in 2022.

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Everything You Need to Know About Managing Your Money in 2022 is a post from: I Will Teach You To Be Rich.

Career Seasons: Choosing a Role Based on the Lifestyle You Want

Ramit Sethi — Fri, 19 Nov 2021 21:52:48 GMT

I’d like to introduce the concept of Career Seasons to you — which will help you find a job that’s perfect for you in this season of your life.

At different points in our lives, we want different kinds of jobs:

Growth: When we prioritize learning and earning more — and we’re willing to put in the time

Lifestyle: When we want to prioritize our time outside work, such as taking care of family

Reinvention: When we want to completely reinvent ourselves, including the role and even industry we work in

Without understanding your Career Season, how can you find a job that’s perfectly made for you?

Here’s how we discovered this concept.

Whenever I ask people what they want from a Dream Job, one of the most striking things about their answers is how DIFFERENT they are.

Some examples I’ve received:

“I’ve worked part-time for a couple of years whilst my family needed me. Now I’m going back to complete my Master’s and stepping back onto the career ladder full time.”

“My kids are toddler age and I want to be available for them during this time of growth. Just having time to spend with them is a priority for me.”

“I have been searching for a new job for some time, but this would include a career change. The older I get, the more I want to be doing the job I have always dreamed of.”

Notice how different all of these answers are!

Stepping back into their career full time after a hiatus. Spending more time with young kids. Pursuing meaningful work in another industry. All Dream Jobs. All completely different!

But if these people ask for help with how to reach their Dream Jobs, the common answers are all the same:

“Just follow your passion!”

“Just be thankful you have a job!”

“Just do good work and you’ll be rewarded eventually.”

(Have you noticed how so much bad advice starts with “just”?)

Our career goals aren’t generic and one-size-fits-all. So why is all career advice generic and one-size-fits-all? Why are the tactics we use — like surfing job boards and shotgunning out resumes — so generic?

I think it’s time to change this.

Hence, the concept of Career Seasons.

For example, the person who wants more time with their kids may want to look at a job that’s 100% remote for a flexible schedule.

What if someone wanted to switch careers? They should do their homework — like talking to experts who made a similar industry switch — to find out which skills are transferable and how to communicate that on their resume and in interviews. (It can be done.)

Or what about the person who really wants to hit the 6-figure mark? They should look for roles with a lot of room to grow and demonstrated promotions. And they should be willing to put the hours in.

This makes sense — and yet very few people do it. Who teaches us how to tailor our job search to our unique needs?

Introducing “Career Seasons”

We all go through different phases in each of our careers. Some of us are early in our careers, looking to grow and soak up knowledge. Sometimes we want to downshift, or prioritize family. And sometimes we want to reinvent ourselves entirely.

I call these different phases “Career Seasons.”

Just like the seasons throughout the year, they’re natural. They change over time. And you may cycle through them more than once.

Your Season has profound implications for the jobs you look for and even the way you search for your job.

I want to spend some time here helping you determine your Season — and showing you other people like you — so you can narrow down your focus. This will save you hours and hours in the process.

Let’s go over each Season, with real examples.

Growth Season

Most of us started in this Season early in our careers. Some of us are still in it! In the Growth Season, we’re motivated by moving up the career ladder and making more money. We’re willing to put the time in and we don’t mind working hard.

This was me in my 20s. I worked really hard and I wanted to soak up everything I could. I was motivated by recognition, growth, and learning. And I didn’t care how long I had to work.

Here’s a real quote from someone that instantly tells me they’re in the Growth Season.

“I feel like I’m falling behind compared to my peers. They’re moving on to senior management titles, director titles. I’m seeing everyone else have upgraded titles, so I say, ‘I want it too.’”

For some of you, this sounds terrible. For others, this is EXACTLY where you are.

That’s the point! The right Career Season sounds exactly right to you…and wrong to everyone else.

People in the Growth Season want more experience and more money…and they’re willing to work for it.

Lifestyle Season

People in the Lifestyle Season still value their work and career, but they also have other equally important goals. Here’s a classic quote describing the Lifestyle Season:

“I want to spend as much time with my kids as I can. I do not want to work 60 hours a week anymore.”

Notice these phrases, which instantly tip us off to the Lifestyle Season: “Flexibility” (or “flexible schedule”), “downshift,” or “family.” You may think about work/life balance if you’re going into a Lifestyle Season.

Reinvention Season

Reinvention Season describes people who want to totally reimagine and change the course of their career, usually by switching industries. Imagine a lawyer who wants to leave her firm and join a start-up. I love these stories.

Here’s a real quote from someone in Reinvention Season:

“I have 12 years of financial sales experience, but I feel pigeonholed onto a sales track and don’t enjoy the work. I’ve always wanted to transition to a computer science field, but have no formal experience.”

You’ll hear typical phrases like “fresh start” to describe this Season.

Now, a few notes about Seasons:

1. No Season is better than the others. No judgment against any Season — it’s YOUR Season. You choose what’s right for you now.

2. We naturally move in and out of Career Seasons as we get older. Just like actual seasons. While it makes sense to want all of these things to happen simultaneously, some things are just more appropriate for certain Seasons. One of the things I show you how to do is choose the right Season for you — but you can only pick one.

For example, it’s very difficult to embrace the Growth Season and the Lifestyle Season at the same time. You can try, yes…but doing so makes it difficult to make any MEANINGFUL progress in either.

Think about it — could you ski during summer? No, there’s a season for that. Same thing here. There’s a Season for accelerating our career and a Season for more leisure time. It just depends on what we want, and therefore what Season we’re in.

I knew very early on in my career, before I Will Teach You To Be Rich took off, I was in the Growth Season, focusing on fast-tracking my career. I was pushing hard at a start-up I co-founded and writing the I Will Teach You To Be Rich book at night and on weekends.

These days, I still work hard, but I also prioritize traveling for many weeks at a time (at least I did before COVID hit, and I’m looking forward to doing it again soon). So I find myself in Lifestyle Season. That may change later.

3. Finally, EVEN if you feel like you could be in multiple Seasons, you need to pick ONE. This is hard, especially for top performers who like to go above and beyond. But you will find that trying to do more than one at a time means not doing your best at either. (I’m repeating this because it’s so important.)

Which Season do you think you’re in? Let me know on Twitter.

Career Seasons: Choosing a Role Based on the Lifestyle You Want is a post from: I Will Teach You To Be Rich.

How Much Should You Really Have in Your 401k (by age)

Ramit Sethi — Thu, 28 Oct 2021 15:30:07 GMT

At IWT, we talk about 401ks – a lot. (See here, here, or here for proof)

And, that’s with good reason. If you want to be rich, the 401k is one of the most powerful investment tools at your disposal, especially for retirement planning. It is also one of the most misunderstood money-maximizing vehicles, starting with how much you should have in your 401k.

That is a solid question, but it doesn’t have a simple answer. To answer that burning question — How much should I have in my 401k? — we need more details. How much to invest in 401k investments will depend on your age and a few other considerations.

Let’s start at the beginning.

Bonus:If the COVID-19 pandemic has you worried about money, check out my free guide on Coronavirus-Proofing your Finances with the CEO approach

What is a 401k?

A 401k is a powerful type of retirement account that many companies offer to their employees as a perk. With each pay period, you put a portion of your paycheck into the account. It happens automatically so you don’t have to do anything special and there are a ton of benefits.

A 401k is called a “retirement” account because it gives you huge tax advantages if you don’t touch your money until you reach the minimum retirement age of 59 1/2 years. While you will have to pay a penalty if you touch your 401k savings before you reach retirement age, the benefits far outweigh the risk.

Here is a snapshot of the benefits of having a 401k:

Tax benefits

The money you contribute to a 401k isn’t taxed until you withdraw it, which you can’t do without penalty until you reach 59 ½. This means you have much more money to invest for compound growth. In comparison, if that money was invested in a normal investment account instead, a portion of it goes towards income tax.

Also, you have some control over how much you withdraw. With careful planning (definitely talk to your accountant for this one) you can minimize your tax burden (win-win)

Employer match

Most companies offering a 401k will match you up to a certain percentage of your paycheck. In many cases, they will match their employee contributions 1:1. To put that in perspective, let’s say your company offers 5% matching. Now, if you earn $100,000/year and invest 5% of your annual salary ($5,000), your company would match you $5,000 — That doubles your investment without costing you a cent. It’s free money! Not basically free, “like” free, or practically free. It is FREE MONEY and you are leaving it on the table if you don’t take advantage of the employer match. Plus, if you don’t invest in a 401k with employee matching, you are missing out on all the returns that free money will generate. It adds up.

