50+ Best Ways to Manage Your Finances (2019)

Best Ways to Manage Your Finances

What are the Best Ways to Manage Your Finances 2019

Software development is one of the most well-paid occupations available today, and in the future, it’s only likely to increase in value as more and more of the world is run on computers and software.

 

You can be a millionaire or live your entire life paycheck to pay-check—the choice is up to you and in great part is based on your knowledge of how to manage your finances and how the financial systems of the world work. Just a little bit of knowledge about how money works and how you can make the best use of it can go a long way toward securing your financial future.

 

In this blog, we’ll explore 50+ best ways to manage your money or finances in 2019. And we’ll go over some of the most important financial management concepts.

 

In fact, many of the key decisions you make about your career will be in a very large part based on finances. The opportunities you have as a software developer will be equally influenced as well.

 

A little knowledge here can go a long way. Even though you might be a bit skeptical, I’d encourage you to seriously consider how changing your financial situation could significantly alter your life and the decisions you make in your career.

 

First Best Way to Manage Your Finances:

 

What are you going to do with your paycheck?

paycheck

Over the course of your career, if you work for 30 years and get paid every two weeks, you’ll get exactly 780 paychecks. If you work for 40 years, you’ll get 1,040. What you do with those paychecks over that time will determine how long you work, how much money you’ll have when you retire, and whether or not you can even retire.

 

It’s important to have an understanding of where your money is going each month and how that money is either working for you or against you for the future.

 

Second Best Way to Manage Your Finances:

Stop thinking short term

Stop thinking

I’ve stopped a lot of coworkers from buying new cars by talking to them about one simple scenario that changes almost everyone’s mind—or at least makes them seriously reconsider their choice.

 

Whenever anyone tells me they’re going to buy a new car, I ask them how much they think it will cost. Usually, the number is between $20,000 and $30,000, which is quite a bit of money.

 

Most people I know don’t have that kind of money lying around. In fact, most people I know would have to save for several years to come up with that kind of money. It seems that so many people will gladly trade it for a car, but would they really?

 

After they tell me how much the car costs, I usually follow up by asking how they’re going to pay for the car. Almost always I get the response that they’ll get a loan, and they tell me how low the payments will be because they’re stretched over so many years.

 

Usually, this seems to make sense, until I ask the next, all-important question: “If you had a suitcase with $25,000 in cash in it, right now, would you take the suitcase full of cash and trade it for that same new car?”

 

Some people still insist they would, but most people realize that they wouldn’t—that they’d rather have $25,000 cash than a new car. But when they can buy a $25,000 car for $30,000 stretched over four to six years with only $300-a-month payments, it seems like a much better deal.

 

I usually then talk about how much more enjoyment you could get out of buying a $5,000 car that will get you from point a to point b just as well but will leave you with $20,000 to spend however you like over the next few years.

 

I’m not saying I’ve never bought a new car in my life, but it’s hard to justify it when you think about the situation like this.

 

The problem is most of us think about money matters in the short term rather than the long term. We think about what things will cost us this month versus what they will cost us overall.

 

When I first started my career, that was exactly how I thought about things. I remember thinking about how much money I made each month. I’d take that number and from it decide how I could live. The more money I earned each month, the more money I could afford to pay for rent.

 

Then I could subtract out some food and basic living expenses, and whatever I had left over I could use toward a car payment. The more I had left over, the better the car I could afford.

 

I remember getting a raise at my job and immediately thinking about it in terms of how much more I could afford to spend each month. I remember thinking that my $500-a-month raise meant that I could afford about a $300-more-a-month car payment, after taxes.

 

That kind of thinking is very dangerous because it keeps us living exactly at or above our means. It’s a short-term way of thinking about finances that never lets us get ahead, because the more we make, the more we spend.

 

I have a friend who owns a payday loan business that loans people short-term loans to cover them until the next paycheck. He charges ridiculous interest rates for these loans because people getting a loan from him are in a desperate situation—or at least, they’re supposed to be.

 

One time I asked him about the kinds of people that get payday loans. I mentioned that it must mostly be poor people who can’t make enough to live so they’re always deferring to the future.

 

His response surprised me. He said that most of his clients were at or below the poverty line, but that a good percentage of them were doctors, lawyers, and other highly paid professionals making well over $100,000 a year or more in income.

 

It turns out that making a lot of money doesn’t make someone financially smart. The doctors and lawyers who were getting payday loans from my friend were trapped in the short-term thinking and same kind of mentality I had early in my career.

 

They were literally living paycheck to paycheck because they always made sure to spend whatever they brought in each month. The more money they made, the more money they spent. They would buy bigger houses and faster cars, all on credit because that’s what they thought they were supposed to do.

 

Third Best Way to Manage Your Finances:

Assets and liabilities

Assets

There’s another way of thinking, though, that doesn’t require you to spend more money just because you make more money. You can think in the long term and think about what the actual cost of things are, not what they end up costing you each month in relation to your income.

 

This kind of thinking is based on the idea of assets and liabilities. There are many definitions of assets and liabilities floating around out there, but here are mine.

 

An asset is something that has a higher utility value than what its maintenance cost is. That means that for something to qualify as an asset, it has to be able to provide more dollars of value than it costs to own.

 

A liability, on the other hand, is just the opposite. It’s something that costs more than the value it provides. To keep the liability around, you have to shell out money, but you could never get as much money as you’re shelling out.

 

Now, I realize these definitions don’t exactly match the definitions an accountant would give for an asset or liability, but these definitions can help you to think about everything you own or buy as either an asset or a liability—something that either has a positive financial impact on your life or a negative one.

 

Let’s look at a few examples of assets versus liabilities, according to my definition. Let’s start with some clear examples of both, and then we’ll get into some things that could fall into either category.

 

A clear example of an asset would be some stock you owned that paid you a dividend every quarter. That stock doesn’t cost you anything to hold on to, but it gives you income every three months, just for owning it. The value of the stock itself may fall or rise, but if we look at it just in terms of the money it generates, it’s an asset—by my definition.

 

An example of liability would be your credit card debt. Having credit card debt doesn’t give you any benefit. It just costs you money, because of every month that credit card debt has an interest that has to be paid on it. If you could get rid of it, you’d be in a better situation financially, no argument about it.

 

But things get a little trickier when you consider something like your house. Is your house an asset or a liability? One of my favorite authors about money management, Robert Kiyosaki, author of Rich Dad, Poor Dad (Demco Media, 2000), says that your house is actually a liability and not an asset, and in most cases, I agree with him.

 

We all need a place to live. Regardless of whether or not we own a house or rent, we have to pay for some kind of shelter. Even if you owned your house outright you’d still be “paying for shelter” because you’d be using up a resource you could potentially rent out. When you own a house, you’re essentially renting it from yourself.

 

If the cost of your house is more than the basic cost of shelter that you need, it’s a liability to you. For most people, their house is a big liability, because they don’t get the extra utility value out of their home that gives them more value than paying rent.

