How To Buy Real Estate In A Roth IRA

How To Buy Real Estate In A Roth IRA

Did you know you can actually buy real estate in a Roth IRA? And it’s completely legal too, not the least of which since you can hold just about any asset in an IRA account. Some real estate promoters seriously pitch this option. And while it is certainly possible, you need to be fully aware that it's also a very complicated process.

We're going to do a high-altitude report on how to buy real estate in a Roth IRA. But be advised this is not the kind of investment strategy you should ever enter on the basis of an online article. The number of potential pitfalls, and the severity of the IRS penalties, make this a very serious step. For that reason, you absolutely must consult with a knowledgeable CPA or tax attorney before moving forward. With that rule firmly in place, let's take a look at the basics of how to buy real estate in a Roth IRA.

Why Hold Real Estate in a Roth IRA?

At least since the 1970s, real estate has rivaled the stock market in investment returns. In some decades, one has outperformed the other, but on balance it's been a tight race. Either way, a large number of people have become millionaires by investing in real estate. The reliable performance of real estate makes it an excellent long-term investment.

There are tax breaks that come with investing in real estate. Depreciation is an example. It's a paper expense, that can be used to offset real income, giving the owner tax-free income. Another is the long-term capital gains tax advantage. If investment real estate is held for more than one year, and sold at a profit, the tax rate is between zero and 20% for most tax payers. But can you imagine holding investment real estate in a Roth IRA, where it will be fully tax-deferred–until you turn 59 1/2, when it will become completely tax-free? Whether tax-deferred or tax-free, neither the profit from rental income nor the windfall from capital gains will create a tax liability. Now think about how powerful that advantage will be over many years. That's reason enough to consider holding real estate in a Roth IRA.

The Diversification Angle

Still another advantage is that real estate represents a true diversification. Most retirement plans are loaded up with paper investments. That includes stocks, bonds, mutual funds, exchange traded funds, and certificates of deposit. Those are all solid investments, but they’re also intangible. It often makes sense to include some type of tangible asset in a retirement plan, particularly an IRA. They often perform better than paper investments, particularly during times of high inflation. Precious metals are an excellent example of a tangible investment. But the ultimate tangible investment is real estate. That's because it's not just an investment, but it also has a practical purpose. It provides shelter either for residential tenants or commercial businesses. That tends to give it staying power over the very long term.

Adding this kind of tangible investment to a portfolio of paper assets achieves a much greater level of diversification.

Buying Real Estate in a Roth IRA–The Downsides

No discussion of buying real estate in a Roth IRA is remotely complete without a solid discussion of the complications–and there are plenty. The first downside you'll encounter is finding an IRA trustee who will hold physical real estate in a Roth IRA account. If it's a trustee that has a well-known name, rest assured they won't be a candidate. Real estate related IRAs are a special breed, and you will need to work with trustees who specialize in the field. There are only a handful, and we’ll list a few shortly.

Second, because of the high price of real estate, it will be very difficult to diversify within the asset class. Most investors will do well to hold one or two properties, especially in the early years, unless you’re rolling over large sums from other retirement plans. This will limit your ability to spread your investment–and your risk–across several different properties, in a way similar to how you diversify across many securities in each paper asset class you hold in your portfolio.

Third, IRS rules on holding real estate in any type of IRA are stiff. If you violate even one of them, the IRS can completely invalidate the IRA. They can force a distribution subject to ordinary income tax and the 10% early withdrawal penalty. This is a major reason why the vast majority of IRA trustees don't accommodate physical real estate.

Specific Rules for Holding Real Estate in a Roth IRA

Here are some of the rules surrounding holding real estate in an IRA account:

  • You cannot be personally involved in the management of a real estate IRA. The account must be managed by the trustee. You and your real estate IRA will be completely distinct entities.
  • You cannot receive any benefits from the property held in the IRA. That means you can’t live in it, your family can’t live in it, and you can’t run a business out of it. There can be absolutely no personal use of the property.
  • The IRA cannot purchase property that is in any way connected with you or your family.
  • All financial activity, including both income and expenses, must go into or originate from the IRA. You cannot receive any income or pay any expenses for the property held in the Roth IRA.

In short, you can’t use real estate in a Roth IRA to build a personally directed real estate empire.You can only make the choice to start a real estate IRA, decide who the trustee will be, then fund the account. All management of the assets held in the account must be handled by the trustee. Violate that rule, and really bad things can happen.

How to Buy Real Estate in a Roth IRA

As you’ve probably already guessed, holding real estate in a Roth IRA is not nearly as simple as traditional paper assets.

First, you have to open a self-directed account with a trustee that specializes in real estate IRAs (see next section). Once you've made that selection, you'll set up your account much the way you would any other self-directed Roth IRA. Once again, you cannot be personally involved in the real estate investment process. You will direct the Roth IRA trustee to invest in real estate, fund your account, then step back from the entire process.

Any real estate held within the Roth IRA must be legally titled in the name of the IRA account. It cannot in any way be connected with you personally (yes, I'm repeating that point, because it's absolutely critical with real estate IRAs). You will have to complete forms specific to the IRA trustee, directing them to make property purchases within the account.

The funds to invest in real estate must come from the account. You will not be able to supplement the purchase or property management with funds from unrelated accounts. All income collected on the property must come into the IRA–not a single nickel can come to you personally. Similarly, all expenses must be paid out of the IRA account. Any profits generated by rental income must be retained within the account.

Selling Property Held in a Real Estate Roth IRA

When it comes time to sell property, your only input will be to approve the sale price. This is similar to the process of approving the sale of a stock at a certain price in a conventional IRA account. However, all proceeds from the sale of the property will once again be retained within the IRA account.

All records pertaining to each property held in the IRA are also retained by the trustee. As you can see, it's almost ironic saying that it's a self-directed account. Other than selecting the trustee, funding your account, and agreeing to the sale price of a property, there's really nothing self-directed about it. All activity and financial transactions are handled by the trustee.

IRA Trustees that Specialize in Real Estate IRAs

As already noted, very few IRA trustees will allow you to hold real estate in your Roth IRA. Not only is the process complicated, but the trustees themselves may also face various penalties for failing to get it right.

Below is a list of five trustees known to handle real estate IRAs. Please understand we are not making recommendations for any of these companies. Rather, we are offering this list as a starting point in your search for a suitable trustee.

Be sure to research each company through various third-party rating services, such as the Secretary of State, both in your state and the company's home state, as well as the Better Business Bureau, Yelp, and other sources.

