Feeling guilty shouldn’t stop you from taking care of yourself and your career. In today’s economy, switching jobs is often the surest way to get a significant pay raise, and it’s common to do so every few years.
“We all kind of grow out of things, and that’s a really normal process,” says Emily Frank, a Denver-based career counselor and coach who helps clients through her private practice called the Career Catalyst.
If you’re feeling guilty about leaving a job, experts recommend keeping the following points in mind.
Quitting may be better than staying
Think of it this way: Once you know you’re ready to move on, you probably notice a change in your attitude that makes work feel more like a drag. Is that a good thing for your coworkers and your employer?
When you’re feeling bored or unchallenged, it’s time to start looking for your next job move, Frank says. “Boredom isn’t good, and we don’t do our best work when we’re feeling unengaged.”
It’s normal to feel a sense of loss
The guilt you’re feeling about leaving your job may indicate that you care. You’ve invested time and energy into your work, as well as into your work relationships, says Jackie Cuevas, an Orange County, California-based human resources professional known on TikTok for giving career advice from “your friend in HR.”
“Obviously there’s a sense of guilt, because you’re like, ‘man, I’m leaving a lot behind,’ or ‘I have a lot of projects that I haven’t finished and they have to hire my replacement,’” Cuevas says.
“You have developed a bond with people that you work closely with. So it’s only natural and human to feel this feeling of guilt whenever you leave anyone behind.”
You can help with the transition
Channel your feelings of guilt into helping your coworkers and boss prepare for your departure. While it’s common to give two weeks’ notice that you’ll be leaving, standards vary depending on your industry and role. Give enough notice so that you have time to hand off projects, record any important notes or procedures and delegate responsibilities.
Bear in mind that you probably won’t answer every conceivable question before you leave. While it’s kind to offer to stay in touch if the team you’re leaving behind has questions after you’re gone, it’s not required. And you shouldn’t leave that door open just because you feel bad.
Focus on doing your best to help with the transition and then let the rest go, Cuevas says. “It’s up to management and the team to be able to really be solutions-focused and essentially figure it out.”
Your next chapter needs your attention, too
Wrapping up at an old job can be stressful. But your next phase needs your energy, too. Perhaps you’re moving to a new city or taking on a new level of responsibility.
If you can, take some time between ending one job and beginning another so you can decompress from the stress of your exit and shift your attention to what’s ahead of you.
It doesn’t have to be a lot of time — it could be a few days or a week. If, in order to get a bit of that transition time, you must give little notice at your old job, that’s a valid choice to make.
“You want to be able to close the door and get your mindset ready for this new, exciting position,” Cuevas says.
Should you feel guilty for quitting your job without notice?
Sometimes, circumstances require you to quit a job without notice, and you shouldn’t feel guilty about that.
It’s true that giving some notice before quitting your job would be the preferred route. It could help you maintain a professional relationship with your boss or coworkers. You never know when you might need help from people in your network.
But giving notice is not required and, in some instances, it may not be advisable, says Frank of the Career Catalyst.
You may decide to leave your job immediately because your new job starts right away or you are facing some kind of personal emergency. In those events, you may not be capable of doing your best work at your old job, and it’s probably better for everyone that you resign without notice.
If the fault is not on your end but lies with a harmful work culture, leaving immediately could be a way to protect yourself.
“If a workplace has gotten really bad, if there are bullying behaviors or sort of abusive treatment going on, then those are the times when you should throw professionalism out the window,” Frank says. “You just need to get out of there.”
But here’s the big takeaway: That money is yours, and those savings stay with you whenever you quit a job.
If you have less than $1,000 in your 401(k)
If your 401(k) has less than $1,000 when you quit a job, the IRS allows the plan administrator to automatically withdraw your money and send you a check, minus 20% in taxes, per the IRS.
You can also initiate a rollover: a direct transfer of your money from a 401(k) account to another tax-advantaged retirement account. (More on rollover deadlines and tax implications later.) The easiest way to roll over your money is to contact your 401(k) administrator and have them handle it.
Communicate your preferences quickly, though — if your 401(k) account has a low balance, most companies won’t delay closing the account and cutting you a check, according to CNBC.
If you have between $1,000 and $5,000 in your 401(k)
If your 401(k) has between $1,000 and $5,000 when you quit, your employer may move your money into an individual retirement account, or IRA, according to the IRS.
If you don’t have an IRA, some employers will automatically open an account for you and deposit your funds into the account. If you do have an IRA, you initiate the rollover by contacting your 401(k) administrator.
You can also withdraw your money, but you’ll pay 20% in federal income tax, as well as a 10% early withdrawal penalty (unless you’re at least 59 ½ years old), according to the IRS.
🤓Nerdy Tip
An IRA is a tax-advantaged retirement account that an individual typically sets up, unlike a 401(k) account, which an employer sets up.
If you have at least $5,000 in your 401(k)
If your 401(k) account has at least $5,000 when you quit a job, your employer isn’t allowed to move your money without your consent. What happens next is up to you. There are a few things you can do with your money, according to the investment advisor Vanguard:
Roll over your money into a new retirement account
Leave your money in your old 401(k)
Cash out your 401(k) — and potentially pay a 10% federal penalty tax
Let’s dig into those options.
Rolling your money into a new 401(k) or IRA
What is a rollover?
Reminder: A 401(k) rollover is the process of moving money from your 401(k) account into another retirement account.
So, say you’re leaving your job for a different position, and your new employer offers a 401(k) plan. You can roll over your old 401(k)’s funds into a new 401(k) account, if your new employer allows this, according to the IRS.
Or you can roll over your old 401(k) to an IRA. This type of account typically offers more investment options than a 401(k), says Christopher Manske, a certified financial planner and the president and founder of Manske Wealth Management in Houston.
“In your individual retirement account, you’re going to have a lot more flexibility to tailor the investments to the wide world of what’s available out there,” Manske says.
Whether you roll over your retirement savings into an IRA or new 401(k), moving your money to a single fund can make it easier to manage your money and keep track of your retirement savings.
That’s as opposed to simply keeping your old 401(k) open, which becomes one more account to manage. (We’ll dive into that option in a bit.)
How to roll over funds — and avoid tax missteps
If a rollover sounds like a solid option, contact the administrators of both your old 401(k) and the other retirement account — either your new 401(k) or an IRA. Tell them you’d like to roll over your funds.
They’ll collect information from you and initiate a direct rollover, which means one institution directly transfers funds to another institution, according to Fidelity.
This is as opposed to an indirect rollover, meaning your 401(k) plan administrator sends you a check, and you personally deposit the 401(k) funds into another retirement account. In that case, your plan administrator would likely withhold 20% of your 401(k) funds for taxes.
With this indirect rollover, you then have 60 days to deposit the complete 401(k) account balance — including the amount kept for taxes — into the new account. So to deposit the full amount, you would need to come up with the 20% portion yourself. Then you’d get a refund for that amount come tax time.
If you miss the 60-day deadline, you’d likely get penalized for early withdrawal and have to pay income taxes on the distribution, according to Capitalize, a 401(k) rollover resource.
One last important note: Whether you choose a direct or indirect rollover, if you move money from your old 401(k) account to a Roth IRA — a specific kind of IRA — you’ll have to pay income tax on that transfer, according to the IRS. (This doesn’t apply if you’re rolling over your funds from a Roth 401(k), though.)
Leaving your money in your old 401(k)
Another option? Do nothing.
Your 401(k) account isn’t going to disappear once you quit a job; that money will always be there. But once you leave the job that set up the 401(k) account, you can’t make any more deposits, per Vanguard.
While leaving your 401(k) on autopilot is the simplest option, it may not be in your best interest. Assuming you’ll continue investing in another account or have a new 401(k) at your next employer, it will be harder to track your finances in more places.
And some 401(k) plan providers may charge you fees if you’re no longer an active employee, according to Charles Schwab, the financial services firm.
“I can’t think of any pros of leaving it there,” Manske says. “You’re not really connected formally to that company anymore, so why would you keep your money there? They don’t have a reason to keep you happy.”
Cash out your 401(k) — which is rarely recommended
Yes, you can withdraw the cash from your 401(k) whenever you want. But there are significant downsides to this option.
Pulling out money from your 401(k) before retirement can trigger hefty taxes, says Joe Buhrmann, certified financial planner and senior financial planning consultant at Fidelity’s eMoney Advisor.
Any withdrawals from a 401(k) before you reach the age of 59 ½ are considered early withdrawals and are slapped with a 10% penalty tax, per the IRS. That’s in addition to federal income taxes and, depending on where you live, state income taxes.
“Hypothetically, on a $50,000 401(k), you might lose as much as $20,000 to taxes and penalties and be left with $30,000,” Buhrmann says.
If you urgently need cash, that might be a reason to withdraw some money from your 401(k). But doing so should be regarded as a last resort, Manske says.
There are other ways to get money quickly that don’t come with taxes and penalties, such as community loans, gig work, and more.
Buhrmann encourages individuals to not just consider the immediate losses that come with withdrawing your 401(k), but also the long-term earnings they’re missing out on.
“They’re not just having to pay some taxes and pay some penalties,” Manske says.
Article originally published March 31st, 2020. Updated December 16th, 2022.
The Coronavirus Aid, Relief, and Economic Security Act, an economic relief package in response to the COVID-19 coronavirus pandemic, waives the 10% early withdrawal penalty for individuals who take out up to $100,000 from qualified retirement accounts for coronavirus-related purposes. Learn More.
Note: This article does not constitute legal advice. Please consult a lawyer or financial/ tax advisor about your specific situation.
Paying off debts or covering an unplanned expense are common reasons people tap into their 401(k)s early. But a 401(k) withdrawal can come with hefty tax penalties if you pull your money out too soon. Find out more about how to take money out of a 401(k) below, and decide whether it’s the right decision for you.