 

The same goes for your car. You probably need some kind of transportation, but if you are making payments on a car that doesn’t provide you with any extra real value than a much cheaper car would, it becomes a liability.

 

Robert Kiyosaki is even stricter on these terms than I am. He calls anything that puts money in your pocket an asset and anything that takes money out of your pocket a liability. You certainly can’t go wrong taking that viewpoint.

 

The key is to realize that certain things you buy generate income for you or generate more value for you than your initial investment, while other things you buy take away from your income or aren’t really worth what you paid for them.

 

When you have this viewpoint, you’re more likely to think in the long term rather than the short term. The money you make each paycheck is money you have to work for. The money your assets generate for you each month is money that you didn’t have to work for.

 

If you can use more of the money you have to work for to buy assets that generate money you don’t have to work for, you’ll eventually make more money while doing the same amount of work or less.

 

If you spend money you work for to buy liabilities that cost you money each month, you’ll go the opposite direction and be forced to work harder to make more money to continue to pay for the upkeep costs on those liabilities.

 

Take a moment and list your assets and liabilities. It doesn’t have to be perfect, but try and identify your biggest assets and you biggest liabilities. Don’t worry if you don’t have anything in assets—most people don’t.

 

Back paycheck

If you want to be financially successful, you have to learn how to invest. There’s no other option. Even if you work your entire life and sock away as much money as possible, you’ll never become rich or even financially independent unless you find a way to make your money work for you.

 

Follow the cash that goes through your hands every month. See how much money you start with and where that money goes. Do most of your money go toward liabilities instead of investing in assets?

 

Calculate how much money you’d have to save each year to reach 1 million dollars in the bank or whatever number you’d consider being financially independent. Can you possibly save that much money in your lifetime without investing?

Start asking yourself “How much can I save?” rather than “How much can I afford?”

 

Forth Best Way to Manage Your Finances:

How to negotiate your salary

salary

I’m often surprised how many software developers neglect to do any salary negotiations at all or make a single attempt at negotiating their salary and then give up and take whatever is offered.

 

Negotiating your salary is important, not just because the dollars will add up over time and you could end up leaving a lot of money on the table, but also because how you value yourself and how you handle yourself in a salary negotiation will greatly influence how you’re perceived at the company you’re working for.

 

Once you’re part of a company, it’s difficult to shake the first impression that has been pinned on you.

 

If you handle salary negotiations in a tactful way that indicates your value while still respecting your prospective employer, you’ll likely paint yourself in a more positive light, which can have huge implications on your future career with that company.

 

Negotiations begin before you even apply for the job

Your ability to negotiate your salary will be greatly influenced by your reputation. Think about a famous athlete or movie star—how much negotiation power does having a well-recognized name have for either of these professions?

 

The same is true for software development or any other field. The more recognized your name, the more power you’ll have when it comes to negotiations.

 

So what can you do to build up a name in the software development field? For some people, it will happen by chance, but for most software developers it will require some careful planning and tactics. I highly recommend building a personal brand and actively marketing yourself as a software developer.

 

The basic strategy to do this is to get your name out there through as many different mediums as possible. Write blog posts, get on podcasts, write blogs or articles, speak at conferences and user groups, create video tutorials, contribute to open source projects, and do whatever else you can to get your name out there.

 

Just remember that the better job you do of marketing yourself and building a reputation, the easier it will be for you to negotiate. This might even be the most important factor.

 

I’ve worked with software developers who have been able to literally double their salaries based on nothing but building up a bit of a personal brand and online reputation.

 

Fifth Best Way to Manage Your Finances:

How you get the job is extremely important

get the job

The second biggest factor that will influence your ability to negotiate your salary will be how you get the job. There are many different ways to get a job and not all of them are equal. Let’s examine a few different ways you might get a job.

 

First, you might get a job by seeing a job posting and cold-applying to that job posting with your resume and hopefully a good cover letter. In fact, many job seekers think this is the only way to get a job. This is, in fact, the worst way to get a job.

 

If you get a job in this manner, it’s difficult to have a good negotiating position, because you’re in a much weaker position than the employer. You’re the one taking all the initiative and asking for the job.

 

The person with the greatest need always has a disadvantage when negotiating anything. Ever played Monopoly? Ever tried to negotiate with someone who didn’t really need anything from you, but you needed one of their properties to complete your monopoly? How did that go?

 

Another way to get a job is through a personal referral. You know someone who works at a company, they personally refer you for the job, and you end up getting offered the job.

 

This is definitely a much better situation than just applying for a job. In fact, you should always try to get a personal referral when you’re actively seeking a job. In this situation, the prospective employer might not even know that you’re actively looking for a job—so your need is going to register as less.

 

And because you got a personal referral, you already have some credibility. You’re essentially borrowing the credibility of the person who referred you for the job.

 

I’m sure you can figure out that the higher the credibility of the person who referred you for the job, the higher credibility you’ll have. This credibility will greatly influence your ability to negotiate when given an offer.

 

Okay, so how else can you get a job? How about the best way possible? When the company that offers you a job finds you and comes after you by either directly offering you the job or asking you to apply for it. How the situation presents itself will influence your negotiating power.

 

Obviously, your best situation would be if a company knows of you and directly offers you a position without even an interview. In that case, you’ll be able to just about name your own price. But any time an employer directly seeks you out, you’ll have a good position to negotiate from.

 

Sixth Best Way to Manage Your Finances:

First person to name a number loses

negotiations

Okay, so now that we’ve covered the preliminaries—which are actually the most important parts of negotiating your salary—let’s get into the actual details of negotiations.

 

One important thing to understand is that the first person to name a number is at a distinct disadvantage. In any kind of negotiation, you always want to act second. Here’s why: Suppose you apply for a job and you expect that the salary for that job is $70,000.

 

You’re offered the job and the first question you’re asked is what your salary requirements are. You state that you’re looking for something around $70,000. Perhaps you’re even clever and say somewhere in the range of $70,000–$80,000.

 

The HR manager immediately offers you a salary of $75,000. You shake hands, accept the deal, and are pretty happy—only there’s one big problem.

 

The HR manager budgeted a range from $80,000 to $100,000 for the job. Because you named a number first, you ended up costing yourself potentially as much as $25,000 a year—whoops.

 

You might think this is an extreme example, but it isn’t. You have no way of knowing what someone else is expecting to offer until they tell you. Revealing your number first puts you at a distinct disadvantage.

 

You can’t go up from the number you state, but you can certainly be talked down. When you name a number first, you have no upside, but a big downside potential.

 

Oh, but you’re more clever than that, you say. I’ll just name a really high number. This can blow up in your face as well. If you name too high of a number, you might not even get countered, or you may get countered very low in response. It’s almost always to your advantage to have the employer name a number first.

 

The only exception to this is when an employer is purposely going to low-ball you. This situation is pretty rare, but if you have a good reason to suspect this will happen, you may want to name a number first to set an anchor point.