Also, thoroughly investigate what the company offers. You'll need to know not only the degree of expertise they have in real estate IRAs, but also the specific processes they employ, and the fees they charge.

The five trustees known to specialize in real estate IRAs includes:

How Mortgage Financing Works with Real Estate in a Roth IRA

If investing in real estate in a Roth IRA is a complicated process, it's even more so if you attempt to borrow money to do it. It's not that borrowing money to purchase real estate in a Roth IRA is impossible, but there are hurdles.

Once again, we need to stress that you don't take this step without first consulting with either a CPA or a tax attorney. You should be aware that traditional mortgage financing for real estate is not available within an IRA account, traditional or Roth. This has much to do with the fact that any financing connected with an IRA account must be “non-recourse”. These are loans traditional mortgage lenders don't like to make.

Under a non-recourse loan, the lender will be limited to the real estate only as collateral for the loan. Unlike a typical real estate mortgage, the lender won't be able to pursue the other assets of the either the IRA account or of the account owner. And no mortgage lender will grant a loan without your personal guarantee, which you cannot provide without violating the IRA.

To finance the property in a Roth IRA, you must work with a non-recourse lender. Naturally, those are few and far between. They also have very stiff requirements. For example, a non-recourse lender will require a large down payment, typically 50% or more.

And since you will not be able to provide a personal guarantee, the lender will need to be satisfied that the property generates sufficient cash flow to meet the monthly mortgage payment, as well as utilities, repairs, maintenance and a reasonable estimate for a vacancy factor (times in which the property is without a tenant). And of course, the loan will be the obligation of the IRA, not of you personally.

A Financed Property in a Roth IRA May Be Required to Pay Tax

That leads to an even bigger complication. If you take financing, your real estate IRA may owe tax on unrelated debt-financed income (UDFI). The tax will be due on the percentage of the property value covered by the loan. So if 50% of the property value is financed, then 50% of the profits will be subject to the tax.

The IRA must then file a tax return (IRS Form 990-T). It will file as a trust, and pay trust tax rates, since an IRA is in fact a trust. If you don’t want to go the financing route (and be subject to the UDFI tax), you do have some other options.

The most obvious, of course, is to fund the property purchase completely out of the funds from your Roth IRA. Now it will be close to impossible to do this if you’re funding your IRA at the normal contribution rate of $5,500 per year. The alternative will be to do either a rollover of funds from another Roth IRA, or a conversion of plan assets from non-Roth accounts.

Still another is to work with one or more partners on the same property. Each partner will have an undivided interest in the property.

If Actual Real Estate Scares You–REITs to the Rescue!

The acronym for real estate investment trusts, REITs are a lot “cleaner” to own than physical real estate. They’re also much easier to hold in a Roth IRA. You can hold them in much the same way you do stocks and other paper investments. The returns on REIT have also been impressive for many years. For example, the average return between 1977 and 2010 was 12%, and has been about 9% since. REITs are a good way to invest in real estate in a Roth IRA, and with a lot less complication and risk.

So if you're thinking about holding real estate in your Roth IRA, first sit down and have a long, deep discussion with a CPA or tax attorney. Then consider if you have both the funds and the temperament to invest in physical real estate. If that all checks out, contact one of the real estate IRA companies that specialize in that investment, and move forward. But if you're not willing to endure the complication and the risk–
but you still want to hold real estate in your Roth IRA–take a good, hard look at REITs.

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How To Buy A Used Car

How To Buy A Used Car

One frequently touted tenant of the FI community is that you should never buy a new-to-you car if you can help it. Since most of us know that beyond safety and the ability to get you from point A to point B, cars are mostly status symbols on wheels that aren’t a great return on your investment.

Any new car that has bells and whistles or a fancy brand name are essentially mobile trophies that people use to brag about their status in life, whether or not it is rooted in reality. So, if you’re FI aligned and you’re simply trying to find a set of wheels that gets you where you need to go, (and safely so), read on.

Set a budget, then research thoroughly

As with anything, your budget should be a good starting point to inform all you do–and a good rule of thumb is that $7,000-$8,500 is about what you need for a good used car, and you’ll still have plenty of safety features and a good 100,000 miles before it needs to be put out to pasture. Of course, this may vary–but it's a good starting point.

If you have no idea where to even begin and aren’t already set on a specific make or model, check out iSeeCars.com and do your analysis in their Car Research section to learn more about what’s available. Here you can sort by MPG, user reviews, or even known issues with that model which wouldn’t be covered by a warranty.

As a person who personally drove a 2012 Ford Focus that was well known as the “problem child” of Ford for some time, take some time to thoroughly Google “X Make X Model Year known issues.”

My Ford Focus, before it was thankfully put out of its misery by my insurance company due to hail damage, had a serious transmission issue. I took it back to the dealership no less than six times, but the mechanics said there was nothing to be done.

Getting off the line, even with a light push of the gas pedal meant the whole car would shudder as it accelerated forward. Yes, you’ll want to avoid those well known issues when you buy used!

Go to a dealership, but buy from Craigslist

If you’ve successfully narrowed down your search to one or two cars that fit your needs for MPG, family size, or really, whatever cool factor you’re willing to pay for–you may want to take some time getting familiar with this car in person.

I’ve seen many personal finance bloggers recommend buying a car direct from the seller, as a middle man (used car dealer) will likely have a steep markup, and isn’t necessarily transparent about issues with the car either! You can run your own CarFax report before you buy using a VIN number, for about $39.99.

While you may want to buy direct from a seller, you can still spend some time visiting car dealerships to take a car for a test drive and spend some time with the type of car you’ll want to buy.

While a Craigslist seller will let you test drive, they probably don’t want you hanging out in their driveway for hours as you make a decision–so spend some time at a lot to get comfortable with the make and model.

Access, aim, pull the trigger

So, you’ve researched which car to buy–but if you were to look under the hood you’d have no idea what you were seeing. Before you go to buy a car, cozy up to a friend who knows his or her way around a vehicle and bring them along.

While a CarFax report will tell you a lot about the car’s history, a wise friend or family member can tell you about the car’s future. When you look–when will the tires need replacing? How does the transmission look? Was the car cared for and maintained? A car enthusiast will know how to spot red flags or areas of neglect under the hood and their careful eye is well worth the price of lunch or a six pack of beer!

When your savvy friend has given you the thumbs up, you can see if you want to negotiate off of the listed price. Being armed with facts of upcoming replacements or identified issues will help you get money off of the asking price–but be prepared to walk if you’ve identified big issues that even a few dollars off the top won’t solve.