How to Withdraw from Your 401(k) Early
Your 401(k) account is meant to be a retirement account. That means it’s set up for you to start withdrawing from after a certain age—generally 59 ½. But you may be able to withdraw sooner if you feel you need your money now. Here’s how.
Check with your employer to find out if early withdrawals are an option. Not every employer allows withdrawals.
Find out what types of withdrawals are allowed. In some cases, 401(k) withdrawals are limited to certain amounts or allowed only for certain reasons.
Get withdrawal paperwork from your human resources department or download it from your 401(k) provider’s site.
Review the penalties and taxes you may pay for taking the money out early and ensure that you are okay with them.
Complete the paperwork and submit it. Disbursements may be made by check or directly into your bank account, depending on the provider, and may take up to several business days once the 401(k) withdrawal is approved.
401(k) Early Withdrawal Penalty
In general, when you make a withdrawal from your 401(k) before you reach age 59 ½, the Internal Revenue Service may charge you a 10% early withdrawal penalty.
You’ll also pay taxes on any amounts you cash out. That’s because your 401(k) was funded with pre-tax income from your paycheck. You didn’t pay taxes on it at that time, but you must pay taxes on the money when you draw it out to use as income later.
401(k) Hardship Distribution
If your employer plan provides for hardship distributions, you can take a portion of your 401(k) funds to assist in paying for some specific expenses without paying the standard 10% early withdrawal penalty. Each employer plan is different, though, so even if your plan allows for hardship distributions, it may not allow for the particular use you have in mind.
For example, some plans allow for medical or funeral expenses but will not allow for tuition and education expenses. Some plans will, regardless, the plan must have clear requirements. Before considering a hardship distribution, be sure to read the fine print on your plan to determine if your need is eligible.
In general, some expenses that can be covered using a hardship distribution might include:
Tuition, including room and board, for yourself, your spouse, dependents and certain beneficiaries
Medical expenses for yourself, your spouse or dependents
Purchase costs for your principal residence, not including mortgage payments
Costs related to avoiding foreclosure on or eviction from your principal residence
Repair costs for damages to your principal residence
Funeral expenses for deceased parents, spouse or dependents
Hardship withdrawals have hit a record high for the first time in nearly 20 years.This kind of spike is a testament to how it has become increasingly difficult for Americans to have a retirement safety net in the current economic climate. This increase is likely due to inflation concerns creating further economic hardship. Use this guide before considering a 401(k) withdrawal.
Even though the early distribution penalty is waived on approved hardship distributions, any withdrawal you make is taxed as regular income. You should consider what that means for your bottom line and review whether you’re pushing up against a higher tax bracket when taking the withdrawal into consideration.
401(k) Loan
Another way to get money from your 401(k) now without paying the withdrawal penalty is a 401(k) loan. This can be a good option if you can’t get a hardship distribution or want to borrow against your 401(k). Plans are not required to provide for loans, so review your plan to determine if this is an option for you.
What Is a 401(k) Loan?
A 401(k) loan is literally a loan that’s funded by your 401(k). When you take out this type of loan, you actually borrow from your future self. These loans come with interest, which you pay back into the 401(k) account—so you’re paying the interest to yourself.
401(k) loans let you take out a certain amount from your 401(k)—usually up to $50,000 or 50% of the account’s assets—without calling it “income.” You can use that money without paying the 10% withdrawal penalty or paying taxes on it.
Advantages of 401(k) Loans
Unlike a hardship distribution, you do not need to demonstrate financial need to take out a 401(k) loan. As long as your plan allows for loans and you meet the terms, you can take out this type of loan. Because interest payments on these loans are only meant to restore the account to its original state (as if you had not taken out the loan), 401(k) loans often have lower interest rates than other loans. And 401(k) loans for approved purposes may not require a credit check, so they might be an option when other credit is not. This is especially true as your employer may simply take the 401(k) loan repayments directly out of your paycheck.
Disadvantages of 401(k) Loans
When you take money out of your 401(k), it’s no longer earning interest for you. Typically, the interest you pay on the loan isn’t as much as your 401(k) could be earning in the same time period. That can mean a reduced total when it comes time to retire.
In most cases, you are required to repay a 401(k) loan within five years. If you quit your job before you pay off the total amount of the loan, you might be asked to repay the rest immediately. If you fail to meet the terms of the loan, the remainder of the loan might be treated as a withdrawal. That means you’re on the hook for taxes and the 10% withdrawal penalty.
401(k) Withdrawals After Age 59½
If you retire or lose your job after you turn 55, you may be able to avoid the 10% early withdrawal fee. In general, this applies only to the 401(k) plan from the employer you just left. Earlier plans are not eligible.
Once you reach age 59½, you may begin withdrawing funds from your 401(k) without penalty. You can choose a lump-sum distribution or periodic distributions based on your personal needs. Keep in mind that you’ll pay income taxes on lump-sum distributions right away. It’s a good idea to talk to your financial planner to decide what option is best for you.
You can, however, leave your retirement funds where they are until you reach age 72. At that point, plan participants encounter Required Minimum Distributions, when the IRS requires that you begin taking distributions of a certain amount each year (before 2020, the age was 70½). Your tax burden on those distributions will depend on your total annual income.
Are There Good Alternatives to Early 401(k) Withdrawals?
For those with good credit scores, there are a number of alternatives to 401(k) withdrawals that don’t come with a 10% tax penalty and don’t dip into your retirement savings. Here are a few options to consider.
Home Equity Lines of Credit
If you have equity in your home—which means it’s worth more than you owe on it—you might be able to borrow against that value. You can then use the money from a home equity line of credit (HELOC) to cover expenses or pay down other debts.
Pros: Because home equity lines of credit are secured, you may be able to secure a lower interest rate on them than with other types of debt. They also offer some flexibility, as you can use as much of the line of credit as you need as you see fit.
Cons: You need equity to access this type of debt. You also have to ensure you can pay it off if you plan to sell your home.
Personal Loans
Personal loans are typically unsecured debts you can use for personal purposes. If you’re approved for a personal loan, you might use it to pay off medical bills, consolidate other debts or cover an emergency home repair, for example.
Pros: Personal loans are available for all types of credit histories and needs. Doing a little research can often turn up a loan option that might work for you. Repayments are typically made over long periods, which can make monthly payments affordable.
Cons: Depending on your creditworthiness, a personal loan can come with a higher interest rate than other options. If you have bad or no credit, you may be limited to credit building loans, which can require a deposit.
Credit Cards With Low APR Introductory Offers
Credit cards with an introductory 0% APR on purchases make it possible to finance a large purchase and pay it off over several months without paying interest.
UNITY® Visa Secured Credit Card – The Comeback Card™
Unlike your Prepaid Card, UNITY Visa secured card can help you build your credit. Apply online in less than 5 minutes, and you could be approved today!
No Minimum Credit Score required; low fixed interest rate of 17.99%; Fully refundable FDIC security deposit* required at time of application; if you have a min of $250 to deposit immediately, you can start now!
No application fee or penalty rate
Monthly reporting to all 3 major credit bureaus
24/7 online access to your account
*See the Cardholder Agreement for more details.
Pros: Credit cards with low APR offers can let you finance purchases or consolidate credit card debt and pay it off faster. They can also help you continue to improve your credit as you make timely payments.
Cons: Most of these cards require good to excellent credit. If you don’t pay off the balance within the required period, you can get hit with hefty interest rates.
Your 401(k) and Your Future
When you’re facing a financial crisis right now, borrowing from your 401(k) can seem like an obvious answer. But carefully weigh the costs of doing so. You are, in effect, stealing from your future. If you can, look for other options that help both current-you and future-you.
With the uncertainty the job market has brought to many over the last several years, mortgage unemployment protection insurance has become more popular. While people are fearing the chance of getting laid off, they are more hesitant to take out a mortgage and then not being able to pay it and losing their home. This insurance has strict eligibility requirements, however, so it may not be for everyone.
Unemployment Protection Insurance, unlike mortgage insurance, is designed to help the buyer rather than the lender. Although it does help encourage reluctant home buyers, so this insurance indirectly benefits lenders as well. Mortgage unemployment protection insurance does what you might think it does – protects the buyer if they are unable to pay their mortgage due to a job loss until they can get back on their feet.
Before looking into purchasing this insurance, you need to first realize who this insurance is made for and what the strict guidelines for acceptance are. This type of insurance is truly for full time employees who find themselves laid off or fired. It will not cover people who are fired with cause, have seasonal jobs, are self-employed or those who do not receive a W-2. It will also not cover you if you voluntarily quit your job.
Who Qualifies for Unemployment Mortgage Protection?
For those who do qualify, remember that you will need to pay premiums on this insurance just as you do with other insurances. For instance, factors that affect your premiums are your age, your health history and current health, and your employment history and how long you have been at your current job.
If you decide this is something for you, make sure you do all the research you can beforehand to make sure you know what the benefits and downfalls that this insurance has to go with it. You first need to find a trusted insurance agent who will be able to sit with you to show you all the details of the insurance. You want to look at the duration of the insurance if you ever need to use it. Most companies will pay your mortgage for up to six months. A few may go up to a whole year. Decide if the duration is long enough for you to be able to find another job and be able to take on your mortgage payments by yourself again.
What’s Your Status?
Also check the conditions of the insurance and consider your current job situation. Some of these policies require that you hold them for at least six months before even being able to use them. If you think you are in jeopardy of being laid off soon, the insurance may not even wind up benefiting you. Plus, you usually have to disclose this information to the insurance company before purchasing such an insurance. If the insurance company deems you as too much of a risk, your application is not likely to be accepted.