 

Why? Because if you get a low-ball number, it may be difficult to get an employer to come up very far from that number. Of course, in that situation, you probably aren’t going to have much success no matter what you do.

 

What about when you’re asked to name a number first?

asked questions

Don’t do it. Just say “no.”

Yes, I know this is tough advice to follow, but let me give you some specific situations and some ways to deal with them.

 

First, you may be asked about your salary requirements before an interview or as a field on a job application. If you have a field on a job application, leave it blank if possible or simply put “negotiable depending on an overall compensation package.” If you have to name a specific number, put $0 and then explain why later.

 

If you’re asked directly in a prescreening interview about what salary you require or are expecting, try to answer the same thing. Say it depends on the overall compensation including benefits.

 

You may get a response stating what the benefit would be or that they just need a general number. In this case, you should try, as tactfully as possible, to turn the question around and ask a series of questions like the following:

 

“I’d rather learn more about your company and understand more about the job I’d be doing before naming an exact number or estimate, but it sounds like you’re trying to figure out if we’re in the right range so we don’t both waste our time—is that correct?”

 

Most likely you’ll get a yes. Then follow up with something like this:

 

“You must have a range that you’ve budgeted for this particular position, right?”

Again, you should get a yes. If you’re brave, just pause here and don’t say anything else. You may then get them to answer with the range, but if you aren’t brave or they aren’t volunteering any information, you can follow up with this:

 

“Well, if you tell me what the range is, even though I don’t know enough to state exactly what my salary requirements are, I can tell you whether or not the range matches up to what I’m looking for.”

 

Now, obviously, this isn’t easy to do, but if an employer is going to ask you to name a number, there’s no reason why they shouldn’t expect to name one as well—or even first. Try as hard as you can to get them to name one first.

 

If they absolutely refuse, you still have some options. If you have to name a number, name a large range and make it conditional on the overall compensation package, but make sure the lower end of the range is slightly above the absolute lowest you’re willing to go.

 

For example, you might say, “I can’t really name an exact figure because it’s completely dependent on what the overall compensation package is, but I’d generally be looking for something between $70,000 and $100,000—again, depending on the overall compensation package.”

 

What if you’re asked about your current salary?

 current salary

This is a tough one; technically it’s none of their business, but you can’t exactly say that. Instead, what you want to do is to turn the question around. There are a variety of different ways to do this, but here’s one suggestion:

 

“I’d prefer not to say what my current salary is because if it’s higher than what you expect to pay for this job, I wouldn’t want that to eliminate me from being considered for this job.

 

Because I might be willing to accept less for the right position—and, if it’s lower than what this job would pay, I wouldn’t want to sell myself short either— I’m sure you can understand.”

 

This is a pretty honest answer, which will most likely avoid the question without causing offense. You can also state that you’d prefer not to answer that question or that you’re under a confidential agreement with your employer to not talk about exact salary numbers.

 

If you absolutely have to name a number, try to make the number as variable as possible by talking about bonuses or benefits that affect the overall compensation, or state it as the overall compensation package is valued at x dollars and add up what any benefits you’re getting are worth.

 

When you have an offer

manage finance

If you can avoid the salary question, you’ll eventually get an offer and it will have a number on it. You can’t really get an offer without a number, because it wouldn’t be an offer.

 

But negotiations don’t end when you get an offer unless of course you named a number and they gave it to you— whoops. 

 

Once you have an offer in hand, you’ll almost always want to counter. What you counter with is up to you, but I’d highly recommend countering as high as your stomach will allow.

 

You might think that by coming closer to their number, you’ll be more likely to get a favorable response, but in general, that approach will backfire. Pick a high number and counter back.

 

You might be worried that doing this will cause you to lose the offer completely. As long as you do it in a tactful way, it’s unlikely that the offer will be completely taken off of the table. Usually, the worst-case scenario is they stay firm on their offer and tell you that you’ll have to take it or leave it.

 

If the offer does get pulled, you can always respond by saying that you made a mistake and after weighing everything you realized that their original offer was more than fair. 

 

The fact of the matter is that once you’re offered a job, you aren’t likely to get that offer pulled. Remember, an employer that has invested that much time in interviewing you and making an offer isn’t going to want to start over again, so you can afford to be a little brave.

 

In most cases, when you counter with your high counter, you’ll get back another response with a slightly higher offer. You can accept this offer, but in most cases, I’d recommend countering just one more time. Be careful here, because you can tick people off. But one tactful way to do it is to say something like this:

 

“I’d really like to work for your company. The job sounds great and I’m excited to work with your team, but I’m still a bit unsure on whether the numbers will work out. If you can do x dollars, I can be sure and commit to it today.”

 

If you do this right and don’t ask for something too much higher, you can usually get a yes. Most employers would rather pay you a little bit more rather than lose you. Worst case, usually, is that they will tell you they can’t go any higher.

 

I don’t recommend negotiating beyond this point. If you’re really brave you can try, but past a second counteroffer, you risk losing goodwill and souring the deal. You want to appear shrewd, but not greedy. No one likes to feel like they got worked or taken advantage of.

 

Some final advice

final advice

Know your numbers well. Research as much as possible what the salary ranges are at the company you’re applying for and what the salary ranges are for comparable positions. There are some sites online you can use to get salary ranges, although they aren’t always reliable.

 

The better the case you can make for what your salary should be, the easier your negotiations will be. You’re in a much better position if you can name exact number ranges and statistics that show why the salary you’re asking for is justified.

 

A reason for the salary you’re requesting is never because you “need” that much money. No one cares what you need. Instead, talk about why you’re worth a certain amount or what benefit you can bring to the table. Talk about what you’ve done for past employers and why investing in you at the salary you’re requesting is a good investment.

 

Get as many offers as possible at any one time, but be careful about playing them against each other. You’re at a distinct advantage in any negotiation if you can afford to walk away from the deal. To be in this position, you may need to get multiple offers lined up, so you may want to apply for several jobs at once.

 

Just be careful in playing different offers against each other. You can do it in a tactful way by talking about how you have a couple of offers you’re currently considering and want to make the best decision, but be careful not to sound arrogant. Confidence is good, arrogance is bad.

 

Taking action

Practice negotiating as much as you can so that you can get over the fear of doing it. The next time you go to a store and buy something, try to negotiate. Even if you fail, you’ll gain some valuable experience.

 

Carefully research salaries so that you know what you’re worth. Try to find out what companies in your area are paying their employees and how your current salary compares.

 

Try to get a few interviews, even if you aren’t looking for a new job. You might find it easier to negotiate when you have nothing to lose (because you aren’t looking for a new job anyway). Who knows, perhaps you’ll find a better job by trying to practice.

 

Seventh Best Way to Manage Your Finances:

Options: Where all the fun is

stock market

For a long time, I thought the stock market was all about buying shares of stocks. I didn’t understand that most serious investors do more than just buy low and sell high. I’ve found that I wasn’t alone.

