Lazy Man and Money

So You Have a Huge Student Loan (Like Me), Here Are Your Options

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[Editor’s Note: I’m still shoveling out of two feet of snow, so today we have a guest post from Grant Biles, the co-founder of Gradible. The company helps people on how to eliminate student loan debt. The following is his guide on what students can do to pay off their loans. I’m often offered guest posts that are very self-serving, so it is refreshing that some of the suggestions don’t require the use of his company’s services. Hopefully tomorrow, we’ll get back to our regularly articles.]

Options

I’m one of the more than 40 million Americans who holds student loan debt, and if you’re reading this, I imagine you or someone you love does, too. Two out of 3 undergraduates leaves school with student debt these days, and the average graduate has more than $30,000 in student loan debt.

In my role as a co-founder of Gradible, a platform that helps people with student loan debt pay it back faster, I have talked to thousands of graduates across the country about their different situations and needs regarding student debt. The two biggest takeaways from these conversations are that student loan debt situations are varied and most people want to manage the repayment of their debt in a balanced way: they want to continue to have a fulfilling life, while also eliminating the debt as quickly as possible.

My team and I have done extensive research and found many of the most effective and helpful options for the variety of different situations that student loans present their holders. If you’re staring down a huge monthly student loan payment and wondering how you’re going to afford all your necessities, or just want to eliminate the small amount of debt you took on as quickly as possible, we’ve found answers and options for you.

Options for Managing and Repaying Your Student Loans

  • Modifying Repayment Terms

    The direct impact of student loans is not the total balance, it’s the monthly obligation that must be balanced with all of life’s other necessities and nice-to-haves. Additionally, there are many ways through which you will be able to reduce your student loan payments over time.

    We have found that, especially for recent graduates still working their way up the salary ladder, Income Based Repayment is a very helpful tool. This pegs your monthly payment at 10% of your take-home pay. You can file for it at the link above. The downside of this program is that by reducing the monthly payment, you naturally are extending the repayment lifetime and therefore the total amount of interest you will pay. If you are unemployed, have had trouble finding a job, or been very ill, you can also work with your student loan servicer to enter forbearance or deferment. These programs stop the repayment of your loan for a fixed amount of time, if you qualify. Again, the catch here is that your repayment lifecycle increases, because interest continues to accrue in almost all situations.

  • Student Loan Repayment Services

    My company, Gradible, offers a variety of flexible ways to earn your way out of debt faster and manage your monthly payments. We source offers from businesses such as cashback deals on shopping, surveys and studies, short freelance projects, and more, that you earn credits for completing. We then redeem these for you directly to your student debt. We’ve helped graduates pay off more than $200,000 in student loans in the past year, and we’d love to help you, too. Another service that offers cash back to your student loans is SmarterBucks. Check out these two websites to begin accelerating your rate of repayment.

  • Part-time work

    When you think of part-time jobs, your mind likely goes to the old standards: manual labor, restaurant and bar work, or retail. All of these options can provide you with extra cash to meet liabilities like student loans. Additionally though, in our modern, smartphone-driven age, there are a variety of more flexible opportunities that could be more appealing to earn the extra cash you seek. Here are just a handful of the most popular:
    You can drive an Uber or a Lyft.
    You can deliver packages as a Postmate.
    You can do odd jobs as a TaskRabbit.
    You can pick up and deliver groceries for Instacart.

  • Refinance your loans or get them forgiven

    If you qualify (and full disclosure this is last because so few people do) for the following programs, they can significantly reduce your monthly payment and total amount you repay. CommonBond and SoFi offer refinancing for graduate degrees, but have stringent criteria for income, occupation, and degree type. LendKey also offers consolidation and refinancing products. If you qualify, these are a great way to reduce your interest rates and monthly payments, but the reality is that very few people will qualify for this, due to income and debt levels. Credible is a great site if you want to compare all of your refinancing options in one place.