Bonus: Ready to ditch debt, save money, and build real wealth? Download our FREE Ultimate Guide to Personal Finance.

Automated contribution

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. You don’t actually have to do anything. Your 401k contribution is deducted from your paycheck the same way that your federal income tax or health insurance premium is deducted. This is an excellent psychological trick to keep you investing.

Check out the graph below that illustrates why you should always invest in your 401k:

Age	Your Contributions	Employer Match	Balance without Employer Match	Balance with Employer Match
25	$5,000	$5,000	$5,214	$10,428
30	$5,000	$5,000	$38,251	$76,501
35	$5,000	$5,000	$86,792	$173,585
40	$5,000	$5,000	$158,116	$316,231
45	$5,000	$5,000	$262,913	$525,826
50	$5,000	$5,000	$416,895	$833,790
55	$5,000	$5,000	$643,145	$1,286,290
60	$5,000	$5,000	$975,581	$1,951,161
65	$5,000	$5,000	$1,350,762	$2,701,525

So, one 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.

What is the maximum 401k contribution amount?

Starting in 2020 (and for tax year 2021), you can contribute up to $19,500 each year to your 401k if you are under 50. If you are over the age of 50, you may be able to make catch-up contributions. This provision lets you invest up to an additional $6,500 in your 401k (tax years 2020 and 2021).

PRO TIP: You need to be behind in your 401k contributions to make catchup contributions.

When compared to a Roth IRA, where you can only contribute up to $6,000/year, this is an amazing opportunity — especially since your pre-tax money is being compounded over time.

How much should you have in your 401k by age?

Now that we have established that you need a 401k in your life and explained how much you can contribute, let’s talk cash. Aside from investing enough to meet your employer match, how much should you have in your 401k, really?

One way to answer that question is to look at your age.

While there is no one-size-fits-all answer to the question, “How much should I have in my 401k?” there are some best practices you can keep in mind to guide your efforts. Yes, while 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.

Age 30

Ideally, you should have at least one year’s worth of income in your 401k. That means if you make $60,000, you should have at least that much saved in your 401k.

Age 40

Once you hit 40, 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.

Age 50

When you turn 50, 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)

Once you reach 65, 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.

Is your 401k savings on track?

Have you met your mark? If you aren’t there yet, don’t panic. 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 — or other investments you might have in play.

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 much about finance. We 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 underestimate how much they’ll need for a comfortable retirement.

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

• Do your research. You are already doing that by reading this article, but don’t stop here. Keep reading. We recommend Investing for Beginners and How Much Do I Need to Retire?

• Be disciplined. This means consistently putting away money and not touching it (except in rare situations — more on that here). Do not treat your 401k as a savings account or an optional expense. Make regular contributions.

• Start early. The best time to get started investing was yesterday. The second best time is right now. Wherever you are in your financial journey, get started as soon as possible. Investments earn returns, but those returns can compound over time.

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

So, how much should you invest in your 401k?

Okay. So, while investing is highly personal and financial goals should be personalized, you are here so we can teach you to be rich. We have some advice to get you started.

How much you should actually be investing each month depends on a system we call the Ladder of Personal Finance. Check out this video, or read about the Ladder below:

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.

We’ve already discussed the importance of this – don’t throw away free money and the returns from that free money.

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. Remember, if you have employee matching, you are effectively earning a 100% return on every penny you invest in your 401k — that is significantly more than the interest you would save by paying down your 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 in 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 $6,000/year ($7,000 if you are 50 or older).

Once you’ve contributed up to that $6,000 limit on your Roth IRA, go back to your 401k and start contributing beyond the match. Remember, you can contribute up to $19,500/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 us a call. We’re going out for drinks — on you.

“But, 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 our 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, but it is just a tool. For more about the Ladder of Personal Finance and how to make it work for you, check out THIS video where I explain it.

PRO TIP: The video is less than three minutes long. It is worth your time.

Start earning more for a better financial future

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.

We are going to let you in on a little secret. It is one that has helped thousands of people 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.

Bonus: Want to know how to make as much money as you want and live life on your terms? Download our FREE Ultimate Guide to Making Money

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.

We recommend three ways to start earning more money:

1. 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 a Top Performer willing to work hard for more money.

2. 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?

3. 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.

We want to help you get started on one of these tactics today: Starting a side hustle.

We know. We know. The word “side hustle” tends to dredge up images of people working odd jobs and late hours, running errands, or making something to sell — but the reality isn’t like that at all! Freelancing is one of the easiest ways to have a side hustle, and you can get started right now.

Living a passive-income lifestyle with little to no work is a fantasy. If you are serious about earning additional income, you have to take an active role in your side hustle. Eventually, you may be able to earn money passively — but why would you be content with that. More is more, and we can show you how to get there.

That’s why we want to offer you my Ultimate Guide to Making Money.

We created this all-inclusive guide because we were sick of the awful advice that we found masquerading as legitimate money-making tips.

Stuff like:

• “Earn $100k a year in 4 hours a day.”

• “You can make money by joining an MLM opportunity.”

• “You just need to learn to live within your means.”

UGH.

No. You cannot expect to earn that much money with only a few hours of work when you are just getting starting.

If you can earn $100k per year in 4 hours a week, why would you only 4 hours a week? We want to maximize earns AND have a good quality of life.

MLM opportunities and other ready-made side hustle solutions only make money for the people selling them. You can make more as a freelancer than you would from any of those pre-fab solutions.

Living a good life can mean going outside of your budget. If you are working late hours at a side hustle, you may need to have a sandwich for dinner to get it all in before bedtime or you may opt to order takeaway from a restaurant instead of taking the time to cook. There is nothing wrong with that. Your Chinese delivery or sandwich ingredients cost maybe $10. If you are earning $400 on your side hustle and that convenience means you can work through the evening, it makes cents (see what we did there?)

Enter your info below and get the PDF for free today — and start the extra money you need to make your retirement goals come true.

100% privacy. No games, no B.S., no spam. When you sign up, we’ll keep you posted

How Much Should You Really Have in Your 401k (by age) is a post from: I Will Teach You To Be Rich.

Should I Pay Off My Student Loans Or Invest? Here’s How To Decide

Sandra Kenrick — Wed, 27 Oct 2021 16:05:51 GMT

Student loans in America average near the $40,000 mark, and it makes it difficult to decide whether to invest or pay off student loans. Because, let’s face it, getting out of debt and saving for retirement is equally as important.

Pay down debt or invest? Factors to consider

There are three elements that determine which route will suit your needs best. These are:

The mathematical approach: Using math, you can figure out what will be more beneficial – paying down debt or using extra cash to invest. For example, if you have a higher interest rate than what you’re earning on your investment, you might opt to pay off the debt first. But math isn’t the only important factor at play.
The emotional approach: Having student loans looming over your head sucks, and it’s only natural to want to get rid of it. The emotional decision might lead you to a decision that makes you feel better, even if it doesn’t make as much sense financially.
A hybrid approach: With the hybrid approach, you do both – pay down debt while simultaneously saving for retirement. But this approach deserves some investigation to make sure your split has the best possible result – we’ll get into those nuances in this article.

But before you dive in, it’s important to understand external factors may affect your decision.

Your personal financial position

A critical factor in deciding whether to pay down your debt as opposed to boosting your retirement savings is the effect the move will have on your finances. Things to consider, include:

Emergency savings: It’s important to have money tucked away for a rainy day. These funds need to be instantly accessible and are used in the event of a financial crisis. While financial pundits may recommend a good three to six months’ worth, our founder Ramit Sethi considers 12 months’ worth of emergency savings a safer option. Your emergency savings need to be topped up first before you can start paying additional funds towards debt or investments.
Payments up-to-date: If you happen to be behind on any of your debt, it’s better to get back on track before adding money to an existing installment. This is because those arrears can wreak havoc on your financial standing with your bank and other service providers. It can also wreck your credit score.
Your basic needs are met: While long-term plans such as debt repayments and retirement planning benefit from added payments, it’s important that immediate needs are seen to. This includes housing, food, transport, and utilities.
You still have fun money: When you’re not able to do any of the things you love, the road to financial freedom becomes a dreadful journey. Choose something that you’re happy to save some guilt-free spending on. This amount can increase as you start ticking financial goals off your list.