 

Most people I talk to have no idea what an option is and how this investment vehicle allows you to apply the power of leverage to greatly magnify your potential gains—or losses—in the market.

 

It turns out that most people who invest in the stock market don’t bother to understand how options work because they either deem them too complicated or they think it will take too much time.

 

While it’s true that options aren’t exactly the easiest things to understand, as a software developer, you’ll probably find they’re much easier to digest than you might have first guessed.

 

In this blog, I’m going to take you through a lightning-fast tour of options. I’m not going to give you a strategy for investing in these investment vehicles, but I’m going to try to give you a solid understanding of how they work.

 

Eighth Best Way to Manage Your Finances:

Option basics

Option basics

An option is exactly what it sounds like: the choice to do something or not to do something. The basic idea behind an option is to allow someone to pay for the option of either buying or selling stock by a later date in the future.

 

Landmine: Why should you care about options?

Well, for a few main reasons. First, as a software developer, you already likely have the aptitude to understand options better than most people. Options and option theory are based on mathematics, and the way you calculate and trade options are very algorithmic.

 

But after talking with many software developers, I’ve found that most of them don’t really understand options. So, the purpose of this blog is to quickly get you up to speed and then you can decide if you want to further your education in this area.

 

In addition, understanding how options work tends to stretch your mind financially. Even if you never trade stocks or options contracts, having a good understanding of how all this stuff works will help you to think more strategically about everyday financial decisions.

 

You may find that this blog triggers a switch in your mind that changes the way you start thinking about leverage and risk, which are two key, defining characteristics of options.

 

Finally, options are a lot of fun when you understand them. As a software developer, I find studying options and how they work very interesting, and I strongly suspect you might as well. But if you don’t, don’t worry, this blog is fairly short—plus, you can skip it if you want to.

 

Let’s dive into this a little to understand exactly how this works. Suppose that you wanted to invest in Microsoft because you think that with a new operating system release in the next few months Microsoft stock might really take off. You’d like to buy up thousands of shares, but there are two problems.

 

First, you don’t have enough money to buy thousands of shares of Microsoft, and second, you think there’s a good chance that Microsoft stock might actually go down quite a bit if the new release is no good.

 

If you had to just buy the stock, you’d have to come up with quite a bit of money, and if you’re wrong, it could be costly. But what if you could get someone who has Microsoft stock to agree to sell it to you a few months in the future—just after the new operating system release comes out—for just a little bit more than the current price of the stock? That’s exactly what an option can do.

 

Sounds a little too good to be true? Well, it is. To get this option, you have to pay for it. You can purchase the right to buy Microsoft stock in the future, but to purchase that right, you’ll have to pay a certain amount called a premium.

 

If you do go ahead with the transaction and buy the right to purchase, say, 300 shares of Microsoft anytime within the next three months, you’ll be able to purchase the stock and make a hefty profit if Microsoft stock happens to go above the price you were guaranteed to be able to buy the stock at (also called the strike price).

 

If it turns out that Microsoft doesn’t spike up beyond your strike price or it even drops down in price, you simply choose to not exercise the option, meaning you don’t buy the stock. In that case, you’re only out the price of the option you bought.

Microsoft example for trading shares of stock

 

Digging a little deeper

little deeper

Options basically give you the option to buy a certain number of shares of stock by some date in the future for a fixed price. But you can also buy an option that lets you sell a certain number of shares of stock by some day in the future for a fixed price as well.

 

This kind of option would allow you to make money if a stock dropped in value, just like shorting a stock does.

 

An option that lets you buy a stock at a certain price within a period of time is called a call option. An option that lets you sell a stock at a certain price within a period of time is called a put option.

 

Selling options

Selling options

You probably can already figure out that buying options can be a very speculative and risky move. If things don’t go how you planned, you can end up losing a lot of money—quickly. But there’s another side to options that allow you to make money in a wider variety of situations—just not as much.

 

Besides buying options, you can also sell options. Technically this is called writing an option because you’re creating an option contract that someone else can buy.

 

When you write an option, you’re taking the other side of the bet. Instead of betting that a stock will move in one direction, you’re betting that it will either stay where it is now or move in the opposite direction of the option.

 

The tables are turned, though, when you’re writing an option. When you write an option, you’re the obligated party who must buy or sell a stock at a certain price. The good news is that you can charge a premium for that obligation.

 

Of course, writing options has its risks as well. In fact, writing options can carry much greater risks than buying options because your costs might not be known from the start.

 

When you buy an option, you’re paying a fixed price and you risk losing that entire amount. When you write an option, if the market moves against you strongly, your losses could be extremely high.

 

Fortunately, most options that are written are what are called covered options. This means that the option contract is backed by some actual stock or even another option that limits the potential loss for the option writer.

 

In a realistic situation, you might write an option on some stock you’re already holding. Let’s imagine that you already have 100 shares of

 

More complex options

More complex options

Options can get much more complicated than just buying and selling them and writing them. Options can be combined together and combined with stock purchases to form all kinds of complex trading positions.

 

We won’t be able to go into all the details of the complex kinds of options strategies in this short blog, but I want to give you a basic idea of some of the possibilities because it’s fascinating how these tools can be combined together to create almost any trading position you’d like.

 

First, let’s consider a simple use of options called a covered call. A covered call is when you buy some stock, but at the same time, you sell a call option against that stock. Why would you want to do this?

 

Well, if you’re buying a stock that you know you’re going to hold for a long time period—perhaps you want to collect a dividend from it—you might as well sell an option against that stock and make some money from holding it.

 

You might use this strategy if you didn’t expect the stock you bought to go up in value quickly and you were willing to risk missing out on a large rise in value for some guaranteed income on the stock. You’re basically trading some of your upside potential for less risk.

 

Another strategy is what’s called a married put. This occurs when you buy a stock, but at the same time buy a put option on that stock that allows you to sell that stock.

 

This strategy would allow you to get all the upside from stock if it rises but would mitigate some of the potential losses if the stock dropped because you’d have the option to sell the stock for a certain guaranteed price. You might use this strategy if you bought a stock you were unsure of and thought it might either go up high or drop low.

 

Options can also be combined with different option spreads, as they’re called. You can combine options of different kinds with different expiration dates to create many different kinds of trading positions that have various degrees of risk and potential gains for many different scenarios.

 

One of my favorite spreads is called the iron condor. In that spread, you sell options on both sides of a stock or exchange-traded fund (ETF) and you buy options a bit further out in price.

 

You make some money off of selling the options and you spend some of that money to buy some protection for yourself by buying options that will limit your losses if the stock goes too high or too low. If the stock or ETF stays within a certain range of values, you get to collect the full premium.

 

If you create a good iron condor, you have a very high chance of making money. Of course, if you’re wrong, it can be very costly. (If you’re interested more in iron condors, a good blog I recommend is Profiting with Iron Condor Options: Strategies from the Frontline for Trading in Up or Down Markets by Michael Benklifa.

 

[Note: You can free download the complete Office 365 and Office 2019 com setup Guide.]