If you’ve ever bought a used car, we’d love to hear from you to share more tips with the ChooseFI community to shop smarter and save money along the way!

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How To Save Money On Travel With The Right Credit Card

How To Save Money On Travel With The Right Credit Card

Earning miles and points from credit cards is the way to save big money on travel. But you'll need “right” card for you.

Be sure you aren't paying unnecessary fees or missing out on benefits. I'm going to show you have to save money when you travel by having the right credit card.

There's more to life than the Sign-Up Bonus

Getting a credit card sign-up bonus is like finding a pot of gold or winning the lottery. It's totally awesome, but the thrill soon dies down when next year's annual fee is due.

When picking the “right” credit card, you need one that will provide more value than a one-time boost to your collection of miles and points. I pay plenty in annual fees for my credit cards, but only when there is a real opportunity to save money on an ongoing basis.

Click Here To Compare Travel Rewards Cards

It now costs $30 to check a bag!

You've probably seen the news where all of the major airlines have now raised their baggage fees by 20 percent (from $25 to $30). This is a bit of highway robbery! Thank god my favorite airline, Southwest, still has the decency to offer two free checked bags.

If you're going to fly one of the other carriers, there are three main ways to avoid paying the fee.

  • Have Elite Status: No thanks, I'm not spending that much with any airline.
  • Fly in Premium Cabin: I'd love to, but even I don't have that many miles.
  • Have the airline's credit card: Having their card is like buying elite status.

You do have to be careful though because there's a big difference between airline credit cards. For example, if you're paying less than a $95 annual fee for your card, you probably don't have free checked bags as a benefit.

Free checked bag benefit varies by airline

And not every free checked bag benefit is the same among the airlines' credit cards:

  • American Airlines: The Citi AAdvantage Platinum Select ($95 annual fee) waives the checked bag fee on one bag each for you and up to four companions on the same domestic itinerary.
  • Delta Airlines: The American Express Gold Delta SkyMiles Credit Card ($95 annual fee) provides a free checked bag for you and up to eight companions on the same domestic itinerary.
  • JetBlue Airlines: The Barclays JetBlue Plus ($99 annual fee) offers a free checked bag for you and up to three companions on the same domestic itinerary.
  • United Airlines: The Chase United Explorer card ($95 annual fee) has the worst free checked bag benefit. Only you and one companion can get a free checked bag on the same domestic itinerary.

As you can see, the benefits vary widely among the different airlines. Most airlines have multiple versions of their cards as well, so review their benefits and choose wisely based on what is most important to you.

Excuse me, I'm on the list

Waiting in line sucks. I would say it is even more lame when you're getting ready to fly.

With most airline co-branded credit cards, you can get priority boarding ahead of many frequent fliers, even if it is your first time flying on that airline. How cool is that?

Even better is that some premium credit cards offer reimbursement of your Global Entry or TSA PreCheck enrollment fees. If you don't know what these are, you're in for a treat! Instead of waiting in line at security, TSA PreCheck lets you avoid the line, keep your shoes on, and skip the invasive search of your bags. Global Entry makes returning home from an international trip into a two-minute process instead of a 30-minute wait.

Click Here To Compare Travel Rewards Cards

Don't pay full price when buying food & drinks in the air

I don't buy many drinks or snacks when I fly, but my kids have different plans for my wallet. Just like at the theme park or professional sporting event, you are a captive audience when flying. And that means that the prices for drinks and food are many times higher than what you'd pay at the grocery or convenience store.

Luckily, cardholders of many airline credit cards can save 20 to 50 percent on food and beverages during the flights. Here are a couple examples:

  • American Airlines: The Citi AAdvantage Platinum Select offers a 25 percent discount on food and beverages.
  • Delta Airlines: The American Express Delta Gold card give a 20 percent discount on food, beverages, and audio headsets.
  • JetBlue Airlines: The Barclays JetBlue Plus card gives a 50 percent discount on food and beverages.
  • United Airlines: The Chase United Explorer Card offers a 25 percent discount on food, beverages, and in-flight WiFi.

Free night? Yes, please!

It's not just with airlines that you can save a bunch of money if you have the right credit card. With the major hotel chains, you can expect to get a free hotel night just for renewing the credit card or when you spend a little bit of money each year.

True, the hotel reservation isn't completely free. But, if you are going to travel anyway, wouldn't you rather buy your room at a discounted price? Even average rooms can be $200+ a night in most major cities. With my hotel credit cards that offer free nights, I cash them in and save at least 50 percent when comparing the cash price vs. what I'm paying in annual fees.

Free hotel night upon renewal

Here are a few of the credit cards that offer free hotel nights just for paying the annual fee:

Free hotel night when you spend

And you'll earn free nights when spending on these credit cards:

  • American Express Hilton Ascend ($95 annual fee): One free weekend night that can be used at almost any Hilton property around the world when you spend $15,000 in a calendar year.
  • Chase World of Hyatt Credit Card ($95 annual fee): You'll receive an additional free Category four night when you spend $15,000 during your anniversary year.
  • US Bank Radisson Rewards ($75 annual fee): Earn up to three free nights each year. Get one free night for every $10,000 you spend in your anniversary year.

Just say No to car rental insurance

Rental car insurance is something that I don't like to pay. The fees are outrageous and the coverage can be limited. Most travel credit cards offer secondary insurance, which means that they'll cover whatever the insurance you have back home doesn't. But there's a better way. Two, actually.

Some premium credit cards offer primary rental car insurance. This means that they'll step in and cover any problems without involving your normal car insurance. Primary rental car insurance is a fantastic benefit, especially if you travel to places with dangerous roads, like when going snowboarding in the mountains.

American Express also offers wonderful rental car insurance at an affordable rate, and it is available on almost all of their credit cards. Instead of paying a daily rate, you'll pay one flat rate of $25 or less that will cover you for rentals periods up to 42 days. The coverage is even available worldwide with a couple of exclusions.

Don't pay Foreign Transaction Fees

Foreign transaction fees are a hidden tax that inflates the price of everything you buy in a foreign currency. If your card is still charging you this fee, it needs to be left at home whenever you travel.

So many credit cards waive the foreign transaction fee as a basic benefit. There is no reason you should be charged this three percent fee when making an international purchase.

Get the right credit card to save even more money

Yes, the credit card you have is probably pretty good. And it might even save you some money and have some cool perks. But are you paying any of these fees above when you travel? If so, it might be time to upgrade or add another credit card to your wallet.

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Forget Retiring Early–Go For A Fully Funded Lifestyle Change Instead!