    If you are currently working in a public service capacity, the Public Student Loan Forgiveness Program is something you definitely should consider. This program helps teachers, firefighters, police, public defenders, and other civil servants reduce monthly payments in a similar manner to Income Based Repayment (10% of monthly take-home pay), and it qualifies you to have your loans completely forgiven after 120 consecutive on-time monthly payments.

This list is not exhaustive, but it does present you with most of the options we’ve found. I’m obviously biased, but I think Gradible makes the most sense for the most borrowers, so give us a shot, and I hope this guide is helpful. Good luck getting to zero.

This Man has a $100,000,000 IRA – Here is the Secret to his Success

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[Editor’s Note: The following is a guest post from Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group. I met him at this year’s FINCON personal finance blogger convention. He has unique expertise in an very rarely covered area of investing… the self-directed IRA. Fortunately, he agreed to share some this expertise with readers of Lazy Man and Money.]

His self directed IRA is worth over $100,000,000

I’ll bet your first thought is that this headline is an exaggeration. In fact, it isn’t. There is at least one person who has accomplished this feat with their IRA and there could be as many as 314.

According to a GAO report released on November 9th 2014, 314 people had an IRA worth more than $25,000,000. Unless you live in a cave and don’t own a TV, smart-phone, or computer (which means you wouldn’t be reading this) you know who he is. While you may not know him personally, you probably know all about him, his family and details about his life that most people wouldn’t care to disclose. You may have even voted for him… Yes in 2012 you may have voted for him. This man’s name is Mitt Romney.

The Mitt Romney IRA

According to public disclosures required to run for public office of the President of the United States, Mitt Romney is said to have $100,000,000 or more in his self directed IRA. While the recent GAO report does not disclose who these people are that have IRA account balances of over $25,000,000, it does state that there are 314 of them. There are also 791 people with IRA account balances of between $10,000,000 and $25,000,000, and 7,952 people with IRA account balances of between $5,000,000 and $10,000,000. That is over 9,000 people who have extra large IRA account balances.

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Mitt Romney worked at Bain Capital for 17 years and 7 years prior to that at Bain & Company for a total of 24 years. Add that to the 11 years after that (2012) and Mitt Romney had 35 years to accumulate $100,000,000. During that time period the maximum contributions allowable to a 401k plan was $30,000 and up to $35,000 in 2001. Let’s say Mitt contributed $30,000 annually to his 401k plan and earned 20% annually, he would have $100,000,000. Considering Warren Buffett only made 19.7%1 annually for 43 years, this means Mitt Romney is a better investor than Warren Buffett.

These self directed IRA numbers are not unreasonable

Peter Thiel is also known to have an extra large Roth IRA (which allows you to have tax-free growth) due to his early-stage investment in Facebook and other private investments. There are numerous other similarly successful investors who have used this secret knowledge about self directed IRAs to benefit from tax-deferred growth.

But let’s be realistic…

You don’t need $100,000,000. What would you do with it?

I personally think Monty Brewster had the right idea. If you haven’t seen the movie, it is a classic.

While spending $30,000,0000 in 30 days or running for Mayor are interesting ideas, most people don’t need $100 million dollars. You don’t even need half that. Most of the IRA account holders would be happy with even fraction of $100 million.

Regardless of your ideal amount needed for your retirement, hopefully this insight into some very wealthy and smart investors will give you an idea about how you can take advantage of this knowledge and grow your own self directed IRA.

Here is how you can start using your self-directed IRA to take control over your retirement

The first step is to start contributing to an IRA or 401k. Hopefully you already have an IRA or 401k. If so, then you have already taken the first step.

The next step is finding a suitable investment or investment strategy. I would suggest that you first think through what you are an expert in and how you could profit from that knowledge. If you are a farmer, consider investing in a farm, crops, livestock, or commodity futures. If you work in the world of real estate, find a solid investment property, tax lien, or private mortgage to invest in. If you work with business owners, find a private enterprise that needs capital to grow and invest in that company. There are virtually a limitless supply of investments or investment strategies to consider. As Peter Lynch said, “Invest in what you know.” If you follow this sage advice, you will be ahead of most investors.