Bonus: Making more money can help you get out of debt faster while still having room to invest. Learn how by downloading our FREE Ultimate Guide to Making Money

The amount of your debt

The average student loan debt of $40,000 might seem doable, especially if you’re earning a decent paycheck. But let’s consider those specialist degrees where your student loans creep up to the hundreds of thousands of dollars. Suddenly this amount seems like a behemoth and it might not make sense to throw money at anything else until you get this huge number under control.

The flipside is that with all those years you devote to paying off your student loans, you could have built up your retirement savings. You may want to predetermine a goal that will give you some wiggle room to focus on investments. For instance, you might set the goal that once you reach the halfway mark of your debt, you’ll start contributing to your retirement accounts.

Remaining years

If you’re right at the beginning of the loan period, for instance, fresh out of college and working that first job, your priorities might be different to someone close to retirement.

The cost of your finance

There are only a few instances where the debt interest rates are lower than what you would earn on an investment, but it happens. When it does, you want to make sure that you’re getting the best value for money. A low-interest rate student loan might just be better off with that minimum installment if you haven’t maxed out your 401(k) just yet.

However, if the interest you’re paying is on the higher end, you might want to consider paying your debt first before increasing your investment contributions.

Student loan options – which one’s yours?

Fast-tracking your student loan payments can save you a stack of money in the long term.

For instance, an extra $100 goes a long way to clearing off the interest portion faster.

Here’s an example. Let’s say you have a $10,000 student loan at a 6.8% interest rate with a 10-year repayment period. If you go with the standard monthly payment, you’ll pay around $115 a month. But look at how much you’ll save in interest if you just pay $100 more each month:

Monthly payments	Total interest paid	You save
$115	$3,810	$0
$215	$1,640	$2,169
$315	$1,056	$2,754
$415	$728	$3,027

It’s worth knowing that there are a number of options open to those who wish to pay off their student loan debt.

Understanding the type of loan that you have (or are planning to take on)

There are three student loan types to consider: federal, private, and refinance loans. Each has its own set of rules and carries a few pros and cons.

A big plus across the board, however, is the fact that you can pay extra or make prepayments into an education loan without penalty charges. How’s that for an incentive?

Federal student loans

The government makes provision for loans for students in order to access higher education. Instead of students borrowing from banks and other financial institutions, these loans are entered into with the federal government.

There are three types:

Direct subsidized – suitable for students who need financial assistance.
Direct unsubsidized – no need to prove financial need, available to all applicants.
PLUS loans – these loans are for graduates and professionals to cover the shortfall of tuition not covered by other programs. You will need a good credit score, and these loans have a higher interest rate than other federal student loans.

Positives include that it’s easier to apply for a federal loan and in times of hardship, there are deferral and forbearance options. They also tend to offer lower interest rates as the rates are controlled by the government.

It’s important to note that these loans carry costs and charge an initiation fee of 1.057% to 1.059% for regular student loans and 4.228% to 4.236% for PLUS loans.

Private student loans

There are a number of private student loan products offered by banks and other institutions. What’s great about these loans is that they can tailor the loan type to suit the need, for instance, there is a loan for bar exams, another for medical school, and even a product for those with bad credit.

These loans tend to be a little more costly and while there aren’t initiation costs, the interest rate is not fixed by the government. This means that the rate can be substantially higher than that charged on federal loans.

Applicants will also need to show a good credit score. It’s also worth knowing that these loans aren’t part of any government forgiveness programs. So why get it at all? Turns out these loans are great for those who have high study costs.

Student loan refinance

High-interest rates on a student loan are a real kick in the teeth and what better way to get your own back than by opting for a product with a lower rate? Student loan refinance products are offered to students who have a decent credit score with the aim of reducing their interest rate. This is not a great option for those with federal loans, however, as you will lose the federal protections and benefits should you opt to refinance.

Bonus: Ready to ditch debt, save money, and build real wealth? Download our FREE Ultimate Guide to Personal Finance.

Your retirement options

Saving for retirement is an essential component of building wealth. It also happens to have tax and other benefits that you simply can’t get from regular savings or investments. But how do you make the decision to pay your future self when you still have debt? It will be easier to unpack that mule of a question when you understand retirement investment options a little better.

Roth and Traditional IRA

These retirement plans allow you to contribute to your retirement savings up to a certain threshold per year. In 2020 and 2021, this annual threshold was $6,000. That means that if you’re worried about paying off debt or saving towards retirement, first check that you’re not already maxed out on these contributions.

It’s worth noting that a Roth IRA also has an earnings limit of $140,000 for individuals.

401(k)

There is no cheaper way to fund your retirement than a matched 401(k). Read that again. If you have extra cash lying around and you’re not maxed out on this, you’re losing out. Let’s explain.

A matched 401(k) means that your employer will match your 401(k) contributions either fully or partly up to a certain percentage. Now just bear in mind, there is a limit of just under $20,000 per year, or 100% of your salary, whichever is the smallest.

How to pay down debt while investing

Know what your financial position is

Okay, we’ll admit it, you’re going to have some work to do. But a little bit of effort now will save you a ton of financial admin in the future. There are a few things you need to know before you can make a decision about whether to pay student loans or invest.

What is my outstanding debt? You want to check the installments, when your last installment is due, and what the settlement amount is. This may seem like a no-brainer, but there’s a surprising amount of people who prefer to play ostrich to their debt. They’re either scared that the debt is more than they thought, or they’re embarrassed to admit that they’re probably net negative (which means their debt is more than their assets, yikes!). But here’s the thing, no one cares (or will for too long). Also, it’s not going to go away just because you don’t want to think about it.
Which item has the highest interest rate? Who knows, your student loans might be the least of your concern. Check credit card and personal loan details too to make sure you’re focusing on the right debt. If these are off the charts, you might be a good candidate for debt consolidation.
What am I paying each month? We want you to be conscious about your spending. You need to know what your fixed expenses are, what you’re spending on savings and investments, all your fun money, and yes, it’s important to own up to those monthly subscriptions that you haven’t used in over a year.

Bonus: Ready to ditch debt, save money, and build real wealth? Download our FREE Ultimate Guide to Personal Finance.

Use the envelope system

An envelope system is a budgeting tool that allows you to allocate all your money to payments, savings, and such. It works on the premise that, if you had cash, you would stick your dollar bills into various envelopes and then mail them off to cover the bills.

An envelope system works well because you decide the categories. While housing and utilities are a given, you can also have an envelope for lattes, entertainment, etc. Sure, you can decide that the biggest chunk of your salary goes to Target, but the point is to cover your expenses and bills, put aside money for saving and investing, and still have some fun money.

When you’ve used all your entertainment money, the idea is that it’s done. When the envelope is empty, that’s when you stop. Not only will this allow you to allocate more effectively, but it will also stop the frustrating overspending that seems to befall us when we’re low and there’s this great pair of shoes… stop!

Now, here’s the great part. You can have an envelope for additional payments to your student loans AND you can have an envelope for investments.

Choose investment options that suit your pocket

When you have to ask the question, “Should I pay off my student loans or invest?” chances are good that you’re not interested in spending a ton of cash on fees and expensive investment products.

You have two enormous financial goals and the quicker the better. That means you’re going to need options that will allow you to do both.

So out comes Ramit Sethi’s Ladder or Personal Finance. It’s a gamechanger when it comes to building wealth and vanquishing debt. And here’s how it works:

Get that 401(k) going: It’s cheap investing and your future self will thank you.
Slash the high-interest debt: High-interest debt just sticks around for too long. Boost your repayments to get this down fast.
Contribute to a Roth IRA: Retirement is cheap investing, oh wait, we said it already. But hey, if it’s true it’s true.
Max out your 401(k): You want to get the most out of this product!
Diversify your portfolio: Start looking at other investment products such as stocks, CDs, and bonds.

You can check out this video to learn more:

The bottom line

Let’s face it, student loans are a drag. It’s only natural to want to get rid of them ASAP. But here’s the thing, we’re also getting older. Investing shouldn’t be relegated to some future date when things are peachy and the debts are done.

