19 Jun 2017

6 Steps for Actually Achieving Early Retirement

6 Steps for Actually Achieving Early Retirement

Early retirement sounds incredible, right? Imagine being able to walk away from your nine-to-five job at 45 years old, and then spend the rest of your life doing whatever you want!

While the idea of early retirement is gaining a lot of traction in the media and in the personal finance space, the reality remains that retiring at any age is a process that takes sustained discipline for years.

In a nutshell, the most common strategy for retiring earlier than the standard age of 65 requires two key components. The first is to maximize your investment portfolio to create a large enough nest egg to support decades without working. The second is to live as minimally as possible during the early years of your career.

Before we dig in to real strategies that can be used to retire early, please understand that early retirement simply isn't for everyone. There is a significant financial risk to cutting any career short, and many early retirees still work in some capacity to support their lifestyle.

It's also important to remember that the traditional path to retirement is still very much the norm! There's nothing wrong with having a long, fulfilling career in a field that allows you to contribute to society in a meaningful way.

Here's what you need to do to retire early:

1. Understand the 4 percent rule (aka Safe Withdrawal Rate)

Over the years, the most common guideline found in the early retirement community for determining the amount needed to sustain life outside of a career is "the 4 percent rule." The idea behind the 4 percent rule is that early retirees can safely withdraw 4 percent from their overall investment portfolio every year to live on and never run out of money.

The reasoning is fairly simple. If you assume average returns of at least 6 percent on your investments, your portfolio will never decline with only 4 percent being withdrawn yearly. Depending on the source you use, the stock market rate of return averages anywhere from 6-12 percent over time (it's important to note that returns in the market are not guaranteed! These are just based on what has happened historically).

2. Find out how much income you will need

The biggest component to early retirement is figuring out what type of lifestyle you are hoping to achieve. A safe rule of thumb is to assume that you'll need 80 percent of your current income to live comfortably in retirement, but depending on what type of life you envision for yourself postcareer, the numbers may be higher or lower.

Right now, the trend for younger people who have "retired" is minimalism. The idea is that if you drastically reduce the amount of money it takes to survive on a yearly basis, the earlier you can actually leave traditional work.

This usually equates to drastic changes in lifestyle. Many younger retirees opt to downsize their homes or sell them altogether and live in RVs (yes . . .  seriously). There is actually a fascinating trend happening with travel trailer manufacturers where millennials are propping up the entire RV industry!

Another common sacrifice is the type of cars that early retirees drive. Because the cost of financing new cars that rapidly depreciate is very high, those in early retirement tend to drive older paid-off cars and learn to do much of the maintenance themselves.

All of these factors should go into your calculations for how much income you will need in a potential early retirement scenario. It's important to be realistic with how you will approach your lifestyle, and it never hurts to pad the numbers.

3. Calculate how large your portfolio needs to be

Using the safe withdrawal rate detailed above in step 1 and then determining what type of lifestyle you'll live as a retiree in step 2, you can calculate how much money you will need in your portfolio to effectively retire without running out of money.

Let's say that you determined that your ideal retired lifestyle will cost $50,000 per year. Multiplying that amount by 25 (4 percent of your portfolio is 1/25) will give you the total nest egg you need to achieve before you can effectively retire.

In this scenario: $50,000 x 25 = $1,250,000

Again, assuming average market returns over time (not guaranteed), you can withdraw $50,000 per year from a $1.25 million retirement portfolio and never actually run out of money. In the perfect scenario, your nest egg would continue to grow even with the $50,000 per year taken out.

Obviously, you would also need to anticipate any future large purchases for the 4 percent rule to actually work. If you are planning on living out the rest of your life in a sailboat that costs $25,000, you'll need to build that into your nest egg along with all future estimated maintenance costs.

4. Account for inflation

It's important to understand that a nest egg of $1,250,000 won't actually be worth that amount in the future. Inflation is constantly eating away at your money's purchasing power, and the effects can be substantial.

