10 May 2017

7 Things to Consider Before Starting a Side Hustle

7 Things to Consider Before Starting a Side Hustle

Making extra money on the side sounds great, right? Thanks to the internet and mobile technology, new ways of making money after work are becoming a norm in our society. Side hustles can serve several different purposes – from creating an emergency fund, retiring early, or making a down payment on your first house.

It seems like there are endless stories about people striking it rich from a random side gig, but there's actually much more to it than meets the eye.

Side hustles, no matter how small, are still a business. Just like you have to hustle to get ahead in your actual job, the same goes for side hustling, and it may be even harder because you are building it from the ground up!

Here are 7 things to seriously consider before starting a side hustle:

1. Do you have a business model?

This can be a fairly intimidating aspect of starting any type of business, especially if you don't have any prior experience. The most important part of building a successful brand is learning how to plan correctly and find your target market.

Here are a few things you'll want to think about when you are planning your side-hustle strategy:

  • Does the service you are providing actually provide value?
  • How will you advertise and find clients or customers?
  • What is the realistic amount of time it will take to get your business up and running?
  • Is there a specific legal structure that would work best for your type of business?
  • What are the tax implications that you may face later down the road?

While you may be thinking that your business will just be a hobby that you do in your spare time, it's always smart to make sure that you understand every aspect of your business before getting started.

Don't be afraid to hire an attorney to help you create a strong legal structure that will separate the business from your personal assets. If you don't, it's possible that your personal assets could be vulnerable in the unfortunate circumstances of a lawsuit.

You may also want to pay an accountant to give you guidance on the best tax strategy for your side hustle moving forward. If there is anyone you don't want to forget about, it's the IRS.

2. You may need startup capital

In addition to the professional services mentioned above that you may need to cover the cost for up front, there are also other business expenses that you may need to prepare for.

Even a service as simple as pet-sitting requires extra money in gas and potentially pet insurance.

Many side hustles don't require a massive amount of startup capital, but it's always a good idea to sit down and create realistic estimates on what it will cost you to run your business.

3. It can take more time than you think

The time that it takes to run a successful side hustle has to come from somewhere, and it's usually what would be your time to relax on the couch or go to a movie on the weekend.

Depending on the nature of your side hustle, you may need to schedule your time very carefully to make sure you are still able to do things that help you recoup from your actual job.

4. Your primary income comes first

It's easy to get obsessed about the extra income that is coming in from your side hustle, but your primary job still needs to come first.

One of the biggest risks involved with creating secondary income streams is that you are essentially burning the candle at both ends. The last thing you want to do is experience "burnout" at your main job or have your performance slip to a point where you could be fired.

No matter how great your side hustle is, if it doesn't at least match or even exceed your day job income – it needs to take a back seat.

5. Do you have a goal?

With as much time as side hustles actually take to become successful, you'll want to make sure that you have a goal going into it that will help keep you motivated to put in the extra work.

It could be as simple a goal as saving extra money for vacations, or as big a goal as retiring from your job 10 years earlier than you originally planned. Whatever it is, make sure that it's important enough to push you to put in the extra time.

6. You'll probably have to learn to sell

The reality of keeping a business alive is that you'll have to feed it with new sales. If you have no background in sales at all, trying to convince other people to give you their money for a product or service can be fairly intimidating.

While there are certainly sales strategies and tactics you can learn – it's going to take trial and error. Every time you have a successful sale, there may be ten times that you get turned down.

Just like with anything else, practice makes perfect.

7. It could fail

Before you take the leap into part-time entrepreneurship, you need to understand that your venture has a real chance of not making it. There are a number of reasons for this, but at the end of the day it's just the nature of business.

They just don't always make it.

Fortunately, if you provide a great service or product that gives value to your target consumers, you're much more likely to thrive.

Don't let this list discourage you

Even though the above list may make side hustles seem like an intimidating challenge, they are still an incredible tool for getting ahead financially and meeting your biggest goals sooner than you originally planned.

As long as you take your side gig seriously and treat it like a real business, you have a great chance to find success and create a viable second income stream.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).
05 May 2017

Why You Should Consider Pursuing a Side Hustle

Why You Should Consider Pursuing a Side Hustle

You've probably seen plenty of chatter out there about the emergence of the "side hustle" in recent years. In the personal finance world, it's an extremely popular topic to write about because so many people are looking for ways to make money right now.

A quick Google search will yield page after page of side hustle ideas that range from easy tasks like dog walking, to more complex strategies like becoming a virtual assistant or a social media manager.

While most of the ideas out there can seem a little fluky at first, side hustles (and ultimately secondary income streams) can actually provide a huge advantage for the people that commit to them.

Here are some reasons you should consider pursuing a side hustle this year:

Repay your student loans faster

One of the biggest challenges for mental health professionals after graduating is dealing with substantial amounts of student loan debt.

There are several strategies you can deploy to manage or pay student loan debt off faster, but one of the most effective ones is fairly straightforward: make more money.

It's easy to get wrapped up in all of the different aspects of personal finance, but the reality is that it comes down to simple concepts like saving more or making more. If you can do both, you'll be a financial rock star.

Admittedly, increasing your income sounds much easier said than done. However, a successful side hustle allows you to generate money independently from your primary income source, and can be a huge asset in paying off student loan debt early.