100% privacy. No games, no B.S., no spam. When you sign up, we’ll keep you posted

Should I Pay Off My Student Loans Or Invest? Here’s How To Decide is a post from: I Will Teach You To Be Rich.

What is a diversified portfolio? (with examples)

Angelica Leicht — Wed, 27 Oct 2021 15:19:55 GMT

When it comes to building the best investment portfolio, you’ll often hear that diversification is key. But what does that even mean — and why do you need to bother with it? After all, you already own a wide range of stocks, from that skyrocketing Amazon stock to your Apple and eBay stocks, and you’re raking in the profits. What could go wrong?

If you’re relying on a portfolio filled with big tech stocks or energy stocks to get you through to retirement — or if you’re banking on picking the right stocks forever — you may be in for a surprise during the next market downturn. It’s pretty easy to pick the “right” stocks with the market is overvalued. But, when a market correction happens, you’re probably going to be wishing you’d paid more attention to the advice about diversification.

If you want to build wealth and make the right moves for your investments, you need to build a diversified portfolio.

What is diversification?

Have you ever heard the saying, “Don’t put all your eggs in one basket?” That’s the same principle that drives investors to diversify their investments.

When you diversify your investments, you spread your money out across different investment options to lower the risk that comes with investing. In other words, investors use diversification to avoid the huge losses that can happen by putting all of their eggs in one basket.

For example, when you diversify, you allocate a portion of your investments to riskier stock market trading, which you spread out across different types of stocks and companies. When diversifying, you also put money into safer investments, like bonds or mutual funds, to help balance out your portfolio.

The idea behind diversification is that you avoid relying on one type of investment or another. When one of your investments takes a tumble, the others act as a life raft for your money, providing solid returns until the riskier investments stabilize.

Bonus: Ready to learn more about investing? Download our FREE Ultimate Guide to Personal Finance.

Why is diversification important?

A lack of diversification can cause big trouble for your money. That’s because:

Investing with the main goal of making money immediately is an easy way to lose. Anything can happen in the future. Stocks tumble, markets crash, and fluctuations and corrections happen.
It’s not enough to diversify the types of stocks you invest in, either. You want to focus on different types of stocks, not just tech or energy stocks, but if the whole market takes a downward turn, or if a correction happens, you need other investments to help balance it out.
Having a variety of investments in your portfolio is the only way to balance out market downturns. If you don’t diversify, you’re banking on the idea that your investments will always pan out the way you want them to. And, if you ask any seasoned investor, that’s not the best plan.

Let’s say that you think tech stocks are the future. The tech industry is growing at a monumental pace, and you’ve been lucky with your tech stock purchases thus far. So, you take all of your investment money and you dump it into buying stock for large-cap tech company stocks.

Now let’s say that the tech stocks have a steep uphill trajectory, making you tons of money on your investment. A few months later, though, bad news about the tech sector makes headlines, and it causes your cash-machine stocks to plunge, losing you tons of money in the process. What recourse do you have other than to sell at a loss or hold and hope they recover?

Now, let’s say you invested heavily in large-cap tech stocks, but you also invested in small-cap energy stocks or medium-cap retail stocks, as well as some mutual funds, to balance it out. While the other types of investments have lower returns, they’re also consistent.

When your sure-thing tech stocks take a nosedive, your safer investments help to protect you with ongoing returns, and you can better afford the losses from the riskier investments you made. That’s why diversification is important. It protects your money while letting you make riskier investments in hopes of bigger rewards.

Diversification breakdown by age

Diversification is important at any age, but there are times when you can and should be riskier with what you invest in. In fact, most money experts encourage younger investors to focus heavily on riskier investments and then shift to less risky investments over time.

The rule of thumb is that you should subtract your age from 100 to get the percentage of your portfolio that you should keep in stocks. That’s because the closer you get to retirement age, the less time you have to bounce back from stock dips.

For example, when you’re 45, you should keep 65% of your portfolio in stocks. Here’s how that breaks down by decade:

20-year-old investor: 80% stocks and 20% “safer” investments, like mutual funds or bonds
30-year-old investor: 70% stocks and 30% “safer” investments, like mutual funds or bonds
40-year-old investor: 60% stocks and 40% “safer” investments, like mutual funds or bonds
50-year-old investor: 50% stocks and 50% “safer” investments, like mutual funds or bonds
60-year-old investor: 40% stocks and 60% “safer” investments, like mutual funds or bonds
70-year-old investor: 30% stocks and 70% “safer” investments, like mutual funds or bonds

Diversification vs. asset allocation

While asset allocation and diversification are often referred to as the same thing, they aren’t. These two strategies both help investors to avoid huge losses within their portfolios, and they work in a similar fashion, but there is one big difference. Diversification focuses on investing in a number of different ways using the same asset class, while asset allocation focuses on investing across a wide range of asset classes to lessen the risk.

When you diversify your portfolio, you focus on investing in just one asset class, like stocks, and you go deep within the class with your investments. That could mean investing in a range of stocks that have large-cap stocks, mid-cap stocks, small-cap stocks, and international stocks — and it could mean varying your investments across a range of different types of stocks, whether those are retail, tech, energy, or something else entirely — but the key here is that they’re all the same asset class: stocks.

Asset allocation, on the other hand, means you invest your money across all categories or asset classes. Some money is put in stocks and some of your investment funds are put in bonds and cash — or another type of asset class. There are several types of asset classes, but the more common options include:

Stocks
Mutual funds
Bonds
Cash

There are also alternative asset classes, which include:

Real estate, or REITs
Commodities
International stocks
Emerging markets

When using an asset allocation strategy, the key is to choose the right balance of high- and low-risk asset classes to invest in and allocate the right percentage of your funds to lessen the risk and increase the reward. For example, as a 30-year-old investor, the rule of thumb says to invest 70% in riskier investments and 30% in safer investments to ensure you’re maximizing risk vs. reward.

Well, you could allocate 70% of your investment to a mix of riskier investments, including stocks, REITs, international stocks, and emerging markets, spreading that 70% across all these types of asset classes. The other 30% should go to less risky investments, like bonds or mutual funds, to lessen the risk of losses.

As with diversification, the reason this is done is that certain asset classes will perform differently depending on how they respond to market forces, so investors spread their investments across asset allocations to help protect their money from downturns.

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Components of a well-diversified portfolio

In order to have a well-diversified portfolio, it’s important to have the right income-producing assets in the mix. The best portfolio diversification examples include:

Stocks

Stocks are an important component of a well-diversified portfolio. When you own stock, you own a part of the company.

Stocks are considered riskier than other types of investments because they are volatile and can shrink very quickly. If the price of your stock drops, your investment could be worth less money than you paid if and when you decide to sell it. But, that risk can also pay off. Stocks also offer the opportunity for higher growth over the long term, which is why investors like them.

While stocks are some of the riskiest investments, there are safer alternatives. For example, you can opt for mutual funds as part of your strategy. When you own shares in a mutual fund, you own shares in a company that buys shares in other companies, bonds, or other securities. The entire goal of a mutual fund is to lessen the risk of stock market investing, so these are typically safer than other investment types.

Bonds

Bonds are also used to create a well-diversified portfolio. When you buy a bond, you’re lending money in exchange for interest over a fixed amount of time. Bonds are typically considered safer and less volatile because they offer a fixed rate of return. And, they can act as a cushion against the ups and downs of the stock market.

The downside is that the returns are lower, and are acquired over a longer-term. That said, there are options, like high-yield bonds and certain international bonds, that offer much higher yields, but they do come with more risk.

Cash

Cash is another component of a solid portfolio, and it includes liquid money and the money that you have in your checking and savings accounts, as well as certificates of deposit, or CDs, and savings and treasury bills. Cash is the least volatile asset class, but you pay for the safety of cash with lower returns.

Additional components of diversification

There are other components of diversification, too. As with the other asset classes, these alternative assets are used by some investors to further protect their portfolios. These include:

Real estate or REITs

You can also use real estate funds, including real estate investment trusts (REITs), to diversify your portfolio and provide protection against the risks of other types of investments. Real estate funds work similarly to mutual funds, but rather than investing in a company that buys shares in bonds, stocks, and other common securities, you’re investing in a company that owns, operates, or finances income-generating real estate, like multi-unit apartments or rental properties.

