12 Jul 2017

A Beginner’s Guide to Investment Vehicles

A Beginner’s Guide to Investment Vehicles

Of all the questions in the personal finance world, "What should I invest in?" easily comes to mind as the most common. Truth be told, there's really not a 100% correct answer or blueprint for people that are just starting out in their careers.

However, if you arm yourself with as much information as possible, it's so much easier to jump in and create your own investment strategy.

Even before we jump into potential strategies and goals, it's important to have a baseline understanding of what's out there to actually invest in! In this two-part investing series, we are going to take a look at the most common investment vehicles that will be available to a beginner investor.

For the purposes of this article, we are going to avoid real estate investments (for now). The following list will give a baseline definition of the investment vehicle, as well as important characteristics like what level of fees are typically involved and how much risk is associated.

Here are a few of the main investment vehicles that you need to know about early in your career:

1. Stocks

Diversification: Low

Risk: High to Moderate

Fees: Low

Stocks Definition: “Security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.”

What you need to know:

Almost everyone has heard of stocks (commonly called shares or equities) in some form or fashion. When you buy stock, you are essentially buying a small part of a specific company.

To purchase stock in a company, you have to use a broker like Schwab, E-Trade, Fidelity, etc., to manage the transaction. The broker will charge a fee per transaction that you make through their purchasing platform. Because there are so many brokerages available online, fees in recent years have become extremely low and can range anywhere from $4 to $7 per trade.

In terms of risk, stocks aren't all created equal. The quality of a company that you are buying is a major factor in how risky a stock can be. Blue chip stocks like Coca Cola, Exxon, and the other large companies that you can think of tend to be seen as less speculative, whereas smaller, unproven companies can be more risky to buy.

You do not need a fund manager to invest in stocks, unlike some of the other vehicles on this list.

2. ETFs

Diversification: High

Risk: High to Low

Fees: Low to Moderate

ETF Definition: “An exchange-traded fund is a ‘marketable’ security that tracks an index, a commodity, bonds or a basket of assets like an index fund.”

What you need to know:

ETFs have become extremely popular in recent years, because they combine a variety of investing options with a large amount of diversification while having low fees.

An ETF essentially tracks a sector like energy, or an entire market like the DOW or NASDAQ. So, if you were to buy an energy ETF, you would actually be buying shares of several companies that are contained in that particular sector.

The range of investment options with different ETFs allows investors to choose their particular level of risk.

3. Mutual Funds

Diversification: High

Risk: High to Low

Fees: Moderate

Mutual Funds Definition: “An investment vehicle that is made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.”

What you need to know:

Mutual funds are an extremely popular investment vehicle because they specialize in diversification. Like an ETF, when you invest in a mutual fund you are actually buying a variety of stocks.

There are many different types of mutual funds, but for the purpose of this article we are going to focus on "actively managed" funds.

Actively managed means that there is a fund manager that oversees the investments made within a specific mutual fund. Their goal over time is to guide the fund in a way that hopefully outperforms the market.

This active management does lead to extra fees associated with the mutual fund, which will have an effect on your overall return on investment. In addition, mutual funds can have a higher tax burden than other diversified investment vehicles (like ETFs) because more transactions are made by the fund manager that are subject to capital gains tax.

There is a large range of investment options associated with mutual funds, and even mutual funds that invest in a range of other mutual funds!

4. Bond Funds

Diversification: Moderate

Risk: Moderate to Low

Fees: Moderate to Low

Bond Fund Definition: “A fund that invests in bonds or other debt securities.”

What you need to know:

A bond is a debt investment in which the investor loans money to a borrower, and then after a certain period of time is repaid with interest. Bonds are typically thought of as much more stable than stocks, but have lower returns on an investment.

Bond funds operate in a similar way to mutual funds, and are often actively managed by a fund manager. Rather than buying stocks, a bond fund will invest in a variety of bonds.

Interest rates can have a major effect on bonds and bond funds, so it's important to keep track of how the Fed is currently setting rates (at the time of this writing, the Fed is slowly raising interest rates).

5. Money Market Accounts

Diversification: Low

Risk: Low

Fees: Low

Money Market Account Definition: “An interest-bearing account that typically pays a higher interest rate than a savings account, and which provides the account holder with limited check-writing ability.”

What you need to know:

Money market accounts operate in a similar way to a regular savings account and are seen as one of the safest investment vehicles.

The investor places money in the account, and is given a return by the bank at a set rate over time. These accounts can be a good option for investors that may not be ready to jump in fully to investing, but don’t want inflation to diminish the value of their available cash.

Usually, banks will take money that is invested in a money market account and buy low-risk vehicles like certificates of deposit or debt securities with a short maturity rate. The idea is to create a return on investment without risking too much to market volatility.

This is just the beginning...