Forget Retiring Early--Go For A Fully Funded Lifestyle Change Instead!

Fully Funded Lifestyle Change is different than FIRE (Financial Independence Retire Early) because it doesn't require “retiring”. A Fully Funded Lifestyle Change (FFLC) means saving up enough money to make a major change, such as starting a business, moving out of the country, or just simply spending more time with family.

If you consider that most people are approaching FIRE with the mentality that they will find something new to work on in retirement what they are really pursuing is the FFLC. If you aren’t grinding through a job just to reach FI, it’s likely that you would have the opportunity to retain the parts of your job that you like, and you, too, could pursue the FFLC instead of full on FIRE.

Plus, the benefits would be to reach your goal that much faster and get to fully enjoy your life that much sooner.

What Drove Our Change in Mindset

Since our daughter was born, I have felt the need to change the way my life was structured. Sure, I’ve always had the plan to retire early from work and pursue other goals. However, I never really quantified it before meeting with our financial planner. Instead, assumed when we reach 30x our expenses (3.33% withdrawal rate), my wife and I would have more than enough to never worry about money again. At that point, we could quit our jobs and live it up for the rest of our days!

Because of the new motivation of having a little one at home, I have come to realize that the time we have right now is more precious and valuable than time in the distant future. What if we could make a shift in our lifestyle? Allowing us a sustainable career that would provide the flexibility to enjoy time with our daughter, while also providing the income that we need to maintain our lifestyle. Yes, we would be sacrificing the years of completely not working. But on the other hand, if we’re enjoying our jobs, do we need to get out of them completely?

My wife works in our local school system as an instructional facilitator. In essence, she works with teachers on how to better present lesson plans, incorporate technology and analyze data to improve the students’ learning. This job is tailor made for her and she is really enjoying it. In addition, she is able to walk to work and the school day is from 8-[3:30]. It’s hard to beat that!

I, on the other hand, have a 45 minute commute which starts before our daughter wakes up in the morning. Given her bed time, I see her for about an hour a day during the week.

Additionally, where we live in the Washington, DC suburbs, isn’t the ultimate location for us. We would love to travel the world while we still have a young family. Also, we want to build a homestead on our property at some point.

What Does it Take to Reach FFLC?

Talking with our financial planner, Harry, got us thinking about what really mattered and how to accomplish it. Also, having the numbers to back up the conversation and provide confidence in our opportunities and choices, really provided value and clarity.

Harry calculated that our current nest egg of retirement accounts and taxable savings is sufficient to meet 200% of our retirement spending goals, starting at age 60. I chose age 60 because we will be able to pull penalty free from our tax deferred accounts at that time. That means we only need to conquer the next 29 years to get to that point! Additionally, we don’t need to save another dime to meet our goals in retirement.

The realization that we could spend all of our income for the next 30 years and still be fine in retirement is mind blowing. Of course, if we did spend all of our income for that period of time, our expenses would have grown so significantly that retirement at that level of spending probably wouldn’t work. With that in mind, and our current comfort with our spending, we can afford to reduce our income significantly. That provides a lot of opportunities for our family.

Looking at our finances, I determined that my wife’s income and benefits could more or less support our family. I figure I need to make about $10-15,000 per year to make ends meet. It would almost be hard to make less than that if I apply myself at all.

If we are able to change our careers to suit us and provide the current income that we need to meet our goals, we should be able to live happily for the next 30 years until we are able to pull from our retirement accounts. We won’t be able to sit on the beach 365 days a year at this point, but that sounds like it might get boring pretty quickly anyway. If our target is $75,000 per year, between the two of us we should be able to accomplish that easily, whether my work scales up and my wife’s scales back or vice versa. Finally, it’s very likely that we will still be earning more income than we need to live our lifestyle.

What If We Earn More Than We Need?

What would happen then? Well, given that we don’t need to save anymore, we will have flexibility there too. Maybe we save some of it and pull forward the ultimate retirement date by saving into a taxable account. Or, maybe we devote more of our earnings towards charitable giving. A distant third will be increasing our spending significantly.

We live comfortably now, but do keep a close eye on our expenses. I imagine we would enjoy spending a little bit more, or at the very least releasing the tight grasp on our wallets. I can’t imagine how we could increase our spending significantly however, and I don’t think I would get the same level of enjoyment out of it either.

How Can You Calculate the FFLC Point?

All jazzed up about this idea yet? There are a few calculators out there to figure out the amount of savings you need to fully fund your retirement. Some of these calculators are a bit simplistic. But, I received immense value from having this discussion with Harry (in addition to running through my own financial planning software of course!) In essence, you are calculating a present value of the retirement number to fund your retirement spending needs. The other variables in the calculation are the rate of return and the years of growth. One potential pitfall here is the impact inflation will have on your retirement spending. The second is that the present value that you are calculating is actually a future value if you are still in the saving phase. 

Unfortunately, I don’t have a robust tool available online that will help with this calculation. I’m sure there are calculators out there, or that some of the personalities in this community could create one. I may work on creating a Google Sheet that tackles this calculation. Please let me know if you've got one already in the comments below!

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How An HSA Fits With Your FIRE Plans

How An HSA Fits With Your FIRE Plans

When your primary financial goal is to retire early and become financially independent, sometimes it feels like you can only do so much. If you’re already maxing out your IRA and 401(k) every year, it’s easy to justify spending any money you have left over–or investing in something less stable.

Thankfully, you don’t have to do either of those things.

The HSA is a perfect third option for investing in your future. It may sound like a basic savings account for medical expenses, but it’s actually an amazing investment vehicle with a host of tax benefits. For anyone living the FIRE lifestyle, it’s a match made in heaven.

If you’re interested in how an HSA can help you achieve financial independence, read ahead to learn more.

The Rules of HSAs

Triple tax advantage

A Health Savings Account (HSA) is the holy grail of financial independence. It comes with a handful of impressive tax benefits. You don’t pay taxes on your contributions, you don’t pay taxes when you withdraw funds and you don’t pay taxes on your HSA earnings. Experts refer to this as the “triple tax advantage.”

Contribution limits

Currently, HSAs have a maximum contribution limit of $3,450 a year for individuals and $6,900 a year for families. Seniors 55 and older can put away an extra $1,000 a year. Typically, those contribution limits will increase every year to keep up with the pace of inflation.

Unlike an FSA, HSAs have no rule on when you have to spend the money. You can contribute the funds now and use them at any point in the future, with any money leftover at the end of a year rolling over into the next.

