Thursday, March 3, 2016

Why I Spent Everything and Saved Nothing for the Last Three Years

Did I ever tell you I paid off my student loans last year? Well, I did, and it feels amazing.

Before I get into the details I want to take this moment to acknowledge how fortunate I have been in so many ways to achieve this personal milestone. I would not have been able to pay off my loans had I not been employed full-time and had the opportunity to live with my parents. Hands down, these were two of the largest contributing factors to achieving this goal. That, and the privileges afforded to me because I am white. I am also fortunate that my parent's house is within driving distance of plenty of job opportunities, to get along with my parents as well as I do, and to be free of physical impairments and health issues that would otherwise prevent me from having "extra" income after bills.

Here Are The Numbers:

$36,198.21 - What I owed the day I started to pay. Aka, the total of my student loans after 5 years of college + 6 months of interest accrued after graduation. This is tuition only, and does not include living expenses, which my parents covered because they are very, very generous people. Shout out to Ed and Lori.

30 - the number of months it took me to pay off my student loans (2 years, 6 months)

$39,387.74 - total amount I paid on my loans (principal + interest)

$48,443.27* - the amount I would have paid on my loans had I paid the minimum for 10 years

$9,055.53 - the amount I saved, in interest, by paying ahead on my loans

*my projected interest rate was a number I calculated using a student loan amortization spreadsheet that I downloaded in 2012. At that time I plugged in my total debt and the terms of my loan to find out how much interest my loans would accrue over the 10 year payback period.

Why I Chose to Spend Everything:

In 2012 I made some financial decisions based entirely on the fear of my debt. I had just graduated, and for the 6 months prior, I had spent every paycheck like Richie Rich at FAO Schwarz. Then I got a letter in the mail saying I owed almost 4 times what I paid for my car. First I panicked. Then when that didn't help the situation, I made a spreadsheet. The decision I made at the time was to start throwing everything I had directly into my loans.

For the next few months I paid as much, and as often as I could. Eventually I set up a bi-monthly auto-pay of over half of each paycheck. I was reading tons of shit (good and bad) online about paying down debt, and investing. I was giving out a lot of unsolicited advice to my friends. I was all kinds of savings-crazy.

In 2013 I had mostly evened-out on the student loan hysteria, but I was still feeling the weight of the debt. I thought a lot about where my money should be going. Do I really need to keep paying this aggressively on my loans? Maybe? Is it stupid not to be saving up an emergency fund? Probably. Don't I "deserve" to spend my tax return on something awesome? No. So I kept on paying, and paying, and reading articles, and questioning my choices, and paying.

Why I Chose to Save Nothing:

By 2014 I was still fretting over my lack of savings, but I rationalized that I was taking a calculated risk. I knew that if anything unexpected happened to me, my job, or my car, I would have no money saved up for substantial medical bills, car repairs, or any time unemployed. I knew this, but I still chose to save nothing, and kept paying. Full disclosure, the entire reason I was able to be so "reckless" was because I was banking on being able to lean on my parents in case of an emergency. I would have intended to pay them back of course, but the fear of being on the street or having nobody to turn to was not a reality for me. Not everyone is so fortunate.

The good news is I had no emergencies. So of course, I feel the risk was worth it. I know that in an alternate universe I could have really f*cked myself here, financially speaking.

Things I Did Right:

1) I cashed out an under performing small cap growth fund (whatever that is) and used it to make a payment. Thanks Grandma Delphine, your money went to a good cause.

2) I funneled every penny from my tax returns straight back into my loans.

3) I did a lot of extra things to make money during this time. One of the most fruitful strategies was opening an Etsy store, and selling the shit out of laser cut wood items and screen printed burlap sacks. No kidding. Here are some custom ornaments I made for my friend Kira:

Things I Did Wrong:

1) I opened a Nordstrom credit card. Nothing good can come from a Nordstrom credit card.

2) I assumed getting out of debt would make me feel better about money. Yes, I feel better about debt, but now I need to hurry up on that emergency savings before my luck runs out!

3) A few times I caught myself passing judgement on others who did not have the same "ethics" as me. The important thing I learned here is that not everyone has the same goals as me. Not everyone has the same financial setup as I did, and not everyone looks at paying down their debt as more important than enjoying the fruits of their labor.

Bottom Line:

I've never wanted something so badly and worked so hard to get it for so long. I'd like to say that my college degree (ironically, the piece of paper that got us here) was something I wanted very badly, but it wasn't the same as this. I'd also like to say I worked "so hard for so long" to get a degree, but that's not true either. I would say I more worked "pretty hard, intermittently" to get a degree. I am more proud of paying off this mountain of debt than I was the day I graduated from college. That's saying something.

Now that I'm out of debt, I can worry about more important things: like my investment portfolio and baking cakes.