Student Loan Debt Sucks But It Can Be Destroyed

student loan debtWhen my wife graduated from college with her four year nursing degree in 2011 she graduated with over $80,000 in student loan debt. It was a heavy burden for both my wife (girlfriend at the time) and myself. We knew it was a ton of debt and that it’d likely take a super long time to pay off.

Back then our minimum payments were right around $700 a month which was a ton of money. In fact, it was even more than our first ever house payment. We knew we wouldn’t want to pay that debt off for over a decade or longer, so instead of wallowing in our sorrows of our massive debt load we made a plan to pay it off as quick as possible.

Made A Budget

The first thing we did was make a budget. Since we weren’t married at the time, we actually made two budgets, one for myself and one for my wife. Our budget was pretty strict but it was in line with our #1 financial goal of destroying her student loan debt.

Any money that we ran into, whether it was a cash gift or our paycheck, that wasn’t in our budgeted spending got put immediately to pay off my wife’s student loans. The surplus in my budget got put into a savings account to pay her loans down once we got married. Sometimes we’d make as many as four payments to her highest interest rate student loan in one month!

Unfortunately, with just the income from our jobs it would still take many years to pay off the massive amount of student loan debt so we looked at ways to speed up the process. We found a couple ways to make more income that ended up helping us out a ton.

Finding Extra Income

We wanted the debt gone and the quickest way to pay more money toward that debt was to find extra income. Once Tori finally got a job we had her base income to put toward the student loan debt. I already had a job, but I was a salaried employee so I couldn’t work extra hours to earn more money.

Tori, however, was an hourly worked which meant she could pick up extra shifts at work to earn some more money. On top of that, if she worked over 80 hours in a pay period she earned overtime at 1.5 time her base pay which was pretty sweet. Tori picked up extra shifts when she could and we put all of the extra money toward extra student loan payments.

I wanted to help in the debt pay off journey, so I brainstormed some ways to earn some extra money. I got a new job that resulted in a higher salary and less hours which was pretty sweet. Working less allowed me to start doing something I had always wanted to do, start a blog.

I never thought it’d end up making money from my blog, but with a lot of hard work and a bit of luck we started making money! It was exciting because it meant I had found a way to contribute toward paying down the student loan debt.

Both sticking to our budget and finding extra income helped us to pay off Tori’s debt very quickly. In fact, we managed to finish paying off her student loans this year in less than 3 years total!

Did you graduate with ton of student loan debt, or did you graduate debt free like I did? Either way, I’d love to hear your stories about your money adventures. Shoot me an email (adventuringdollars at gmail dot com) or leave a comment below!

Photo courtesy of jscreationzs via freedigitalphotos.net.

Prudential Experiments Explain Our Money Habits

This post has been made possible by Prudential.

Below is a video player that can show five different videos, all provided by Prudential. They show some pretty neat concepts that relate to how we deal with our money and retirement from a mental perspective. Simply hit refresh to change the video. Below the video player is a description of the five videos if you cannot watch them for whatever reason. Enjoy!

In one video titled “An Experiment in Decision Paralysis” Prudential shows how having more choices available to you can lead to decision paralysis. They explain this through two scenarios, one involving choosing a cupcake flavor and another where they ask people to sort a bag of stuffed animals with no further guidance. The many solutions frustrate the people participating in the stuffed animal task and they give up.

Prudential goes on to explain that people who have more 401(k) investment options often have the same frustration in picking out investments for their retirement accounts. That’s why Prudential came up with Day One funds which are funds designed to help you prepare for day one of retirement.

In another video titled “Prudential – Overcoming Temptation” a recreation of the marshmallow experiment is shown. Kids are set in a room by themselves with a marshmallow and are told if they wait and don’t eat the first marshmallow until an instructor comes back they can have two marshmallows instead. Patience is hard, as evidenced by the experiment, and that is one reason many of us have not yet saved enough for retirement.

In a separate video titled “Episode 1: Your Future Self” Prudential explains that your brain sees your future self as a stranger, which makes it difficult to set money aside for retirement for your future self. They ran an experiment where people were guided through thinking about their future retired selves for one hour. After the hour, 75% of the group said they would save more for retirement. Take some time to think of your future retired self and maybe it will help you to increase your retirement contributions.

