Friday, December 21, 2012

Financial Update

Well, we're almost twelve hours into the supposed End of the World here in EST and buildings still appear to be standing and nobody I know* has been raptured, so I suppose the world will continue as usual.

The genius status update of one of my friends.  Why didn't I think of this?

*  Admittedly, the portion of the population least likely to be taken up in the rapture.

Since many of you were interested in following my progress on the student loan front, I think we're long overdue for a bit of a financial/loan update.


Background:

As you may recall, back in May I posted about my commitment to redirect my financial priorities and more quickly repay my student loans.  The plan utilized Dave Ramsey's "Snowball Method" of debt repayment, in which you pay the minimum payments on all of your loans except the smallest, which you pay off with all of your remaining money until it's gone.  Then you roll that minimum payment into a "snowball" payment, which you put towards the next-smallest loan, and so on.

I also put myself on a $100/week budget for food, clothes, and other expenses.


Changes:
  • No more debt snowball.  I met with a financial adviser in the fall.  I brought him a spreadsheet of my loan amounts and interest rates, and he almost laughed me out the door when I told him about the snowball method.  Although I understood that it was not the most mathematically optimal way to pay off loans, I appreciated the psychological benefit of seeing quick results associated with faster repayments.  However, the financial adviser actually calculated the amount of money I pay in interest per year towards my largest highest-interest loan, and it came out to $3,600.  $3,600 every year I let that thing sit.  I realized that even with a few shopping sprees that might be associated with being demoralized from paying down a huge loan for ten months, I still would not spend $3,600.  So I switched gears.  I am now paying off my highest interest-rate loans first.
  • The $100 budget is not working so well.  I have not yet figured out how I'm going to change this budget, but I haven't been sticking to it and need to revise the plan somehow.  I'm thinking of making it so that weekly groceries do not come out of the $100?  Also, I may simply institute a "one in, one out" policy in my closet, since despite a recent closet purge I have once again managed to cram the thing full of stuff.  Vacations are another story; the curse and the luxury of my paycheck is that I don't actually need to save up for vacations.  Although I recognize it is a good habit to save for vacations, I also recognize that I won't be able to take totally spur-of-the-moment and unencumbered-by-kids vacations forever, so I'm okay with enjoying that particular class of spontaneity while I have it.

Progress:

Check it out:


Heck yeah!

As of today, I have now fully paid three of my student loans, plus one of my familial loans.  Two of them are lower-interest loans (pictured above), one is one of my two highest-interest (more than 7%) loans, and the family loan had 0% interest but a fixed repayment plan. 

Man, it felt great to get this letter.

We just received our annual bonuses at the firm today, and I put the money towards knocking out my baby high-interest loan and taking a chunk out of the big one.  The big one is my next target, and with my loan payment next month, it will drop into the next-lower 10k range.  After a year or so of payments on the big one, I will have taken care of the two loans with the highest interest rates, and will move on to my loans with ~7% interest rates.

I have also reduced my total student loan debt by about 15%.

It feels good to take a minute to appreciate the progress I have made so far.  It hasn't been easy to watch so much of my pay disappear into loans each month---this month's loan payment basically felt like pushing a decent used car off a cliff---but I can see progress and I feel motivated to continue.  Once the holidays are over and I get back into a lower spending bracket again, things will only move faster.


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