This post is a follow up to my “How can they afford that?” post in which I showed you how I paid for going back to school with my family in tow. Part of the formula for making it work was borrowing $45,000 dollars for tuition and another $5,000 for a minivan (come on, I got a sweet deal!).
Coming out of grad school debt-free would have obviously been preferable (and probably possible had I been more creative), but we had decided that the overall life experience would be worth the cost to us. So I ended up with $50,000 of debt upon graduation that I wanted to get rid of as fast as possible. This is how we did it.
Paying off the $50,000 debt
The formula is pretty simple. We tried to live frugally while generating some extra income.
- Savings from my new job: $35,000
- In addition to a starting bonus, we saved about $1,500 every month for 18 months
- CPA work: $5,000
- I still do contract work for my old employer during certain months of the year. I put in 100 or so hours of work on the side. It’s not a ton, but nothing to sneeze at.
- Violin lessons: $10,000
- This is the time when Amanda started her violin studio. She started it mainly because she loves teaching music, but she was also happy to throw some money towards the debt.
A little financial engineering
I also saved several hundred dollars of interest that I would have otherwise paid by borrowing the max amount of $17,000 on the minivan for which I only had to pay $5,000. I put the remaining $12,000 toward my 6.8% student loans. While this was just a roundabout way of refinancing some of my student loans at a 2% rate, it did save me a few hundred bucks and made me feel like a financial whiz.
Pay down debt or save for retirement
If you google this, you will find a whole host of opinions about whether or not to put retirement contributions on hold in order to pay down debt faster. This all depends on your unique situation and how motivated you are by psychological wins.
How I simultaneously saved $20,000
For us, it was a simple calculation. I needed to contribute $387 dollars each month in order to take full advantage of my company’s matching program. I could either put an unmatched $387 dollars toward my debt, at which I was already throwing $1,500 – $2,000 per month, or I could get almost $1K in my 401k with the company match. It only took me a few extra months to pay off my loans by opting to continue contributing to the 401k. And when we finished paying it off, we had an extra $20K in retirement making the achievement even more satisfying.
Save for retirement or something else?
We face this decision every day. Someone recently submitted a budget profile with a question about saving for a down payment vs. saving for retirement (check it out!). In my response, I mentioned that I sometimes get too caught up in the time value of money, occasionally not spending money on something because that money could be worth a gazillion dollars in 50 years.
It’s a balance
I feel like I am getting better at living in the present and making sure I am investing in the things that matter most while still consistently working toward reaching my retirement goals.
We haven’t continued to save at the same rate as we were paying off our debt due to some large purchases (like a backyard fence) in 2014 , but we are planning to get serious again for 2015.
How do you find the right balance between what you spend today and what you are saving or putting toward retirement?
Check out this helpful info graphic from PSECU.