Eligibility

To be eligible for an HSA, you need to be enrolled in a high-deductible insurance plan. Your plan must have a deductible of at least $1,350 for individuals and $2,700 for families, and your out-of-pocket expenses must be no more than $6,650 for individuals and $13,300 for families.

When choosing a plan during open enrollment, remember that not all high-deductible plans are HSA-eligible. Eligible plans will have the “HSA” designation listed in the description.

You can only use HSA funds on qualified medical expenses, which include the following:

  • Diagnostic screenings, such as mammograms, MRIs and CT scans
  • Prescription glasses, contacts and vision-corrective surgery
  • Mental health care
  • Surgery, excluding cosmetic or elective surgery
  • Labor and delivery
  • Transportation to and from doctor’s appointments
  • Acupuncture
  • Dental services

Not all medical expenses qualify for HSA disbursal. For example, if you buy Tylenol at the drugstore, you can’t use your HSA funds unless your doctor specifically wrote you a prescription for Tylenol. Therapy is covered under an HSA, but not marriage counseling. In short, you should always double-check before assuming an expense is qualified.

You can find a full list of HSA qualified medical expenses here. If you need something that falls outside of the list, call your HSA provider and ask. It’s always best to have a doctor’s note verifying the treatment, product or service.

Using an HSA for FIRE

You can use an HSA for any qualified medical expense at any point in your life. The funds in an HSA remain yours, even if you’re no longer eligible for an HSA because you’ve switched to a different type of insurance plan.

HSAs grow like other investments

HSAs that are invested in ETFs or mutual funds grow like other retirement accounts. The longer the money sits there, the more interest it will accumulate over time, so it’s best to wait as long as possible to reimburse yourself for any medical expenses you incur now.

“The longer you can defer taking money out of it and let the HSA investments grow, the greater the benefit,” said financial planner Brian Canning, CFP® of Abacus Wealth. “I tend to encourage clients to at least wait until Medicare age.”

Here’s an example. You’re 25-years-old and decide to open an HSA and start contributing the individual max of $3,450 a year. You immediately start investing the money in funds that return seven percent a year on average. You do so for 40 years until you’re eligible for Medicare. By now, your HSA has grown to $760,982.90. In reality, that total could end up being much higher due to annual contribution limits increasing to keep up with inflation.

Once you’re 65 and older, you can use the money in an HSA for Medicare premiums. You can also withdraw the funds for anything without paying the 20 percent penalty, though you’ll still pay income tax.

Avoid income tax

To avoid paying income tax on HSA distributions, you can also choose to reimburse yourself for past medical expenses that you paid out of pocket. An HSA can pay for any qualified medical expense, which excludes regular insurance premiums, elective procedures, cosmetic surgery and over-the-counter drugs purchased without a prescription.

“It's important to keep careful records and receipts so you can reimburse yourself for these expenses in retirement,” said financial planner Ryan Inman of the Financial Residency Podcast.

Scan all receipts and store them in a secure online folder. Write up a spreadsheet detailing all the bills you’ve paid out of pocket and include as much information as possible. You want a clear record in case the IRS ever decides to investigate your claims.

You can take out withdrawals anytime

An HSA is great for the FIRE lifestyle, because you can take out withdrawals anytime. If you’re an early retiree and want to withdraw money from your IRA or 401(k), you’ll pay a 10 percent federal tax penalty. Your state may also charge you a separate penalty.

Try This Method

To avoid paying any kind of unnecessary penalty or tax, try this method: Pay for all your medical expenses out of pocket without dipping into your HSA. Contribute as much as you can to your HSA account, up to the annual limit. Once you retire, start distributing money from your HSA while claiming past expenses on your taxes. After you turn 59.5, you can start withdrawing money from your IRA or 401(k) without any kind of penalty.

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The Best Board Games (According To You)

The Best Board Games (According To You)

You have likely heard time and time again, the love Jonathan and Brad have for a good session with a board game (take a listen to Episode 64R!). For someone who wants to be intellectually stimulated and off of their electronic devices and screens while taking in some good together time with friends and family, nothing beats a good board game.

ChooseFI Facebook group recently shared their favorite board games, and we thought it prudent to compile this list and share it with you. These games can be purchased off of Amazon, but of course- we always recommend finding these locally at a ChooseFI meetup to borrow or a friend who loves games to team up for a few rounds.

Happy gaming everyone!

1. Settlers of Catan: 3 to 4 players (up to 6 with extension). Ages 10+, up to 90 minutes a game. Players strategize to collect and implement resources and use them to build roads, settlement and cities to take over the island and win the game.

2. Mancala: 2 players. Ages 8+, up to about 15 minutes a game. Players play with small stones or beans in strategy moves to capture the opponent's pieces.

3. Exploding Kittens: 2 to 5 players. Ages 7+, up to about 20 minutes a game. Exploding Kittens is similar to a card version of Russian Roulette, with each player making moves against the other, or using their cards to diffuse attacks, until all but one are eliminated.

4. Cards Against Humanity: Up to 10 players, ages 18+, can be up to an hour or more a game. (mature!). This card game is not for the faint of heart–as your strategy is to complete sentences in the most hilarious or offensive ways possible. If your cards played are the funniest of all the players, you win a point.

5. Ticket To Ride: 2 to 5 players. Ages 8+, up to about 45 minutes a game. A board game for players to collect and play matching train cards to claim railway routes connecting cities strategically to win.

6. Pandemic: 4 players. Ages 8+, up to about 45 minutes or more per game. Pandemic puts players in a scenario of cooperative crisis management after an outbreak. Players strategize to win the game by stopping all four deadly diseases from spreading globally.

7. Telestrations: 4 to 8 players. Ages 8+, up to about 30 minutes per game. This game is a mix of Pictionary and the “whispers” game played in school. A player is given a word and it is passed around, to be drawn out and guessed.

8. Dominion: 2 to 4 players. Ages 13+, up to about 45 minutes per game. Dominion is a unique card game where players build their ideal deck through “draft” play to win the game with the best cards.

9. Codenames: 4 to 8 players. Ages 13+, up to about 15-30 minutes per game. This card pins two teams to compete against each other to see who can figure out the secret identities of all of their agents first.

10. Camel Up: 2 to 8 players. Ages 8+, up to about 30 minutes per game. This board game gets all players to bet on five racing camels, trying to see which will place first and second in a quick race around a pyramid.

11. Dutch Blitz: 2 to 4 players, Ages 8+, up to about 15 minutes per game. A fast paced and family friendly card game where each player tries to empty his or her blitz pile as quickly as possible.