In another video titled “Episode 2: I’ll Do It Later” Prudential shows us a trick to help us get financial tasks done. An experiment is performed on two groups of people. Both are given a set of tedious tasks to perform. Once completed, half of the group is given a break while the other half is asked immediately if they want to perform the second set of tasks now or later. One third of the people in the second group took the second set of tasks home to complete later.

After the first group returned from their break, they were given the same option to complete the second group of tasks immediately or to take them home and do them later. Every person in the first group stayed and completed the tasks. You can use this trick to help you get your financial tasks done. Just simply schedule a break first so you have enough willpower to get through your financial tasks.

In the final video titled “Episode 3: The Pain of Saving” Prudential shows us that our brain registers the loss of money the same way it registers physical pain. Our brain also associates saving for retirement as losing money, triggering the same feelings of pain. However, the brain associates finding money with pleasure. If you’re having problems saving for retirement, think about all of the money you will find when you retire if you put away money now. The positive feeling of finding money in retirement later should help you overcome the pain of saving money today.

Can You Get A House For A Car Payment? You Bet!

house-less-than-carHave you seen some of the crazy car payments people have today? These days people are buying cars that are way out of their price range. If it isn’t bad enough that people buy overly expensive cars, then consider this. People no longer finance cars for only 3 years, but instead finance cars for 5, 6 or even 7 years.  Take this car loan and payment, for example:

  • $30,000 car loan
  • Payable over 5 years!
  • 2.9% interest rate
  • $537.73 payment per month

A huge part of America wouldn’t even blink at a car payment this big. They’d accept it as a part of life and move on. The thing is, they have no clue what they’re missing.

Believe it or not, you can get a mortgage and own a house for less than the payment on this car. How do I know? I’ve done itYou could have a house for a similar monthly payment and at the end of the loan you’d actually own something worth more than when you bought it! Of course, your loan will last longer than 5 years, but the monthly payment will be the same or less!

What You Get When You Buy A Car

When you buy a car, you’re buying transportation that will take you from point A to point B. Your car has a distinct purpose and can save you a ton of time over other transportation options. However, cars have a pretty defined useful life and as you use your car, its value will decline slowly until the car falls apart and is worthless. Cars depreciate over time and in the end you sell the car for much less than you pay for it.

Instead You Could Get A House

A few years ago, I wouldn’t have thought it was possible to buy a house for less than a car payment, but I was wrong and I actually did it myself! Here’s an example that actually cost more than my house did:

  • House Sales Price: $100,000
  • Down Payment: $20,000
  • Loan Term: 30 years
  • Interest Rate: 4.50%
  • Payment (before insurance and taxes): $405.35

That’s over $130 less per month than the car payment above! Crazy! Now, keep in mind you will have to pay insurance and taxes. You’ll have to maintain your home. However, in the end you’ll own a house and the home will be worth a ton more than that car that would be 30 years old.

Before you start complaining that buying a $100,000 home is impossible, let me point out that it is possible and the only thing stopping you is yourself and your choices. The house probably won’t be huge and it definitely won’t be in a major metro area. It can in fact be a very nice house, it just might be in a different part of the country.

Considering that housing is normally one of the most expensive parts of a person’s budget, if you move to a cheaper area of the country to buy a cheaper home you can probably take a pay cut and still end up financially ahead. It is possible to have a house payment that’s less than a car payment and I’ve done it!

Have you ever had a house payment that is smaller than a typical car payment? Were you shocked that it is possible?

Picture by: 401(k) 2013 Text added by: Lance Cothern

Did I Catch The New Car Four Year Itch?

new-car-four-year-itchIn just a couple of months my very first car that I purchased new, my Honda Civic, will be four years old! Well… four years old to me anyway. I don’t know what month it was manufactured in! When I bought my Civic I bought it with the intention of driving it forever… Well, forever as far as cars go. I figured it’d last at least 10 years before it made sense to replace it due to repair costs of maintaining an ancient car.

