Goal: Pay Off All Student Loans Deadline: 30th Birthday (October 2020)

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This, falling and getting back up, being tempted, giving in, resisting and progressing, feels like training.

There’s a reason why I just ignored the student loans I had to take out for grad school. It was just too scary to think about. At $1610 per credit and well over $20,000 in other expenses, tuition for business school has gotten me into another six figure debt (besides my mortgage). So far, the grand total is a little bit less than $120,000. And lets not forget the interest, compounded daily.  For a long time I just did not want to think about it. But now that I’m only a few thousand dollars away from getting out of consumer debt completely (trust me this is nothing compared to the debt I had), I feel well equipped for taking on my student loans.

Trying to pay off these credit cards has prepared me mentally for the size of debt I’ll be taking on by tackling my student loan debt. People that have more self discipline than me can reach this point earlier by avoiding the debt entirely but I’m a recovering spendaholic and needed to learn the hard way. Just like my credit card debt, I’ll divide the loans into smaller amounts and then pay them off one by one. For reference, here’s a breakdown of my student loans:

  • In total, so far, I have about $120,000. I use approximate figures because the balances are going up daily and I want to account for that by rounding up.
    • About $23,000 of them are federal loans from college (undergraduate). There are about 5 of them. The loans are relatively small $3500-$5500 per loan and their interest rates are not that high (between 3-4%). These loans are deferred because I’m currently in school and since they’re subsidized, do not start compounding until I graduate.
    • The rest, roughly $98,000 of my loans are all from grad school. There are 6 of them. They are larger amounts with high interest rates. Half of them are not federal loans and have interest rates between 5.8 %and 6.84%. They’re currently about $18,000-$23,500. The other half are federal loans with interest rates between 5.3% and 6.31%. Some of these loans are not deferred and accrue interest at a compounded rate daily.

Logic dictates that I tackle the high interest rate, non federal loans first. These loans have a higher balance, a higher interest rate and are currently compounding daily. And in 2017, I plan to do just that. I’m gonna take on the loan that has accrued the most interest in the shortest amount of time and pay it down first. It’s gonna be absolutely miserable, but my future self will thank me.

Where am I getting the money?

Tax return-It’s not much, but it will make a difference.

Tuition reimbursement- Again not much, the maximum amount my job will provide is $5250 annually but that will all go towards paying the loan. Since I plan on finishing school in 2017, I’ll only be eligible for one more reimbursement before I graduate.

Rental income – $1280/month or $15,360/year, this comes from renting out my spare bedroom at $650/month and $630 in profit from another rental property.

Salary-I’m gonna try to put as much of this towards my loans as possible. I’ll try very very hard to average around $2500/month or $30,000/year towards the student loans. I’m planning to put this amount of money towards student loans without factoring in raises/bonuses. I also don’t know how my decision to switch to a high deductible healthcare plan and put more towards my 401K (I discussed this in my previous blog) is going to affect this number. But I suspect it will not alter it very much because the two essentially cancel each other out.

Other- Everything but the kitchen sink, birthday money, bonus money, boyfriend money, parent money, Christmas money…pretty much every disposable dollar I have will go towards this.

The deadline is my 30th birthday, in 2020. The goal is to enter the new decade with absolutely no student loans.

Avoiding the PPO Scam and Keeping More of Your Paycheck

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I used to not think too much about which health insurance I signed up for at work. The first time I signed up, I just wanted to pay as little as possible so I got an HMO. It was terrible. The second and third time I signed up, I got a PPO and essentially hemorrhaged all this money I could have put to good use. Now that open enrollment is around the corner, I decided to do a little bit of research before signing up for health insurance.