12. Shadow Hunters: 4 to 8 players, Ages 10+, up to about 60 minutes per game. Each player has a secret identity. You must first figure out who is your ally and who is your enemy then attack!

13. Cashflow: 2 to 6 players, Ages 10+, up to about 180 minutes per game. A board game of Robert Kiyosaki's books on finance and investing, that puts the principles to work in a competitive playscape.

14. Jax Sequence: 2 to 12 players, Ages 7+, up to about 30 minutes per game. Sequence is a board game where players play a card from their hand and to then place a chip on the corresponding space on the games board, strategizing spots on the board to get the right amount of sequences before the other players.

15. Bears Vs. Babies: 2 to 5 players, Ages 7+, up to about 20 minutes per game. From the makers of the aforementioned Exploding Kittens, Bears vs Babies is a card game where you build monsters who go to war with awful babies and take out your opponents as the babies attack.

16. Bananagrams Cobra Paw: 2 to 6 players, Ages 5+, up to about 15 minutes per game. Cobra Paw is a is a speed recognition game to grab six tiles to win the game after a roll of the dice–which is designed to be fast paced and family friendly.

17. Phase 10: 2 to 6 players, Ages 8+, up to about 45 minutes per game. Phase 10 is a Rummy style card game with several rounds. After each round, players will add up their score based on the number and type of cards left in their hand to win.

18. Castles of Burgundy: 2 to 4 players, Ages 12+, up to about 90 minutes per game. Set in medival, Burgundy France, players play the board to collect game-changing victory points through trade, farming, city building, and scientific research.

19. Secret Hitler: 5 to 10 players, Ages 13+, up to about 45 minutes per game. Is a political strategy game, taking place in 1930's Germany. Each player is secretly assigned to be either a liberal or a fascist, and one player is the “Secret Hitler” as everyone tries to figure out who is who.

20. Canasta: 2 to 6 players, Ages 12+, up to about 45 minutes per game. A Rummy style card game where players score points by melding cards (at least seven of the same rank), and making as many canastas as possible.

Bring your loved ones together and create some memories and connection. Maybe even a little competition, and likely, smiles and laughter.

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How To Plan Your First Trip With Travel Rewards

How To Plan Your First Trip With Travel Rewards

If you are new to the world of travel rewards, everything might seem a little overwhelming at first. You hear people throwing around words like “redemption”, “sweet spot” and “positioning flight”. The terminology travel rewards enthusiasts use might seem like a foreign language at first.

But never fear, you can become a travel rewards expert! Start slowly, take Travel Miles 101 course. The course was created by ChooseFI's own Brad Barrett.

Here are some of the most commonly asked questions every travel rewards beginner should consider when they start to dabble in travel reward.

Where To Start

A good place to start is to apply for Chase Sapphire Preferred Card or Chase Sapphire Reserve credit cards. Because of Chase' strict application rules, I always recommend you start your travel rewards journey with Chase Ultimate Rewards earning cards. Ultimate Rewards are the most flexible currency and can be used in many ways to provide free or almost free travel.

You should always have a credit card opening strategy. Avoid applying for cards just because it is being touted as the “best card ever” and don't get distracted by the shiny objects in the form of “increased, limited-time offers” and other buzz words. Lots of credit cards earn rewards that are hard to use or are not as valuable. Keep your eyes on the prize, remember not all points and miles are created equal.

Travel Rewards Cards To Consider

As a beginner, you want to have a stash of travel rewards points that are flexible, easy to use, and provide excellent value, such as Ultimate Rewards points. If you aren't sure yet where you want to travel, or can't travel because of family circumstances etc., that is OK too. Start collecting points by using Chase cards for your everyday spending.

You can earn Chase Ultimate Rewards by opening one or more Chase personal and business credit cards:

Destination And Optimization

There are a couple of ways to approach this. You can start with a destination in mind, or you can take a stock of points and miles that you have and look for the best ways to use them.

Southwest Companion Pass Possibilities

If you have a family and anticipate traveling a lot to the places that Southwest Airline flies, then pursuing a companion pass might be a good idea. A companion pass allows one passenger to travel for free with a person who travels on a paid or award ticket. It is really one of the greatest deals in the world of travel rewards.

You can earn a Southwest companion pass by opening Southwest Rapid Rewards Plus Credit Card or Southwest Rapid Rewards Premier Credit Card. If you have a business, you can get Southwest Rapid Rewards Premier Business Credit Card. You can't have two personal cards at the same time but you can get a personal and a business card.

Two-player Mode

Another term you might see being used a lot is “two-player mode”. When both spouses can open the same cards, you can accumulate a good chunk of points. Some credit cards offer bonus points when you refer family and friends. For example, one spouse could open a card, let's say Chase Sapphire Preferred Card, and after they have met minimum spending requirements, refer the other spouse. This way you are earning the referral bonus and both spouses are getting the sign up bonus. This will allow you to earn enough points and miles for the whole family!

Actual Travel–Domestic And/Or International

Another important question you need to ask yourself, is “Where do I want to go?” The answer will help you when you are trying to figure out your card opening strategy. As I mentioned above, if you have a lot of domestic travel, and have easy access to Southwest, then getting a Southwest companion pass for you and your family might be a great idea. Keep in mind that Southwest cards are subject to Chase's 5/24 rule.

If you are planning an international trip, you will need airline points or transferable currencies you can transfer to an airline of your choice. AwardHacker is a great resource–plug in your departure and arrival airports and the site will show you the best rates, which airline you can book with, and how many miles you will need for an award ticket.

Related Articles: Travel Rewards Credit Cards FAQs

Home Airports

Living near major airline hubs like New York City, Chicago, Atlanta, etc., means the travel options are open with possibilities. But if you have one or two dominant airlines that serve your home airport, it is good to consider which airlines you will use the easiest and most frequently. For example, United is a major airline where I live; American has some presence, but there are very few Delta flights. In order for me to optimize my dollars, points, and miles; I need to figure out a way to earn points that I can use on United and its partners.

Keep in mind that airlines will sometimes allow partner operated flights for use with travel rewards. And sometimes, it is an even better deal. I don't have to use United miles to fly on United operated flights. I can use partner airlines to book flights on United and partners and sometimes it is even cheaper than booking directly with United!

If, for example, there are no good international options from your home airport, you can get a so called positioning flight to a bigger hub. If you have good options with Southwest, use your companion pass to get yourself and one other person to a hub airport.