What is an alternative investment?

Alternative investments do not have a clear definition. Some people use the term to characterize hedge funds, managed futures, or other similar type of fund. Other people use the term to describe a certain trading style: a long-short, hedging through options, or specialized trading strategy. I would characterize any fund, strategy, or individual investment that is publicly traded or holds publicly traded securities as a traditional investment.

Alternative investments would be defined as non-publicly traded investments. Examples of these investments would be: real estate (commercial, residential, multi-family, raw land, timberland, farmland, industrial), private notes or mortgages, tax liens, equipment leasing, oil & gas LPs, private company stock, franchises, horses, livestock, intellectual property, and more.

Why limit yourself to the stock market? Don’t let Mitt Romney have all the fun. The world is your oyster when it comes to investments. Find investments that work for you.

Can I make these investments at my brokerage firm?

Technically you could, but it is unlikely that they will allow it. Most broker dealers (brokers) and custodians are not equip to handle alternative assets effectively, so they don’t allow it. There is a high likelihood that you will have to seek out a self directed IRA custodian to custody these alternative investments. My company, Innovative Advisory Group, has created a list of self directed IRA custodians to help with your search. Contact us to request this list.

How much money do I need to set up a self directed IRA?

While some mutual fund companies will allow you to set up an IRA with $500 or even as little as $100 in monthly contributions, that may not be a beneficial approach with self directed IRAs. Each self directed IRA custodian charges fees for their services and there is no uniform approach to how they charge. Some charge per transaction, some charge a percentage based on the assets which are held at the custodian, and others charge a combination of both. You can learn more about self directed IRA custodians by reading my detailed article on choosing one.

Are there any risks to using a self directed IRA?

The short answer is… Yes

Any investment carries risk, whether it is AIG, Lehman Brothers, Johnson & Johnson, or any other publicly traded stock or bond. You should always fully understand the risks in the investment you are making.

The primary risks with self directed IRAs you should be aware of are:

  • Prohibited transactions – You need to know the self directed IRA rules.
  • Disqualified persons– certain people cannot be a part of self directed IRA investments.
  • Annual Valuations – These are a requirement. Make sure you get the correct type of valuation.
  • Improper risk management and due diligence– always do your homework on any investment.
  • Fraud from investment sponsors (see SEC alert) – know what you are investing in.

Why don’t more people use self directed IRAs to grow their retirement savings?

This is primarily due to a lack of knowledge that it is possible to invest in alternative investments with a self directed IRA. Less than 5% of the IRA account owners hold alternative investments in their IRA, and less than 20% of the population has even heard of the self directed IRA2. Many people learn things through advertising, and since none of the self directed IRA custodians do mass marketing in a traditional way, it is not surprising that only a small segment of the population is using this IRA secret.

Is a self directed IRA right for you?

Everyone should use a self directed IRA or similar retirement account to save for their retirement. This is essential if you want to benefit from tax-deferred growth in order to live comfortably when you retire from your job. However what you should invest in with that retirement account will be unique to each person. Investing in alternative investments with a self directed IRA is not for everyone. Due to the many caveats in the Internal Revenue Code, you should only consider this approach if you have professional guidance, or you have a strong grasp of the rules.

If you want to learn more about self directed IRAs or self directed 401ks, you can contact me to learn more.

Reference:

1. Berkshire Hathaway annual report
2. Investment Company Institute

About the author: Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group (IAG), an independent Registered Investment Advisor. His roles at IAG are co-chair of the Investment Committee and Head of the Traditional Investment Risk Management Group. His background and areas of focus are portfolio management and investment analysis in both the traditional and non-traditional investment markets. Kirk has an extensive understanding of the regulatory and financial considerations involved with investing alternative investments in self directed IRAs and 401ks. He received a BA degree in Economics from Trinity College in Hartford, CT. For more information on Kirk or Innovative Advisory Group you can visit www.innovativewealth.com

Disclaimer: This article is intended solely for informational purposes only, and in no manner intended to solicit any product or service. The opinions in this article are exclusively of the author(s) and may or may not reflect all those who are employed, either directly or indirectly or affiliated with Innovative Advisory Group, LLC.

