Month: January 2015

The Power of Time: Higher Education edition

There are examples everywhere on the inter webs about the power of time, specifically when it comes to compound interest. The problem with compound interest is that it can only be harnessed when you have money to invest. Otherwise, that power is working against you, and it is working hard.

Too often I see people truly wake up to money (if they wake up at all) when they are hit in the face with their student loan bill at graduation. Graduation is not the time for financial awareness. For ultimate success, you must start earlier.

In hindsight for most of us, but hopefully not for everyone, What can you do?

1. Pick the Right School

Where you go to college is a major decision. You are going to spend the next 4 years of your life there. It better be somewhere you want to be. However, too often, emotions are the driving force behind the decision. State schools are typically more affordable than private schools. Community colleges are cheap. The cheapest option may not the be best choice for you, but you’ll save a lot of anguish after graduation if you carefully consider the costs up front.

2. Do Well

When I tell people how much student loan debt I graduated with, their first question is always “Did you have a scholarship?” Oftentimes, I don’t even get a full question, simply “Scholarship?” with a grumble on their face. Yes, I had a scholarship, but I worked my butt off to get it. I was at the top of my class for my undergraduate degree and I was deliberate with where I applied to law school.

I am lucky that my hard work was rewarded, but most scholarships come from hard work. Give the scholarship committee reason to say yes to you.

3. Spend Wisely

No one expects you to have money while you are in school. Take advantage of it! There are so many opportunities to eat for free and to have an active social life for next to no dollars. Use this time to be creative and truly live like a student. No one will fault you for it.

If you must take out loans, spend them wisely. It isn’t “free money.” It is actually really expensive money typically subject to 6.8% interest. It’s even worse if you are charging your life on a credit card. 19% interest…  eek!

My biggest pet peeve in school was “student loan dispersement day.” Many of my classmates treated the money like a tax refund or lottery winnings. They would go and blow a huge chunk of their dispersement on lavish dinners and extensive bar tabs. I doubt any of them understood the financial ramifications of what they were doing.

Math Time!

$100 fancy dinner, paid for with student loans. x 6.8% interest compound daily + over the life of the loan (10 yrs) = Total Potential Cost of that Dinner =$197.

-or-

$4 Latte x 3 per week for 9 months of school ( 144 Lattes) = $576 x 6.8% interest x life of the loan (10 years) = $1136

$1136 / 144 Lattes = nearly $8 each!

Ain’t no body got time for that!

Were you deliberate about your spending in school?

Saving for our Holy Grail

With a new year, it only feels appropriate for things to be different around here. Without really trying, Hubs and I have laid the foundation for a challenging but awesome 2015 (and 2016).

Here is what we have in store. Brace yourself. It’s aggressive.

1. Finish my Student Loans

No surprises here. I brought $15,908 with me into 2015. Ain’t no way it’s going to see the light of 2016.

2! Max out my 2014 AND 2015 Roth IRA.

This is a drastic change of course for me. I had initially planned to 1/4 max in 2014 and do as much as I could in 2015. The guilt and regret of not maxing in 2014 was killing me. Losing the potential of $4,000 in retirement wasn’t worth the speed of paying off my loans 1 or 2 months earlier. Now I can rest assured knowing that I’m getting the most out of my Roth IRA. (Really. I was losing sleep over this.)

3, 4 & 5. Big Hairy New Goals

Hubs and I decided that we want to get serious about this whole money thing. We’ve been kicking butt and taking names with my student loans, but weren’t dedicated to anything long term. We didn’t have a “why?” to our how.  I’ve been reading a lot of the Frugalwoods lately and I really admire their drive to quit Boston and move to the woods. With a tangible goal like that, every decision comes down to “Do I want to spend my money on ______ or do I want to be one step closer to my ultimate goal of ______?”

I don’t want to move to the woods. Quite the opposite actually. I want to buy a home and live as close to a major international airport as the soundproof-ness of my windows and walls will allow. I want my heart to ache a little every time I see an airplane fly by and to think “I wonder where they are going.” (This already happens). Then I want to take at least one amazingly awesome trip every year.

So that is what we are going to do. We found our Holy Grail.

Hubs and I decided that our years of renting are coming to an end. We’ve set a timeline for us to buy a house/condo/townhome in the next 2 years. On top of that, we have 2 big trips planned over the next 2 years: The Caribbean in 2015 and New Zealand in 2016.

That’s going to require a lot of cash.

Here’s how we are going to do it.