Travel Rewards Are For More Than Just Flights

If you prefer to drive rather than fly, then you want enough points to cover your hotel stays. If, at first, you are sticking with cards that earn Ultimate Rewards points, Hyatt is a great chain that offers incredible value. It is very easy to transfer Chase Ultimate Rewards points to Hyatt and you might need just 5,000 points for Hyatt Place or Hyatt House hotels! Lower tier Hyatt hotels are perfect for families because they offer more space and often include free breakfast.

You can also open The World Of Hyatt Credit Card, and note that this card can be opened even if you opened more than five cards in the last 24 months.

If you prefer to stay at Airbnb then you should consider “eraser” cards like Barclaycard Arrival Plus or Capital One Venture Rewards Credit Card. You will book your stay and after the charge has posted you will log in and apply the points to your booking and “erase” the purchase with your points.

Click here to compare these cards.

The points on these “eraser” cards are worth 1 cent each. I don’t recommend applying for these cards if you are under 5/24 but if your travel plans only include Airbnb stays, this might be a good option.

I hope this helps you get started on your travel rewards journey. Let us know in the comments where you would like to go and which cards you are going to open first.

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10 Money Quotes That Will Inspire You To Optimize Your Finances

10 Money Quotes That Will Inspire You To Optimize Your Finances

 

 

Time is more valuable than money. You can get more money, but you cannot get more time. ~ Jim Rohn

The FI community lives frugally and saves a large percentage of their income in order to retire early. They buy time instead of things.

Check out “The Why Of FI” to learn more.

 

 

There is a gigantic difference between earning a great deal of money and being rich. ~Marlene Dietrich

At ChooseFI we believe that living a life you love is the most important thing. Travel is often part of living a rich and exciting life. But it doesn't take a lot of money. 

Check out our articles on travel rewards here

 

 

My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time. ~Steve Jobs 

A cup of coffee on the back porch, a hike on a Tuesday afternoon, sleeping in. These are all wonderful things but not what the mainstream culture prioritizes. When you start pursing FI you'll often find yourself out of sync with “normal” people.

Here's what to do when FI gets lonely.

 

 

I'd like to live as a poor man with lots of money. ~Pablo Picasso

Frugal living often looks like “lack of money” to the outside world, but it's quite the opposite. For example, driving an old car can cut thousands of dollars out of your budget. That's money that can be used to buy your freedom. 

Here's how to get the most mileage out of your car

 

 

The Stock Market is designed to transfer money from the active to the patient ~Warren Buffett

The FI community believes in broad market, low cost index funds. Simple. Boring. Awesome. 

Check out the podcast episode on index investing to hear about these amazing funds. 

 

 

Wealth is the ability to fully experience life. ~Henry David Thoreau

Building wealth the traditional way takes a lifetime. But the FI community doesn't want to wait until the end of their life to finally live.

Check out how FI is different than traditional personal finance.

Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are. —James W. Frick

 

 

Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are.–James W. Frick

Where do you spend your money? Do you feel it's in line with what is really important to you? If not, being more frugal might be in order. Stop spending on things you don't care about so that you can enjoy the things you do. 

Here's how to be more frugal without depriving yourself.

 

 

Money often costs too much. ~Ralph Waldo Emerson

How much is it really costing you to earn money? Time away from your family, limited vacations, traffic. Is it really worth it? 

If you are ready to make a change here are 50 ways to improve your finances. Start getting off that hamster wheel!

Money often costs too much. --Ralph Waldo Emerson

 

 

Wealth consists not in having great possessions, but in having few wants. ~ Epictetus

Minimalism is surprisingly freeing. Breaking out of the consumerism of today's world allows for a peace you haven't had before.

Here's how to be a FI minimalist (without being a minimalist).

 

 

I'm not that lazy, but I don't need that much money. I lead a fairly simple life. ~Karl Pilkington

A simple life is easier to fund than a complex life. The less it costs to live the less you need saved in your nest egg. 

Check out how to build a perpetual money machine, that will fund your life without having to work.

 

I'm not that lazy, but I don't need that much money. I lead a fairly simple life. Karl Pilkington

Want To Buy It For Life? Consider This

Want To Buy It For Life Consider This

Wouldn’t it be nice if the items you used on a regular basis didn’t keep breaking? Unfortunately, if you’re buying items solely based on finding the lowest price, chances are the things you buy are going to break at some point or another.

Instead of buying cheap items to save money today, you may want to consider buying a quality item that’s more expensive and could last forever. This strategy of buying is called buy it for life. While buying items for life may be smart in some situations, it’s not the best idea in others. Here’s what you need to know.

When you should buy an item for life

When you’re getting on your feet financially, you won’t be able to buy everything in a buy it for life manner. The costs would add up too fast. Instead, focus on items that you use most frequently.

When buying it for life, most people focus on items like cookware, kitchen knives, tools, furniture, and sports equipment. Even within these categories, not all items are able to be bought for life. However, they do give you a good starting point at things to look into.

Some brands even offer lifetime warranties for the items they sell. These warranties can make buying an item for life a reality, but only if everything works just right. Unfortunately, we’ve seen that lifetime warranties don’t always stand up to the test of time. In some cases, companies go bankrupt or sell the brand off to another company.

Even if the warranty is still offered, there may be limitations that disqualify your item from getting repaired or replaced. Even if it is repaired or replaced, chances are the replacement may not live up to the same quality standards as the original item you purchased decades ago.

When it doesn’t make sense to buy it for life

Not everything you purchase should follow the buy it for life methodology. While it’d be nice if everything would last forever, there are just some things that won’t last no matter how much you pay for them. If you can’t seem to find a buy it for life alternative for a certain item, they may not make them anymore.

In today’s world, you aren’t going to be able to find buy it for life alternatives for electronics. They simply go out of date too fast or their batteries die. Similarly, you aren’t going to be able to buy a car for life because it will eventually wear out.

Clothing isn’t really a buy it for life purchase in most cases, either, because the purchase may go out of style or will eventually wear out. However, certain pieces of clothing, such as jackets or quality boots, could potentially fall into the buy it for life category if you buy it right.

What to look for in a buy it for life item

When evaluating an item to see if it is a true buy it for life item, make sure you aren’t making the assessment based solely on the price of the item. There are plenty of expensive versions of everyday items that are made cheaply but cost way more than they should. Most of the time, you’re paying for the status symbol of a luxury brand. While some luxury brands are higher quality, that isn’t always the case.

The best way to find buy it for life items is by doing research. The easiest way is to search Google for what you’re looking for and “buy it for life”. Another great resource is the buy it for life subreddit.