It seems I’m a rarity when it comes to car buying behavior. Most people, as soon as their car loan is paid off, buy a brand new car to replace the car they just paid off! I guess people like being in debt and having a car payment, but I’m not a normal person. I did wonder, though, if I’d get the new car itch after the first few years.

Am I Looking For A New Car After Four Years?

HECK NO! That’s the short answer. Do I like looking at the new cars everyone else is driving? Of course I do. New cars are fun to look at! In fact, I like old cars too. But that doesn’t mean I want a different car for me.

I carefully selected the car I bought four years ago to meet my long term needs. I bought a Honda Civic because it got great gas mileage, was a reliable car and it’d last me a long time. I thought ahead and bought the 4 door sedan rather than a 2 door coupe because I knew I’d need the extra doors when I started my family, which I hoped to do while I still own my Civic even though starting a family is still a few years away.

When I bought my car, there were other cars that I liked the looks of better, such as a Pontiac Solstice or a Saturn Sky. Of course, there were nicer cars I liked too, such as BMWs, but they were quite a bit out of my price range for a car. So what was my reasoning behind buying my Civic rather than another type of car?

Why I Bought And Will Be Keeping My Honda Civic

I view my car as a method of transportation. It gets me from point A to point B reliably and it does have a few creature comforts for the longer road trips, such as cruise control. However, I do not want my car to be a status symbol of how I see myself fitting into society. I don’t care how fast it can accelerate. I bought it to fit my transportation needs.

Will I ever buy another car? Of course! I don’t expect my little Honda Civic to last forever but I expect it to last at least another 6 years at this point. I might even buy another new car down the road, although I would definitely buy a used car if it is a better deal at the time. Unless I’m wealthy beyond my wildest dreams though, it won’t be a fancy car and will likely only meet my transportation needs for the next 10 or so years!

How often do you end up buying a new to you car? Do you buy new cars or used (new to you) cars?

Don’t Try To Time The Market – You Have To Be Right Twice!

Time-Stock-MarketI have to admit that my investing strategy is rather boring. You see, I’m a buy and hold type of guy. I know that in the long run, and by long run I mean decades from now, my investments will be worth more than they are worth today unless we have a very large disconnect from the last century or so.

Yes, my investment strategy is boring. It’s not sexy. It may seem downright insane to some people that constantly worry about the big dips in the market. Some people think they can get out ahead of these dips and save some money by reinvesting once the markets finish going down. There probably are some people much smarter than I am that can time these things. However, I, like you, am just an average investor and don’t even entertain the thought. Why? I’m glad you asked!

Market Timing Isn’t For Me

If we could all time the market perfectly, we’d all be rich! Notice how we aren’t all rich? That means we can’t all do it. There is a very small population that has a small chance of getting these timing moves right and I’m not in that population.

The problem with trying to time markets to increase your return is that you have to be right twice. You have to be right the first time by selling at the top or pretty darn close to it. If you sell too soon, you might leave a TON of money on the table. If you sell too late, you’ve locked in your losses and likely missed your chance to make more money by timing the markets. If that isn’t bad enough for you, keep reading.

Anyone can be lucky once. The chances of being lucky twice in a row are much slimmer. You must now be lucky twice and reinvest your money at the bottom to be the perfect market timer. Invest too early and you’ll still be losing money. Invest too late and you’ll miss some of the biggest gains in most stock market bounces. If you miss just a few of the best days for the stock market for any given year you could easily miss out on a majority of the investment returns for that year.

I Know Myself Well Enough To Know Timing Won’t Work For Me

I don’t study the stock markets with every spare minute of my time and honestly rarely have a clue why big moves are being made at any given time. I don’t have the intuition to know when to get out of the market before a huge bubble is about to pop or to know when we’re about to reach the bottom and jump back into stocks with everything I have.

I know myself and that’s why I don’t even try to time the market. Could I seek out a bit better of a return if I simply did a little bit of market timing? Possibly, but I’d be constantly second guessing myself and it isn’t worth the hassle to me. Plus, I bet you I’d get it wrong 95% of the time and end up losing more money than I’d ever stand to gain.

What are your thoughts on market timing? Are you brave enough to try to be right twice and time the market? Let me know in the comments below!