Final Verdict On Mortgage Insurance
Overall, mortgage unemployment protection insurance can be something that can make those who qualify more comfortable when purchasing a mortgage loan. The need of this type of policy has much to do about your job situation. I’m sure there are many that in 2008-20009 that lost their job wished that had taken out this type of policy. If you feel about the job situation then I would probably pass.
Are you considering a career in real estate but not ready to commit? Listen to today’s podcast with Brittney Kosev and get inspired to go all in on your new career as a Realtor. Brittney went from making $60,000 a year as a teacher to over $500,000 as full-time real estate agent. In addition to tips for new Realtors, Brittney offers advice on building a team, investing in real estate, and on winning new business. Don’t miss it!
Listen to today’s show and learn:
Brittney Kosev’s start in real estate [2:18]
Brittney’s real estate transactions and goals for 2023 [3:53]
The DFW real estate market [4:48]
About the BK Real Estate team [5:28]
The challenges of working in real estate with another full-time job [6:52]
How one relationship can create a wealth of real estate leads [9:20]
Turning rental leads into buyer clients [13:49]
Appreciating all business that comes in [14:53]
Taking open houses one step further [16:24]
Tips for new real estate agents [16:51]
Advice from Brittney: Quit your job [19:19]
Tips for agents who are working two jobs [20:04]
A Realtor’s secret advantage: Work ethic [26:09]
The best way to spend your time as a Realtor [29:14]
Building credibility in real estate [30:20]
Tips on getting started with real estate [33:36]
The benefits of BiggerPockets conferences and quality people [34:12]
Getting help from the people who care [39:56]
Brittney’s goals for growth and advice on finding the right people [39:52]
Final thought from Brittney Kosev and where to find her [43:14]
Brittney Kosev
Over the last several years, Brittney has broken personal goals in her production and skill set. 2022 was a big year with her reaching $31,000,000 in sales. Each transaction was a growth opportunity to better herself for her clients.
Prior to real estate, Brittney was a school librarian in various ISDs across the state of Texas. She loved teaching and the joy she found while helping her students develop a love for reading. About the same time Brittney became a single mom, she decided to broaden her horizons and start selling real estate part-time. Brittney would teach all day then sell in the evening. It was busy, especially with the kids, but she LOVED it. Brittney started selling it ALL: commercial buildings, residential, tenant representation, and multifamily. After doing both careers for 2 years, she finally got the nerve up to leave education. It was scary but paid off!
With triple the amount of time at her disposal, Brittney was able to reach more clients and personal goals. She wanted to learn more about investing and started following the Biggerpockets podcast which led her to begin growing my portfolio. She is a part-owner in 8 units, a mixture of short and long term rentals, and 100% owner in 3 long term rentals. Building her own portfolio has ignited a fire inside her, and her new goal is to help as many of her clients and agents grow their own assets. Whether you are looking to buy a personal home, invest in multifamily, house hack, wholesale, flip, use creative financing, or grow your rental portfolio, Brittney and her team are here to help.
Let BK Real Estate help you reach your real estate goals in 2023!
Related Links and Resources:
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If you have been trading for a while, then there is a good chance that you have made some trading mistakes along the way.
Unfortunately, it is part of learning how to trade.
After all, trading is a skill that takes time to learn.
Trading mistakes are part of the learning process. I know that sucks to hear, but it is the truth.
The outcome goal is to learn from those trading mistakes.
Then, you can realize what you did wrong so you do not repeat those same mistakes.
However, more than not, it is more common to repeat the same mistake over and over again.
If you are ready to recognize trading errors and learn how to overcome them, then keep digging in. Take notes and adjust your trading plan accordingly.
We will cover emotional trading mistakes, technical trading errors, and option trading mistakes.
What Are Trading Mistakes?
Trading mistakes are errors made by traders when you enter trades, either to purchase stocks or options.
More than likely, you will see the same type of trading error happening over and over again.
Trading mistakes are very common, but they do not have to lead to complete panic.
In order to minimize the chances of making a costly mistake, traders should adhere to their trading strategy. Additionally, traders should always trade with a clear head and stay disciplined.
There are plenty of trading mistakes you can avoid by being smart and adjusting your trading plan where needed.
Why Understanding Trading Mistakes Is Important for Long-term Success
Trading mistakes are the result of traders taking losing trades, which can result in poor overall performance.
Mistakes that occur during trading often include not paying attention to the market, not understanding risk, not having a well-thought out trading strategy, and being bad at managing the trade.
Whatever the reason, trading errors occur and it is how we react to them that matters.
Long-term success in trading is not a goal that can be accomplished overnight.
Achieving long-term success with active trading requires patience, discipline, and practice.
It is easy to get caught up in day-to-day successes and forget to commit to a long-term plan. As traders, it is important to be able to recognize our mistakes so that we can learn from them and move forward.
Top 5 Trading Mistakes
As you will see, we compiled a long list of trading mistakes. Each trader will see some of those trading errors in themselves. Some are small trading mistakes while others are detrimental.
First, we are going to focus on the top five trading mistakes first. This will make or break your success as a trader.
The following are five common trading mistakes that traders make and how to avoid them.
#1 – No Trading Plan
Trading without a plan means you enter a trade without knowing your next step.
No trading plan means that traders are not able to set clear goals, establish risk-reward ratios, and avoid common pitfalls that can occur during a trade. This makes it difficult for traders to know when they should be buying, selling, or holding.
Trading without a plan is risky because it can lead to losses that are much higher than they need to be.
When starting out in trading, it is important to remember that we can only focus on what we can control. This means that we should not worry about things we cannot change, such as the past or the behavior of other traders. Instead, we should form a trading plan and stick to it so that we can succeed in the long run.
Creating your trading plan will happen with many revisions. The goal of the trading plan is to set your overall strategy for trading.
Also, you need to have a specific trading strategy for each trade you enter.
Avoid by: Spending time to develop a trading plan. Revise as needed. Stick to it.
#2 – Risk Management Plan is Missing
A risk management plan is essential for traders and it should be included in any trading plan.
Without a risk management plan, traders are more likely to make emotional decisions that can lead to costly mistakes. For many traders, this is the hardest thing for them to manage.
It is possible to create a risk management plan as your overall trading plan.
In your risk management plan, you must decide (in advance) how much money you are willing to lose based on the amount of profit you perceive to make. For instance, you are willing to risk $300 in order to make $1000.
Many day traders focus on a 2:1 reward-to-risk ratio. Personally, I look for stronger reward-to-risk ratios greater than 3:1.
Avoid by: Understand how risk is a part of making a profit. Set your risk tolerance and do not deviate from it.
#3 – Not Keeping a Trading Journal
One of the most important aspects of successful trading is keeping a journal.
This not only helps you keep track of your trades and performance, but it can also help you remember what worked and what did not. Journaling is so helpful and such an overlooked task.
Your trading journal is the perfect place to take notes, keep track of your wins and losses, and record market movements so that you can learn from past mistakes.
At the end of every trading session, you should take some time to analyze your trades.
What went well?
What didn’t go well?
Why did you make that particular trade?
What was your entry strategy?
What was your exit strategy?
Where was the overall market momentum?
Did you control your emotions?
What grade would you give yourself?
This analysis is important so that you can learn from your mistakes and improve your trading skills. Stay motivated to continue learning about trading and keep more profit.
Avoid by: Start journaling. Spend time after exiting a trade and the market day to understand what happen and why you did a certain trade.
#4 – Watching Too Many Stocks
Watching too many stocks can lead to a decrease in returns and overall confusion on what is happening with your watchlist.
As a result, it is important to be selective.
The same can be said of stock scanners. If you are watching too many variables and possibilities, you can quickly become overwhelmed.
When you develop your trading plan, you need to decide how you find stocks.
Personally, I prefer to focus on a handful of stocks and a few key metrics. Then, watch them closely and trade accordingly.
As a new trader, I would pick about 5-10 stocks to analyze.
Avoid by: Revise your watchlist to half what you are currently watching.
#5 – Actually Exiting Trade as Planned
Above we talked about creating a trading plan and having a trading strategy for each trade taken.
But, the trading mistake happens when you do not exit the trade as planned.
This could be because of “hopemium” that the stock price will recover and you will get back your loss.
Our “hopemium” is that the stock price keeps rising and you will make more money.
Either one can be damaging to your trading account.
You created a plan. As a disciplined trader, you must follow your plan either to maximize your current profit or protect your risk against further losses.
Avoid by: Exiting at your set targets. Period.
12 Typical Emotional Trading Errors
Trading is 80% mental and 20% execution. Okay, I am not sure that there is an official study to back it up. But, I do know as a trader that emotions play heavily into your overall profit.
The typical emotional trading errors that traders make when they are in a trade are overconfidence, jumping into trades before the proper analysis is completed, and inability to take losses.
This is where most of the trading mistakes are made.
When first starting out in trading, it is easy to get caught up in the prospect of making a lot of money quickly. However, most traders find that trading is not easy to do and make common emotional trading errors.
Let’s dig into these emotional mistakes first and then we will follow up on the technical trading mistakes.
1. Letting emotions impair decision making
Emotions are an important part of decision-making, but it can be dangerous to allow them to influence our decisions. We should also take into account that emotions can often lead us astray.
It is clear that emotional trading can lead to bad decision making and, ultimately, financial losses.
When investors let their emotions take over, they are not thinking logically and may make impulsive decisions. For example, they may sell stocks when the market is down in order to avoid further losses, even though the stock may rebound soon after.
In order to be successful traders, it is important to stay calm and rational when making decisions.
Overcome by: Stick to your trading plan and take emotion out of the equation.
2. Unrealistic Profit Expectations
You go into every single trade expecting a home run! Enough money to achieve your dreams overnight!