 

Taking action

Look up a stock you’re familiar with and see if you can find what is called an option chain for it. Most stock quoting sites have option chains that you can find.

 

Take a look at the option chain and calculate how much it costs to buy an option on that stock that’s one month in the future. Notice how the price of the option changes based on the different strike prices.

 

Ninth Best Way to Manage Your Finances:

Bits and bytes of real estate investing

real estate investing

Of all the possible investments a person can make, I think real estate investment is by far the best. No other investment offers such a long-term guarantee of profit and allows so much leverage.

 

But that doesn’t mean real estate investing is easy. Real estate investment isn’t something you can do with the simple push of a button like you might do to trade a stock.

 

Real estate investment also requires significant capital—which is one of the reasons I think it’s so well suited to software developers who often are able to command higher wages than many other professions.

 

I’ll admit, I’m a bit biased because real estate investment is my primary investment choice and the one that has made me the most money over the years. But whether you do decide to invest in real estate or not, you should know enough about it to understand how it works and what kind of opportunities it provides you.

 

Unfortunately, if you look up “how to invest in real estate” or some other similar query online, you’ll most likely be bombarded with less-than-credible information promising you some kind of get-rich-quick scheme.

 

The goal of this blog is to cut through all of that unreliable and untrustworthy information and give you some real, practical advice on how real estate investing works and how you might get started.

 

Software developers tend to make fairly high salaries compared to many other professions, so they can often benefit from learning how to invest in real estate.

 

I feel like I’d do you a real disservice if I didn’t at least address the topic of real estate investment in this blog and give you the basics you need to know to get started.

 

Why real estate investment?

Why real estate investment

Before we dive into how to invest in real estate, let’s address the most important question: why. Why is real estate such a good investment, especially when it’s a more difficult investment to get started in and requires much more upkeep than holding a stock?

 

It might sound foolhardy, but the biggest reason I’m going to suggest is stability. You’ve no doubt seen real estate prices greatly fluctuate, so you might be a bit incredulous about this idea, but let me try to explain it.

 

While real estate prices may fluctuate greatly, the kind of real estate I recommend investing in is rental properties, and the kind of income that’s stable about those kinds of properties is…rent.

 

A good real estate deal stays a good real estate deal because rental prices don’t tend to fluctuate much. As long as you’re able to secure a fixed–interest rate loan on a property, that property is very stable in terms of the income it can produce. If rents do change, they usually go up, not down.

 

So even though the overall price of property itself may swing wildly, if you’re willing to ride it out and hang on for the long term, counting on rental income instead of price appreciation, your investment is very solid and stable. I, myself, have ridden out some of the roughest patches in real estate history without so much as a scratch.

 

Real estate investment is also one of the only types of investments that allow a great degree of leverage with little risk. You can’t find a bank that will give you a long-term loan on buying a bunch of stock where you’ll only put down 10% and the bank will supply 90%, but it happens every day in real estate. You can even secure loans with no money down—but that’s usually not a good idea.

 

This kind of leverage is extremely powerful. It can be dangerous as well, but the bank bears more of the danger that you do when the property is the collateral for the loan. Let’s look at an example of how powerful this leverage is.

 

Suppose you buy a rental property for $100,000. You get a bank loan for 90% of the property cost and you put down a down payment of 10%. The property you’ve selected is what we call “floating,” meaning the costs, including the mortgage, tax, and insurance, are covered by the rental income it produces.

 

In this instance, we’ll assume all that happens is that the costs are covered and there’s no additional cash flow, or very little.

 

Just being in this situation is great. If you get a 30-year loan on the property, in 30 years, your $10,000 investment will be worth a minimum of $100,000 and probably a great deal more due to price appreciation.

 

But it gets better than that. The leveraged power of your investment allows you to benefit greatly from any price appreciation. It’s not unrealistic for property prices to appreciate by 10% in two years’ time.

 

The power of leverage allows you to make high returns off of small price appreciations, with little risk. And because the collateral for the loan is the property, technically the most you can lose is your initial investment. 

 

Finally, let’s talk about inflation again. Remember when we said that if inflation hit, the value of your debts would be reduced and the value of your cash in the bank would also be reduced? Real estate investment is one of the best hedges against inflation.

 

If you experience a high period of inflation, but you’re holding a real estate loan, although your cash in the bank is diminished in value, your real estate loan is also reduced at the same time as its price is technically increased, along with the rents. What does this all mean?

 

The property value also tends to rise with inflation. This isn’t a real appreciation, because it’s the devaluing of the dollar, but it acts as a hedge. The weaker the dollar gets, the higher the value of the property gets, because it’s priced in terms of dollars.

 

To summarize, why is real estate a good investment? Because if you buy rental properties and rent them out with fixed loans, the income from them is very stable, you can use the bank’s money to finance most of your property.

 

Thus giving you extreme amounts of upside through leverage, and when everything else is being hurt by inflation, your real estate investments are benefiting from it—acting as a hedge.

 

Tenth Best Way to Manage Your Finances:

How to Manage Investments?

speculation

At this point, hopefully, you’re excited about the prospect of real estate investing—although you may still be a bit skeptical because I’ve promised such great things but haven’t told you how to do them.

 

I can’t give you a step-by-step guide in this short blog, but I can give you enough information to see how the process works and learn how to get started.

 

Smart real estate investment—not speculation—starts with an understanding that real estate investment is a long-term investment. If you believe you’ll get rich quickly by flipping properties and buying foreclosed properties for pennies on the dollar, you’ll get exactly the results you deserve.

 

Nothing in this world is free. To achieve the great returns possible through real estate investment, you need patience, diligence, and a whole lot of time. When I buy investment properties, I’m planning for the profits I will make 20–30 years out.

 

I know that buying a rental property that’s cash-flow positive or floating with a fixed loan will, at the very least, result in a fully paid-off property in 30 years. That’s what I bank on and hope for, and everything else is a bonus.

 

The general strategy—or at least the one I recommend—is to buy rental properties that are either cash-flow positive or floating and to finance them using 30-year-fixed loans.

 

This strategy carries very little risk and still has enormous upside if you happen to hit a real estate boom and prices rocket upwards, but it also virtually guarantees you paid-off properties in 30 years’ time.

 

First step: Education

 Education

The first step in executing this strategy is market education. You make the most money in real estate investment when you buy—not when you sell. The better deal you can find, the better position you can begin with.

 

Remember how we said that the stock market was very liquid? The real estate market is not. A very liquid market is usually efficient. This means that there aren’t many situations where there’s a disparity in pricing.

 

Because real estate isn’t very liquid there’s often a high disparity in pricing. What’s the value of a stock at any given time? Everyone knows within seconds. It isn’t debatable. Sure, you could say that a stock is undervalued or overvalued, but the quoted price ultimately reflects its real value at any given time.

 

Not true with real estate. What’s the price of a house? Who knows? Ten appraisers can make an appraisal of the same property and each come up with different answers. Sometimes, if there are little good market data and comparable sales, those differences in price opinions could be huge.