Asset allocation funds

An asset allocation fund is a fund that is built to offer investors a diversified portfolio of investments that is spread across various asset classes. In other words, these funds are already diversified for investors, so they’re often the only fund necessary for investors to have a diversified portfolio.

International stocks

Investors also have the option of investing in international stocks to diversify their portfolios. These stocks, issued by non-U.S. companies, can offer huge potential returns, but as with any other investment that offers the potential for a big payoff, they can also be extremely risky.

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Diversified portfolio example #1: The Swensen Model

Just for fun, we want to show you David Swensen’s diversified portfolio. David runs Yale’s fabled endowment, and for more than 20 years he generated an astonishing 16.3% annualized return — while most managers can’t even beat 8%. That means he’s DOUBLED Yale’s money every four-and-a-half years from 1985 to today, and his portfolio is above.

David is the Michael Jordan of asset allocation and spends all of his time tweaking 1% here and 1% there. You don’t need to do that. All you need to do is consider asset allocation and diversification in your own portfolio, and you’ll be way ahead of anyone trying to “pick stocks.”

His excellent suggestion for how you can allocate your money:

ASSET CLASS	% BREAKDOWN
Domestic equities	30%
Real estate funds	20%
Government bonds	15%
Developed-world international equities	15%
Treasury inflation-protected securities	15%
Emerging-market equities	5%
TOTAL	100%

What do you notice about this asset allocation?

No single choice represents an overwhelming part of the portfolio.

As illustrated by the tech bubble burst in 2001 and also the housing bubble burst of 2008, any sector can drop at any time. When it does, you don’t want it to drag your entire portfolio down with it. As we know, lower risk generally equals lower reward.

BUT the coolest thing about asset allocation is that you can actually reduce risk while maintaining a solid return. This is why Swensen’s model is a great diversified portfolio example to base your portfolio on.

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Diversified portfolio example #2: Ramit Sethi’s diversified portfolio example

This is our founder, personal finance expert Ramit Sethi’s investment portfolio.

The asset classes are broken down like this:

ASSET CLASS	% BREAKDOWN
Cash	2%
Stocks	83%
Bonds	15%
TOTAL	100%

Here are three pieces of context so you understand the WHY behind the numbers:

Lifecycle funds: The foundation for my portfolio

For most people, Ramit recommend the majority of investments go in lifecycle funds (aka target-date funds).

Remember: Asset allocation is everything. That’s why Ramit picks mostly target-date funds that automatically do the rebalancing for him. It’s a no-brainer for someone who:

Loves automation.
Doesn’t want to worry about rebalancing a portfolio all the time.

They work by diversifying your investments for you based on your age. And, as you get older, target-date funds automatically adjust your asset allocation for you.

Let’s look at an example:

If you plan to retire in about 30 years, a good target date fund for you might be the Vanguard Target Retirement 2050 Fund (VFIFX). The 2050 represents the year in which you’ll likely retire.

Since 2050 is still a ways away, this fund will contain more risky investments such as stocks. However, as it gets closer and closer to 2050, the fund will automatically adjust to contain safer investments such as bonds, because you’re getting closer to retirement age.

These funds aren’t for everyone though. You might have a different level of risk or different goals. (At a certain point, you may want to choose individual index funds inside and outside of retirement accounts for tax advantages.)

However, they are designed for people who don’t want to mess around with rebalancing their portfolio at all. For you, the ease of use that comes with lifecycle funds might outweigh the loss of returns.

Conclusion

As an investor, it’s never wise to put all of your eggs in one basket. The key is to find the right strategy, whether that’s focusing on one asset category and going all-in on a wide range of investments within that category or spreading out your investments across all asset classes.

Either type of investment strategy can help reduce the risk while increasing the possibilities of rewards, which is what investing is all about. Make sure you do your research and have the right approach for your needs, and you should be able to reap the benefits that a well-diversified portfolio offers.

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What is a diversified portfolio? (with examples) is a post from: I Will Teach You To Be Rich.

Using a Roth Conversion Ladder to Retire Early

Amanda Williams — Wed, 27 Oct 2021 14:39:08 GMT

Many of us have dreamed of the potential of early retirement or FIRE, but it can be overwhelming to figure out how you might sustain yourself as you move into this new phase of your life.

Luckily, there are many options. Aside from saving the amount you need to retire, you can also leverage several tax loopholes in order to acquire funds in your tax-advantaged investment accounts.

One loophole: Build a Roth conversion ladder.

A Roth conversion ladder works by converting money from a 401k to a Traditional IRA to a Roth IRA, and withdrawing the principal amount after five years without any penalties.

This means you’ll be able to withdraw money from your 401k and Roth IRA earlier — allowing you to use your money faster and retire sooner (if that’s your thing).

There is a bit more to it than that though. To fully understand how it works, we need to take a look at the issues with a Roth IRA on its own.

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Roth IRAs and early retirement

When considering early retirement, traditional IRAs and 401ks can seem to put you in an impossible situation. Don’t get us wrong. We love both of these forms of retirement savings, and they absolutely have their place on the journey of smart investing for retirement.

Both of these accounts enable you to save for retirement in a highly productive way. A traditional IRA leverages your after-tax income to compound interest on your investments over time. You also don’t have to pay any taxes on it until after you withdraw it.

The drawback? You can only withdraw your money once you reach retirement age. That means when you turn 59 1/2, you can finally get access to all that money, likely years after you would like if you are planning to retire early.

Traditional IRA

Uses after-tax income
Pay no taxes when you withdraw at age 59 ½
10% penalty if you withdraw early

401k

Uses pre-tax income
Employer match
No taxes on it until you withdraw at age 59 ½
10% penalty if you withdraw early

A 401k offers you similar gains and drawbacks to an IRA, giving you the chance to contribute pre-tax income this time which an employer can match. You still pay no taxes until you withdraw it at retirement age, but you also incur a penalty of 10% if you withdraw it before that age.

This information can make some people feel like they are stuck between a rock and a hard place. But, luckily for you, this is where the Roth conversion ladder comes into play whether you have an IRA or a 401k.

Bonus: Unsure what the difference between a 401k and a Roth IRA is? Check out my Ultimate Guide to Personal Finance where I explain everything you need to know about retirement accounts.

What is a Roth Conversion Ladder?

Simply put, a Roth conversion ladder is the loophole you have to withdraw a large pool of money from your retirement funds, both tax and penalty-free. Without this technique, anyone in the FIRE community will end up getting an early withdrawal penalty of up to 10%, taking quite a chunk out of those hard-earned savings.

Most of those seeking early retirement do so because they have amassed a large amount of net worth. Their retirement investment accounts, such as a 401k or traditional IRA, will reflect this worth. For most of them, they plan to live on these investments for the rest of their life. The Roth conversion ladder allows them to access the accounts early in order to do that.

The Roth conversion ladder essentially involves moving your money from your restrictive retirement accounts to more of an open system. Keep reading to figure out exactly how we recommend doing this.

Who should use a Roth Conversion Ladder?

A Roth conversion ladder is specifically useful for people who want to retire early. For example, if you plan to retire after you are 59 1/2, you will only lose out by transferring your money into a Roth IRA since it is no longer tax-protected. The positive aspect of the Roth conversion ladder is that it allows you to withdraw money to live in during early retirement.

You should NOT use this method to supplement your income to achieve a lifestyle you can’t otherwise afford. Instead, the money should realistically stay in your retirement accounts to accrue as much tax-free interest for as many years as possible, or you will find retirement quite a challenge.

How to set up your Roth Conversion Ladder

Utilizing a loophole to the penalty system in place around retirement funds might sound complicated. However, building an effective Roth conversion ladder is simply a matter of moving your money around and patience until it becomes usable. Start your Roth conversion ladder in just four steps.

Start by rolling over your 401k into a Traditional IRA. You should do this once you quit your job. From the time you quit any job, you are free to move your 401k money from that job into an IRA. Also, be aware you aren’t obliged to keep it with the same company that was holding your original 401k. Make the choice that is best for you after considering the options.
The next step is to transfer some funds from the traditional IRA account into a Roth IRA. Transfer the annual amount you want to access in five years. Do you already have some income from Roth investments you made while working? Then, we suggest only transferring the amount to bring this up to the amount of your annual expenses instead of transferring the entire sum of annual expenses. You will lose less money on taxes doing this in the end.
Next comes patience. Wait five years. The “Five Year Rule” applies to any investments in an account like a Roth IRA. It means that the investor can only take out the invested money after a five-year waiting period.
Finally, withdraw the money you converted like an old friend you haven’t seen for five years.