Other great resources are friends and family. Typically, older family members have had more experience finding great buy it for life items that they swear by. Once you’ve found a buy it for life item, make sure you evaluate the cost, quality and how often you’ll use it.

One tip to find true buy it for life items is to buy used. Some of the highest quality items are no longer being manufactured. That said, these items can still be found at estate sales, garage sales and on Facebook Marketplace. If an item is truly a buy it for life item, buying it used shouldn’t be a big problem. You may even save some money, too.

Choose FI’s favorite buy it for life items

To wrap up, we’d like to share some of Choose FI Facebook Group members’ favorite buy it for life items. Here are some strong contenders you may want to consider.

  • Kitchenaid Stand Mixer–Choose FI Facebook group members have had their mixers for decades without problems.
  • Furniture–The key is buying quality furniture made from solid wood and solid frames. Dressers and tables can often be refinished to give a new look. You may need to reupholster fabrics after they wear out.
  • Knives–Choose FI Facebook group members specifically mentioned Cutco and Benchmade brands. They also recommend learning how to properly sharpen quality knives.
  • Backpacks and Other Bags–Choose FI Facebook group members specifically mentioned LL Bean, Jansport, Northface and Osprey brands.
  • Tools–If you’re looking for hand tools, look for old Craftsman tools made in the USA. For all other tools, check out this great list on Reddit.
  • Pet collars and leashes–A Choose FI Facebook group member mentioned Lupine brand collars and leashes last a lifetime.
  • Cookware–In particular, Choose FI Facebook group members mentioned Le Creuset dutch ovens, Lodge cast iron skillets, Vitamix mixers, All-Clad pots and pans and WMF stainless steel pots and pans.
  • Boots–Buy it for life boots include LL Bean duck boots and Frye boots. That said, they may need some routine care and cobbler trips to repair or replace soles.
  • Sheets–One Choose FI Facebook group member mentioned Cariloha bamboo sheets and stated they have a lifetime warranty that is actually honored.

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Side Hustle Series: Freelance Writing

Side Hustle Series: Freelance Writing

Side hustles are a great way to earn some extra cash to help you speed up your path to financial independence (FI). We’ve shared a list of great side hustle ideas here, but we wanted to feature some particular side hustle stories to inspire you to earn some extra cash, too.

Today, we’re delving into the freelance writing side hustle. This side hustle is particularly popular among bloggers, but anyone can be a freelance writer. Today, I’ll share my story about how I got started with my freelance writing side hustle and what it’s turned into.

How I got started freelance writing

Freelance writing wasn’t my first side hustle. My first major side hustle was actually personal finance blogging. However, without starting my personal finance blog, there is no way I’d be a freelance writer today.

My freelance writing side hustle was a complete accident. One day, an editor at a corporate blog happened to visit my personal finance blog. She liked what she saw and sent me an email to see if I would write for their blog for pay.

I had seen other bloggers freelance write for other blogs besides their own, but I never understood why. However, when I was offered $60 per blog post to write for the corporate blog, I finally understood. Freelance writing paid good money and it was a way to diversify my side hustle income.

I said yes and started writing for the corporate blog on a weekly basis. Eventually, other corporate blogs and personal blogs started reaching out to me to see if I’d be interested in writing for them, too. While I never intended to be a freelance writer, I wasn’t one to turn down some extra side hustle income, either.

How I’ve grown my freelance writing business

Over the months and years after I landed my first freelance writing client, clients have come and gone. In the beginning, I only accepted freelance writing proposals when people asked me to write for them. After all, I wasn’t looking to be a freelance writer. I wanted to be a full-time blogger. However, as I got serious about diversifying my income, I started looking for new freelance writing positions.

In late 2015, I decided to quit my day job to become a full-time blogger and freelance writer. I realized having regular income was super important, so I actively looked for a couple of new freelance writing clients. At the time, most of my clients provided regular work on a weekly basis, so it was a great way to earn a somewhat stable income while I built my blog.

In addition to using my network to look for new work, I met with some companies looking for freelance writers in person at FinCon, a conference for financial media and bloggers. FinCon has easily been the best thing for my freelance writing business. When you meet people in person, it’s much easier to land a new gig. Thankfully, several of the potential clients I met with at FinCon have turned into regular freelance writing clients.

In the last few years, I’ve had some clients shut their blogs down which left me scrambling to pick up new work. Other times, editors have left and the freelance writers that worked for them, which included me, weren’t retained. Thankfully, there always seems to be plenty of companies looking to hire freelance writers that allow me to replace the clients that leave.

As time went on, I became a more experienced writer and my rates have increased, too. I now earn much more than $60 per article. In fact, I’ve made over $1,000 per article for some of my longer and more detailed assignments.

In total, I earn thousands of dollar each month from freelance writing. While the number varies each month depending on my clients’ needs, I earned over $5,000 from freelance writing just the other month for the first time. Add that plus my blogging income, and it’s clear to see that my side hustles have turned into a full-time career.

Personally, I feel like freelance writing is a great side hustle. You can typically write whenever you please as long as you meet your deadlines. When I was working full-time, I wrote in the evenings and on the weekends. Now, I take advantage of the flexibility freelance writing offers. I can take a day off during the week to spend time with my family if I want. However, I might have to write in the evenings on other days to catch up. The key is I get to choose when I work.

How can you become a freelance writer?

Freelance writing isn’t the easiest side hustle to break into. When you’re first starting out, you may have to write for free to get your name out there and build a portfolio. Some people write for others by offering free guest posts, but you can start a blog and make that your portfolio, too.

Over time, you’ll be able to start charging for your writing and you can increase your rates as your writing improves. Like many careers, you’ll make more money in some fields than other fields. Writing about personal finance pays pretty well, but writing about other subjects isn’t always as lucrative.

If you do decide to try your hand at freelance writing, it’s important you take your side hustle seriously. Your clients will depend on you to submit quality work. Never plagiarize. Always meet your deadline.

You’ll also want to make sure you communicate clearly with your clients. If something comes up that could put you in danger of missing a deadline, let them know as early as possible so they can prepare.

Make sure you update your LinkedIn profile to show that you’re a freelance writer for hire to get some free visibility. You can also build a portfolio on Contently. Once you choose a specific niche, consider attending conferences where potential clients attend. Meeting people face to face is the best way to make sure they’ll open your email when you have a great idea to pitch them.

Final thoughts

Like with any side hustle, the key to starting a freelance writing side hustle is to simply get started. Start a blog. Write a free guest post for a blogger to start your portfolio.

Take action! In a few years, you might be a full-time freelance writer just like I am.

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Side Hustle Series: Freelance Writing