Even just an extra $250-$500 per month in side hustle income over the first ten years of your career equates to $30,000-$60,000 extra that can be applied toward student loan debt. You don't have to make a ton of money in your spare time to generate massive amounts of money over the long term.

More freedom to change jobs

Let's face it, the days of staying at one company or one job for extended amounts of time are quickly fading away.

According to CNN Money, a recent study by LinkedIn found that young professionals will change jobs as many as four times by the time they are 32 years old. Changing jobs is now seen as a faster way to advance in a career by negotiating salaries up by as much as 15% with each move.

So what does that have to do with side hustles?

While we would all like to have smooth transitions between jobs, it's just not always the case. Having extra money coming in from a small side business could be the difference between settling for a job you don't enjoy or holding out for the perfect gig.

Essentially, a side hustle can buy more time and also cut down on the anxiety that's often associated with being between jobs.

Saving up for a house or emergency fund

Most people have experienced that sinking feeling of writing a rent check every month, knowing that they could be building equity with their own home instead. The same goes for not having enough cash available in an emergency fund.

It's a little harder to sleep at night when you know you aren't quite prepared to handle a life curveball that might come your way.

Even if income from a side hustle isn't consistent, it can be a powerful way to build up a nice emergency savings fund of 3-6 months of income or a 10%-20% down payment on your first home.

A head start on investing

When you first start earning good money at a job, it's surprising how quickly that money gets allocated to other areas like rent or student loans.

Everybody knows they are supposed to be investing as much as possible for retirement and wealth building, but early in your career (when you have the most time for compounding interest to go to work) it can be a massive challenge.

Using the same numbers as the above example, the power of a small side hustle is pretty impressive: $250 per month of secondary income invested in the market (assuming a stock market average of 7% returns) over 10 years becomes $41,449.34.

$500 per month with the same criteria over 10 years becomes a whopping $82,898.69.

Potential full-time entrepreneurship

Side hustles can be a sneaky way to make a smooth transition to full-time entrepreneurship. While it might not be the goal from the beginning, it is entirely possible that whatever side hustle you choose to pursue eventually becomes your full-time job!

Most commonly, this happens because side hustles are built around things that people really enjoy doing. It's almost essential that a secondary income stream comes from some type of passion project, or by seeing and fulfilling a need in your current field that isn't being met the way you think it should be.

Once the income from a side hustle matches your primary income consistently over time, you have the option to pursue it full time with fairly low risk.

The other great thing about building a side business is that there isn't a rush to make anything happen too quickly. Having a strong primary income allows you to build something slowly over the course of years with much less risk than jumping into a larger business venture from scratch.

Don't expect it to be easy...

With all of this said, successful side hustles aren't nearly as easy as a lot of websites out there might have you believe. If you are seriously considering a second income stream, just understand that it will take the place of watching your favorite TV show in the evenings or replace a large part of your free time on the weekends.

It's really just like anything else – if you go into it expecting that everything will be very easy, you're probably not going to be successful doing it.

Take your time and do plenty of research on the competition, find out if there is a real need for the service you want to provide, and then go in on a secondary income stream with reasonable expectations.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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11 Apr 2017

12 Ways to Find Extra Money in Your Monthly Budget

12 Ways to Find Extra Money in Your Monthly Budget

If you've recently started a budget or have been using one for years, you've probably found at one point or another that it feels like your budget doesn't stretch quite as far as you'd like it to. One of the unfortunate realities of living in the time that we do is that we are constantly bombarded with advertising and temptations to overspend everywhere we look.

Also, companies are just really good at figuring out how to get every dollar out of us that they can. That paired with the ever-looming threat of rising inflation and higher prices can put a pretty significant squeeze on a monthly budget.

It's easy for anyone who has been working on a budget for several months or even years to get frustrated with the process. Truth be told, budgeting isn't exactly fun in the first place. Feeling like you aren't as successful as you could be only makes things worse. Fortunately, there are things you can do every month to get ahead!

Here are 12 ways to find extra money every month:

1. Take a hard look at your fixed expenses

While obviously "fixed" doesn't sound too promising, there is still no harm in trying to find flexibility in those expenses. Line items like rent and insurance can be negotiated down in many cases. Also, take some time and evaluate if you are overspending on your living expenses (i.e., living somewhere that is larger or more expensive than what you really need).

2. Consider finding lower interest rates (while you can)

For almost 10 years, we have seen the lowest interest rates in decades. The Fed has recently started introducing rate hikes, which will have a widespread effect on interest rates for things like houses, cars, and student loans.

If you feel that you are locked into any type of loan with interest that is too high, there is still plenty of time to search for lower refinance rates that may unlock money in your monthly budget. While there are still plenty of "deals" to be had, make sure to do some research and decide if a refinance of any kind is really right for you.

3. Review recurring monthly services

All of us have recurring monthly expenses in the form of cable, Netflix, internet and phone bills, and many others. One of the smartest things you can do to find extra money every month is to look through these discretionary expenses and see if you can either lower your level of service or remove the bill from your monthly costs entirely.

4. Slash the grocery bill

What you eat is important, so the idea here isn't to just change over to the lowest quality food possible. But making simple changes like using the store brands instead of the name brands, or adding more vegetables to your diet instead of meat, can lead to big savings in your monthly grocery bill.