The “ladder” part of the strategy comes into it when you use the technique on a recurring annual basis. As you move toward retirement, you continue to use the ladder to supplement your annual funds until you have reached five years before 59 1/2 when the funds become available.

Why not just contribute annually to a Roth IRA?

You take money out of a tax-protected account when you transfer money from a traditional IRA into a Roth IRA. That means you need to be ready to pay taxes on any money you transfer from a 401k or IRA into a Roth IRA. This is because contributions to a Roth IRA don’t lower your adjusted gross income, whereas you can get tax breaks when you make contributions to your 401k or traditional IRA. Instead, the money you transfer becomes taxable income for the year.

Another reason you should avoid contributing to a Roth IRA annually is if you are getting anywhere close to emptying your retirement accounts before retirement age. You need to have enough saved to keep up your preferred lifestyle for as long as you plan to be in retirement.

Additionally, you can only take money out of a Roth IRA five years after initially transferring the money into the account. You need to find some money to live on until then. You might already have this covered from

There are plenty of ways to do that, though. Here are a few we at IWT love:

Don’t forget about standard retirement accounts for early retirement

Since your Roth conversion ladder only provides you money until you reach 59 ½ years old, you need to have a retirement savings plan for the years beyond that. The first step to finding out exactly how much you need for retirement, which you can do following the steps in the next section. However, when it comes to investing the money you save annually, you need to know what kinds of standard retirement accounts you should keep to make the most out of your money for early retirement?

You will likely be saving a significant portion of your income each year for retirement, particularly if your goal is to do this early. However, it would be best to maximize your retirement accounts to make the journey faster. Although it will look different for anyone on the road to financial independence, the common accounts you can build while you are still working include:

Traditional IRA
403b
401k

Each of these works slightly differently and has various potentials of effectiveness for your retirement funds. So what do we mean by maxing these accounts out each month or year?

All three of these accounts are tax-protected. The government caps the amount of investment in these so that those in a higher wage bracket don’t benefit more from tax breaks than most lower earners.

Reaching these caps is your goal.

From the time you build your net worth to your retirement goal, you are then ready to retire early and reap the rewards of these accounts using the Roth ladder strategy.

Commonly asked questions about a Roth conversion ladder

How much money should I convert each year?

The amount you should convert each year you employ the Roth ladder strategy depends on how much you have saved and how much you intend to spend each year. As long as you have enough saved for retirement, you should be able to send over the intended amount you will spend annually. So the real question is, how much should you save for retirement?

You’ll need to look at three numbers to figure this out:

Your income, meaning the amount you make a year after tax.
The amount you spend each year, or your expenses. These include absolutely everything you spend money on during the year, including utilities, groceries, rent, clothes, vacations, insurance, gas, etc.
Your intended retirement date. Once you start considering “early” retirement, you get into a pretty subjective area. You need to set out a timeline for your early retirement plans to be truly prepared to be financially independent for the rest of your life.

You might figure all these numbers out and then, six years later, experience a significant life change. Remember to be flexible with all of these, whether they go up or down. You never know what life has in store for you.

Once you have calculated these numbers, you can come up with an annual savings rate for the precise amount you should be saving each month for your retirement.

You can use this convenient calculator to figure it out. It utilizes the 4% Rule of a safe withdrawal rate. Do you not want the calculator to do the work for you? You can figure out your own 4% Rule number by:

Figuring out your yearly expenses.
Multiply this by the number of years you anticipate being retired. For typical retirees, this will be estimated at 25. For early retirees, add the assumed amount of years.

The estimates below are all based on the expenses being multiplied by the typical 25 years assumed for a retiree.

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

Although the numbers might seem quite large, we are talking about what you need to save across a diversified portfolio of accounts over quite a few years. As long as you are willing to put the effort in and realize that the more you save, the earlier you can reach your retirement goals, you won’t have an issue hitting your goal numbers.

How much should I expect to pay in taxes on a Roth IRA conversion?

The exact number depends on the exact amount you transfer each year, tax percentages the year you transfer and inflation rates as time moves forward. However, the amount isn’t quite as important as the method you will use to pay that amount. Once you have figured out exactly how much you should expect to pay each time you move money from your 401k or IRA to a Roth, you need to be prepared to pay it.

However, you shouldn’t have to worry too much about this since you will likely be living off the Roth contributions you made while working with a supplement of the money from your retirement funds. Moreover, since Roth contributions are already taxed, your tax bracket will only account for the yearly transfers and thus should be very low.

Is there a limit I can convert into a Roth IRA?

There is no limit to how much you can convert from your various retirement accounts into a Roth IRA. However, keep two things in mind.

First, once that money leaves the tax-protected accounts, you will have to be ready to deal with the annual taxes.

The second thing to remember is that a Roth ladder strategy only works as it should if you don’t run out of money. Therefore, it is essential to evaluate the long term to ensure you will still have the funds to continue supporting your lifestyle even after turning 59 1/2.

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What is the best time to start a Roth conversion ladder?

When implementing a Roth conversion ladder, you should start your first Roth conversion the year you plan on retiring. After that, you should continue to make conversions for the annual amount you require to live each year, with conversion continuing up to 5 years before you turn 59 1/2. That way, the only financial “gap” you will have from your Roth conversion will be in the first five years of retirement. Once you reach 59 1/2, you can freely withdraw money from any of your retirement accounts.

You can also do a Roth conversion after you have reached 59 1/2 years old. However, this kind of conversion always comes with a tax bill. While this is acceptable when the alternative is taking a 10% penalty fee that would come from withdrawing from your retirement accounts early, it isn’t necessary after you have reached retirement age.

Additionally, when you move the funds out of your 401k or a traditional IRA, it means you will miss out on any tax-free growth you could have had.

Playing your cards right during your working years can seem worthless if you have to take penalty fee after penalty fee to access your money. However, using a Roth conversion ladder gives you a way to join the FIRE community, enjoying early retirement without a 10% fee for it. If you are wondering how you might jump on this bandwagon of financial independence, check out our Ultimate Guide to Making Money so that you can start your own path to join the FIRE community.

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Using a Roth Conversion Ladder to Retire Early is a post from: I Will Teach You To Be Rich.

Informational interview questions to ask that create a lasting impression

Angelica Leicht — Wed, 27 Oct 2021 13:43:54 GMT

What if you lost your job today and needed a new job in a week? Could you do it?

What if you just wanted some advice for a tough career decision? Is there someone you could ask?

Or what if you wanted to make a big career change, like switching industries? Is there anyone you could call for help?

The secret to solving all of these challenges is the same: informational interviews.

Informational interviews: What they are and how they work

You’ve likely heard employment buzzwords like networking or mentoring being thrown around, but have you ever heard of the term informational interview? Informational interviews can be the difference between a thriving career and a career stalemate, but not everyone is familiar with how these types of interviews work.

At a high-level, here’s how an informational interview works:

You find someone doing the job you’re interested in
Invite them out to coffee or ask them to chat over the phone
Ask key questions about the job and gather insider information
Then, use what you learned to make an informed decision about your career

Simple, right? It is — as long as you understand the rules:

It’s not about a job. You’re not actively trying to land a new position with an informational interview.
You’re there to learn. The purpose of this type of interview is to learn about what the other person does, how they do it, and what they like or dislike about their job.
You listen and they talk. The other person does the talking, but you steer the conversation with insightful questions that matter to both of you.

That said, informational interviews can most certainly lead to more job opportunities in the future, but only if you conduct them in the right way by asking the right questions to the right people.

Let us show you how to master this powerful job search tool.

Bonus: Want to finally start getting paid what you’re worth? We show you exactly how in our Ultimate Guide to Getting a Raise and Boosting Your Salary

How to ask for an informational interview (and who to ask!)

One of the biggest hurdles to getting an informational interview is knowing how to ask for one and who to ask. An informational interview is only useful if you target someone whose role you could see yourself in, whose field you may be interested in, or whose team you may want to be hired onto in the future.

Otherwise, it’s just going to end up being coffee and a Q&A with no real purpose. While that’s nice, it’s not exactly the goal of the exercise.