These types of profit expectations will have you throwing your risk management plan out of the window and set you up for failure with greed, overconfidence, and impatience.
Be realistic about your expectations with trading activity.
Overcome by: Go for base hits. Small consistent wins.
3. Greed
Greed is a deep-seated need for more profit without regard to the chart or market conditions.
The common rationale is hopefully the stock will go up. Typically, you hold your position too long and end up losing some of your gains.
Greed can manifest in many different ways, and people with greed often neglect their own needs in order to attain more.
Overcome by: Set an OCO bracket to exit the trade at your specified level. Take you out of the equation.
4. Fear of Missing Out (FOMO)
You fear that you missed out on a trade, so you decide to jump in. As a result, you are risking more than you should.
This trading mistake is common, especially with online trading communities.
As a result, you may buy at the high and watch the stock reverse.
Overcome by: Realize that there will be missed opportunities. That is part of the game. There will always be another chance.
5. Fear
In many cases, fear is a reaction to why or why not we enter a trade.
For any trader, they may become frozen unable able to make a decision as their mind is wrapped in fear. At the same time, they are either missing out on potential profits or unable to exit a trade due to mounting losses.
Overcome by: This is a real emotion that you must overcome. Take the time and read resources to help you overcome being paralyzed by fear.
6. Overconfidence after a profitable trade
The overconfidence that comes with success can lead to a loss of profits.
When a trader has a winning position, they may become overconfident and make bad decisions because of the previously profitable trade.
For example, they may not take their profits off the table when there is an opportunity to do so or increase their position size when they should be taking profits. This could lead to them losing all of their winnings and more.
Overcome by: Take a break from trading for a few days or a week after a big win.
7. Entering a Trade Based on Your Gut
The process of entering a trade based on your gut is, essentially, following your “gut feeling” and buying or selling shares after the market opens. This is seen as a more risky and less profitable strategy than following a more traditional market timing approach.
Trading is all about making calculated decisions and sticking to a plan.
Trading based on your gut feeling or emotions will only lead to costly mistakes.
Overcome by: Before entering into any trade, make sure you have a solid strategy in place and know all the rules. Only then should you start trading.
8. Not reviewing trades
Not reviewing trades is a common problem for many traders. Traders who don’t review their trades tend to be more likely to make mistakes in their trading and over-trade, which can result in losses.
You will make the same mistake over and over again until you realize the root of the problem.
This is how you move from a losing average to a winning percentage.
Overcome by: Let your journal be your friend. Document everything including your emotions.
9. Following the Herd
Many people enjoy following the herd with stock trading, especially online platforms on Reddit, Discord, or Twitter.
You may decide to follow a certain group of people in order to be fed stock picks or updates.
This can be risky because there is no sound foundation to base your trade upon.
Overcome by: Trade your style and let that fit you.
10. The Danger of Over-Confidence
The “beginner’s luck” experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches.
Over-confidence is the belief that one’s abilities, knowledge, or qualities are better than average.
This over-confidence is a risk factor for certain types of mistakes and other negative outcomes as it leads to complacency, a lack of preparation, and an overestimation of one’s abilities.
Overcome by: Realize your limitations and watch for overconfidence to appear.
11. The Importance of Accepting Losses
Losses are always a part of trading life, but they can be overwhelming when they occur.
It is important to recognize that losses are in fact an inevitable part of growth and development as a trader.
Overcome by: Journal all of your losses. Look for patterns to appear. Adjust your trading strategy as appropriate.
12. Quit Your Job Too Fast
Quitting your job too fast is not a good idea, as it will force you to place trades that may not be the best set-ups.
Day trading can be a very risky venture, and it is possible to lose everything you have invested.
It is important to be aware of the risks before getting started. More importantly, do not quit your job too fast. This can lead to losses in your investments and could potentially put you in a worse financial situation than you were before.
Overcome by: Keep trading as a side hustle. Hone your trading skills and build up a reserve fund that will cover your monthly expenses. You will know when you are prepared to leave your 9-5.
Common Mistakes in Stock Trading
According to a study by the U.S. Securities and Exchange Commission, technical trading mistakes are actually fairly common among individual investors.
Mistakes in technical trading can be two-fold, either due to lack of knowledge or poor execution.
The most common mistakes are buying at the top and selling at the bottom, overtrading, and not taking the time to properly understand how trading works.
Now, let’s dig into all of the common trading mistakes I see.
1. Overtrading
Let’s start by talking about overtrading. This is a mistake that I see many people make. It is also a mistake that could have been easily prevented if you had just done your research before placing the trade.
Overtrading or placing more orders than you should do is the most common mistake.
Many new traders will simply open up their platform, look at the market, and place a trade. They are often chasing after the last couple of candles or they see an opportunity to get in “on the cheap”.
The problem with this approach is that you have no idea if this is a good trade or not. You are simply taking a shot in the dark and hoping for the best.
Overcome by: Only place the A+ setups that you like. Once you have traded so many times per day or week, stop trading.
2. Buying High and Selling Low
We all have heard the saying, “buy high and sell low.” However, too many novice traders do the complete opposite.
This trend happens with one of the emotional mistakes of FOMO; we already dived into that concept earlier.
Overcome by: Follow your trading plan on when to enter and exit the trade. Practice your strategy in a simulated account and master it.
3. Lack of Trading Knowledge
The lack of trading knowledge is a problem for many traders who are not familiar with how the stock market works. This can cause them to make mistakes when buying and selling stocks, which could result in losing a lot of money.
Just because you made a profit once on one stock does not mean that is a repeatable action.
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies involved.
Without proper training, you are likely to make costly mistakes that can cost you money. Trading courses and tutorials are available online and through other resources to help you gain this knowledge and become a successful trader.
Overcome by: Take an investing course. Spend money on your education and not your losses. Here is a review of my favorite day trading course.
4. Following Too Many Strategies
Following too many strategies is a common problem in the investing world, which can lead to poor performance and more costly mistakes.
There are a million and one different approaches on how to trade the stock market, which indicators to use, whose advice you should follow, so on and so forth.
And then, many traders try and couple the strategies together only to quickly learn they may cause more losses than profits.
One way to avoid following too many strategies is by using a set of rules to decide which strategies are appropriate for investing.
Overcome by: Develop your trading plan. Outline the investing strategies you will use. Test any new strategies in SIM first.
5. Do Your Research
The solution to this problem is simple: do your research!
Before you enter a trade, take the time to do some analysis on the asset you are looking at. Look at past price action, news events, and any other relevant information that you can find.
Understand why the market might move in your favor and be able to build a case for it. The more data points you have supporting your position, the better off you will be.
If you are able to build a strong case for why the asset will move in your favor, then you can enter with confidence. This is because if the market does not move in your favor, you will know that it isn’t because of a lack of research on your part.
When you enter with confidence, this will make it easier to hold through the inevitable volatility and price swings.
Overcome by: If you enter without knowing why something is likely to move in your favor, then you are setting yourself up for failure. Do your research.
6. Not Using Stop-Loss Orders
Stop orders come in several varieties and can limit losses due to adverse movement in a stock or the market as a whole.
Tight stop losses generally mean that losses are capped before they become sizeable. However, you may have your stop loss too tight and get stopped out before your stock has room to move.
A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered because they believe that the price trend will reverse.
Overcome by: Plan your stop loss in advance. Stick to it as it is part of an overall risk management strategy.
7. Letting Losses Grow
Active traders can be harmed by refusing to take quick action to close a losing trade.
It is important to take small losses quickly and limit your risk in order to stay profitable.
Stop losses can help you avoid larger losses.
While the stock may come back to your buy price, you have increased your risk far beyond what you planned. If your planned loss was $300 and now you are down over $500, it will take that much longer to overcome that growing loss.
Cut your losses. Review the chart. See what a better entry point may be.
Overcome by: If the stock moves past your pre-determined stop, then exit the trade. Don’t trade on hope.
8. Chasing After Performance
Many day traders are tempted to chase stocks, which is a bad reputation in the day trading world.
This happens when they see a stock that has had a large price increase and they think that it will continue to go up. In reality, this is not usually the case, and chasing stocks can lead to big losses.
What goes up must come down, right?
Overcome by: Wait for a better time to enter the trade according to your trading plan.
9. Avoiding Your Homework
It is important to do your homework. If you avoid doing your homework, then don’t expect fast results
Many new traders often do not do their homework before making any investment decisions.
This can lead to costly mistakes that can be avoided by doing some basic research. Trading is a complex process and should not be taken lightly – make sure you are fully prepared before risking your hard-earned money.
Overcome by: If you have not enrolled in an investing course, do that. Set daily goals on how to improve your trading performance that is not based on profit or loss.
10. Trading Difficult and Unclear Patterns
It is important to stick with the patterns and indicators that are clear and unmistakable so you don’t get caught up in any ambiguous or unclear trading signals.
With a little bit of research and understanding, these market patterns can become quite clear.
By forcing a chart to fit in what you want, then you are putting your trading capital at risk.
Overcome by: If you cannot read a clear chart or pattern, then quickly move to the next stock.
11. Poor Reward to Risk ratios
The most common mistake made by traders is poor risk management. This usually means taking on too much risk in relation to the potential rewards, which can lead to heavy losses if the trade goes wrong.
It is important to always have a solid plan for how much you are willing to lose on any given trade and never deviate from it.
What is the Reward to Risk ratio you look for:
1:1 Reward to Risk
2:1 Reward to Risk
3:1 Reward to Risk
Many beginner traders do not want to take on as much risk because their appetite for potential rewards may be lower. It is important for beginners to consider their trading strategies and risk management plans so that they can make the most informed decisions possible.
Risk-to-reward ratios are an important part of trading, and experienced traders are typically more open to risk in order to maximize their potential rewards. This means that they may be more likely to make high-risk, high-reward trades.