Unfortunately, it's literally impossible to calculate exactly how much bigger your portfolio will need to be years from now to battle future inflation. But, we can use past numbers to at least get close!

Using an inflation calculator like this one from the Bureau of Labor Statistics, you can see how inflation might change the amount you need to retire over the coming years.

Let's say you want to retire 20 years from now. All you need to do is take the $1,250,000 number that we calculated earlier and plug in that number for a previous 20-year period.

From 1997 to 2017, $1,250,000 would actually need to be $1,907,958.80 to maintain the same purchasing power. So you can roughly assume that you'll actually need almost $700,000 more than the initial $1,250,000 nest egg to effectively retire early.

Again, these are just estimates, but they will allow you to plan properly for early retirement.

5. Find new income streams

If you want to comfortably retire early, you will probably find that it's a good idea to find extra sources of income when you step away from your career for good. The traditional idea of retirement is the complete absence of work, but if you want to do it early, that might not be realistic.

It may be necessary to find some type of part-time employment to avoid digging in too far to your nest egg. Another option is to start a small business, but it doesn't have to be complicated. Even something as simple as flipping old furniture or buying and selling items on eBay might be enough to provide a nice buffer.

6. Plan for the worst

My biggest concern for early retirees is unexpected costs that might come up later in life. If you planned for the absolute bare minimum amount needed to retire, all it could take is one major accident or sickness to completely derail your retirement plans.

Similar to inflation, it isn't possible to specifically plan for a future issue. However, it should be part of your approach in deciding if early retirement is even possible or worth it in the long run.

The bottom line on early retirement

Just remember—early retirement sounds great in theory. There is a large amount of risk to consider when making this type of financial decision. That's not to say it isn't possible, but you should absolutely proceed with caution.

-- 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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05 Jun 2017

Should You Attempt Early Retirement as a Mental Health Professional?

Should You Attempt Early Retirement as a Mental Health Professional?

It seems like almost every day there's a new story popping up about a person that figured out a way to retire years ahead of schedule! While it's definitely not a mainstream idea yet (and probably won't be anytime soon), the thought of early retirement is becoming increasingly more popular in our culture.

The financial details and strategies for each case of early retirement vary greatly. Some early retirees are ultra-frugal, while others hit massive paydays early in their careers and just so happened to invest right at the beginning of the most recent economic recovery.

The two most important factors that any mental health professional should consider before attempting early retirement are:

  1. Does early retirement even make sense for you?
  2. How can you make it happen?

This article deals with the first question (the second will be answered in a later article).

What does early retirement actually look like?

Until recently, retirement was most often thought of as the total absence of work around the age of 65. The idea was that you work hard for the majority of your life, stash away money into retirement accounts, and then leave your career to play golf (or do nothing at all) once your nest egg becomes large enough to sustain you to the end of life.

Unfortunately, the great recession in 2008 put a wrench in millions of Americans' retirement plans. Investment portfolio values plummeted, jobs were lost, and retirement simply became out of reach for many people (at least temporarily until the economy began to recover).

Younger generations have reacted to the realization that retirement may not fully be under their control by attempting to achieve it even sooner. With that also came a shift in how millennials and Gen Xers actually view retirement itself.

Rather than the complete absence of work while maintaining a high-quality lifestyle, early retirement enthusiasts have adopted a far more "minimalist" lifestyle, along with aggressively investing to create a large nest egg at an early age. It's very common for early retirees to continue working in some capacity, but typically through smaller income streams like part-time jobs or very small side hustles.

Why would you want to retire early?

If you are considering a path toward early retirement, you need to evaluate a few things first. While early retirement sounds incredible on face value, it's not for everyone. There is an immense level of sacrifice that has to take place to actually achieve early retirement.

Here are some traits that might make you a good candidate for retiring early:

1) Time is your main focus

Almost every early retiree that I've come across cites "time" as the number one reason they chose the path toward early retirement. Whether they want to spend more time with their family every day, or do more traveling/relaxing earlier in life, it all comes back to wanting more control over their available time in life.