5. Are your utilities too high?

Chances are, yes. Energy costs are specifically a big culprit here, and many times those costs can be lowered with a few phone calls. Double check what you are paying for energy in your home and see if you can find a better rate. Even one or two cents less per kilowatt hour can mean huge cuts in your energy bill.

Also, make sure you turn the lights off when you leave, opt for energy efficient light bulbs, and find areas where air may be moving in or out of your living space where it shouldn't be.

6. Consider your tax strategy

Are you hoping for a huge tax return at the end of the year? While getting a check at tax time may seem like a great thing, it actually means that you may be withholding too much of your paycheck every month. This means that you are giving the government an interest-free loan every year, when you could have that money added back into your budget to spend as you see fit!

7. Can you pay off debt?

If you have nagging debt like credit cards or student loans, consider making larger than the required payment every month to free up that cash permanently. Even if you just attack the smallest amount of debt that you have, you'll be surprised how much money that will add back into your budget over the long term.

8. Make your clothes last longer

While I can't pretend to be an expert on clothing, I can tell you that many people spend far too much money on new clothes. My personal strategy when I was paying off my $40,000 of student loan debt was to own just enough sets of clothing to get me through two weeks of work (you have to be strategic about how you mix and match).

Even if that sounds too extreme, you can still save money on clothing by taking better care of what you already have. Simple habits like washing your clothes on gentle and hanging instead of drying can make your clothes last much longer.

9. Learn to negotiate

If you can learn any skill to save money, negotiating may be the most effective. Most people are unaware that many items like furniture, jewelry, and even monthly subscriptions can be negotiated down.

Remember—businesses would much rather have some of your money than none at all.

10. Share meals at restaurants

Portion sizes are notoriously out of control at restaurants, so why not share? An easy way to cut down on the costs of eating out are to buy one entree, pair it with an appetizer, and share! Another great strategy is to order from the kids menu at restaurants (if they will allow it). The portions can be surprisingly large.

11. Set spending alerts

Most banks and credit card companies have rolled out great apps that feature detailed spending alerts. Many of them are customizable and will send the alerts to you in the form of an email or text alert. These are especially helpful if you want to check in on your budget more often than once a month.

12. Consider starting a side hustle

While this isn't really "finding" money, it's still an extremely effective way to add money to your monthly budget. Side hustles don't have to be complicated. I've seen everything from buying items on eBay and selling them on Amazon for a higher price, to knitting scarves and selling them on Etsy.

The emergence of the internet has created an environment that makes it much easier to make extra money on the side than ever before.

With a little bit of leg work every few months, it's not too difficult to uncover extra money in places that you may have never even considered looking! Whether it's taking a look at your subscriptions or something as simple as opting for store-brand items instead of name-brand ones, there are plenty of places to free up some extra cash in your budget.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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07 Apr 2017

How to Create a Budget That Actually Works

How to Create a Budget That Actually Works

I think if one is really being honest with oneself, the thought of sitting down and creating a budget sounds like one of the least enjoyable things about being an adult. Even as a person that writes about personal finance for a living, I can say that there are far more interesting money topics to cover!

But with that said, there is a reason that so many people in my industry really focus on budgeting: It works really really well.

I've had thousands of readers that have paid off incredible amounts of debt or even reached early retirement just by diligently recording where there money comes in and how it leaves their accounts. Fortunately, the steps for actually creating a budget that you'll stick to over a long period of time are fairly straightforward.

Here's how to create a budget that really works:

1. Understand and set your goals

The most effective budgeting is the kind that is done with a specific goal in mind. You'll want to give some serious consideration to why you are going to be tracking your money so thoroughly.

Whether you are hoping to save up for a home purchase, go on sweet vacations throughout the year, or build up the capital to start your own business—you'll want to keep that goal at the forefront of your thought process while you create your budget.

2. Decide what style of budget fits your personality

This is where budgeting can be pretty interesting. There are so many different ways to actually create a budget, and the style and techniques that you choose should be completely dependent on what you actually enjoy doing.

For example: If you like writing things down by hand, go with a pen-and-paper budget. If you love technology, there are plenty of online budgeting tools out there. If you're an Excel wizard, you can easily create a budget with the program.

The key is to align budgeting with a technique that actually interests you so that you'll use a budget long term.

3. Write down your after-tax income

This can be a little bit of a blow to the ego for a lot of people out there. As a society, we've gotten very used to stating our gross income when we tell others and ourselves how much we make.

However, you'll need to figure your net income after taxes to use for your budget. This will give you the most accurate income picture possible when determining your expenses.

4. Determine your fixed and discretionary spending

Your fixed expenses are the ones that generally stay stable throughout the year. This would be your rent or mortgage, car payments, insurance, electricity, etc. Obviously there will be some variation on some of those items that you'll need to account for (like electricity, or gas for your car, for example) during different seasons of the year.

Your discretionary expenses are the ones that are not the same every month and in theory could be reduced or even removed completely from your budget. These expenses include things like Netflix, cable, going out to eat or to the movies.

5. Decide where your debt fits in

Because of the amount of schooling that is required in most cases to become a professional in the psychological field, student loan debt is often looming in the background. The same is true for professionals that have borrowed business capital to start their own practice.

Everyone has a different tolerance level for debt and different goals, but you'll want to determine where your debt fits in to your budget.