Overcome by: Stick to Risk to reward ratios that fit your trading plan.
12. Ignoring volatility
Volatility is the fear and unknown in the market.
The most important thing to remember about investing is that the stock market can be volatile.
A measure of volatility is from the VIX.
Overcome by: Decide how you will trade when the VIX is high and the news is negative.
13. Too Many Open Positions
Entering too many positions is one of the most common mistakes investors make. A portfolio should consist of a handful of top-performing investments that have proven to be good bets over time.
It is unwise to open too many positions in a short amount of time because it could lead to confusion.
This can be risky because if one or two of the positions go south, the entire portfolio can suffer. For this reason, it is important to carefully consider each position before opening it and make sure that all positions are contributing positively to the overall goal.
Overcome by: As an active trader, stick to under 5 open positions. As a long-term investor, look to build a portfolio of 25 stocks over time.
14. Buying With Too Much Margin
Most brokers offer 2:1 or 4:1 margin to cash. While this is tempting to use, it can also give you a margin call.
Margin can help you make more money by increasing your position size, but it can also exaggerate your losses.
Exaggerated gains and losses that accompany small movements in price can spell disaster for a new trader using margin excessively.
Overcome by: Use your cash only. Stay away from using margin.
15. Following Meme Stocks
These are the stocks made popular by many Reddit personal finance groups.
You have probably heard of Gamestop, Blackberry, AMC, or Bed Bath and Beyond as a meme stock.
While these stocks have risen to crazy highs, they have also fallen just as fast. Chasing the high may leave you with a big and painful loss.
Overcome by: Stick to your stock watchlist.
16. Buying Stocks With No Volume
Buying stocks with no volume is a risky idea that involves placing an order on a stock without knowing how much interest there will be in the shares. This can result in losing money if there are no buyers for the shares.
It is important to validate the price of a stock by looking at volume. The volume shows how much interest there is in a stock and can be indicative of future price movement.
When volume is low, it’s best to stay away from buying stocks as it could be a sign that the stock price is not stable.
Overcome by: Trade stocks with a volume of at least 500,000 or higher.
17. Ignoring Indicators
Indicators are things that tell us the market is going up or down. Examples of indicators would be the stock market at a particular point in time, a company’s performance with regards to earnings, the price of a product or service.
Every trader has their own set of indicators they use.
If you have outlined indicators you use in your trading, make sure to follow them regardless if it is against the way you want the stock to move.
Overcome by: Stick to your trading plan for each stock individually.
18. Trading Too Large Position Sizes
Trading too large position sizes is a risk that traders may run into when they hold positions in their portfolios for extended periods of time.
Position size is the amount of money placed on a trade, and the risk is that a trader may lose more than their capital on the trade if it does not go well.
Overcome by: Base your position size on the amount you are willing to lose. Not how much you want to make.
19. Inexperienced Day Trading
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies you are using. Without proper training, it is easy to make costly mistakes.
Too many day traders turn trading into an unnecessary risky game.
To be successful, a day trader must have a solid foundation in how to invest in stocks for beginners.
Overcome by: Practice in a simulated account and make all of your mistakes there before moving to live money.
20. Inconsistent trading size
Inconsistent trading size is when traders are unable to predict what their position size should be in order to meet the trader’s desired profit goal.
Trading size is one of the most crucial aspects of a trading strategy and should be considered carefully. Larger trade sizes come with an increased risk, so it’s important to be aware of your position size when making trades.
Overcome by: Don’t risk too much on one trade. Stick to your risk management plan.
21. Trading on numerous markets
Trading on numerous markets is when a trader invests in stocks, bonds, commodities, crypto, and other securities.
Every type of market moves differently and takes time to understand how to be profitable.
Overcome by: Find your niche and stick to it.
22. Over-leveraging
Leverage is a powerful tool that can be used to magnify gains and losses in a trade. It is important to be aware of the amount of leverage being used in order to effectively manage risk.
Brokers play an important role in protecting their customers by providing margin calls and other risk management tools.
Overcome by: If you feel over-leveraged, sell some positions before your broker gets involved.
23. Overexposing a position
Overexposure is a term used in the investment world to describe the risk that comes with exposing your position too much in the market. When you have overexposed your position, you are putting yourself at risk of losing money if the stock or security you are invested in falls in value.
You are taking on too much risk.
Overcome by: Stick to your risk management plan. Always have cash reverse on hand in case the market reverses.
24. Lack of time horizon
There are different time horizons for various types of trading strategies. It is important to think about the time horizon you are comfortable with before investing in any type of investment.
If you are a day trader, you plan to close your trades before the end of the trading session. As a swing trader, you typically hold trades for a couple of days maybe up to a month. As a long-term investor, you plan to hold your stocks for longer than a year.
Overcome by: Match the time horizon of that investment purchase with your investing goals.
25. Over-reliance on software
Although some trading software can be highly beneficial to traders, it is important not to over-rely on it.
Automated trading systems are becoming so advanced that they could revolutionize the markets. As a result, human traders need to be aware of the potential for these systems to make mistakes and use them in conjunction with their own judgment.
Overcome by: Set alerts before you want to enter or exit a trade. Then, review if the move still follows your trading strategy.
Top Options Trading Mistakes Beginner Traders Make
These options trading mistakes are specific to option trading.
Trading options is an advanced strategy. If you have losses trading stocks, wait before you start trading options.
1. Not having a Trading Plan
Every trader needs a trading plan that outlines strategies, game plans, and trade metrics.
When you are trading without a plan, you are essentially gambling and hoping for the best.
This is not a recipe for success in the world of stock trading and is especially true for options traders.
A good trading plan should include chart analysis so that you can make informed decisions about when to buy and sell stocks. If you are using HOPE instead of a trading plan, then you need to find out the right way to interpret the chart because that will give you a better idea of what is happening in the market and how likely it is that your investment will succeed.
Overcome by: Create a specific trading plan based on your option strategy.
2. Not properly Researching Option Contracts
Learning to trade options is like going to school for a whole different trade.
There are way too many technical aspects to discuss in this mistake.
Spend time learning what criteria you want from an options contract to be successful.
Overcome by: Learn how options work and practice trading options in the simulator before going live.
3. Trading without an understanding of the underlying asset
Before you start trading options, trade with stocks.
Every stock moves at its own beat. You need to learn how it moves.
Jumping into options prior to knowing the stock can cause extreme losses. Learn how the underlying asset moves first. Be successful in trading stocks before moving to options.
Overcome by: Learn to trade the stock with shares first. Then, practice in a simulator. Once familiar, then trade live with options.
4. Buying Out-of-the-Money (OTM) Call Options
Options trading is a risk-based strategy. It’s important to know which strategies are right for you and what the risks of each option type are before putting on an option trade.
One common mistake that many traders make when it comes to option trades is buying out-of-the-money (OTM) call options.
This is because OTM call options are inexpensive and have a range of around 100,000 to 1 million. To avoid this mistake, it’s important to know what the risks of buying OTM call options are and which option strategies are appropriate for you.
Overcome by: Focus on trading In-the-money (ITM) call contracts. Know your strategy.
5. Not Knowing What to Do When Assigned
When you enter into an options contract, you are essentially agreeing to buy or sell the underlying asset at a specific price on or before a certain date.
If the market moves in a way that benefits the buyer of the option (the person who contracts to buy the asset), they can choose to exercise their option and purchase the asset at the agreed-upon price. However, if the market moves in a way that benefits the seller of the option (the person who contracts to sell), then they may “assign” their contract to someone else – meaning that they no longer want to buy/sell the asset, but would like someone else to take on that responsibility.
This can be jarring if you haven’t factored it into your decision-making when trading options, so it is important to be aware of the possibility.
This is why traders need a higher trading level to sell options contracts or verticals.
Overcome by: Be okay with buying the shares if you are assigned. That is a part of your trading plan.
6. Legging Into Spreads
It is a common mistake for traders to get legged into spreads by entering positions when the market price has moved away from their position. They may have gotten caught up in the belief that they are being a “smart” trader by trying to profit from the spread.
The problem is that they are not taking into account that their cost basis must go up in order to maintain the position. If the market price of the underlying goes up, their cost basis must go up as well.
Overcome by: If you are not comfortable with this advanced strategy, then exit your options contract and place a new one.
7. Trading Illiquid Options
Trading illiquid options is a mistake because traders are taking on too much risk, with potentially disastrous consequences.
Illiquid means that the option cannot be bought or sold at the given time.
In other words, the option is not tradable. When traders trade illiquid options, they are taking a risk that their trades will not be executed because there is no liquidity in the market at that time. They have to hope that the market will become liquid again, and they can then sell their position or buy back their option at a lower price.
Overcome by: Check option volume and open interest at your strike place. Verify you have interest in moving your contract.
8. No Exit Plan
It is important to have a plan in case your trading strategy doesn’t pan out as planned.
This will give you the peace of mind that you won’t be left high and dry without an exit strategy.
With options is it more difficult to limit your risk to reward. As a result, you must decide your exit plan in advance.
Overcome by: Develop your trading strategy and include how and when you will exit the option contract.
Ready to Avoid these Trading Mistakes?
Investors are often their own worst enemy when it comes to trading.
They make emotional decisions instead of logical ones, and this leads to them making costly mistakes. Plus there are many technical errors new and seasoned traders are still making.
In order to be successful in the markets, investors must first learn to accept their losses and move on. Only then can they put that mistake behind them and focus on making profitable trades in the future.
In this post, I shared some of the more common trading mistakes that people make and how to avoid them.
Now, you have to work to avoid these trading mistakes and be profitable.
Know someone else that needs this, too? Then, please share!!