2) You don't need to be "fancy"

One of the main components of early retirement is avoiding the consumerism that is the backbone of American culture. Many early retirees opt to drive older cars, do maintenance work of all types on their own, and live as far below their means as possible.

There are different extremes of course, but it's not uncommon to find stories of early retirees that live in an airstream trailer full time, or ride a bicycle instead of owning a car. The reality is that you need as much of your money available for saving and investing as possible to actually retire early, and the easiest way to create that situation is to spend less.

3) Pursuit of your passions is more important than your income level

Hopefully, you entered the mental health profession because it is your absolute passion in life to help others! The reality of any career, however, is that sometimes your degrees don't end up equating to your passion.

Many early retirees experience burnout earlier than normal in their careers and decide to pursue passion projects instead. If you are more interested in following your passions instead of maximizing your earning potential, early retirement may be for you.

What could go wrong with retiring early?

As a personal finance blogger, this is an aspect of early retirement that is never discussed enough (in my opinion). Of course retiring early sounds like a great lifestyle, but there is inherent risk there that many early retirement enthusiasts either don't account for or leave out altogether when discussing their strategy.

Here are a few potential drawbacks of leaving a career too soon:

1) You run out of money!

The elephant in the room for early retirement is that you completely gut your ability to earn good money when you leave your job. Many of the nest eggs that early retirees are relying on are $1,000,000 or less! A million dollars may sound like a ton of money, but when you are hoping to stretch that amount for 30 plus years, it may not cut it.

What happens if you or a family member becomes sick and has astronomical medical bills? What if the market completely tanks and your investment accounts drop substantially, or dividends you rely on to live are cut?

2) You change your mind

Careers take time to build, and there is no getting around that fact. If you leave in year 10 of a potentially 30-year career, what kind of opportunities down the road are now unavailable to you?

You may be able to get a similar job again if you leave for early retirement and then change your mind, but there's no recouping the same opportunities that you had when you left.

3) You want to start or grow your family

Kids are expensive. According to Time, the average child now costs $233,610 to raise from birth to 17 years old on average. If your plan is to retire when you reach a million dollars, a child in the future could cost almost a quarter of your nest egg.

That's not to say that there aren't early retirees that have children, but anticipating the costs of children moving forward is an essential element to leaving a career early.

Early retirement is possible, but you need to be skeptical

Any time that you see a story about early retirement from one of the major news outlets, you need to understand that those stories tend to create a lot of buzz (and revenue in the form of clicks and shares for the media outlet).

The issue is that the stories are typically told in a way that leaves out the struggles and pitfalls of early retirement. Understand that retiring early is certainly possible and will become more popular in the coming years, but it's not as easy as it may seem.

-- 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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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).

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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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01 May 2017

Tackle Your Student Loan Repayment with IonTuition

Tackle Your Student Loan Repayment with IonTuition

IonTuition, APA’s newest member benefit, works to help you ease the financical burdens of student loan debt.  By providing practical tools, support and information, IonTuition enables you to take control of your debt and your financial future.  

APA is partnering with IonTuition because we understand how the issue of student debt is one that is crucial to the APA community. Ninety-one percent of PsyD students who graduate have student loan debt, with the median balance at $200,000 – that’s $125,000 greater than the average debt held by a typical PhD.  Though you know it’s not possible to repossess a college education – you also know that not paying back student loans can have long-term detrimental effects to your financial health.

APA members can now access, at no additional cost, all of the benefits of IonTuition directly from their MyAPA account. Simply log in and enjoy access to:

IonTuition

IonManage

Compare monthly payment options and find the payment plan that best fits your financial goals.  Get expert one-on-one advice from IonTuition’s highly trained loan counselors. They’ll work directly with you, presenting options and providing focused advice you can use to deal with your unique circumstances. This is not a student loan marketplace. Instead IonTuition will work with you to find productive, long-term repayment options that take the stress out of student loan borrowing and repayment

IonMatch

Going back to school or trying to determine the best undergrad program for your child? There are a variety of schools and programs from across the country to pick from. With IonMatch, you can search programs by distance, cost, field of study, size, and more – allowing you to determine the school that best fits your budget and where to get the best long-term return on your education investment.