 

What does this mean for you? It means that if you’re smart and diligent, you can buy real estate for a heavily discounted price. You just need to be able to recognize a deal and learn how to make a good one.

 

To learn how to recognize a good deal, you need two things: practice and market education. The first thing you should do if you want to invest in real estate is to study the market.

 

Get an idea of what prices properties are selling at. Look at how many square feet those properties have, how much they’re renting for, the area they’re located in, and any other factors that you can, until you get a feel for what’s a good price on any piece of property.

 

At the same time as you’re doing this, you should also be running mock scenarios of what would happen if you were to buy a property at a given price and thinking about what kind of offer you’d need to make to buy a property at a price that would be a good deal.

 

To do this you need to run all the numbers associated with a property. You need to estimate, based on the price, the cost of a mortgage loan on the property, along with any other expenses such as taxes, insurance, homeowner’s association fees, utility bills, and any estimated maintenance on the property.

 

This exercise is somewhat tedious, but it’s the best way to get a feel for what is a good deal and how that deal will work. You need to have confidence in what you’re doing before you sit down and write that big check. My strategy for real estate investment is based on acting quickly.

 

Taking action

Once you have a decent feel for the market, it’s time to act. When I’m ready to buy a property, I’ll sign up to receive alerts from real estate agents on any new properties that meet my criteria. If I see a property that’s a good deal, or one that I think I can make a low enough offer on to make it a good deal, I’ll act immediately.

 

I’ll often send an offer on a property, sight-unseen, to put the seller to an immediate test and make sure to grab a good deal before someone else does.

 

I almost always make a low-ball offer—one that my real estate agent is embarrassed to present—because sometimes those offers get accepted as is or they get countered with offers that are only slightly higher than what I had offered.

 

That’s not to say that most of my offers don’t get rejected—they do. But it’s a numbers game. Make 50 low-ball offers on properties and all you need is one seller to accept.

 

You may be able to pick up a property for as much as a 50% discount on the real market value of it because the seller is looking to get rid of the property or just doesn’t care. You wouldn’t believe how many sellers just don’t care for whatever reason.

 

When I make a sight-unseen offer, I put in a contingency in the offer that says the offer is contingent upon my physical inspection of the property. This allows me to go back and do my due diligence on the property to verify the facts in the listing and make sure there wasn’t anything major that wasn’t disclosed.

 

If the property isn’t to my liking, I can back out of the deal at that point without any repercussions.

 

Assuming the property looks good and you’ve it tied up in a real estate contract, the next step is to get a home inspection done on the property.

 

I always get a home inspection by the best and most detailed home inspector I can find. If there’s a problem with the property, I want to know about it before I invest more money in it.

 

Assuming the home inspection clears, the next step is to obtain financing. You can also do this step before you actually even look for property—this is called prequalification. Just like you want to find the best deal on a piece of real estate, you also should seek to find the best financing deal you can.

 

I’m not going to go into the details of obtaining financing in this blog, but make sure you shop around and compare rates and costs from various lenders.

 

11th Best Way to Manage Your Finances:

Use property management

property management

Finally, after you buy the property, my recommendation is to put property management in place. I highly recommend against managing a rental property yourself. In my opinion, it’s not worth the effort or a headache. The best money I spend each month is to pay my property management company to manage my rental properties.

 

A good property management company will take care of almost everything concerning your rental property, including finding renters, executing a lease, screening tenants, taking care of maintenance issues, and collecting rents. But finding a good property management company can be difficult.

 

Be sure you shop around and find the most honest property management company you can. I’ve fired at least three property management companies because of issues like incompetence, false repair costs, and plain negligence.

 

Expect to pay about 10% of the rental income to property management and make sure you factor that number into your rental calculations when figuring out your deals.

 

A good property management company can make your real estate investments hands-off. This is necessary if you want to own many properties over time and still handle your full-time job.

 

Retirement is all about working backward

Retirement

The key to planning your retirement is being able to work backward by calculating exactly the amount of money you need to live on each month and figuring out how you can guarantee that kind of passive income with at least a little buffer for some breathing room.

 

Many articles and blogs I’ve read on retirement make a big mistake in assuming that a retired person has the same financial requirements as a working person.

 

I don’t blame those financial advisors for making these kinds of assumptions, although I’d strongly caution taking any advice from someone who has a job telling other people how to increase their wealth but isn’t wealthy themselves.

 

The truth is that there are certain expenses that are greatly reduced when you have an abundance of free time and you no longer have the requirement of saving money or commuting. Not only that, but most of us live lifestyles that are much more extravagant than what would generally make us happy.

 

It’s easy to fall into the trap of thinking that you wouldn’t want to decrease your lifestyle once you’re retired because you don’t want to have to make sacrifice after working for so many years. You don’t want to end up having to barely scrape by in your later years.

 

But the biggest factor that will determine how much money you need to retire is what your monthly expenses are. If you can reduce those monthly expenses now, not only will you not have to live in a reduced style of living later in life, but you’ll also get there much quicker.

 

Calculating your retirement goal

retirement goal

Once you’ve come up with the monthly figure you need to live on to retire, you can officially “retire” when you reach that monthly income through passive income—that is, the income you don’t have to work for.

 

You do need to make sure the passive income source will increase with inflation—one of the main reasons why real estate is such a good investment choice.

 

I don’t like the idea of drawing down from savings. There’s no reason why a person should have to draw down and diminish their savings in order to retire—not when there are so many ways to turn savings into passive income. At the very least, you could buy bonds that would yield a few percent interests and have almost no risk at all.

 

Landmine: What if you work for yourself?

retirement accounts

If you work for yourself, you might not have access to a 401(k) or employer-provided pension plan, but in the United States, at least, you can still set up a tax-deferred retirement account.

 

We aren’t going to cover these kinds of retirement accounts in this blog, because I don’t want to sidetrack too far, but looking up information on IRAs and Roth IRAs is a good place to start.

 

Path 2: Setting up an early retirement or aiming to get rich

While I understand that most people are perfectly content to retire at the age of 60, I was never interested in waiting that long. I’ve always wanted to retire earlier in life, even if it meant more hard work earlier on and some significant risk. That’s exactly what path two is.

 

Before we get into the details of path two, let’s talk about why the two paths are pretty much mutually exclusive. The biggest reason is that retirement accounts can’t really be touched until you reach traditional retirement age.

 

That means that if you plan to retire at, say, age 40, contributing to a retirement plan that’s stashing away money you can’t touch until you’re 60 isn’t going to do you much good at all.

 

You’ll basically be diverting funds away from the investments that you could be making in order to retire earlier. Sure, it’s possible to contribute to a retirement account for when you reach age 60 and to take some money and do something else like invest in real estate, but if you try to go down both roads, you’ll probably be doing both strategies in a sub-optimal way.