Paying off student loan debt may seem like a small step on your financial path – but for some people, it’s a lengthy journey all on its own. A 2013 survey found that the average borrower took over 20 years to pay back their loans.
If you’d like to become debt free in your 20s, you’ll need a plan that takes into account your personal circumstances and all available repayment options. We’ll help you come up with the best strategy in the article below.
What’s Ahead:
Pros and cons of paying off student loans early
Pros
Save on total interest
Remove the psychological burden of student loans
Make it easier to qualify for other loans
Cons
May earn more money by investing extra funds
Can delay other financial and personal milestones
May miss out on future loan forgiveness opportunities
How to pay off student loans early
Paying off your student loans early is just like paying off any other debt. You’ll need to get your information together so you know you what you’re dealing with. Then you’ll choose a loan to focus on and start paying them off one a time, paying as much extra as you can.
Two things that can make the pay off go even faster are lowering your interest rate on private loans and increasing your income. Lower interest rates means more money goes to your balance and more income will mean you can make larger payments.
Organize your loans
If you recently graduated and don’t know how to find your student loan information, log onto the Federal Student Aid (FSA) website to locate your federal loans. You will need your FSA ID and password. If you don’t remember your username or are having trouble logging in, contact the FSA at 1-800-433-3243.
The FSA website will only list your federal loans. To find your private student loans, check your official credit report from all three credit bureaus at www.AnnualCreditReport.com. Your credit report should list any private student loans taken out.
Before you start throwing extra money toward your student loans, you should figure out how much you owe. Open a spreadsheet and write down the following information for each loan:
Lender name
Monthly payment
Interest rate
Total loan amount
Federal or private loan
Having all the information in one place will help you determine the most efficient debt payoff strategy.
Research loan forgiveness options
If you have federal student loans, you may be eligible for several loan repayment and forgiveness programs. Taking advantage of these programs can help you pay less each month while also saving on total interest.
The Public Service Loan Forgiveness (PSLF) program will cancel any remaining balance after 120 monthly payments while working for an eligible nonprofit or government organization. Borrowers must be on an income-driven repayment plan during that time to qualify for PSLF, so their monthly payments will be lower than normal.
There are also many loan repayment programs geared toward professionals in the healthcare and legal fields. You can have tens of thousands of loans forgiven in exchange for working in an underserved community for a few years.
Choose a loan repayment strategy
If you want to pay off your loans ahead of schedule, you can choose between the debt snowball or debt avalanche method.
The debt snowball method involves paying extra on the loan with the lowest loan balance. Once that loan is paid off, you will add extra money to the loan with the next smallest balance. The debt snowball method has been proven to be more motivating to borrowers.
The debt avalanche method means adding extra to the loan with the highest interest rate. Once you pay off that loan, you will focus on the loan with the next highest interest rate. The avalanche strategy will result in saving the most money on total interest, though it may take you more time to repay individual loan balances.
Refinance private student loans
Borrowers with private student loans may be able to refinance those loans to a lower interest rate, saving them more interest in the long run. Start by comparing your current interest rates to overall market rates. If your rates are higher than what other lenders are offering, it may be time to refinance. Use our student loan refinancing calculator to see how much you could save.
If you have multiple private loans with high interest rates, you may be able to refinance all of those loans into one loan with the same lender. This will also simplify repayment.
Borrowers with federal student loans should think twice before refinancing, as those loans will then be converted into private loans. Once you refinance federal loans, you will lose all the perks and benefits like income-driven repayment plans, loan forgiveness programs and long deferment and forbearance options. It’s best to leave federal loans as they are.
If you need to refinance your private student loans here’s our list the best companies for student loan refinancing.
When making extra student loan payments, it’s important to ensure that these funds are being diverted correctly. Some lenders will take the extra funds and apply it to the next monthly payment instead of adding it to the principal.
Contact the lender and ask them how to ensure your extra payment will go toward the principal. Then, double check each month to verify that your payment has been applied correctly.
Find ways to earn more money
If you can’t afford to pay extra on your loans and want to, it’s time to evaluate your budget. But as inflation continues to plague regular Americans, cutting expenses may not be enough. Getting a side hustle or increasing your salary may be the only way to funnel more money toward your loans.
Here are some ideas for how to make extra money.
What about Biden’s student loan forgiveness program?
As of early this year, there is a new plan being discussed for those on income driven paymen plans. With this new plan, payments for undergrad would be set at 5% of your discretionary income (this is government speak for “take home pay minus a small amount for basic living expenses”) and after you’ve made payments for 20 years any remaining balance is forgiven.
Graduate loan payments would be 10% of discretionary income and those who borrowed less than $12,000 would only have to make payments for 10 years before forgiveness would set in.
Summary
Paying off your student loans early may seem like the best financial decision you can make – but don’t do it at the expense of your other life goals. For example, if you want to buy a house, you will have to save for a down payment. If you want to quit your job and become self-employed, you may need some start-up funds.
Also, don’t forget to invest for retirement while paying off your loans. The power of compound interest means you can reap huge rewards when you start investing early. You should also have a substantial emergency fund in place before you pay extra on your loans. This will prevent you from having to take on more debt if something unexpected happens.
No matter whether the content is in print or online, there will always be a need for proofreaders. Becoming a freelance proofreader may be the perfect solution for you to make money working from home.
Everything we do today seems to happen in the digital space. It is all typed for us to read. And, if you have read anything lately, you may have noticed grammatical and typographical errors. Hey, it happens. But, it really shouldn’t (even for me, and I admit that it still does from time to time). Because of the increase in online marketing, articles, and websites, the need for proofreaders continues to grow. It can be a lucrative career for anyone looking to replace or supplement their income. But, you have to know where to start. That’s why I reached out to Caitlin Pyle, the owner and blogger behind Proofread Anywhere. If you want to increase or even replace your current income, freelance proofreading might be the answer for you. Caitlin was able to make more than $43,000 in 2014 just from proofreading. She has developed a plan to help anyone looking to either supplement or replace their income by becoming a freelance proofreader. Read More:
HOW TO BECOME A PROOFREADER ONLINE
WHO IS THE WOMAN BEHIND PROOFREAD ANYWHERE?
I started out working a 9-to-5 job as a receptionist at a busy court reporting office back in 2009. I was so good at spotting errors that court reporters started calling me “Eagle Eyes.” As I moved up at the office, I started proofreading for court reporters as a side hustle. In 2011, I parted ways with that firm but kept my proofreading clients. I’ve been on my own ever since. As I gained experience and got more and more clients, I streamlined my proofreading method so I could work more efficiently. Eventually, proofreading became my primary source of income. My friends and family took notice and started asking me how I built my business. I released Proofread Anywhere, and then later, Transcript Proofreading: Theory and Practice™, launched.
WHAT DO FREELANCE PROOFREADERS DO?
People (specifically bloggers and other business owners) are looking for passionate, detail-oriented proofreaders. Whenever words get put into print, they need to be proofread for accuracy. Someone can write a blog post or a resume (or anything, really) and read over it themselves, but they already know what they put on the page. That makes it super easy to read what you expect to be there rather than what’s actually on the page. That’s when writers can overlook a misspelled word (think their instead of there) or a missing word. So it’s always good to have someone else read over your writing. I even have someone read my blog posts before they go live. No one’s immune! It comes as no surprise, but my favorite type of proofreading is proofreading transcripts for court reporters (often referred to as legal proofreading). Anyone who’s watched crime drama TV shows has probably seen a person sitting in the front of the courtroom typing away on a little machine. That’s a court reporter, and they’re writing on a steno machine. They take down word for word what everyone in the courtroom says. Their steno notes are turned into a transcript, which then needs to be proofread before it’s handed over to the person requesting it. Transcript proofreading is a very specific niche and requires very detailed training before proofreaders start helping out court reporters.
WHAT ARE THE QUALIFICATIONS FOR FREELANCE PROOFREADING?
Surprisingly, it isn’t just about being a whiz at grammar and spelling. It’s actually about having a good work ethic. You are in charge of your own success. Your reputation will determine if you’re someone in the proofreading community who will be known for your outstanding work ethic or rather as someone who can’t be trusted to respond to emails, return a quality job, meet a deadline, and/or be honest. A good proofreader likes to read. You will be doing lots (and LOTS) of reading. If you don’t enjoy reading, you definitely won’t enjoy sitting down and picking up a 300-something-page transcript. You need a desire to learn and keep learning. If you’ve never proofread a transcript before but think you know it all already — and just need to know how to get clients — you’ll be in for a rude awakening. Court reporters can smell inexperience from a mile away. Finally, you do need to be familiar with basic grammar and spelling rules. You don’t have to be perfect at them, but if you have a hard time catching errors as you read through advertisements or magazines and such, you’ll have a very difficult time with transcript proofreading, and I wouldn’t recommend it for you. Oh – and one more thing!! Proofreading is not a way to get rich quickly by putting in minimal effort. Transcript proofreading is a lot of work. If you’re looking for a willy-nilly little “course” to give you some general ideas on how to catch errors and make crazy cash, this isn’t for you. Transcript Proofreading: Theory and Practice™ isn’t designed to chuck a gazillion people haphazardly out into the world to scrounge for clients. It’s there to equip serious people with the serious skills needed to perform serious work.
IS ANY SPECIAL TRAINING REQUIRED?
While theoretically, anyone could call themselves a proofreader and start trying to proofread general text like term papers, blog posts, and the like, now you know that transcript proofreading for court reporters takes a different kind of skill set than general proofreading. Transcript Proofreading: Theory and Practice™ goes in-depth on everything, from the very basics of what makes up a transcript to how to proofread transcripts (you practice on over 3,000 real transcript pages) to marketing specifics. Even if you’ve proofread other types of text before, if you haven’t proofread a transcript before, you’ll need specific training before offering that as a service.