Personally, my student loan debt was something I wanted to get taken care of as soon as possible. I made that the top line item in my budgeting and paid toward my loans before anything else (yes, even housing). There is no one-size-fits-all answer to debt, but you will want to give this some serious thought as you move forward in executing your budget.

6. Cut yourself a little slack

It's easy in theory to create a budget that cuts out all of your extra spending, but are you sure you'll actually be able to go a full month without eating out or doing anything for entertainment? I've found that most readers have more success with gradual adjustments to their budget.

The last thing you want to do is create a budget that's so hard to stick to that you ultimately ditch it and revert back to old spending habits. Be realistic with yourself on how much discipline you have when creating your budget and you'll be much happier with the end result.

7. Make adjustments after one month

Budgeting can almost feel a little bit like a science experiment sometimes. You'll want to watch your spending for the first month and see where you had surpluses and deficits in the budget, then make adjustments accordingly.

If you get to the end of the first month and aren't happy with the amount that you have left over after expenses, you'll want to revisit your discretionary income and start making changes.

Sometimes this results in some pretty tough choices (maybe you don't need those 300 cable channels that you rarely watch!), but the end goal you defined in step one needs to prevail here.

8. Decide what to do with any leftover funds

Now for the fun part (hopefully)! If you overestimated on your discretionary expenses outlined above in step four, you can commit that extra capital to anything from savings accounts, IRA contributions, or even extra debt payments to help you reach your financial goals faster.

The most important thing is that you commit to the process

Unfortunately, the vast majority of people never actually become financially successful or even get their head above water. We live in a society and culture that promotes overconsumption, which has a direct effect on most people's ability to create and maintain a real budget.

Find the type of budgeting techniques that works best for you and stick with it. It may not be the most exciting process out there, but it absolutely works with consistent use.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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20 Mar 2017

Should You Save or Invest?

Should You Save or Invest?

For every professional just getting started in his or her career, one of the earliest financial hurdles to clear is the savings versus investing argument. While it would be awesome if there were a silver bullet to this discussion, I can tell you firsthand that there isn't (sorry). You'll have to constantly balance the two strategies over the entire course of your career.

The reality is that the amount you save or invest is completely dependent on your life and career goals. With young professionals especially, this is becoming a lot less structured than previous generations.

For Baby Boomers and many in Generation X, the common plan was to work hard and consistently over 30 plus years while building enough of a nest egg to retire later in life. Millennials on the other hand are completely different, and the idea of early retirement, taking a year off from working, and a bigger focus on working for less money to preserve work–life balance are gaining a lot of ground.

There honestly isn't a right or wrong approach, but there are serious financial implications if a disciplined focus on investing and saving strategies isn't considered in advance.

What is saving?

Saving is the process of setting aside cash in accounts that are safe and allow you to easily access your money (also known as "liquid"). When you first start out, you'll want to make saving money the priority over investing by building a strong cash emergency fund. The reason is fairly simple—having cash on hand allows you to avoid taking on debt in an emergency situation, which can kill your ability to build wealth during your career.

The commonly recommended amount of cash to hold in an easily accessible savings account is three to six months of expenses. The idea is that you would be able to cover yourself in the event of an emergency or short-term period of unemployment.

Please understand—learning how to save is the foundation for everything else that you will do financially throughout your life. It doesn't matter how high your income is; a person who makes a million dollars a year and wastes it has just as much as someone who makes 75 thousand a year and wastes it.

After your emergency fund is set, a good rule of thumb is to continue to save 20% of your income. This will allow you to put funds toward investing and hitting goals like putting a down payment on your first house.

What is investing?

Investing is the process of using your money to achieve a profit. There are countless vehicles for investing (i.e., real estate, stocks, bonds, annuities), and they all have varying degrees of risk associated with them. The risk involved is one of the biggest reasons that investing should become a large part of your overall financial strategy only after you've mastered the ability to save money.

You'll want to use your saved capital outside of your emergency fund to start working for you through investing. The investment vehicle you choose is largely dictated by what you're the most interested in and the type of risk tolerance you possess.

Even though saving should be your first financial priority during your career, investing is arguably more important over time and is a key factor in building real wealth that will allow you to eventually retire.

Are you starting your own business or not?

I've been an employee before, and I'm currently a self-employed business owner. Each one has its benefits, but they also tend to dictate your long-term investing and saving strategies.

Any mental health professional who is considering starting his or her own business needs to know that the first year or so can be a scary period of time. The more cash you can have on hand, the better. Because a self-employed income isn't guaranteed, having an extensive emergency fund helps you sleep better at night and also allows you to make the best decisions for the direction of your business without having to take on excessive debt.

If you are employed through a normal job, you need to take advantage of any type of retirement plan that you are offered. If you were offered a 401k with a match, you'd be smart to contribute the maximum amount allowed (hint: it's essentially free money).

In some professional sectors like public education systems or government jobs, it's really important to assess the type of retirement plan that is offered to you and decide if it's sufficient enough. As a former teacher, I found that the retirement system I participated in through the district wouldn't be enough for me to retire the way I wanted to. It's important to find a way to supplement your retirement funds through a separate investment vehicle if needed.

Time is the most important asset you have

The answer to the original question of "Should you save or invest?" is honestly both, but you'll have to prioritize them differently over the course of your career. The common theme with each is that the more time you spend doing them, the better off you'll be financially down the road.