Three Suggestions for Growing Your Savings Account

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[Editor’s Note: The following is an article from my friend Julie. Many tried and true personal finance tips are summed up here… a good way to kick-start your savings goals for the new year.]

You know the funny thing about savings accounts? If you don’t have the available funds to deposit, essentially there’s nothing to save. As many of us struggle to make ends meet, the need to save often falls to the bottom of the list of priorities. Be that as it may, having a savings account is beneficial for various reasons. It provides a nest egg for personal emergencies or for larger priced purchases. The only trouble is finding the money to put in the savings. It seems like there’s never enough to go around.

So what does one do when they want to save, but can’t find the spare change to put in an account? Get creative… and disciplined. I know, I know, more discipline!? But it’s the most effective way to build your savings and for becoming financially stable. Below are a few methods for adding to your savings account each month:

1. Cut Back on Certain Expenses

Often the easiest way to find money to invest in your savings account is to evaluate your spending habits and find efficient ways to cut back. We often spend way beyond our means and in most cases it’s on things we want, but don’t necessarily need. Below are a few ways I chose to cut back:

· Bring Your Own Lunch – I love takeout just like the next person but when I checked my bank statements, I realized that eating out at even $5 per day was costing me a total of about $100 per month. So I decided to cut back on the eating out and now only treat myself to lunch on Fridays. This meant I was spending about $25-30 per month and could put the remaining money in savings.

· Downgrade Subscription Services – Do you have cable, data plans, or other accounts that require a monthly subscription or service fee? You’ll be surprised to see how they add up over the course of 30 days. I decided to remove all premium channels from my cable, downgrade my data plan, and even switch my Netflix services from streaming and DVDs to just streaming.

· Price Comparison Shopping – Lastly, I decided that for every purchase I made (whether its car insurance, hiring a contractor, or purchasing furniture) that I would compare prices. When I was able to find savings, I would put the difference in my account.

2. Start Small

Another way to grow your savings account is to start small. We often assume that if we don’t have hundreds of dollars to put away, it’s not worth saving. However, you’d be surprised to find out how far a few dollars (or pennies) can go over time – especially if your savings account has good interest rates. Start off with even a dollar per day $30 per month. In the course of a 12 month period, you’re looking at a savings totaling $360. The following year you can up it to two dollars per day and double your savings. As you free up more money in your budget, add it to your savings account.

3. Earn Extra Income

I know you’re thinking, “Not another job!” however, there are plenty of ways that you can earn money without ever leaving the house. In fact, according to Natalie Cooper of BankingSense.com , there are a lot of different ways you can earn money during your spare time. She included:

-Become a freelance writer -Sell crafts online

-Sell unwanted items

-Offer your services on the weekend (i.e. babysitting, lawn maintenance, etc.)

Cooper also added, “As you start earning money, be sure to put it all in the savings account. It can get quite tempting to begin dipping into the new earnings, but if you’ve lived this long without that extra money, you won’t miss it in an account.”

As you start earning money, be sure to put it all in the savings account. It can get quite tempting to begin dipping into the new earnings, but if you’ve lived this long without that extra money, you won’t miss it in an account.

You hear experts discussing how much money you should be saving, and it can become very intimidating. However, if you break the bigger picture down into concepts that you can easily follow it makes saving a lot easier to do. Some of the ideas above might require a bit of practice while others will come naturally. As long as you’re saving something, you’re doing a whole lot better than you were in previous months.

Lazy… Useless… Good for Nothing… That’s Not a Bad Strategy.

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The following is a guest post by Rob Pivnick, author of What All Kids (and adults too) Should Know About… Saving & Investing. There is more information about the author at the end of the article, but just reading his accomplishments makes me tired.

Someone recently commented on an article of mine saying “I am too lazy to try to beat the market, so I really like your style of investing.” I immediately thought of Lazy Man. I wish everyone who invests was as lazy as that person and me. Lazy investing necessarily means that one passively invests in indexes, does not try to time the market, does not chase returns, and does not invest emotionally. Lazy means buy-and-hold.