IonLearn

Student loans are only one part of the total debt picture.  Credit cards, mortgages, car loans, and simple living expenses tend to take priority over student loans for many people. Those struggling to pay their student loans are often struggling with finances elsewhere. Being financially literate is a major step toward being able to gain control of all of your total debt. Explore the latest financial content provided in IonLearn’s glossary, videos, and modules to educate yourself and get additional tips toward your overall financial stability and navigate away from debt.

Take advantage of this new FREE member benefit and successfully manage your student finances with IonTuition.

 

20 Apr 2017

Eight Ways to Take Charge of Your Finances

Eight Ways to Take Charge of Your Finances

Financial literacy isn’t usually part of the graduate school curriculum. Here’s what students and early career psychologists should know as they embark on their careers.

After amassing $180,000 in student loan debt while pursuing his doctorate, Todd Hilmes, PsyD, felt so overwhelmed that he couldn't open his monthly loan statements. "I was definitely burying my head in the sand," says Hilmes, who earned his doctorate in 2011 and is now a clinical psychologist with the U.S. Department of Defense. "I was totally unprepared for what my options were when I started to repay it."

Hilmes is not alone. Research led by clinical psychologist and certified financial planner Brad Klontz, PsyD, of Lihue, Hawaii, has shown that compared with people in many other occupations, mental health professionals are more likely to have "money avoidant" attitudes, leading them to push aside their thoughts about money (Journal of Financial Planning, 2012). He's also found that these money-avoidant attitudes negatively affect psychologists' financial health. In a survey of more than 250 professionals from a variety of fields, Klontz found that mental health professionals are significantly less likely than comparable professionals to pay off their credit cards each month, to have money set aside for emergencies, to follow a budget, to have adequate insurance and to feel comfortable with their financial status (Journal of Financial Therapy, 2015).

He believes those characteristics were fostered in graduate school. "I was indoctrinated into the belief—as many of us were—that if you came into psychology to make money, you were in the wrong business," Klontz says. "Psychologists are just more likely to believe that money corrupts people, that there's virtue in living with less money and that we don't deserve a lot of money when others have less than us."

And such beliefs, he says, are associated with worse financial health, lower income and lower net worth than comparable professionals. How can students and early career psychologists better confront their financial issues? Klontz and other experts offer this advice:

1. Get past your discomfort

Klontz encourages students and early career psychologists to use their cognitive-behavioral training on themselves to examine any anxiety they may have about money and their beliefs about it. For example, in questioning one's belief that money corrupts people, you may find several examples where this is true, but it is by far not universal. "There are also many examples of people who are incredibly wealthy and who do incredibly wonderful things for people," Klontz says.

2. Understand your full financial picture

If you're a prospective student, find out precisely how much money you'll need to borrow to earn your degree. Tally tuition and the many other associated costs of obtaining a graduate degree, such as meals and living expenses, says Eddy Ameen, PhD, who directs APA's Office on Early Psychologists. "It's those indirect costs that people don't always think about that can really derail folks financially, like how much is rent going to be if they go to school in a large metropolitan area like New York City as opposed to a place like Columbus, Ohio, where they're already living," he says.

It's also crucial to compare each institution's full financial aid package and find out whether it includes nonbillable scholarships and grants or if tuition is covered mostly through loans that must eventually be paid back, Ameen says. If you're an early career psychologist with educational loans, it's important to understand exactly how much you owe—including what you may have borrowed as an undergrad—and compare your options for repayment (see step 4).