Health Insurance in America seems like a big scam. It actually might be. Depending on which plan you signed up for, hundreds of dollars will be deducted from your paycheck twice a month to cover potential expenses. But what really happens, when you think about it, is that you end up spending a lot less on your healthcare costs than you had paid into your health plan. For me this has been true for the past couple of years. I get more than $200 deducted from each paycheck for health insurance. That’s about $4800 per year and $9600 thus far. Because of my condition, I’m someone that needs to go to the doctor at least 4-5 times a year. I get lab work done for each visit. I also had a lot of dental work done this year including taking out two wisdom teeth, 8 fillings and two teeth cleanings. Even with all of these medical/dental expenses, the amount that was required for me to spend was a grand total of $2552.79. The year before, my health care spending totaled about $2,105. So the healthcare provider took $4800 per year for two years and I only ended up getting $4657.80 worth of care over the same amount of time. They pocketed about $4942!! WHAT?!?!?

Ok, the good news is that Open Enrollment is in a month or so, so I will be able to put an end to this soon. What I’m going to do is sign up for a High Deductible Healthcare Plan (HDHP) that requires a higher deductible for my healthcare costs but a lower amount taken out of my paycheck. That by itself does not sound appealing. But the HDHP also comes with a Health Savings Account (HSA). HSA is a n account you can contribute money too before taxes to cover your health care costs. It pretty much lets you save the actual amount you need instead of giving away a ridiculous amount of money to your healthcare provider. So for me, I would save $3000 in my HSA which is the amount I need and reduce the amount that’s taken out of my paycheck for healthcare by $1800.  And get this, an HSA is an actual account, like an investment account. So while its sitting there waiting for you to visit the doctor, its earning money in the form of interest! Also, its your money so the healthcare provider doesn’t eat it up and you can take it with you even if you leave your job! I feel like such a chump for not having discovered this earlier. Well now I know. So here’s my plan:

-Enroll in a HDHP and open an HSA

-To save $3000 for health care costs/year which ends up being $125 per paycheck which is a lot less than the $200 plus dollars being deducted out of every paycheck

-Increase my 401K contribution by the amount I’m saving so I can avoid being taxed on it and also get employer match. So I increase my 401K contribution by $1800 per year without having to reduce the amount I’m getting after taxes by just reducing the amount I’m giving away for free.

I think this is a no brainer.

 

 

Second Thoughts About the Emergency Fund

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I just want to be smart with my money. I want to be well informed and make wise decisions that will ultimately help me reach my goal of financial independence where I have the freedom to determine how I want to spend my time and energy.  One of the things that has been challenging to figure out is the best way to put my money to work. I want to invest wisely because I’m not rich and I can’t afford to lose the money I’m putting away towards this goal. But I also don’t want to be a chump either and miss out on the return I would get if I took a few calculated risks.

I read an article yesterday in which a financial advisor was making a case for not saving your emergency fund in a savings account. His logic was pretty compelling. The gist of it was that saving your emergency funds in a savings account is actually not the best thing because savings accounts can’t even beat inflation. So you’re essentially losing money. Inflation, which is the rate at which the  price of goods and services go up, increases at 3% annually.  So something you buy today for one price would be 3% more expensive next year. When inflation goes up, prices go up and your buying power goes down. Suddenly the same amount of money no longer goes as far as it used to.  The best savings rate I’ve seen thus far is 1%. So if you put your money in a savings account that’s earning you 1% annually, but inflation is going up 3% in the same amount of time, your money is not growing fast enough to even be able to go as far as it used to. It’s falling behind by 2%.

I’ve decided to factor this information into my emergency fund savings plan. I’m not going to put all of my emergency money into an index fund because I still want the things I talked about in the other post. I want to have quick access and not expose all of my money to the changes in the market. But I think I’ll keep my emergency savings in two places, a high yield savings account and an index fund. I’ve decided that I’ll keep 2 months of emergency savings in a saving account and 4 months of emergency savings in an index account. That way, I’ll be able to have access to the amount of money that will cover my expenses for at least two months and will not worry about having quick access to my money. But I’ll also be able to get returns on the amount that I have in index funds. For me, a six month emergency fund would be around $12,000. So I’d have $4,000 in savings and $8000 in an index fund but still dedicated for emergencies.  I think that’s a good compromise on the two methods.