 

If you want to retire early, or you want to try to really strike it rich, you probably shouldn’t be contributing to a retirement account. I know that advice sounds a bit crazy, but that’s why I warned you.

 

And that’s why I say most people should just max out their retirement accounts— it’s the safest way to go. But if you’re like me and would rather shoot for the more aggressive and riskier goal of retiring young, read on.

 

To retire early, you need to figure out a way to build up a passive income stream that exceeds your monthly expenses and you need to be able to guard that income stream against inflation.

 

The only problem is that it isn’t exactly easy to earn a million dollars to invest in real estate, and investing in real estate isn’t a hands-off proposition. You can get to the point where the investment is basically passive income, but it takes some time, work, and learning to get there.

 

But real estate isn’t the only way to generate passive income that would fulfill your retirement requirements. You could utilize high-dividend-yielding stocks that would hopefully go up in value to combat inflation. You could create or buy intellectual property that you get royalties off of.

 

This could be patents, music, blogs, or even something like a movie script. You could buy or start your own business and eventually hand the management of it over to someone else while you pull in the remaining profits.

 

As you can imagine, all of these kinds of passive income–generation vehicles carry with them huge risks, so you should definitely try to set up multiple streams of passive income.

 

Even just acquiring one of these kinds of streams of passive income can be difficult, so, as I said, only choose this path if you’re ready to do the hard work required to be successful.

 

Now, what about acquiring that million dollars—or more? You can’t exactly invest without having the money, and if you’re forgoing a traditional retirement account, you aren’t going to have the tax advantages or time that would make it much easier to accumulate a large amount of capital.

 

This is where things get tricky. You have to be able to make small investments that pay off and work your way up to larger and larger ones over time. You don’t just start out by buying three fourplexes for 1 million dollars.

 

You have to gradually work your way up, always with the goal of increasing your passive income. The more money you’re able to generate from assets that you hold, the more progress you’ll be able to make in buying more income-generating assets.

 

There are three main ways to accelerate this process. First, and we already talked about this one, reduce your expenses. Buy the smallest house or rent the smallest apartment you can. If you can live with your parents for free, by all means, do it.

 

Get a used car, or figure out how to live without one. Cut your cable, don’t eat out, and get used furniture; don’t just be frugal—be cheap! The lower your living expenses are, the more money you’ll have left over each month to invest. (I told you this wouldn’t be easy.)

 

If you can start a side business, or do some freelancing, do it. The more money you generate, the more you can invest.

 

Finally, make the most profitable investments you can. Again, this one may seem obvious, but the more careful you are to make investments that will give you higher yields, the faster you’ll be able to multiply your money. This will require careful research, learning to negotiate and to spot good deals.

 

What if I am stuck in the middle or close to retirement?

 close to retirement

Not everyone is just out of college and able to clearly choose one path or the other. Perhaps you’ve already been investing in your retirement account for a long time, but now you’re considering trying to get on the path to retiring early.

 

Or perhaps you can’t just get up and move to San Francisco to get a higher salary—you have a spouse and kids.

 

Don’t worry, you can still set up a successful retirement, you’ll just have to modify my advice to fit what’s possible for you. I wanted to give you the extremes of each path so you could clearly see the difference because you’re better off going hard in one direction or the other so that you waste as little effort as possible.

 

And even though it isn’t optimal, you can also walk the middle between the two paths. If you already are invested in your retirement plan and you want to keep doing it, you may still be able to generate enough income after maxing out your retirement account contributions to invest in real estate or some other income-generating asset.

 

Taking action

Calculate your current monthly expenses. Figure out how much you could reduce those expenses by if you were willing to make some big sacrifices.

Now calculate how much money you’d need to generate each month to retire off of your reduced expenses—make sure you leave a little buffer room.

 

Figure out how much money you’d need to have at various rates of return, like 2%, 5%, and 10%, to have enough monthly income to retire.

 

The danger of debt: SSDs are expensive

debt

Of all the financial mistakes you can make, the biggest one is to go into debt. Unfortunately, it seems that we’re trained to accept debt as normal and often don’t see how bad and destructive it can be to our lives.

 

One of the biggest struggles you may face in your career as a software developer—at least financially—is dealing with success. The more money you make, the better off you are, right?

 

No, not always. In fact, I’ve found that many really financially successful people—especially software developers—end up going deeply into debt, because the more money they make, the more money they end up spending.

 

The only way you can really become financially successful is to make money off of your money. You have to be able to get your money working for you if you ever want to achieve financial freedom. If interest gives us freedom, it only follows to say that debt compels us to bondage.

 

In this blog, I’m going to discuss just how destructive debt can be and point out some of the most common follies regarding it. We’ll also discuss how not all debt is bad and how to tell the difference between good and bad debt.

 

Why debt is generally bad

 Why debt

We’ve already talked about this a little bit, but in general, debt is bad, because it’s the exact opposite of what is good—gaining interest on your money. When you’re in debt, you’re usually paying interest on your money. That means someone else is likely becoming rich at your expense.

 

It’s almost impossible to be investing your money and making money off of those investments while you’re in debt—unless, of course, that debt is actually being used to get a higher return than the interest you’re paying on it, but we’ll talk about that later.

 

When you’re in debt, you end up paying more for a product or service than it would otherwise cost. This penalty compounds over time— especially if you pay less toward the debt than the interest that’s being accrued. The longer you carry debt, the more impactful that debt is on your bottom line. 

 

The more debt you have, the heavier a burden it is on you and the more it holds you back from ever becoming financially independent. When you have debt, you can’t save money, and if you can’t save money, you can’t invest, either.

 

What’s your current debt level? Add up all your debt and determine what your overall interest rate is and how much you’re paying in interest each year to maintain your debt.

 

Some common debt follies

 common debt follies

Okay, so maybe you’re in debt. It happens. I was in debt once—I’m actually in debt right now—I owe about a million dollars in mortgages, but we’ll get to that in just a bit. If you’re in debt, though, you need to learn how to handle that debt properly so you can get it reduced as soon as possible.

 

The biggest folly I see concerning debt is saving money while holding debt, especially credit card debt. To me, this makes no sense at all. I often hear the justification of needing an emergency fund or saving for the future, but there’s almost no way to logically justify this behavior.

 

I’ve known people who had thousands of dollars of credit card debt, yet they had savings accounts with several thousand dollars in them as well. Don’t be embarrassed if that situation describes you, but you need to do something about it right away. Let me explain why.

 

The problem is that, in most cases, the interest you’re paying on the debt you have is costing you more than the interest you’re making by having money in the bank—especially if that debt is credit card debt. Suppose you have $10,000 of credit card debt that you’re paying a 15% interest rate on.

 

That means you’re paying $1,500 per year just in interest on that debt. Unless your bank is paying you more than a 15% interest rate on your money, you’re much better off taking that money and using it to pay your debt.

 

Now, you might think this is pretty obvious advice, but I know that many people have car loans with moderate to high-interest rates and choose to save money in the bank at the same time.