Before you send out any invites, though, be sure you know who exactly you need to interview. Here are a few tips to help narrow it down:

Know the right type of person to ask. This could be people who are already in your network of contacts in a particular field, company, or job that interests you. Or, it could be someone you cold call (or cold email, rather) with the request.
Don’t have someone in mind? Look through your networking contacts on sites like LinkedIn or any other social media outlet. These sites can be gold mines when it comes to building work contacts. You may even have a connection with someone in your ideal role or field already.
Can’t find the right person in your connections? Don’t let that stop you. A connection in a similar field may be able to help identify the right person to contact for a coffee chat email. It doesn’t hurt to reach out.
Or, just search and identify a few people you may want to ask for an exploratory interview. You can use a social networking platform or a simple Google search to do this. You’d be surprised how many people are willing to take a quick call or coffee break to chat about their jobs with you.

Once you’ve identified the person or persons you want to ask, all you have to do is reach out to the person you want to meet with by sending a friendly but concise email asking for a meeting.

You’re free to word these requests as you see fit, but the wording of the email could be as simple as:

“Hi, Brad! My name is Ann, and Kelly Smith suggested I speak with you because I am interested in learning more about your field or role. If you’re open to it, I would love to get some advice from you on this role or field. Would you have time in the next two weeks to meet for coffee so that I can learn more about your company and the role or field?”

If you aren’t sure what to say, there are even word-for-word email scripts that can help. The hard work is basically done for you.

You may strike out a few times, and that’s OK. Just keep reaching out to the right people, and eventually, you’ll find success.

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How to ask the right informational interview questions

Once you’ve landed a “yes” for an informational interview, you need to take time to prepare for the interview, which starts with compiling a list of the right questions to ask. This step is crucial if you want to learn more about a role or company.

It’s important to start the process of an informational interview with just one goal in mind: learning more about what the other person does and how they feel about it. These tips can help you ask the right types of questions:

Leave out any questions that you could learn the answers to by a quick Google search. The internet is a well of information on things like company benefits, salary information, career trajectories, and other hard and fast facts, so leave those out of the equation.
Ask the types of questions that require a personal answer. Inquire the person about the career path was that they took to get to their current position, or ask about what special certifications or education they pursued that may have set them apart.
Make sure your questions are open-ended. Try not to ask yes or no questions, even on follow-ups. Doing so will quickly put a damper on the conversation.
Tailor your questions to focus on their experiences in the industry or role. The goal is to get them to tell you about themselves and their path to the role that you’re eying.

These types of open-ended, well-phrased questions make the person you’re interviewing feel comfortable with you. They’re also a sign that you have respect for the other person’s experience and expertise, which is important if you want to also build a networking relationship.

Here are a few examples you can use to help you craft your own questions:

Example 1:

Good question: “I noticed on your LinkedIn that your job in this industry focuses around <insert a special niche or project>. That seems like a unique opportunity to be given in this field. How did you find an opening to pursue <the special project or niche>? It sounds like something I’d also like to pursue in the future.”
Not-so-good question: “You work in a <insert special niche or field at company> that I’d like to be in. Can you help me get a job at your company?”

Example 2:

Good question: “What steps did you take to work up to your current earning potential? Do you have any tips for those of us who are just starting out in the field?”
Not-so-good question: “How much money do you make?”

Example 3:

Good question: “What are some of the more difficult challenges or hurdles you face in this role?”
Not-so-good question: “What do you hate about this job?”

Notice the subtle differences? The good questions are open-ended and inquisitive. The not-so-good questions are pointed, closed questions that are going to make the person you’re interviewing very uncomfortable — and put your interview at risk of going downhill.

Bonus: Want to know how to make more money so you can live life on your terms? Download our FREE Ultimate Guide to Making Money

The big mistakes to avoid during informational interviews

Knowing who to ask for help — and what to ask — are just two small pieces of the informational interview puzzle. There is an art to pulling off a successful informational interview, and it involves a lot more don’ts than do’s.

If you want to successfully navigate the art of informational interviews, you should make every effort to avoid the big (and surprisingly common) mistakes. These include:

1. Arriving late — or way too early

If you’re pursuing work- or career-related tips from your interviewee, chances are that they’re a busy professional with lots on their plate. What that means is that you should make every effort to avoid taking the other person’s time for granted.

Don’t be late for your meeting — that’s an obvious one — but avoid being early, too, especially if you’re meeting at their place of employment. Don’t arrive more than five minutes early or you could put them in a precarious position (or embarrass yourself by barging in on a meeting you weren’t invited to).

2. Asking for a job

While you may want a job from this person. In fact, what they do may even be your dream job, but you need to avoid asking for a job opportunity at all costs. If you crafted your initial email the right way, you’ve already made it clear that you aren’t asking for anything other than the person’s time and insight. So, don’t flip the script on them when you meet in person.

If you conduct yourself professionally and make a good impression, a job offer may organically grow from your interactions. But you are not there for a job interview, so don’t expect a job to grow out of your interactions. If it does? Great. If it doesn’t, you’ve still gained a lot of value from their time and insight.

3. Dominating the conversation

If you’re nervous, or if there are awkward pauses, you may feel tempted to try and fill the silence with nonstop chatter. Or, you may feel the need to offer commentary after every question is answered. Don’t do that. Ask and actively listen instead.

Remember that the goal of this informational interview is to learn what you can from another professional who works in a job or at a company you’d like to pursue. You should be spending about 90% of your time during this interview on the listening end — not the talking end. If you’re finding yourself talking more than listening, you’re headed down the wrong path.

4. Asking for introductions

You may have targeted your interviewee because they have great connections in the industry you want to be in. They may know the CEO of a certain company or have a friend or acquaintance who works in recruiting for a major firm. That’s all fine and good, but don’t allude to the fact that you’re looking for introductions to these key people.

Keep the talk about the interviewee — not about who they know. And whatever you do, avoid asking for introductions to anyone on their connections list, in their current company, at their former company, or in their inner circle. You asked to meet with them to discuss their experience and role — not to meet another party who may benefit you more.

5. Skipping the thank you

One of the biggest mistakes people make is skipping the formal thank you after the informational interview. Remember that the person who met with you took time out of their busy schedule to try and help you. A sacrifice like that requires proper thanks.

Send a card, an email, or some other form of written communication to thank them for the time they spent on you. Show them that you’re grateful for their help and advice, and do so quickly after you meet. This showcases your professionalism, and leaves them with the best impression of you possible — which can come in handy should future opportunities arise that you may be a fit for.

Bonus: Want to fire your boss and start your dream business? Download our FREE Ultimate Guide to Business.

One final informational interview tip

While it’s important to have the right questions in mind and avoid the big mistakes when conducting an informational interview, you should also try not to overthink it. The goal of this process is for you to learn and grow while networking — not conduct every word, mannerism, and interaction by the book. That’s way too much pressure for one person to handle.

But if you relax, engage, and most importantly, listen, you’re much more likely to come out of the process with the information that you need and a new networking contact on your side. If you’re too busy focusing on what to ask next or how to phrase the questions the right way, though, you’ll run the risk of missing vital information or advice — and that’s the opposite of what you want to achieve.

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Informational interview questions to ask that create a lasting impression is a post from: I Will Teach You To Be Rich.

How to Survive a Performance Improvement Plan

Kara Copple — Wed, 27 Oct 2021 13:05:46 GMT

Being put on a Performance Improvement Plan (PIP) can feel like a kick to the gut, especially if it comes out of the blue and you don’t understand why. However, in most cases, it’s not a surprise. It usually comes after an employee has been struggling in their role or with some other issue at work.

If you’re faced with a PIP and don’t know what to do, don’t panic! Below, you’ll learn how to survive and even thrive during a Performance Improvement Plan.

For those who decide the job’s not right for them, there are also some bonus tips on how to find your dream job if this one doesn’t work out.

Let’s get started on how to respond to a Performance Improvement Plan in the best ways possible.

What is a Performance Improvement Plan (PIP)?

A PIP is a set of objectives given to an employee to help them develop in their role. It’s designed by employers to help their workforce better meet the responsibilities of the job.

In a PIP, employers typically outline what needs to be improved in an employee’s skill set and experience. Later, the employee will be reassessed to see how they’ve improved.

If you’re put on one, keep reading for some tips on how to survive a PIP.

Why do managers use PIPs?