Rude Awakening

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Yesterday at lunch, I read about how a blogger retired at age 34. His name was the Mad FIentist (FI for Financial Independence)and he had a lot of great advice to offer and even had an excel spreadsheet that he created to show people how they can plan their road to an early retirement. Welp, a girl has the right to dream so I downloaded the spreadsheet and put in my personal information to see how long it would take me to retire early. The blogger’s instructions said to not alter the spreadsheet and just put in your own information. And so I did. And the spreadsheet calculated the time I have left to an early retirement to be around 6 years!

I really wanted to believe that. But I don’t want to lie to myself so I started looking through the spreadsheet to see what’s included, and what’s not. And I found the reason why I was given this false hope. While the spreadsheet accounts for a LOT of expenses and sources of income, it does not factor in the one thing that’s standing in my way to financial independence, STUDENT LOANS. Yes, I paid off the $17,000 Sallie Mae for the loans I took out in college. But I’m now in my second year of an MBA program and in more student loan debt than I’ve ever been before…about $120,000 and counting. What’s even more devastating is the fact that by the time I am done with the program, I’ll have more debt in student loans than I do in my mortgage.  I added a row in the spreadsheet for my student loans and got the real number of years I need to work before retiring. It was not 6 years.

It was a rude awakening. Paying off my credit card debt is not the biggest battle I have to face to accomplish this goal. Its paying off these large expenses namely student loans and mortgage. I can’t even think of early retirement until I eliminate the student loan.So I’ve started to think. How? How would I accomplish that? If you can’t tell by now. I’m not really a patient person. All the plans I make are for how I would accomplish a goal with less that five years of time. How do I pay over $20,000 in credit card debt and $120,000 in five years or less?

For starters, I can’t wait until I finish this program to pay it off. I learned the first time around that compound interest is a bitch when its working against you. I’m gonna have to chip away at it as soon as I’m done paying off my credit card.

Also, Unfortunately, I can’t quit working a 9-5 anytime soon. A steady paycheck makes a lot of things possible including covering my expenses so I can use my other sources of income to pay off debt.

I’m gonna have to increase my income a lot sooner than I thought. I’ll have to work a lot harder on my real estate business. That shouldn’t be bad. I love working in real estate 🙂

Emergency Fund Options

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I can see the horizon. If all goes according to plan, I should be out of my credit card debt by the end of the year and done with my car payments by next month. So I wanted to plan next steps. The biggest task I have to accomplish is to create a 6 month emergency fund. The idea is to have an emergency fund that will allow me to maintain my current lifestyle in the event that there’s no money coming in due to unemployment or something else that inhibits me from making money. I’m trying to save for 6 months of monthly expenses. I know people save 6 months of their monthly income but I’m not doing that. I know trying to save that much is going to discourage me so I’m starting small. My current monthly expense is about $2500 give or take but by the time I’m done making my car payments and out of credit card debt it should be around $2000. So my 6 month emergency fund should be around $12000. That’s a big number to save alone and so I’ve been looking for ways to save that will also help me reach my target faster. Here’s what I’ve found out from my research.

Emergency funds should be in a savings account, not an investment account- To me, the whole idea of an emergency fund is for the money to be readily available in the event that I need to dip into it. Not available 3-5 days after I need it and not less than what I put in. Well, putting it in an investment account pretty much does that. If your emergency funds are in index funds, etfs or any other investment vehicle, there’s no guarantee that all of what you put in will still be there (since your balance fluctuates depending on how the market is doing). Also you will not have easy access to this money the way you would if it was in a savings account. No, your money will not grow as fast as it could if it was in one of those investments, but it will be safe and it will be available, which is what you really need when the time comes to withdraw that money.