 

Unless the interest rate you’re getting on your car is close to 0%, this makes absolutely no sense. It’s just a little more difficult to realize this because car loans usually have lower interest rates than credit cards.

 

It may even make sense to pay off your mortgage on your house before putting money into savings.

 

 You’ll have to run the exact numbers, and the situation is slightly different because once you’ve put money into a mortgage, you generally can’t take it back out and you have to wait until it’s entirely paid off before you actually feel the benefits of reducing the loan.

 

But from a purely by-the-numbers view of the situation, if you can’t get a return on investment of your money greater than your mortgage interest rate, it makes more sense to pay the money toward your mortgage.

 

To illustrate the point: suppose you had a mortgage with a 7% interest rate. That means that you’re paying 7% interest on the balance of your loan, every single year. Any money you pay toward the principal on your mortgage each year basically gives you a guaranteed return of 7%.

 

(The numbers change a little bit based on the tax advantages you might get from deducting your mortgage interest, but if you’re putting your money in a savings account, you’re almost always better off putting it toward paying your mortgage.)

 

Perhaps the next biggest debt mistake I often see is paying off the debt in the wrong order. The order in which you pay off your debt can make a huge difference in how long it takes to pay that debt down. Always prioritize your debt payments based on the interest rate. Make sure to pay off the most expensive debts first.

 

Again, this seems obvious, but I see many people making minimum payments on all their credit cards and other forms of debt. Don’t do that. Instead, pour as much money as you can each month into your highest-interest debt and keep doing that until all of your debt is paid off.

 

Of all the debt mistakes, though, the biggest one by far is unnecessary debt—that is, taking on debt when debt doesn’t need to be taken on. I’ll pick on car loans again here because one of the biggest mistakes people make is financing vehicles. It’s so easy to go into a car dealership and buy a new car, saddling yourself with unnecessary debt.

 

The problem is having the order of things backward. Typically, we do things in reverse order. Think about it this way. When you buy a car on financing you’re essentially buying a car and then saving up for it. When you do things this way, it’s like paying more for everything you buy.

 

Reverse the problem by saving and then buying things with cash. Yes, breaking the cycle the first time will be difficult, but once you break the cycle, you end up paying less for everything you buy.

 

If you have a car that you’ve bought on credit, pay that car off. But when you do, don’t buy a new car on credit; instead, break the cycle by keeping your old car and making payments into a “new car fund” account.

 

Once you have enough money in that new car fund account (somewhere between four to six years) you can buy a new car with cash and immediately start making payments into your “new car fund” account again.

 

By doing things this way, you’ll actually get a discount on your car instead of paying more for it, because the money you save for your new car can be accumulating interest over time for you, instead of for someone else.

 

Not all debt is bad

finance and money

Even though I’ve painted a pretty ugly picture of debt, it doesn’t mean all debt is bad. Debt can be good if you can use that debt to earn more money than the interest you pay on that debt.

 

I remember talking to a coworker of mine who figured out that his credit card company was running a special promotion where they would give him a 1% interest rate on a cash advance when he opened a new card or transferred a balance to it.

 

He took out the maximum amount they would let him borrow and used it to purchase a 1-year CD that earned a 3% interest rate. At the end of the year, he cashed out the CD and paid off the credit card, making a nice profit off the bank’s money.

 

Remember when I said that I still have over 1 million dollars in mortgage loans? It’s a similar situation. I went into debt buying real estate because I knew I could earn a higher return on the money borrowed than the interest rate the bank was charging me.

 

I’ll eventually pay off that debt, but right now having that debt is actually making me more money than it costs me.

 

Buying a house isn’t always better than renting, but in some markets, depending on the interest rate, it can be profitable to go into debt to buy a house, because you’ll end up saving money that would have gone to paying rent.

 

In many cases, a student loan falls into the same category. If you can get a loan so that you can get a degree that will help you to get a higher-paying job, that debt might be completely worth the investment. But be careful, because that’s not always the case.

 

I often advise recent high school graduates to spend the first two years of their college education in a community college and then transfer to a university to complete their degree.

 

It’s usually far cheaper to get your education this way. Far too many people go into excessive debt to get a degree from an expensive school that isn’t likely to ever show a significant return on their investment and may even cause them to go bankrupt.

 

The bottom line is to make sure that before you take on debt, that debt is actually an investment that will yield you a higher return than the interest rate you’ll pay on that debt. Only in an absolute emergency situation should you take on debt that isn’t profitable.

 

Taking action

Make a list of all your debt. Put that debt into two categories: good debt and bad debt.

Prioritize the list of bad debt by the interest rate. Calculate how long it will take you to eliminate all your bad debt.

 

Ever since I started working, my goal has been to retire early. It’s not so much that I didn’t want to work or that I was lazy—although I definitely do have a lazy streak in me—but rather that I wanted to have the freedom to do what I wanted to do with my time…with my life.

 

If you have the same kind of aspirations—even if you don’t want to retire as early as I did—you’ll probably find my story pretty interesting. Until I did it myself, I always wondered how other people did it, and I often wondered if it was possible for a software developer to retire early without striking it rich by founding a startup.

 

What it means to be “retired”

Financial constraints

Before we get into my story, I want to define what I mean by retired, because the word can bring up totally different images to different people.

 

Instead, I define retirement as freedom. To be more specific: financial freedom. The ability to not be forced to spend your time in a way that you don’t choose to spend your time due to financial constraints.

 

I’ve never aspired to get to a point where I never worked again, but I’ve always aspired to get to a point where I’d never have to work again—if I didn’t want to.

 

Now, I’ll be the first to admit I’m not quite doing it right, so to speak. Doing things for the sole purpose of making money is a hard habit to break. I still spend quite a bit of time doing things that I don’t necessarily want to do, but the difference now is that I’m at least choosing to do these things. Being free isn’t quite as easy as it seems.

 

Hard work mode

Hard work

I’m not sure how I actually survived the next few years. I can’t imagine having the energy now to do what I did then, but I knew that opportunities like the one I had been given with Pluralsight only come once in a lifetime.

 

I spent the next couple years working an eight-hour day at my regular job, creating Pluralsight courses every night for four to five hours, and working more on weekends.

 

In a period of about two and a half years, I created 60 Pluralsight courses, with 55 of them in total being published. I recorded enough video for you to listen to my tutorials for over a week straight, 24 hours a day.

 

During this time I also kept blogging once a week, started a new podcast on fitness for developers called “Get Up and CODE”, and started creating weekly, motivational You-Tube videos.

 

I’d like to say that life wasn’t hard and I was enjoying it the whole time, but the truth is it was miserable, hard work, and I just kept thinking about how someday I’d be free.

 

Multiple passive income streams

passive income

At this point, I now had multiple passive income streams; my blog was actually starting to generate some money from advertising and affiliate sales, I was selling my Android and iOS running apps.

 

I had the Plural-sight royalty checks that were coming in and growing substantially every quarter, and I had actually seen a few positive cash-flow months on the real estate investments.

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