I certainly can’t claim these ideas as my own. I’m merely parroting what the likes of the following great investment minds have said in one form or another: Bill Gross, Peter Lynch, Jack Bogle, Burton Malkiel, etc. Earlier this year, even the most successful investor of our time Warren Buffett recommended a simple portfolio of low-cost passive index funds for his estate.

Recent market movements, and actually the volatility going all the way back to the 2000’s, might lead some to disavow a buy-and-hold strategy. Listen to them and you might be thinking that you can create alpha and generate better returns by pursuing anything other than a buy-and-hold strategy. But the question you have to ask yourself is “Do you think you’re smart enough to time the market’s movements?” The answer is . . . NO. If you are a long-term investor, you should not try to time the market. Be lazy. Do nothing.

So, for the benefit of the most useless and lazy investors amongst us, I offer up these six tips. Follow them for the easiest, do-nothing, lazy investing strategy that can’t even be beat by the professionals.

1. Start Saving Early. Let Compounding Work For You.

Start saving as early as possible because it is the easiest, best and laziest way to let your money work for you.

A chart helps you see why compounding makes such a difference. The below graphic shows two savers, both saving $100 per month at an annual average return of 8.5%. The blue line shows the saver who started when she was 20 years old. The red line shows someone who waited until she was 30. The ten year difference (which is only an additional $12,000 saved) results in over $240,000 more growth! So . . . start now.

2. Invest In Indexes; Don’t Be A Fool And Try To Beat The Market.

I’m just an average investor. And I’m lazy. If I actually thought I was smarter than the market, I might not be bothered to even try. And I’m comfortable with that. You should be too. Plus, it would take too much work. It is better to be the market than try to beat the market.

Over the long term it is impossible to consistently beat the market without taking on additional risk. The chart below shows how passive index funds beat actively managed funds over the five year period ended 2013. The percentages show how many actively managed funds beat the benchmark for their category.

Anywhere from 65%-80% of funds cannot beat by the market. A dismally low 20%-35% of professionals beat the market year over year. In fact, over the 15 years ended 2011 a full 46% of actively managed funds closed due to poor performance. 7% of all actively managed funds failed every year. The professionals are not smarter than the market. Neither are you.

Not only can active funds not beat the market, but they charge a full percentage point more on average than passive funds. And assuming active funds could match the market, the one percent fee equates to almost 12% of your returns assuming an 8.5% average annual return. Don’t give up that much for the same (if you’re lucky) return.

3. Do Not Try To Time The Market – You Can’t. Buy And Hold Is The Best Long Term Strategy.

Depending on which research source used, the average investor’s annual return is anywhere between 3% and 5%. That’s compared to the historical average market return of 8.5%. Why? Because we are terrible at investing. We chase returns. We react to fear. We buy into the media hype. And we invest emotionally. Emotional investing causes most of us to buy high and sell low. In fact, the year 2000 saw a record inflow into domestic equity funds in history. Immediately following that the market dropped almost 50% (fueled by the dotcom bubble bursting). In 2008, the opposite occurred as a record was set for the most outflows of funds from domestic equity funds. What happened next? The market has been on an unprecedented climb since then, with returns reaching almost 200% from the market low. As of the date of this article, it’s still climbing. And most investors missed out on that recovery.

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4. Do Not Chase Returns. The Market Always Reverts To The Mean.

Of course you know that over the long haul, by definition, stock returns and markets will generate their historical average returns. Another way of saying this is that the market reverts to its mean and ultimately moves back towards its average return in the long term. Short term returns may vary, but the long term returns always revert to the average.

One of Vanguard founder John C. “Jack” Bogle’s 10 Rules of Investing is as follows:

Remember reversion to the mean. What’s hot today isn’t likely to be hot tomorrow. The stock market reverts to fundamental returns over the long run. Don’t follow the herd.