Take some time as early in your career as possible to define what you want out of your working years and especially what retirement truly means for you. Having a strong idea of what you want to do in life will help you guide your saving and investing goals in an organized and thoughtful manner.

Never forget that money is a tool to increase the quality of your life, and learning how to use it in a disciplined and systematic way early on will be a huge help to you in the future.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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13 Mar 2017

Do You Know How to Calculate Your Net Worth?

Do You Know How to Calculate Your Net Worth?

Calculating and understanding your net worth is one of the easiest ways to find out if you are "on track" with achieving financial success. It's essentially a scorecard that gives you a glimpse of your current financial picture. Unfortunately, figuring out your net worth can be a little bit daunting when you're first starting out as a mental health professional.

The reality is that early in your career, your net worth will be almost embarrassingly low. If you had to take out student loans to pay your way through undergrad and graduate school and eventually to earn a professional degree . . . you most likely have a negative net worth.

While obviously a negative net worth sounds, well, negative (see what I did there?), practicing good financial habits can push it toward the positive end of the spectrum in a relatively short period of time.

So what is net worth and how do you calculate it?

According to the traditional definition, your net worth is the total of all of your assets minus your liabilities. That seems simple enough, but the vast majority of people that I've encountered in writing about personal finance have a tough time actually identifying what is truly an asset and what is a liability!

First, let's start with the definition of both terms and some real-world examples of each one:

Assets are items that have tangible value like your 401K, cash, any stocks you own, and a home.

Liabilities are items that you owe money toward or that cost you money such as car loans, student loans, credit card debt, and a mortgage.

To figure out your net worth, you'll just need to use the simple equation of Assets – Liabilities = Net Worth.

Here's the reason that understanding your net worth is so important

The fact of the matter is that most people I speak to don't actually keep track of their finances nearly as well as they should. It's easy to get caught up in the day-to-day grind of trying to make money and pay the bills, but as it goes with most things, it's much more effective to develop a long-term strategy for your finances rather than focus on what is happening in the moment.

Periodically checking in on your net worth (I'd suggest at least once a month) makes it much easier to see any progress that you are making as you start to implement healthy saving and investing goals throughout your career.

It also makes things ridiculously simple in terms of just understanding if you are financially on the right track or not. If your net worth is going up, you're essentially doing the "right" things with your money and just need to optimize for faster growth if possible. If your net worth is moving down consistently, you'll need to reevaluate your financial habits altogether.

Common misconceptions about assets and liabilities

While the definitions I previously outlined for assets and liabilities seem fairly simple, certain objects that many of us use on a daily basis can be slightly confusing when it comes to the actual net worth calculation.

For example, cars are generally a source of confusion. When you take out a loan to purchase a car, the loan amount is considered a liability. The car itself is considered an asset because it has value and you can sell it. The amount that actually is applied to your net worth is the difference between how much the car is actually worth and how much you still owe toward the car loan.

Here is a simple example using a new car:

Let's say you finance a new car for $30,000. Cars generally depreciate anywhere from 10%–20% the moment you drive them off the lot, but for simple numbers we will use 10%. So that means that the day you purchase the car, you will owe $30,000 to the loan servicer, but the car is now worth only $27,000 (10% less than the purchase price).

To find how the car applies to your net worth, you would subtract the asset ($27,000) from the liability ($30,000) and find that you owe $3,000 more on the car than you could reasonably sell it for!

That $3,000 liability would go as a negative toward your net worth.

Here is another simple example using a home:

If you purchased a $100,000 home a few years ago and still owe $70,000 toward the mortgage, that property would in theory be a $30,000 asset because you could (depending on your local real estate market) sell the home for $100,000. So in other words, the equity that you have in your home is generally counted as an asset to your net worth, unless there is a severe drop in real estate prices in your area.

How can you increase your net worth over time?

The easiest ways to increase your net worth are to take control of any debt you may have by paying it down, or focusing on saving and investing money as your career progresses. The idea boiled down to its most simple form is that you want more money coming in than going out in the form of spending or borrowing.

Like anything else, you need to start early and develop the habit of looking at your net worth regularly. Too many people are either embarrassed or overwhelmed by the numbers instead of looking at them objectively and using the information to take action.

The sooner you start to aggressively seek a higher net worth, the faster you can check your biggest financial goals off of the list.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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06 Mar 2017

How to Develop Great Saving Habits Early In Your Career

How to Develop Great Saving Habits Early In Your Career

After talking to thousands of people about student loan debt, early financial mistakes, and things they wish they would have done, I've found that one thing is always clear: They wish they had developed great financial habits earlier.

Starting out in any new career after years in college is an exciting step in life. After receiving an undergrad and most likely a masters and/or doctoral degree, the first few months of employment for psychology professionals is a huge relief.

Not to mention—you feel like you're rich! Going from eating ramen noodles to making thousands of dollars a month is a massive shift in lifestyle.

However, you have to be careful not to fall in the trap of "lifestyle inflation," which is the very common process of living at or above your means as you make more money. Understanding how to effectively save money and avoid lifestyle inflation is one of the most important financial concepts to master early on in your career.

Here are 5 ways to become a great saver:

1. Set clear goals for your future

Whether it's buying a house, saving for an early retirement, or setting aside seed money for your own firm, the goals you make are key to success with saving. Just like anything else in life, having a plan will make the journey easier.