There are obviously many more investment vehicles out there (we didn't even mention real estate!), but the key to early investing is to keep everything as simple as possible. If you stick with understanding the basic options and grow your strategy from there, you'll have a long and successful stint with investing over the course of your career and life.

In part two of this series, we'll discuss how to define your investing goals and ultimately develop the right strategy to meet them.

-- 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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12 Jul 2017

How to Create an Investment Strategy Early in Your Career

How to Create an Investment Strategy Early in Your Career

One of the most intimidating aspects of personal finance when you are just starting out in your career or beginning to get ahead is choosing an investment strategy that works. Unfortunately, we are all bombarded with "get rich quick" investment products and messages on almost a daily basis. It muddies the water and distracts from the reality that building wealth is a process that just doesn't come easily.

No matter what path you choose in investing or what anyone else tells you, the ultimate factor is time. You want your money to be subjected to the incredible force of compounding interest for as many years as possible.

What you choose as the vehicle to build your wealth is up to you, and honestly there are a lot of ways to do it. In our last investing article, we detailed some of the most basic investment terms and vehicles to create a foundation to build on.

This article is going to dive into the actual process of picking a strategy that works the best for your career and life.

Here are four important factors to consider while choosing an investment strategy:

1) What are your goals?

Just a few decades ago, the biggest reason for the average person to invest was pretty simple. You worked for a set amount of years while putting money into investment accounts, with the hope that you would be able to retire at the end of your career and live off of your various investments.

Today, things have changed drastically. Millennials in particular are rewriting the definition of what retirement actually means. Young people are wanting to retire earlier, work less and enjoy their families more, and also are willing to cut back on lifestyle costs to put more money away.

So, before you decide anything, you need to look at your life and career and decide what you want it to look like.

Do you want to retire early? Then you'll need to grow your retirement accounts as aggressively as possible and make sure your money isn't locked up in IRAs until you are 59 1/2.

If you want to take the traditional route, there are a range of investment options available to you. Your biggest goal would be to make sure you maximize your returns over time and make educated guesses on when you think you'll realistically want to retire.

2) See what options are readily available first

Of course, before you jump into any type of plan to build wealth through investing, you need to fully understand what options are available to you through your career path.

Does your company have an attractive 401(k) match? If so — that's essentially free money that you'll want to max out first before applying investment funds elsewhere. Also, how limited are the investment options within that 401(k)?

You might be working with a company that has an annuity-based retirement system, where you have no control over the funds that you contribute to retirement every month. If that's the case — there's a good chance that you'll want to supplement your retirement plan with an IRA that allows you to buy ETFs (exchange-traded funds), mutual funds, or individual stocks and bonds as you please.

If you're self-employed, you really have a wide range of options depending on your business income. The best strategy here would be to hire a great accountant that can guide you on what type of account(s) will work best to keep your taxable income low.

How much debt do you have? It's no secret that getting a degree in the mental health profession isn't cheap. Many mental health professionals have high student loan debt loads. When you are deciding what to do with money that you've set aside for investing, how do you know that you shouldn't apply it to your debt instead?

The answer is fairly simple: What's the interest rate on your loans?

If you have a higher interest rate at 6% or more, you might want to consider putting your money there first. Any time you pay off higher interest debt, you are keeping a lot of money that would have gone to interest in your pocket. So, paying off your debt is almost a guaranteed return.

If you look at stock market average returns over history, they have averaged anywhere from 7–12% (depending on the source you're reading). If you feel confident that you will outperform your student loan interest rate in the market, you might want to put your money there.

Just understand — investing is never guaranteed and there is a risk of losing your money, so make sure you take that into consideration when dealing with the debt vs. investing question.

3) Taxes have a huge impact!

Taxes are rarely on people's minds at the beginning of their careers, but if you ignore them, they can eat a hole into your investment returns.

That's why it's typically a good idea to use a "tax advantaged" investing strategy. Most commonly, that means putting money into designated retirement accounts like a Roth or Traditional IRA.

Very quickly, here's the difference between those two popular IRA choices:

Roth IRA: Money is taxed at your current income tax rate when you contribute money to the account, and then grows tax free until you take the money out at retirement.

Traditional IRA: Money is not taxed when you contribute to the account, but when you take it out at retirement it will be taxed at whatever tax bracket you fall into later down the road.

Why is this important? It has a ton to do with your investment strategy! When you are young, you generally are in a lower tax bracket, so the investment funds may be better served in a Roth IRA. That means that those funds will be taxed at a lower rate and then grow over the course of your career tax free.

If you opt for a traditional IRA, you are essentially betting that your tax bracket will be lower in the future than it is now.

It's always important to consult with a tax professional when making these choices, but know that even the best accountant can't predict future tax rates. You'll have to make the best informed decision you can and hope for the best.

