Because I’ve still got some honeymoon spending to do, so I don’t want to post a lower number, only to see the negative number grow.
I listen to a lot of Dave Ramsey podcasts on the train home from work. I definitely feel like he would tell me I need to pay off my loans on an even faster timeframe than I am. I am paying for my wedding (in spite of the fact that we’re already actually married) and our honeymoon. While I think we’re being pretty frugal, we are still going on vacation for two weeks. But it’s going to be a looooong time before we’re going to be able to do this again. It’s been five years since I’ve been on an actual vacation — and I think I’m enough on the path to paying off my debt that I can reward myself a little bit.
Should I be feeling guilty about this spending? After my contract is up, should I be cutting my cable? Should I be taking the $40 I round up my mortgage, and applying that to my next student loans (even though my mortgage interest rate is actually my HIGHEST–however that’s possible). Should we stop any grabbing sushi about twice a month? Should I be bringing PB&J to work everyday? (Full disclosure: I actually love me some PB&J, as long as the right kind of jelly is involved). Should I not be contributing to my retirement, even though we’re 31 and 32, and have less than $20,000 saved collectively? Should I clear out my savings (the stuff that isn’t earmarked for something specific)?
I think it’s easy to follow simple rules, but I think everyone’s individual situation is a little different. And because I’m making actual progress on my loans and have a drive and plan to pay them off, it makes more sense for me to enjoy life a little, and to address multiple financial goals (savings, retirement) while paying off debt. I’m happy to pay off interest instead of more personal investing, but I’m not willing to turn my nose up at things like a 401k match. Does anyone else feel the same?
If your 401K match is dollar for dollar, and you get to keep all of it even after you leave your employer, then your year 1 rate of return in 100%. Pretty tough to beat that return on your money even after 5 years never mind 1 year.
Next in line is paying-down your highest interest loans. However… Is your mortgage interest not tax deductible? (It isn’t in Canada where I live). You need to calculate how much mortgage interest saves you in taxes each year… Now is a good time to figure that out with it being tax season. I.e. Exclude mortgage interest from your deductions and see what your new payable taxes are. That should allow you to figure out what your true cost of mortgage interest is.
Part of my mortgage interest is tax deductible, because it’s for the portion that we went out. I don’t itemize my personal deductions, which is required to deduct mortgage interest, because the standard deduction is higher for us. Our mortgage (and the purchase price of our house) is less than $200,000, so the total interest we’re paying relatively low compared to some other people.
I think part of the thing for me as I don’t view mortgage debt as “bad” (or as bad?) debt, and we can always sell the house to get rid of that debt, whereas there’s nothing we can do with the student loans but pay them off.
That’s certainly one way to look at it. 😄
As a follower of Dave Ramsey’s principles, I have to say they do really work! He does have a simple, common sense approach, but keep in mind that most of us don’t use common sense these days. We get too caught up in interest rates and how to be “smart” in paying off debt. It’s not about beating the system. It’s about punching your debt in the face over and over again until it’s gone for good. Yes, it’s hard to give up certain things, but think about what your life could look like without that student loan. I’m not saying don’t spend money on the wedding or honeymoon (I’m planning my own wedding, and I think it’s important to do it right). But you need to weigh what’s really important vs what you can live without temporarily while you pay off this debt. I stopped my retirement contributions this year, but next year I’ll be able to start again and contribute the 15%, which in the long run will become more than had I only contributed the match while paying down the debt. Everyone is different, but I would urge you to think about if you want to sacrifice deeply for a few years or sacrifice a little for the next 10+ years while this debt hangs over your head. Good luck!
Don’t get me wrong, there was a time when my money spending was out of control and completely illogical, but I really feel like much more I’m responsible now, and can use logic to do things like invest in what will yield a much higher return in the long run, and balance that with paying off debt. I think things are a bit different when your debt is as high as mine. If I spent no money on anything, I’d still be paying it off for multiple years, and if I wasn’t investing for retirement, that’s and compounding interest that I would have lost.
My husband and I have this conversation often. I feel guilty that we are not working the baby steps the why Dave Ramsey prescribes. We did for nearly 2 years. It was the structure we needed to get on track with budgeting each month and planning ahead of known expenses. However, now that we are 31 and 32 and only a student loan left. We have started to focus on both building our emergency fund and contribute more to retirement, and put the student loan on a 27 month plan (which is still 5 times the minimum payment). I have moments when I think we could have it paid off by the end of the year if we just did the steps in order. Then the what ifs start in – job loss, illness, injury, etc. We also watch and agree with some of Suze Orman’s ideas – making decisions from a place of security and power not from a place of fear. After some discussion about some of my what if fears. We decided its about what makes us feel financially secure. Our debt is under control. We live on a budget and are not incurring more debt. What feels secure is different for every person.
This! I couldn’t agree more!
Don’t let the experts steer you away from a plan that is working for you. Dave Ramsey’s baby steps are a great starting point, but life is too personal to be stuck in a rigid framework.
To answer your questions: Maybe, Yes! Cut Cable!, No, Maybe drop to 1x/month (says the girl who HATES fish), PBJ is delicious – Strawberry Jelly, represent!, Keep contributing to retirement especially for the match, and Depends.
I think almost everyone should go for their 401k match…it’s still money you’re earning!
I have built in a few pleasures into my budget (a bike, my garden). I’ve been in savings/debt mode for 3 years…and will be for many years to come, so it makes sense to me.
Keep up the good work!
I absolutely feel the same way – with about $80K in student loans that burden of debt weighs heavily on us and it’s hard to find a debt-life balance. However, student loans are not the worst debt to have, and we still have to save for the future. Right now we’re paying extra towards our debt and have adopted a “60-40” rule for our debt repayment vs. savings plan. Whatever we have saved at the end of the month, 60% of that will go towards debt (on top of the small amount we have set up for autopay) and 40% will go towards savings. Other income (such as gift money, etc.) will be used for whatever we choose, and is sometimes put towards debt as well. It’s a long haul, and while I’d like to get rid of this debt ASAP, I also want to enjoy my life and have enough savings for the future!