Savings accounts from an online bank give you better interest rates- Sometimes the online savings accounts even have better returns than money market accounts. I have two accounts with an online bank. One is an MMA that has a 0.85% return and the other is a savings account that has a 1% return. So the money that I keep in the savings account makes 0.15% more monthly than the one I have in the MMA account. I know a lot of people are hesitant to open an online savings account because they don’t trust it. I used to feel that way too. I didn’t know why or how they were able to provide a better interest rate than regular banks and thought that its too good to be true.  I looked into why online banks provide their customers with a higher interest rate. I found out that the reason their rates are higher is because they don’t have as much expenses as regular banks. Since they don’t have physical branches around town, they don’t have to worry about the same costs as banks who do (overhead costs like security, paying branch staff, rent or utilities etc.) Because they have less expenses, they have room to provide a higher interest rate to their customers and pass on the savings.  Also this is a great way to attract customers. I don’t know how long their competitive rates will last. Maybe they’ll lower it once they feel like they have enough customers, but for now, online savings accounts are the way to go.

Save for 6 months of expenses, its easier than saving 6 months of income- If you have the financial discipline and the funds coming in to do the latter, then by all means go ahead and save that amount. But if you’re like me, struggling to get out of debt, easily discouraged by daunting goals and have the constant need to see the light at the end of the tunnel, save for your expenses instead. This is assuming your expenses are lower than your income. If its not then that’s another bigger problem you should address by cutting out expenses you don’t need and finding ways to earn more money.  But if you are making more money than you’re spending and need to create a safety net for yourself, this is the way to start out. Once you shave down your monthly expenses to the ones you need, save that amount for 6 months.

Feel Like You’re Flushing Your Resume Down the Toilet?

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One of the frustrating things about the job application process is figuring out how to grab and hold the attention of a potential hiring party. It’s difficult to figure out what to say about yourself, as well as the skills and experience you possess in a way that makes you stand out from the many, sometimes hundreds of applicants that are vying for the same position. Then there’s also that self doubt that sneaks in and makes you feel like you’re being arrogant by touting your skills and expertise. Well, as a chronic application submitter and constant pursuer of new opportunities, I’ve picked up a few ideas on what brings a resume into focus when a recruiter/hiring manager is sifting through applications.  Here’s what I’ve learned so far:

Reading is Fundamental- No seriously, Read the description of the job you’re applying for thoroughly. Pay attention to the words being used in the listing to see if you notice any patterns. They usually reveal the employers main concern in terms of what skill they want you to possess and what they’re currently struggling with. Yes, they do try to communicate what they think is important for the incumbent to have, but they’re also communicating what they themselves value in the person they would like to hire for the role. If you notice any verbs that are being repeated over and over, you should find a way to incorporate those words into your resume as well. I’m not saying you should do a CTRL + F and replace some verbs with the ones you found in the job description. I’m saying take some time to do it carefully so it doesn’t look like you just jammed it in there.

If you see a better description for your role, adopt it- You can browse through the jobs listed on LinkedIn, Glassdoor, indeed etc. for the position you currently occupy to see how hiring managers are describing it. If you find a description that communicates the job that you do more effectively, adopt it. Its all about speaking the same language as the employer. I’ve found that people pay more attention to the things you’re saying if you convey them in the same manner as they do. This is not to say that you should lift a whole job description and replace your resume with it, what I’m suggesting is that you incorporate more polished descriptions of the roles you have had into your resume while staying true to what you’re doing in your job.

Use ACTION VERBS- In the one opportunity you get to summarize your skills, accomplishments and talent, please for the love of God don’t be passive! This is your moment to wow the hiring manager. Don’t come off as unimpressive or unaccomplished because you chose to use the wrong verb. Take a look at your resume, see if you’re undermining your accomplishment by using verbs and phrases like “responsible for” “duties included”. Just say it! Say what you did! Say that you Executed, Created, and Facilitated. Be the subject of your resume and not just an observer.  This does not make you sound arrogant or self absorbed. It makes you sound confident and decisive.