Managers will create PIPs to help employees improve their work, boost efficiency, and that has a ripple effect across the rest of the business.

It gives clarity to the employee as well because they know exactly what they need to do to improve and grow.

If poor work habits have landed you on a Performance Improvement Plan, it’s not too late. Learn how to build better habits and break bad ones with our FREE Ultimate Guide to Habits.

What to do if you’re put on a Performance Improvement Plan

Being put on a plan that tells you how much you need to improve can feel a little soul-crushing. You might be kept up all night thinking, “Am I going to get fired? Should I look for another job?”

Honestly, maybe. It’s entirely possible that the performance review plan is only there to cover your boss legally before they boot you out the door. But before you panic, it’s also just as possible that your company is genuinely invested in you and hopes you hit your goals so they can keep you.

Now, it goes without saying that it’s important to take your PIP seriously. There’s zero wiggle room for mistakes and not hitting the goals laid out. If you want to impress and keep your manager happy, here’s how to respond to a PIP.

Don’t panic

When you’re put on a PIP, panic might be your first response. You may be worried about losing your job, disappointing people, or appearing bad at your job.

There are multiple reasons why someone might be put on a PIP. It might not all be down to you, and instead is about the company taking ownership as well.

Focus on what you can do next and what you can control. It’s important that you react in a professional manner as your manager could be trying to gauge your reaction as well.

A PIP doesn’t mean you’re going to be fired. In fact, it’s actually a good sign that the company wants to help you improve things. Rather than firing you outright, they want to help you develop in your role. So, try to look at it through a more positive lens … and take some deep breaths.

Go in with a positive attitude

No matter what your employer’s plan is or whether they have another agenda, you should remain calm and professional. Look at it as a way to develop your skills and improve yourself rather than a punishment.

Your attitude will tell your employer a lot. If you are receptive to their suggestions, this is a good sign. If not, then they might think of alternatives that may involve hiring someone else.

Ask for help

If you know there are areas you’re a little less knowledgeable or experienced in, it’s time to reach out for help. Ask your manager, colleagues, or mentors for advice and guidance.

If you’ve been put on a PIP, there are areas for improvement. So, try to set up weekly check-ins with your manager or ask for feedback from your boss. If you want to get ahead on this, be the first to suggest it. This will show you’re open and dedicated to improving.

Take charge of your progress

If you’re committed to making progress, you need to own it and take the lead. Your manager may be in charge of drawing up the PIP, but it’s up to you to follow through.

Make sure you take a close look through the plan and question anything that you need clearing up. Note, we said “question” not argue. You still need to stay on their good side.

Take an active interest in everything being said and try to make suggestions of your own for how you can improve. Everyone could do something to improve, so find out what you could do. Admit it and be open about it.

You could also make suggestions or ask about what the next steps are, whether they’re weekly check-ins or monthly one-to-ones. You want to show that you’re taking this seriously and are committed to progress. This will help ease any doubts the manager has about keeping you on the payroll.

Identify the reasons

Somewhere along the way, something’s gone wrong. But it’s not always crystal clear what went wrong and when. When you first applied and got the job, you were qualified and experienced for it. So where’s the gap now?

Did your job role change but you didn’t get any extra training? Have the manager’s expectations changed but there hasn’t been an open dialogue about it? Are there circumstances in your personal life affecting your work performance?

Take some time to really dig into the reasons leading up to you getting a PIP. This isn’t about finger-pointing and seeing whose fault it is. It’s more about seeing the route cause and retracing your steps. That’ll help you and your managers come to a more informed decision about the next steps.

Bonus: Want to work from home, control your schedule, and make more money? Download our FREE Ultimate Guide to Working from Home.

Don’t go the extra mile – Go the extra inch

Nothing says “I’m taking this seriously” than doing just a little bit more than everyone else.

We interviewed Pam Slim, author of Escape from Cubicle Nation, about how to become invaluable at your job. She told us a great story of how she went above and beyond to become amazing at her previous job. Here’s what she had to say:

“I would get up really early in the morning and go sit with the traders on the floor. I would see what they did and proactively go to lunch with the most senior people who were great at giving financial advice, who were really like leaders in the industry. Because I was interested and because I, as the training and development director, wanted to really understand what they did to better serve their employees.”

She went out of her way to take experts and co-workers to lunch to pick their brains, knowing she could learn information that would make her better at her job.

This is a great tactic that we highly recommend. We also suggest checking out books and podcasts by industry leaders so you can learn from their years of experience.

Keep in mind: Becoming great at your job doesn’t have to be drudgery. If you enjoy what you do, then learning how to do it better can be fun! Especially when you know it will make you invaluable to your company (and worth paying more.)

A lot of the time, it’s simple acts like these that help you get ahead. Because guess what, most other people don’t bother. Taking the time to actively improve your knowledge and experience is exactly the kind of dedication and progress managers want to see.

Answer questions before they’re asked

Imagine you’re at work. You think everything’s going great. But then your boss calls you into his office and starts in on everything you’ve done wrong.

Total nightmare. To avoid this, do what top performers do.

First, be proactive and keep your boss or manager updated with where your projects are at. Don’t wait for them to ask. If you know a question is coming soon, give them the answer before he can get the words out.

For example, you can ask your supervisor if he’d like an “End of Day” report where you briefly tell him what you accomplished and what you have planned for tomorrow. It could look something like this:

An email like this lets your supervisor know you’re on track.

Second, get in the habit of asking for feedback. Ask your boss how things are going from their perspective and what improvements they’d want to see from you.

Asking for feedback may be uncomfortable at first, but it’s incredibly valuable. Constantly receiving and implementing feedback means you’re getting better at your job every day. This is a skill hiring managers are looking out for, and it’s surprisingly rare to find.

It’s also a great way to show that you’re dedicated to improving things and managers love to see it, especially when they’ve drawn up a PIP.

Look elsewhere if things don’t work out

If you’ve exhausted all of the above and things don’t seem to be improving, there’s another thing you can do — look elsewhere.

You might try your absolute best to rectify things with a PIP, but sometimes there’s only so much you can do. If the job is not the right fit for you, you can look elsewhere for a better fit.

It’s still well worth trying to improve and progress in the meantime. It’ll keep your managers happy and it’s also good to leave on positive terms (especially if you need a referral).

But don’t just go for any old job to replace this one. You could end up right back where you started. Instead, play it smart and develop a plan to find the right job for you next time.

Keep reading for some simple pointers on how to do that…

If your PIP doesn’t work out: How to find a job you love

Sometimes it just doesn’t work out how we hope. Whether the blame rests on your shoulders, your manager’s, the company’s, or something else entirely, there’s no shame in walking away.

Plenty of people take on jobs and realize months or years later that it’s just not a great fit. Everyone’s been through that at some point.

If you decide that the job is not right for you and you’re likely to see another PIP or even disciplinary action in the future, it might be time to look elsewhere.

Being put on a Performance Improvement Plan doesn’t make you a bad employee. It may be that this job isn’t the right fit for you. And you’re better off finding a job that challenges you and pays better.

The problem is, very few people know how to find a job like that.

People hop on Indeed or LinkedIn, fire off two dozen resumes in a weekend (to jobs we may not even want) then sit back and wait for a reply (which never comes).

Top performers do things differently. They know how to find out exactly what job they want and what company they want to work for. They’ll even put out feelers to friends and co-workers to stay aware of what opportunities are out there.

Top performers have much more clarity on what they want and how they can get there. It’s something that most people struggle with when it comes to the dreaded job hunt.

Here’s an example from Judd W, an IWT reader, and graduate of the Dream Job program.

“Last year I realized I wanted to switch industries. [IWT] helped me focus my search, network with insiders at the company I wanted to work with, take my interview skills to the next level, and, when the offer came in, negotiate what I was worth (over 20% more than the initial offer).”

See? No wasting time on resumes or staring at the computer feeling lost. Judd followed a proven system for finding and landing a dream job and got tangible results.

If you want a peek into the system top performers use to land dream job after dream job (even if you don’t have experience or a fancy degree), enter your name and email below.

We’ll show you a special video on how top performers skip the front of the line and land a dream job that pays them 10%-50% more than they’re making now. And how you can follow that same system to find out what your dream job is, land it, and get paid what you’re worth.

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How to Survive a Performance Improvement Plan is a post from: I Will Teach You To Be Rich.

Vanessa Napier

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