Unfortunately, too many people go through the motions of earning and spending for the first half of their career, only to have to play catch up later on. According to the Department of Labor, every 10 years that you don't save for retirement will require three times as much saving to get back on track.

As soon as you can, sit down and make a detailed and actionable set of goals for your career and life in general. You'll need short-term goals, medium-term goals, and long-term goals.

2. Start with an emergency fund

Whether you have student loan debt from college or not, setting aside an emergency fund is unbelievably important. A healthy emergency fund needs to be at least three to six months of after-tax salary (many personal finance experts are even beginning to prefer as much as eight months).

This money needs to be as easily accessible as possible, and generally needs to be held in a "safe" account that won't be affected by swings in the market. A normal savings account will do, but also be sure to keep an eye on potential high-yield savings accounts as the Fed begins to raise interest rates in the near future.

The reason for the emergency fund is simple—it keeps you from having to max out a credit card or apply for a personal loan when something goes wrong. Accruing any kind of consumer debt, especially the high-interest variety that's associated with credit cards, can be an absolute killer of your ability to save money every month.

3. Automate whenever possible

There's enough to think about in the beginning phases of your career, which is why automating your savings is an effective tool. As technology has improved vastly over the past few years, so has the ability to set aside money every month without even thinking about it.

Most major banks allow customers the ability to set up automated transfers into multiple accounts. For example, if you'd like to save for a down payment on your house as well as a vacation, you can set up two different accounts and have money automatically transfer whenever you'd like.

Don't think that the automated transfers needs to be huge amounts, either; just $50 per month over the course of a year will turn into $600 over 12 months!

4. Consider buying a used car instead of a new one

One of the biggest mistakes I see from people that are just starting their career is spending too much too fast. Remember—lenders want to loan you the most money possible for cars and houses. The bigger the amount and longer the terms of the loan, the more of your money they put in their pockets.

Don't rush out to buy a new car just because you can afford the monthly payment. Far too often, people just starting out want to "reward" themselves or show their friends on Facebook that they are successful with their new job.

The problem is that the reward feeling fades and after the social media likes and "congrats!" comments fade, you have a large car payment that will weigh you down financially for as many as seven years.

Consider buying a used car or even saving to buy an older car with cash (for reference, I drive a $6,000 2004 Yukon and make well over $100,000 a year).

The money that you save from driving a slightly older vehicle can be a nice supplement to your emergency fund, down payment on a house, or brokerage account.

5. Join a financial community

The reality is that saving money sucks (I hate to break it to you, but it's true). It's one of the least fun parts of personal finance, but it's arguably the most important. One of the easiest ways to keep yourself motivated to save money and get ahead financially is to find a community of people that have similar financial goals as you.

There are plenty of great personal finance blogs, podcasts, and YouTube channels that will keep you both entertained and informed on all of the great things you can do with the money that you set aside every month.

Be sure to actively seek out a financial community and participate as much as possible. Your bank accounts will thank you later!

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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03 Feb 2017

Keeping Your Debt Under Control After College

Keeping Your Debt Under Control After College

For many in the mental health industry, student loans can be a massive hurdle to deal with after college. Psychology professionals face a unique challenge in the health-care industry—the cost of their degree can be extremely expensive in relation to their early career salaries.

According to a recent study by the APA, the median graduate debt load was $110,000. Unfortunately, that number excludes undergraduate debt completely. Loan amounts of that size can have drastic effects on your career path, so learning how to effectively manage loan debt after college is essential.

On top of the professional implications, massive student loan debt can lead to confusion and stress in your personal life that is difficult to manage. It's hard enough trying to find your way in today's job atmosphere, much less avoiding potential missteps that could hurt your financial health over the long term.

Here are some tips for effectively managing student loan debt after graduation:

Make payments as soon as possible

Many of the various lenders (both federal and private) allow a grace period after a student graduates. This is designed to give the borrower time to secure a job before making payments—but don't be fooled by the word "grace."

The fine print will tell you that interest will still accrue on the loans during the grace period. That means you're taking on more debt, often times without even realizing it. I've had plenty of readers tell me how surprised they were to see their new loan balance when they finally made their first payment. The more money you borrowed, the faster the numbers start to pile up.

Be proactive and make payments as soon as possible, even if it means interest-only payments to keep the loan amount closer to what you actually graduated with!

Fully understand your loan responsibilities and terms

The vast majority of student loan borrowers have no idea how their loans actually work. Student loans can range widely in both the interest amount and the repayment terms. If you want to effectively manage your loans after college, you'll need to do more than just make the minimum payment every month.

Take a look at your loan terms and find out:

  • How extra payments are applied to the loan principle amount
  • The interest rate of the loans
  • Repayment term length
  • Possible penalties that result from missed or late payments
  • How the interest is calculated on the loan amount

Understanding the basic structure of your loans will help you make important decisions later that could save you money. It's impossible to know if you will save money through a refinance if you're unsure of your current interest rate or how long the loan terms are!

Research your federal loan benefits

Admittedly, the Department of Education doesn't always do a great job of getting the word out about its various federal loan benefit programs. Depending on the career path you choose, you may actually be eligible for student loan forgiveness and not be aware of it.