Quality over everything- Be concise, yet descriptive. If you can say something in one word, don’t use a phrase to say it. Choose loaded words that describe your work but also leave room for further explanation.  Don’t include irrelevant facts just to make it seem like you’ve done a lot at the position you’re describing. If it’s irrelevant, the hiring manager will stop reading. That being said, if you’ve worked on projects or assignments that were not part of your job description and feel like they showcase your skills and expertise effectively, by all means include them. Don’t leave them out because they were not part of your original role.

It is a Sprint, Not a Marathon

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Okay, I’m back from feeling sorry for myself and back on focusing on these money goals. I just thought I’d share my struggles as well as victories so I can paint a more realistic picture of what the road to financial independence is like. Sometimes I feel like I’m an addict, binging on spending sprees then later dealing with the regret and shame. Discipline is tough to maintain. But a few things happened to turn my mood around. And now I feel grateful for the doubt and defeat I felt last week because it forced me to do some much needed soul searching.  I thought I would share a few realizations I came across as I was trying to make sense of why I can’t kick my habits and stay on track with my goals.

First, the updates:

-I rented out my spare bedroom a lot sooner than I thought I would. This is really awesome because it means that I can get started on paying down debt a lot sooner than I initially planned. Yay!

-I’m starting to get interviews and call backs from the jobs I applied to, Its only a matter of time before I find a new opportunity for professional development and increased income.

-I started advertising my real estate business aggressively and have received a few calls from buyers that are interested in hiring me. Grant it, they haven’t been pre approved for a loan but that’s something that I could help them with.

Now, the lessons:

-The road to self improvement be it financially, emotionally, intellectually or spiritually, is a series of sprints and NOT a marathon. I know that a lot of people think its the other way around so let me explain what I mean.  For the past couple of years, I have focused heavily on paying off my credit cards, student loans, car notes etc and planned out each dollar meticulously. The idea was to stick to the plan no matter what. Resist the urge to take a break for fear of falling behind or off track . My plans pretty much disintegrated when they were put into action. That’s because I never took into account the toll this much pressure to get rid of debt could take on my willpower and motivation. I couldn’t marathon through to debt payoff because I did not include ways in which I was going to be able to get re-energized. I just thought that I’ll keep finding motivation that can sustain me along the way. While there were many encouraging signs that I was well on my way, they weren’t enough to maintain my enthusiasm. And so I kept getting off track.

What I really needed to do was treat this like a series of sprints. What I mean is that I should have created plans for short bursts of debt payoff efforts and included time in between each completed objective to process the accomplishment. Doing this would have made the task seem less overwhelming and thus less demotivating.  Thinking of my journey to financial independence as one long endless marathon with no end in sight caused me to struggle to stay committed. One part of me always said “why bother? You’re not going to get there anyway.” It was easier to believe this part when there’s no end in sight. But if I am able to see the finish line (excuse the extended metaphor, its just the way I’m thinking of it in my mind), I would be able to resist the urge to just quit and go back to spending like I used to.

-Take time to process your accomplishments and pat yourself on the back. Its true, we are our own worst critics. We think of ourselves as super humans, capable of tackling the biggest and baddest of struggles and come out victorious and unscathed. When we face the reality and get our asses handed to us time and time again, we start to take it to mean that we are worthless and incapable of doing anything. The reality probably is that we were ill prepared for the task we set ourselves to and need to try again with more preparation and understanding. I paid off close to $17000 in student loan debt, bought a car paid off 90% of the loan and purchased two condos in a manner of two years. Yet when I reverted back a little into my credit card debt, I completely devalued my accomplishments and thought of myself as incapable of working hard for anything. I think its time I acknowledge my humanity, celebrate my accomplishment and let myself feel victorious for a little bit.

With this in mind, I will recreate my plans and continue to tackle this debt once and for all. I’m going to apply my own version of the snowball method and develop other ways to maximize the impact my money and effort is going to have. I’ll provide details once I’ve come up with it.