HOW MUCH MONEY CAN FREELANCE PROOFREADERS MAKE?
That depends on quite a few factors. Transcript proofreaders charge by the page, so your rate will depend on how quickly you can work through a transcript — and with what accuracy you can do that. Blasting through a transcript ultra-fast and leaving loads of errors in your wake won’t make you more money in the long run because it will ruin your reputation. It’s best to start slowly and build up speed. It also depends on your goals. Do you want to quit your job and stay at home? Some graduates of Transcript Proofreading: Theory and Practice™ consistently earn more than $2,000 a month and can stay at home with their kids. Others don’t want to quit their jobs but appreciate the extra cash to pay off debt faster or have more wiggle room in their budgets. There are students making $4,000 and more a month – working part-time. Others are making 6-figures annually. It’s your business. You decide how much you want to proofread. That kind of flexibility is exactly what makes me so passionate about the work.
WHAT IF I TRY IT AND HATE IT?
Then be honest but kind to yourself. You won’t know until you try, so if it seems interesting to you, give it a fair shot. Don’t quit too early, but if you get into it and honestly don’t enjoy it, that’s a good sign it’s time to move on. Some folks get started and LOVE every minute of it. Others start and find out it’s really not something they enjoy. That’s why I break the training into levels. Students invest in each level as they go — not all upfront. So if someone decides it’s not something he or she wants to continue, then they’d simply not invest in the next level of training. Easy! Now while there have been students — and even graduates — who have decided proofreading just isn’t for them, the knowledge and confidence they gain through the community and the training (especially the marketing training) gave them the confidence to branch out into other freelance skills. Some stick with proofreading but instead of proofreading transcripts, they do other types of proofreading. Others find a completely different area of the freelance world they really love, like transcribing or writing. We even encourage branching out because more skills always translate to more money.
WHAT DOES IT COST TO GET STARTED PROOFREADING?
You can sign up for my free intro course for, well, free! It won’t cost you a dime to see if proofreading transcripts for court reporters is something you would be interested in pursuing further. Full disclosure: It takes a LOT of work to learn the ins and outs of this work, so you won’t learn everything you need to know in a free week-long course. BUT it will help you decide if you want to pursue transcript proofreading further in the intensive course, and you’ll get some excellent marketing tips for general proofreading. If you do choose to move on with structured training, you’ll find that compared to investing in a college degree to start a new career, our online training is quite affordable. Aside from your training, we recommend an iPad (around $200 for a mini) and a special annotation app we use (about $10).
HOW DO YOU FIND ONLINE PROOFREADING JOBS?
Rather than spin your wheels trying to figure out how to get started on your own, I recommend you take a free course to get started. You’ll learn more about proofreading so you can decide if it is a fit for you or not.
ANYTHING ELSE OUR READER SHOULD KNOW?
Don’t second-guess yourself. If you have eagle eyes that are always catching errors all over the place, transcript proofreading may just be your niche. Self-doubt is one of the biggest reasons dreams never make it to reality. Time to do something about that!
Financial success can be due to making good decisions or avoiding big mistakes. In many cases, the biggest mistakes happen after good decisions, because the stakes have become higher.
As an example, let’s consider the dilemma of Motley Fool reader Jim, who emailed us this question: “Did I make a substantial error when taking money out of my IRA?”
To help answer that question, Jim sent along some details:
He’s retired.
His IRA was worth $325,000.
He couldn’t get a mortgage.
He used $150,000 of his IRA to buy a house.
He receives $24,000 annually from Social Security.
Now, that’s not all the information we’d need to determine whether he treated his IRA with TLC. But from what he told us, I’m going to make an initial diagnosis: He made a few mistakes.
As a cautionary tale for all us retiree wannabes, let’s take a look at some important lessons from Jim.
Lesson #1: Crunch your numbers before you retire
The good thing that Jim did was save for retirement. In fact, he had a bigger nest egg than most retirees, according to the Employee Benefit Research Institute’s 2012 Retirement Confidence Survey. Only 15 percent of the participating retirees reported having more than $250,000 saved up.
Unfortunately, being significantly above average still may not be good enough, especially since it’s my opinion — based on studies and anecdotal evidence — that too many people retire too early. (NPR’s series about Americans working longer mentioned a woman in her 90s who had to go back to work.) Having more than most retirees may be like being one of the best players on the practice squad.
Determining whether you have enough to retire can be a complicated analysis, perhaps best done by paying a fee-only financial planner who charges by the hour or by the project — such as many of the folks in the Garrett Planning Network — to help with the ‘rithmetic. However, for the purposes of this article, we’ll use the 4 percent withdrawal rate rule: a rule of thumb that says retirees should withdraw no more than 4 percent of their portfolio in the first year of retirement, and then adjust that amount every subsequent year for inflation. (There’s plenty of debate about whether 4 percent is actually best number, but it’s good enough for this discussion.) So, 4 percent of Jim’s $325,000 IRA is $13,000. Add it to Social Security, and he has income of $37,000.
But wait! He no longer has $325,000. That’s because he didn’t know about Lesson #2, which is…
Lesson #2: Get a mortgage before you retire
Ideally, you kill your mortgage (after all, “mort” is “death” in Latin, and the “gage” part means “pledge”) before you quit your job. However, if you’re in the position of needing a mortgage in your 60s, you’ll be more likely to get one while you’re still working because you’re still earning a paycheck and likely have a higher income. Also, it’s against IRS rules to use an IRA as collateral for a loan.
Lesson #3: Avoid large traditional IRA distributions
Unfortunately for Jim, he didn’t get a mortgage, so he made a $150,000 withdrawal from his IRA. Assuming this is a traditional tax-deferred IRA, that withdrawal was taxed as ordinary income — likely vaulting him from the 15 percent tax bracket to the 28 percent tax bracket. Thus, to have $150,000 to spend on a house, he likely would have withdrawn something closer to $180,000 to cover both the price tag and tax tag.
All still may not be lost
Assuming Jim has $145,000 left in his IRA (i.e., he withdrew $180,000 from the $325,000 he had), applying the 4 percent rule of thumb to that amount (resulting in $5,800), and adding that to his Social Security ($24,000) gives Jim an estimated annual income of approximately $29,800. According to the Department of Labor’s 2010 Consumer Expenditure Survey, the average household led by someone age 65 or older has annual expenditures of $36,802. Jim might be OK if he keeps his retirement modest; he doesn’t have a mortgage, so he just needs to worry about maintenance as well as food, utilities, transportation, taxes (which will be low for him going forward), and health care (not so low, and growing). Also, if he needs extra funds, he can get a reverse mortgage, which could add another few thousand dollars of annual income, depending on his age. However, this doesn’t leave much room for unexpected big-ticket home repairs or health repairs.
Even though he’s retired, it’s not too late for Jim to crunch his numbers to determine whether he can be reasonably sure that his portfolio will last the rest of his life. If it looks like that isn’t likely, then he has to change one of the key variables – income (i.e., go back to work), expenses (lower them further), or life (shorten it — the least-attractive option). Even working for a few more years, even part-time, can have a powerful impact on your retirement security. And it’s better to do it now rather than wait until your 90s.
Hello! Today, I have a great article from JT. JT has a great story about how he was down to his last dollars living in a hostel, to hitting his retirement number just a little over a decade later. If you’re looking for another great retirement article, I also recommend How This 28 Year Old Retired With $2.25 Million. Below is his article on how to retire in your 30s. Enjoy!
Have you ever seen a grown man ugly cry?Our faces scrunch up like a squeezed sponge, wringing the water from our eyes.Our shoulders shake uncontrollably.We gurgle out a noise that’s a cross between a laughing hyena and a grunt.We’re not pretty.
It was 2000.I was ugly crying on the bed of the Spanish Harlem hostel where I was living, down to my last dollars.Months earlier, I graduated college, sold my car, and drove from Los Angeles to New York City with sunny West Coast optimism.Then after months of getting rejected from job after job after job, reality blew in like an East Coast blizzard.
They say, “New York City:If you can make it here, you can make it anywhere.”For those of us who have tried, it can feel more like, “Since I can’t make it here, I can’t make it anywhere.”
I wasn’t crying because I failed.I was ugly crying because I thought I was a failure.
And yet, a little over a decade later, I hit my retirement number.So what happened between the tears of sadness and the tears of joy?I’ll tell you exactly what I did to hit my retirement number in my 30s.
Related articles on how to retire in your 30s:
What is Your “Retirement Number?”
First, let me define what I mean by retirement number. It’s not just sitting under an umbrella on a faraway beach sipping fruity cocktails (although that would be nice!).It’s simply the point where if you were to quit working, you could still cover your basic needs.Basically?It’s when going to work is a choice.
You might find out, like I did, that you actually want to keep working.The best part of reaching your retirement number isn’t money, it’s agency. It’s the ability to spend your time the way you choose — unless you have little ones like I do waking you up at 6:00am every morning!
Sound pretty good?Here are my 6 steps to find out your retirement number and how to reach it.I’ll spend more time on the first 2 because they are the foundation for the remaining 4 steps.The math might seem a little intimidating at first, but if you write it down on paper, you’ll find that it’s not too bad.As you’ll see, you don’t have to be a math or money genius to retire early!
The 6 Steps to Retire in Your 30s:
Budget to a Balance Sheet:
When many of us think about our finances, we focus on what’s called the “income statement.”As a result, the budgets you see are most often just an income statement, like this:
Understanding your savings amount is a good starting point, but it’s where most people stop.Instead, use it as a starting point.The savings amount from your income statement is there to help make your “balance sheet,” which is just a fancy way of understanding what you have and what you owe.It will take some time go gather up your statements, but it’s not harder to make than your income statement.