3. Ask about financial incentives

Students should also seek to reduce the amount they'll need to borrow, explore opportunities for nonfederal grants and scholarships—for being a member of an underrepresented group, for example—and ask your department chair or advisor about additional funding prospects, Ameen says. "While the university might not advertise this, oftentimes the graduate program itself will have tuition remission or tuition waivers in exchange for taking on a graduate assistantship or working in a research lab, which are things that you'd likely already planned on doing in grad school anyway," he says. "The trick is knowing what and who to ask to get the right information."

4. Understand your repayment options

Make sure that your payment plan reflects your individual needs, Hilmes says. Some early career psychologists who may not be eligible for loan forgiveness through their employers, for example, may choose to make sacrifices to pay off their debt as quickly as possible. But many new grads work in jobs that qualify for the federal government's Public Service Loan Forgiveness Program. After 120 consecutive monthly payments, the remaining balance on your Direct Loans is forgiven by the government. In addition, if your federal student loan payments are high compared to your income, new grads should consider applying for an income-driven repayment plan such as Pay as You Earn, Income-Based Repayment and Income-Contingent Repayment.

"Your first year out of grad school, your loan payment can be based on what you made your intern year, which for almost all students is very low," Hilmes says. Find out what options are available to you through the Federal Student Aid program at studentaid.gov. APAGS also offers a frequently updated financial literacy toolkit, which offers guidance on median salaries for new psychologists, as well as information about aid, grants and funding opportunities; loan repayment and forgiveness; and budgeting worksheets and other financial tips.

5. Create a budget

If you have never had a budget before, the best way to develop one is to track all of your expenses for 30 days, says Neal Van Zutphen, a certified financial planner with Intrinsic Wealth Counsel, Inc. in Tempe, Arizona. "Just as you would if a fitness trainer asked you to record all of your food intake for a month, use a small notepad and jot down every single thing you spend money on for a month," he says. Once you have your list of expenses, determine which ones are fixed or mandatory—such as your car payment, rent, phone, utilities and student loans—and which ones are discretionary, such as trips to the movies, new clothes or gourmet coffee. Van Zutphen reminds new grads to consider expenses that occur quarterly, semi-annually or annually, such as car insurance or membership fees, that they'll need to save a part of their income for when these bills come due. Then, add up all your expenses and subtract them from your net paycheck for the month. "Hopefully, you have more money than month left to go." If you're not a fan of the paper and pencil method, apps such as Mint and Personal Capital can also help with budget creation and tracking. Van Zutphen also recommends that psychologists of any age check out the U.S. Department of Labor's free resource on creating a budget and spending plan, "Savings Fitness: A Guide to Your Money and Your Financial Future."

6. Cut back for a month

One way to boost savings and better understand your relationship with money is to try an experiment that Van Zutphen refers to as "Crunch Month." For 30 days, only spend money on the absolute essentials, he says. "Cut out all Starbucks trips and any other discretionary expenses and see what happens," Van Zutphen suggests, noting that he's seen clients discover they can save between 20 percent and 40 percent of their net income. "One couple I worked with on this actually lost 10 pounds because they ate at home so much more," he says. While most clients eventually ease up on the Spartan lifestyle, he adds, they learn they can save a lot more than they originally thought they could.

7. Don't forget retirement

Many early career psychologists may think it's best to put every dime they have now toward paying off their student loans, especially if they have a high interest rate, Klontz says. "But it's probably still going to take you 20 years to pay the loan off, and by then you're nearing 50 years old and just starting to save for retirement," he says. That's why it's critical to contribute as much as you can to a 401K or IRA as soon as you get a job. Klontz recommends putting around 10 percent of your salary toward retirement while you're also paying off student loans, or at least enough to contribute up to your employer's matching amount, if they offer one.

8. Talk to a financial professional

These experts can help you fine-tune your financial goals, whether you are saving for a home or thinking about starting a private practice. "An hour with a professional can set you up with everything you need to know for the next couple of years," Klontz says. "So, pay for the help."

By Amy Novotney


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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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