4) Are you paying too much in fees?

You need to be aware that fees can eat away at your returns over time in a drastic way.

Every time you make a trade in your investment account, you'll have to pay a commission. Those $4 to $7 dollar fees might seem small, but they can slowly pile up to a huge amount over 30-plus years of investing. Buying and selling too often and based on impulse within your accounts is a good way to lose a large sum of money over time.

There are also management fees to consider. Mutual funds in particular are often packed with fees that you may not even know about, and your investments will suffer over the long term.

The popular personal finance site NerdWallet recently conducted a study that showed even a 1% fee could cost a young investor up to $590,000 over a 40-year investment period.

Bottom line—pay attention to the fees.

5) Do you want income, or growth?

This is a huge debate in the personal finance world right now. Buying dividend-producing stocks is a popular investment strategy because particular equities with a high-dividend yield (or amount paid to you quarterly in the form of cash) can essentially produce a passive income. That sounds great, right?

The rub is that historically, dividend stocks don't produce quite as much growth as other equities that don't pay a dividend.  Some argue that while dividend income is nice, they would much rather own companies that reinvest those potential dividends back into the company so it can grow larger and more valuable (and in turn make your stock more valuable).

Like everything in investing, there isn't necessarily a "right" answer. Everything is based on your financial goals and what you are most comfortable investing in and understand the most.

Finally and above all else—never invest in a vehicle that you don't fully understand. You can create all of the goals and strategies that you'd like, but if you don't know what you're actually buying with your investment funds, you're probably going to lose money.

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11 Jul 2017

Let’s Talk Money, monitorLIVE Event Explores Professional and Personal Financial Wellness

Even though mental health practitioners often cover a wide variety of difficult subjects in their work, money can be an especially challenging topic to broach. So much so, that sessions can begin and end without even addressing fees or payment schedules with clients. Financial wellness is tied to mental health, and we need to learn to talk about it, according to clinical psychologist Mary Gresham, PhD, who recently addressed a group of psychologists gathered in Atlanta, Ga., for APA’s second local networking event, monitorLIVE. monitorLIVE events connect psychology professionals and thought leaders so they can learn about and discuss issues that impact and elevate the discipline.

Dr. Gresham noted that mental health practitioners have models of good marriages and good communication to teach to clients, but they may lack good models of financial wellness. Most leave money matters to finance professionals, even though mental health practitioners should be the ones applying therapy to the field, she said. While financial planners may take a class in coaching, they haven’t studied behavior, relationships, or any of the other deeper issues related to financial wellness. This, Dr. Gresham believes, is where psychologists can step in and effectively address those issues.

One way to begin addressing financial wellness with clients is through the use of schema—a cognitive framework that can help in the understanding of the concept. Doing so will allow you to interpret implicit and explicit beliefs about money and how they can impact individuals’ lives.

Dr. Gresham explained that money beliefs begin early, at about age three or four. She provided an example—a child thinking money grows in one’s pocket. Practitioners can address these misnomers in the context of behavioral finance, developed by the work of Daniel Kahneman and the late Amos Tversky, which examines how individuals make errors in their thought process around money, like believing money grows on trees or, in Dr. Gresham’s example, in a pocket. Behavioral finance explores how rational or irrational one can be about money matters, such as choosing to take one dollar today to immediately satisfy your desire for money, or taking $1.10 next year, which is actually a 10 percent increase, but might not feel like it.

Dr. Gresham went on to say that schema development depends on cultural beliefs, like thinking rich people are bad and poor people are good (or vice versa), or believing that if you work hard, money will come to you. These beliefs affect us, but they are simplistic, and we need to develop them to make them more sophisticated. This necessary development can happen through research on the cultural differences having to do with money, like the particular rules and customs about money that exist within the families of first-generation immigrants,such as not paying interest on a loan, and how those rules differ from cultural norms here in the United States, where borrowers might not like it, but interest is acceptable.

Another area in behavioral finance Dr. Gresham discussed with the audience is financial trauma. Even though many people suffer from financial trauma, whether they’ve lost everything in bad investments, or because of a spouse’s spending habits, there is not enough research on how to assist people with those experiences. “How do you help people come back from financial trauma and rebuild their lives? We need that research,” she said.

During her conversation, Dr. Gresham also touched on gender issues around money, such as women having lower financial levels of literacy than men and the lack of encouragement of women to enter the financial planning field.

She also noted that practitioners must examine money issues in their own lives, pointing out the costs associated with getting an education in the field and the need to understand what it means to be a self-employed business person by learning to communicate fees and by researching market rates, insurance rates, and retirement plans. Dr. Gresham suggested APA’s Division 42 and the book, “Handbook of Private Practice: Keys to Success for Mental Health Practitioners.”

Keep an eye out for future monitorLIVE events coming to a city near you.

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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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