Your balance sheet is basically:
Your savings amount flows into your “What You Have” bucket since that savings is now what’s called an “asset.”Think of it like when you eat cashews and have several left in your bowl.You’d go and put the remaining cashews back into the bulk container.Those cashews just went from leftovers to future snack.
Next, add your investment account balances to your “What You Have” bucket.Don’t include your car, house, jewelry, or any other physical things unless you actually plan to sell them within a year.You’re trying to figure out all your “What You Haves” that can be used to fund your living expenses, and last I checked, biting into your steering wheel wasn’t all that filling.
“What You Owe” is your credit cards, student loans, mortgage, and that loan you took out from your uncle.The technical term for these is “liabilities.”So, once you organize your information, you basically have your balance sheet.You’ll see in the next steps why having a good grasp of both your income statement and your balance sheet is so important.
Know Your Retirement Math:
A study by financial planner William Bengen found that if you withdraw 4% a year, your money would last you at least 30 years if you had a 50/50 portfolio of stocks and bonds.Others have found that most of the time (although on a 60/40 stock/bond portfolio), you would actually end up with more than when you started.
Bengen got to this 4% rate by back testing the withdrawal rate that would have worked even through the Great Depression, basically taking the worst case scenario in history.
The 4% withdrawal rate is a helpful guide for knowing how much to withdraw, but not very helpful to let you know how much you should have to withdraw from.To find that, you’ll need to convert it into a goal.We’ll start with the 4% withdrawal equation:
But that’s not a goal.It’s basically where you are today if you were to try to retire early.To convert it into a goal, you’ll need to do some mathematical jujitsu with the equation above (not to worry, I did it for you!).It’s the same equation, but I’ve mixed it in a blender to make it more helpful:
If you look carefully, I just reversed the “retirement withdrawal” equation.I changed the “retirement withdrawal” to “living expenses” and inverted the 4% to make it 25.By doing this, you can get to your “Retirement Number” goal.
You might be thinking 25 times your expenses is a big, scary number.It can seem unreachable.But, I’m excited to show you how it can work in your favor.To do that, turn the “25 times” into the ratio:
When you look at it as a ratio, you can see the power of reducing your expenses.For every $1 you shave off of annual expenses, you’ll need $25 less in your “What You Have” bucket to hit your retirement number.To illustrate how powerful this is, let’s look at an example:Say you spend $35,000 a year but shaved off $4,000 in expenses.Take a look at what happens:
If you put your money into the stock market, you might get the historical 7% annual returns.Your account might get bigger.But it also might get smaller.But if you cut expenses, you’re guaranteed to get a 2,500% return!($4,000 savings x 2,500% = $100,000 effect on your retirement number)
Isn’t math fun?
You’ll notice I’ve only focused on “What You Have,” so why did I want you to know your entire balance sheet?It’s a little circular, but I think you’ll get it one you think about how the income statement and balance sheet talk to each other:
Reducing your expensive “What You Owe” (like credit cards) items on your balance sheet leads to…
Lower expenses on your income statement, which leads to…
Higher savings on your income statement, which leads to…
Increasing your “What You Have” on your balance sheet, which leads to…
Hitting your retirement number sooner!
So don’t ignore your “What You Owe” number.The sooner you get rid of your high interest rate ones like credit cards, the sooner you can hit your goal.
Alright, so how are we going to apply this to our actual lives?
(Do you wish you knew how to do this when you were younger?Would you like to teach it to your child?I’ll show you how teaching your children about money can be fun, fast, and easy starting here.Download the FREE Guide to Helping Your Child Start Their First Business and you’ll also get access to a FREE course on how to get your finances in shape for early retirement!)
Make As Much As You Can:
I know — you’re shocked!
Even though it’s basic, let’s take a moment and think through the implications of what this means.It means that if you’re serious about retiring early, you don’t work for passion.You work for money.If Goldman Sachs is offering you a job but you’d really rather be glassblowing, take the Goldman job, hang in for as long as you can, then retire early and spend the rest of your life glassblowing.Till the ground now so that you can enjoy the fruit of your harvest later.
As for me, I persisted and eventually found myself at a hedge fund that allowed me to stay in New York City.But most of us don’t have the opportunity to immediately get a six figure job.What then?
Side hustle.
Michelle has 65 Ways to Earn Extra Money.There should be at least one that tickles your fancy.Remember, you are trying to increase your income so you can increase your savings so you can increase your “What You Have.”
So that I could extend my runway until I could get a full-time job, I worked as a sales associate at Banana Republic.When I finally did land a full-time job, much to my friends’ puzzlement, I kept my sales associate job and turned it into a side hustle.(Imagine how mortified my boss at the financial firm where I worked felt when she ran into me at Banana Republic!).My balance sheet thanked me, as it helped me quickly pay off my “What You Owe” items, including student debt.
Change Your Spending Mindset:
Change your default question from “What can I afford?” to “What can I withstand?”Often times, when we get an upgrade in pay, we too often automatically think we need an upgrade in lifestyle.Why default to this assumption?
Let’s say you just got a promotion that is paying you $5,000 more a year.You’re tired of asking your roommate clean up her dishes.Your car is fine, but basic.You think about how hard you’ve been working and how you deserve your own place and a new car.
We’ve all felt this tug to spend more.But as we’ve seen in step 2, the ability to minimize your spending is the most powerful thing you can do to reach your retirement number.
Even though I was making six figures, I lived with roommates in non-prime areas of Manhattan until I got married.I never had a doorman.I hardly took cabs.I stayed in and cooked most nights.Within a few years, I paid off $15,000 of school debt and started building up my net worth.
Invest (Almost) Everything:
Saving is not the same as investing.Saving is the act of putting money away for a rainy day.Investing is putting money to work.In fact, if you simply save without investing, you actually lose money due to inflation.
After you’ve saved enough for 3 to 6 months of living expenses, invest the rest.The S&P 500 has historically returned 7% a year, after inflation.Meanwhile, the average annual salary raise has been around 3%.This difference is huge!It means that at a certain point, your investments will actually start making more than what you’re saving per year.Then, with enough time, it will actually start making more than your entire annual salary!
Basically, you’re trying to shift your finances from the picture on the left to the picture on the right.
Now, the last step can be tricky, but greases the path to your goal.
Move to a Lower Cost Area:
This is the trickiest part but also has the most potential to get you to your early retirement goal. An easier way to do this is finding an employer that also has a location where you want to be. For the East Coast, that’s either moving from Manhattan to a borough like Queens or transferring to another city like Philadelphia or Stamford.On the West Coast, it’s like moving from San Francisco to Portland.(Or, for the ultimate move, live in an RV and see the entire country like Michelle!)
A few years ago, I moved to Philadelphia while keeping my New York City salary.In so doing, I significantly reduced my housing expense by thousands of dollars…every month. With that one move, because I reduced my biggest expense, my wife was able to stay at home with our 3 children.In other words, it allowed my wife to retire (although her work as a SAHM is much more challenging than mine!).At the same time, I was still able to accelerate our retirement timeline by decades!
So, if reducing your expenses is the most powerful thing you can do to reach your retirement number, cutting your housing expense is the most powerful thing you can do to reach your expense reduction goal.
But Can You Really Hit Your Retirement Number Before 40?
Let’s put all six steps together.
You’ll see that it can be done without making six figures.Let’s say you make $50,000 out of college and have a side hustle that makes you an extra $12,000 a year (I based this on the 20-25 hours a week I worked at Banana Republic while keeping my full-time job).Also, you live with a roommate and pack lunches most days a week and only occasionally eat out for dinner.
Your salary and expenses each increase 3% a year, which is in line with historical inflation.
Your investments earn 7%, which is the historical S&P 500 return above inflation.
At ages 28 and 34 you get a promotion, getting a $5,000 bump in salary each time.
Your first promotion at 28 gave you more responsibilities, so you decided to quit your side hustle.
At age 34, you move to a lower cost part of town, reducing your living expenses by 15% over the prior year (yes, it’s possible – I saved more than this moving from Manhattan to Philadelphia).
As you can see, by the time you’re 39, you could withdraw almost $43,000 a year.So, if you were this person and quit your job at 39, you’d have enough to cover living expenses and taxes until social security kicks in.
As you can see, it’s possible even if you don’t have a big salary.So the real question is not “can you?” but “do you?”Do you have the desire to transfer the math into your actual lifestyle?Do you put in the effort to create the habits to sustain this level of investing for almost 2 decades even when life throws you curve balls (which will happen)?Do you set aside time and energy to start a side hustle even when your friends are going out and having fun without you?Do you say “no” to the tug to spend more and that desire to show the world how successful you are by the clothes you wear or car you drive?
If you do, then the only thing between you and achieving that goal is…you.
A Different Cry:
Several years ago, I had a different moment while sitting down.This time, I was looking at my balance sheet and realized that I had surpassed my retirement number.There was no blubbering this time, just a calm lightness.I felt liberated.From then on, every day I walked into work was because it was my choice.
The funny thing?I realized I wanted to keep working because I was still having fun.For now.My 67 year old boss just retired.Instead of the joy and excitement you would’ve expected, he had a lot of fear about how he was going to fill the rest of his days.Do you want this fate?You work so hard for so long that when you do have financial freedom, you’re either too old or too set in your routine to experience all the things you used to want to do.
For someone working toward a single purpose for so long, it’s actually challenging to not have a big goal anymore.And the time to figure out what else to do is while you’re still employed.This is why I started Just Making Cents so that I could still have purpose and projects of my own choosing, and to have greater impact on people’s lives.
And that’s when life gets really fun.
Author bio: JT is passionate about viewing money differently, having spent over 15 years on Wall Street.He writes about money from the perspective of faith and as a father of 3 spunky kids.
Are you interested in learning how to retire early? Why or why not?