These programs generally require enrollees to stay current on their minimum loan payments for a set period before any loans will be forgiven. The overall concept for these programs is to entice new graduates to pursue government/public service positions.

The biggest thing to consider when researching these programs is that there is usually red tape involved. Be sure to find out how missed or late payments will affect your eligibility in the program, and also fully understand the time requirements. If the loan forgiveness program requires 10 years of service in a specific area, make sure you actually want to stay for the long haul.

Other important benefit programs provided by the federal government are income-based repayment, consolidation, and deferment if you fall on hard times.

Consider refinancing your debt

With a median starting salary of $60,000, it's possible that many psychology professionals won't actually qualify for the above-mentioned benefit programs. If this is the case, you may want to seriously consider refinancing your student loans.

With the current low interest rate environment, borrowers who refinance may be able to save substantial amounts of money over the life of their loans. Many of these lenders are creating online platforms that seamlessly guide users through the refinancing experience.

Another cool thing about some of the private companies that are refinancing student loan debt right now are the alternative benefits. These refi companies know that they have to compete with federal loan benefits, so they're getting creative. Some companies offer helpful benefits like job placement assistance, access to financial advisors, career support, and even unemployment protection if you find yourself between positions.

Track your money with budgeting tools

There are plenty of great financial tools available for tracking your finances in today's personal finance environment. Many of them are free and feature bank-level encryption to keep your personal information safe! In programs like Personal Capital and Mint, users can input all of their account info and see all of their account balances updated in real time.

These tools usually feature budgeting and net-worth tracking, which gives users an instant picture of where they stand financially and helps them track their student loan payments. I'd highly suggest taking some time to research all of the great tools available online and taking advantage of technology that wasn't available to previous generations.

Above all, be active

It's easy to go through the motions with student loans, and the honest reality is that loan servicers would prefer that you handle your debt that way (they make more money in interest and possible penalties when you slip up).

Be active with your student loan debt the entire time you have it. Managing it correctly will allow you to have more choices in life and create the career path that you envisioned in college.

If you'd like to consider a more aggressive approach to paying down debt, check out my earlier blog here. Or if you're looking for something more moderate, I have a post on that as well.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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25 Jan 2017

Some Strategies for Paying Down Your Loans at a Moderate Pace

Some Strategies for Paying Down Your Loans at a Moderate Pace

If I've learned anything in my time writing about personal finance and student loans over the past few years, it's that every financial situation is different. Some people want to pay down their debt as quickly as possible, while some need to maintain as much cash flow as possible (which is very common for psychology professionals hoping to start their own firm).

The vast majority of new graduates fall somewhere in the middle. They want to get rid of their loans faster than the minimum payment allows, but at the same time maintain a reasonable quality of life.

You don't have to be extreme with your approach to student loans. People like me that have paid off large amounts of loan debt quickly had to go through some seriously uncomfortable times to get there. The most important thing is that your approach is the right one for you!

Here are some strategies you can use to pay down your loans at a moderate pace:

Be active during the grace period

"Grace." It sounds so nice, right? Unfortunately, the grace period on student loans can be one of the biggest pitfalls for new grads. Depending on the type of loans that you hold, you may not be required to make loan payments for as long as 6 months.

While that sounds great, it can hurt you in the long run. It's extremely common for interest to accrue during the grace period. That means a bigger loan balance than you graduated with. This was one of the mistakes I personally made before I started to pay off my $40,000 of student loans.

Do whatever you can to put money toward your loans during the grace period, even if it's an interest-only payment. This will help keep your loans much more manageable.

Build an emergency fund

If you're planning on tackling your student loan debt faster than normal, you'll want to have a strong emergency fund in place. While the common recommendation is three to six months of salary, even as little as $1,000 can be a cushion in the event of an emergency.

The main goal is that you want to avoid accruing higher interest debt (aka credit card debt) on top of your student loans. Any extra debt will severely damage your ability to make any real progress on your student loan balance.

Fully understand your loans

I talk to hundreds of readers a year, and this is almost always an issue for student loan holders. When I ask what type of loans they have, the most common answer is “I'm not sure.” There are massive differences between each type of federal and private loan program.

Even if you'd rather not look at your student loans (which is totally understandable), you need to. This will allow you to consider loan forgiveness programs or loan refinancing with the best information at your disposal.

Be sure to ask your loan servicer about the way extra payments are applied to the principal of the loan as well. Not every loan servicer handles this the same way, and it can lead to some confusion later on.

Research student loan rates

This is why having a full understanding of your student loans is so important! With interest rates as low as they are currently, there may be an opportunity to refinance into a lower interest rate while keeping the monthly payment reasonable.

There are plenty of student loan rate comparison tools available that are free to use. You will have to provide some basic information about your loans and financial situation, but generally these tools only use soft credit pulls, which won't hurt your credit score in any way.

Most of the lowest rates will likely come from variable interest loans. While those low rates may seem attractive compared with the fixed rate alternative, the interest rate could go much higher later on and make your monthly payment larger. The safest bet is to stay with a fixed interest rate, which will protect you from future rate increases.

Put your loan payment at the top of the list

Most people put their housing costs at the top of their budget. One of my favorite strategies for paying down debt is actually to make your loan payment the priority. When I was making larger-than-required monthly payments on my student loans, it was the first thing that happened after I got paid!

Once the money is gone, you can't spend it on eating out or the movies. This approach essentially forces you to take down your student loans at a faster pace.