1. Budget!

Novel idea, right? I’ve never had a budget before. I always found it too limiting and too much to track. Instead of tracking everything, we are only going to budget and track our food and entertainment. Everything else is naturally limited. On top of that, each expense will prompt the question;

“Do I want to spend my money on this or do I want to be one step closer to my House ++?

2. Lower our expenses.

I’ve been really inspired by J$ at Budgets are Sexy to Challenge Everything. I’ve already lowered our gym and internet bills, as well as a recent medical bill. Next up is our car insurance and cell phone bill. I won’t be setting up a bank account to store all my sweet savings, but I will use that extra cash to tackle the beast(s)!

3. Optimize our Dollars.

We saved every penny given to us for our wedding. For the last 2 years, this money was our “house fund” and just sat on the sidelines. This is not an effective use of money. So we’re draining it! While it hurts to drain the account, we are putting the money to use against my loans and to max my Roth for 2014.  Our first priority when my loans are paid off is to get the House Fund building again.

4. Earn all the Money!

To accomplish everything we want at our current income level is going to be TOUGH, if not impossible. I hate to bank on raises and/or bonuses, but that is what we are doing. Nothing crazy, like budgeting my future lottery winnings, but reasonable raises I can expect from my employer that gives out raises. I am also further fanning the flame under my butt to get hustling, and hustle I shall!

These goals are large. To get there on time is going to be a serious push. However, even if we slip up or life happens, we’ll be closer than we would have been otherwise. I’m excited and Hubs is excited. We are committed to doing this together and that’s really all that matters.

2014 Goals– End of Year Update

Back in April, I wrote up my goals for what I’d like to achieve in 2014. Now is the time for me to wrap them all up nicely in a bow and present my progress.

Money Goals

1. Say Goodnight to $19,000 of my Student Loans. PASS!

Here’s a break down of what I paid to FedLoan Servicing over the last year (ish).

Dec 2013- $525.86 (My first payment!)

  • Q1- $7282.36
  • Q2- $7564.82
  • Q3- $6332.87
  • Q4- $9919.00 <– whoa!

Total: $ 31,624.90

I find it a little curious that the rest of my debt tracking is based off how much I reduced the principal, and this tracks how much I actually paid. Apparently, I got a little number happy and just wanted to track everything. Also curious is that I screwed up my minimum payment in my recap post. 52525 is way more fun than 52586. Clearly, that extra $0.61 wasn’t important.

Of the $31,624, $2,202 was interest. Therefore, I’ve paid off $29,442 since I started my journey!

I exceeded my goal by over $10,000. *dance party*

2. Quarter Max my Roth IRA ($1375).  PASS!

I contributed $1457 this year! I have until April 15, 2015 to contribute for 2014. I may push myself to get to Half Max ($2750) before the cut off date.

3. Build a $2000 Emergency Fund. FAIL!

Fail. Fail. Fail. My savings accounts are the lowest they’ve ever been in my adult life. I may have had more money saved while I was in elementary school. I need to stop this. An emergency is going to hit me in the face and I’m not going to be ready for it.

Health Goals

1. Work out at least 12x per month. FAIL!

Nope.

2. Complete my First 5k! PASS! 

I ran three! How many races do I have to run to consider myself a runner?

3. Eat Clean-erFAIL!

This was not a good quarter for food. I pretty much gave up in December. To top it off, I ate a lot of cookies. The cookies were made with shortening. Yes, shortening.

Random Goals

1. Take a pre-paid Trip. PASS!

The UK was amazing. Check out my budget! I am a budgeting master!

2. Learn more about Canada. Pass.

Slowly but surely, I’m less embarrassed by how little I know about Canada. Through my Canadian blogger friends, I’m learning more and more about Canadian finance.

I’ve also been learning about the different regions and climates. For example: It’s bothering me to learn that where I live is colder than many parts of populated Canada. Somewhere along the way, I was brainwashed into thinking “Yes, it’s cold here, but it’s not Canada.” My tolerance for cold was built on a foundation of lies. How rude!

3. Read 10 books. PASS!

Things got very Harry Potter over the last quarter. Very Harry! After London, I started at the beginning with HP 1 and have made it all the way to HP 6!

In all, I read 15 books this year.  My favorites were The Storyteller by Jodi Picoult and Harry Potter: The Goblet of Fire. My least favorite was The Casual Vacancy by J.K. Rowling.

_______________________

Overall, mostly pass with a few fails. I’ll take it. By the end of 2014, my financial decisions were nearly entirely automated. I’d like to continue down this road leaving more mental room for personal improvements, specifically with my health.

Here’s to 2015!

How was your year? Did you reach your goals? Any book recommendations?