Emotional investing is a losing strategy. Investors fall into the be-a-part-of-the-crowd trap because social validation dictates that their investment decisions must be the “right” ones if others are doing the same thing. The media says buy, so most investors get in the market. And when everyone else is in a panic and selling, that’s what most people do. But you should stick to your long term plan. See # 3 above. Lazy prevents you from investing emotionally.

5. Minimize Expenses, Invest In Low-cost Index Funds.

Every investor should know that past performance is no indication of future returns.What you might not know, however, is that the single most accurate predictor of future returns is low fees. That’s right. Studies have shown that focusing on low fees solely would result in better returns for investors. When looking at factors such as past performance, manager tenure, expense ratios and Morningstar ratings – expense ratios were the only reliable predictor of future performance. From Morningstar’s own Director of Fund Research Russel Kinnel: “If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds. . . . Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

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6. Don’t Put All Your Eggs In One Basket. Stay Diversified And Follow A Plan.

Diversifying won’t increase returns. But it does allow investors to lower risk without lowering the expected return. It can limit losses without sacrificing gains. It’s the only way to do that. Unfortunately, diversification won’t protect against the risk that the entire market goes south. But by spreading investments over a wide variety of sectors and asset classes in a smart way (those without high correlations to each other), the risk that any specific investment will fail is partially canceled by all other investments and overall risk is lowered. Investors can and should diversify among asset classes. And investors should also diversify within each type of asset (e.g., diversify among different sectors, geographical regions, market capitalization, industries, etc.).

Invest in a mix of stocks, bonds, and other assets according to your individual goals and investment horizon. Don’t invest emotionally. Ignore the crowd. Stick to your long term plan and . . . please . . . turn off the financial news.

Conclusion

You are not smarter than the professionals. You are not smarter than the market. Heck, even the professionals are not smarter than the market. Put your trust in your laziness and start saving early. Diversify. Then do nothing. It’s ok (and even recommended) that you do nothing (well, you should re-allocate at least yearly). It’s ok to be lazy.

About the Author

Rob Pivnick is an investor, entrepreneur, attorney, residential real estate investor and financial literacy advocate. Rob has both a law degree and an M.B.A. from SMU in Dallas, TX. He is a member of the board of directors of the Texas affiliate of the national Council on Economic Education. Professionally, Rob is in-house counsel for Goldman, Sachs and Co. and specializes in finance and real estate.

Rob’s book, “What All Kids (and adults too) Should Know About Saving & Investing,” targets young adults/millennials with vocabulary words, fun facts, “Did you know?” sections, and 14 key takeaways. Statistics, charts and graphs from expert sources bolster the information. It aims to help students develop proper habits for saving and investing for long term. Not get rich quick. Chapters include budgeting, debt, setting goals, risk vs. reward, active v. passive strategies, diversification and more. Visit www.whatallkids.com for more information. You can follow him on Twitter: @RPivnick

MoneyStepper on Escaping the Rat Race

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[Editor’s Note: The following is a guest post from Graham Clark at MoneyStepper. It’s rare that I accept a guest post from outside North America as what works there, might not work here. However, I found his story inspiring and that’s relevant everywhere.]

The rat race. We all want to escape it. But, why? What is the rat race? Well, according to Wikipedia:

“The Rat Race is a 1960 American drama film directed by Robert Mulligan and starring Tony Curtis and Debbie Reynolds as struggling young entertainment professionals in New York City.”

However, I’m not sure that this is the rat race that most of us are trying to escape from. Let’s keep looking:

“A rat race is an endless, self-defeating, or pointless pursuit.”

That’s more like it.

After 7 years in a Big4 Accountancy Firm, I started to realise that I was in the rat race. I had no specific goal in mind. My pursuit was simply to earn a pay-check. But, what for?

Nothing. I wanted out.

What does it mean to escape the rat race?

Escaping the rat race can have different meanings to different people. My first step was to define exactly what “escaping the rat race” meant to me. In order of preference, I determined that my definitions were:

  1. Retirement, i.e. no longer needing to work.
  2. Becoming financially independent from an employer.
  3. Working from home.
  4. Moving to another different job that doesn’t involve working 9 to 5 and/or a long commute.
  5. Moving to a less intense role either at a different company.