Live well within your means

I remember when I received my first teaching paycheck after college. I had never seen $1,700 before. Unfortunately, too many recent grads fall into the habit of spending all of their bi-weekly or monthly paycheck. This makes it extremely difficult to add extra amounts to your student loan payments.

Remember that your career (and life) will be long. You don't need the nicest car or the biggest place to live right out of college in the beginning.

If you adopt that approach, you will see many of your friends with nicer things than you for the first 1–5 years after graduation. The biggest thing to remember is that those purchases are financed and will hold them back later down the road.

Opt for used cars and less house than you can afford, and you'll be able to knock out your student loans faster.

Above all, be patient

All good things come to those who wait. Careers take time to build, a business isn't successful overnight, and student loans won't disappear as fast as you want them to. Be consistent with any extra funds allocated toward your student loans, and recognize that debt freedom is a long-term goal instead of a short-term one.

In my next post, I'll take a look at a conservative approach to paying down debt. In the meantime, if you are ready for a more aggressive approach, check out my earlier post here.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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04 Jan 2017

How to Aggressively Pay Off Student Loan Debt After College

How to Aggressively Pay Off Student Loan Debt After College

We've all heard the numbers lately. College costs are skyrocketing to the tune of $1.3 trillion dollars. Young professionals are more indebted than ever with an average student loan balance of over $30,000. Entry-level salaries don't allow recent graduates to live the lifestyle they imagined for themselves after college.

But for psychology professionals, the reality of their student loans can seem even more daunting.

An average debt balance that often reaches well into six digits, combined with salaries that aren't always comparable to other related professions, is leaving a lot of new psychology graduates concerned about their future. If you are someone that is looking for solutions to handling your debt, you need to understand this:

Paying off debt quickly is possible, but it takes the right mindset

As a person with an audience of nearly 100,000 readers per month, I've seen almost every financial situation possible when it comes to student loans. What I've learned in my time writing about personal finance is that every situation is different, but more importantly, every person's tolerance for paying off debt is different.

For me, I wanted to get rid of my $40,000 of student loans as quickly as I could. I understood that holding student loan debt gave me fewer career options and less flexibility in my life. I paid off that debt on a teacher's salary in less than two years.

I truly believe that psychology professionals can get past their debt early on like I did, but it takes the ability to ignore the culture we're all surrounded with on a daily basis.

Here are a few suggestions for aggressively paying down your debt:

Keep your living expenses as low as possible

Live with your parents. Rent a room with friends. If you own a home, rent out your rooms to help cover the costs of a mortgage. Living costs are one of the largest expenses you'll face after college, and often times newly graduated professionals are in too much of a rush to live in the nicest place they can afford!

My wife and I rented a room from her parents after college, which is easily one of the main reasons I was able to pay off my debt faster than most people. At the time, it honestly seemed miserable and embarrassing. However, looking back I've realized that it was easily one of the best financial (and life) decisions I ever made. I absolutely wouldn't hesitate to go back and do it again.

Don't worry—uncomfortable living situations are just temporary. Understanding that reality is a powerful tool when it comes to getting rid of student loan debt quickly.

Completely avoid new cars

One of the biggest financial traps for any new professional is financing a new car. Period. Low payments and attractive warranties are designed to make borrowers feel like they are making a great decision with their money, when in reality it's one of the worst for paying off debt.

You have to keep in mind that car companies spend massive amounts of advertising dollars every year to convince consumers to attach emotions to cars. Avoiding a car payment by driving an older vehicle (I drive a 2004 GMC Yukon that I purchased for $6,000) or even opting for a slightly used vehicle instead of a brand new one allows you to apply more of your hard-earned money towards student loans.

Make the biggest loan payments possible

Rather than trying to seek out income-based payments or keep your monthly payment low, you need to max out the amount that you can pay towards student loan debt. One of the easiest strategies that I recommend to readers is making their payment the first thing that they do with their paycheck.

When you put your student loan payment as the top line item in your budget, it forces you to live on less. Making the decision to avoid going out with friends or buying things you may not need is much easier when the money has already been applied to your loan balance.

Consider refinancing your loans (but keeping the payment high)

With interest rates as low as they have been in years, it may be a good option to consider refinancing multiple student loans into one easy, organized payment. There are plenty of great student loan rate comparison tools available online right now, and many of the private lenders are offering creative options like unemployment protection and networking events to compete with federal loan benefits.

Remember—the goal to aggressively paying down debt is not to keep the payment low. Even if you refinance into a better interest rate, continue making the largest payments you can.

Let your peers pass you up

Out of everything mentioned in this article, the most powerful advice I can give is to be OK with your friends and peers having nicer things or a higher quality of life in the beginning of your career. The vast majority of the new cars, fancy vacations, and nice houses they buy will be financed at a level that they can't really afford.

Personally, living well below my means for even a few years has set me on track to fly past my peers in the coming years. Life is long, and once you realize that and start strategizing for the long term instead of the short term, you'll have a much clearer path towards being financially successful.

It's important to remember that the less student loan debt you have, the more flexibility you'll have throughout your career. Rather than only being able to take a salaried position, the option of creating your own business or changing professional specializations as desired becomes much easier and less risky later down the road with less debt.

In my next post, I take a look at a more moderate approach to paying down debt.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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