    6. In mid-2012, I made this my mission, and I was going to get intense about achieving it. Over the course of the past 2 years, I have been able to get into a position whereby I was comfortable enough to leave my employer and put myself in position 2 above.

    How did I do this? Breaking it down methodically, I followed these steps:

    Step 1 – Perform a personal gap analysis

    My first, and biggest, change was to perform a personal gap analysis. If you have not heard of the phrase “gap analysis”, it is a term used in business whereby you define exactly where you are right now, where you need to be and what “the gap” is between these two scenarios. Once you understand the gap, you can devise a strategy to fill it.

    Once I had decided that I wanted to escape the rat race (and the sooner the better), I started tracking (penny for penny) my budget and my net worth. From a financial perspective, this told me exactly where I was.

    To determine where I wanted to be, I needed to work out what my financial needs were at each of the 5 definitions of “escape the rat race” above.

    1. Have truly passive income that exceeds my future needs
    2. Have income coming from sources that is not my employer and which exceeds my future needs
    3. Find an employer where my income exceeds my future needs, but allows me to work from home
    4. Find an employer where my income exceeds my future needs, but where I work less hours
    5. Find an employer where my income exceeds my future needs, but which is less stressful

    This allowed me to define my “gap” for each scenario.

    I then decided, due to the respective size of the gaps, that my goal over the following two years would be to stay in the rat race, all whilst doing everything I could to earn additional income elsewhere, in order to get myself all the way to step 2.

    Whilst I considered steps 3-5 as suitable alternatives, none of these hugely appealed to me in the long term and I decided I would rather sacrifice in the short term (2-3 years) in order to step up the ladder a little quicker.

    Step 2 – Work really hard and find additional income

    Therefore, I got to work. I worked really hard at my full time job, which ensured that I received good ratings and good annual bonuses. This would then help me narrow that gap.

    I started my site, MoneyStepper, in order to generate additional income. This would then help me narrow that gap.

    I created a sports quiz app, in order to generate another stream of income. This would then help me narrow that gap.

    I sold a lot of my material possessions that I didn’t need or use regularly. Golf clubs – sold. Second TV – sold. DVDs – sold. Clothes I didn’t wear very often – sold. Surfboard – sold. Xbox – sold. You get the idea. This would then help me narrow that gap.

    I monitored my spending very carefully through a monthly budget, which pushed my regular average savings rate over the past 2 years to over 66% of my net income. This would then help me narrow that gap.

    I invested my money that I had saved into a diversified portfolio of equities and real estate. This then generates passive income through capital growth, dividends and rental income. This would then help me narrow that gap.

    Step 3 – Make the leap

    Now, two years down the line, that gap has been narrowed. Therefore, in the past few months, I prepared myself to make the jump out of the rat race.

    My net worth and corresponding passive income is not currently sufficient to not work at all. Instead, I continue to focus on my aforementioned projects, putting me at step 2.

    Personally, this takes me out of the rat race and where I want to be. At 29, I don’t think I’m quite ready for step 1 and total retirement yet! Instead, I am focusing my efforts on things that I enjoy doing and from which I get a great sense of achievement and pride when people provide me feedback on what I do.

    However, I wasn’t fully confident relying only on these sources of income this early in my life. Therefore, before making the leap, I identified a number of potential consulting contracts that I could perform with clients that I have previously worked with. This puts me entirely in control of my work schedule, but allows me to earn some semi-fixed income if required. This is my safety net.

    I’ve now been out of the rat race for 3 weeks. I’m about to start a consulting contract next week with a larger company, but limited to a week as determined by myself. I’m working hard on my other projects. But, all of this work comes without the stress that I had in the rat race. It comes without the demands of the rat race. And, most importantly for me, it comes with the freedom which I did not enjoy when I was caught up in the rat race.

    Oh, and finally, wish me luck!