I absolutely hate being in debt: being on the wrong side of compound interest is not fun. I realize that educational debt is far healthier than credit card debt, but I still despise it nonetheless. So I decided to challenge myself. For the 2009-10 school year, I do not want to have to take out a private student loan.
Considering that I had to take out a fairly sizable Wells Fargo loan this school year, it’s a pretty ambitious goal. If I could scrounge up the money to pull this off, it would have an incredible impact on my financial future. This is not going to be an easy task though, so I’m currently outlining the steps that I need to take to make it happen. Here’s what I have so far:
1. Open an ING account for 09/10 school year. I did this last week.
2. Start depositing money regularly into this account. In my previous post, I said that 20% of whatever I make this school year is going to ING. A large portion will be funneled into my 09/10 fund.
3. Keep working on building my blog traffic and income. This would help tremendously.
4. Focus less on building my investments, and more on paying for school. Up until this point, I’ve favored getting first-hand investing experience over using the money to avoid debt. My current allocations are to re-invest 30% of dividends while using 15% to make student loan payments. I’m considering reducing the former and increasing the latter, and using the increased school amount to build my fund for next year.
5. Use some CD money that I have maturing in a few months. I was originally planning on using a good chunk of this money to invest, but as I mentioned above I’m looking to lower my emphasis on building my portfolio while focusing more on lessoning my student debt load.
6. Save, save, save! I’m really going to put my spending habits under the microscope, knowing that every dollar saved gets me closer to achieving what I want.
An important detail to note is that I don’t have to have all the money at the start of the school year. Simpson offers a monthly payment plan on tuition payments, and I believe it’s interest-free. Even if I’m short of my goal by a little bit by next fall, I can pay off the difference over the course of the year, as long as it’s a manageable monthly amount.
I realize that it may be more financially smart to direct all this money into my existing loans, rather than stashing it in a 3% savings account. However, I think the psychological aspect of trying to accomplish this goal will make it a worthwhile endeavor. I won’t neglect my outstanding loans altogether over the next year (I’ll try to knock out interest plus a little principle, but they won’t be my main focus.
I’m pretty stoked about this plan. It’s going to be extremely challenging, but if I take the necessary steps every day over the next year, I should surprise myself. I will most definitely update my progress regularly.
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10 users commented in " New Financial Goal: No Private Student Loan Next Year! "
Follow-up comment rss or Leave a Trackbackthat’s nicely ambitious of you… but do you have credit card debt? I’d pay that off first and just totally try to not really need it (ie., be able to pay your cards off in full each month).
My own approach is always to be moderate and never tip the boat too much in one direction. Can you save up for half your student loan, and direct the other money towards higher-paying dividend investments? I don’t know how much your tuition is, but if it’s like some private schools around 35,000 that’s a hell of a lot of money to save in one year and I don’t know how you could do that with student jobs alone. And if you did save that much, maybe it would be better to put it into dividend stocks that could pay your monthly payments on the student loan… just my two cents, though…. it’s a tough battle either way! But way to go on attempting this.
Money,
I do not have any credit card debt, and I’m going to keep it that way!
I see what you’re saying, and I think I’m taking a sensible approach. My tuition/fees/room/board is over $30,000, but I get some academic scholarships and some federal Stafford loans to help out. This year my private loan was $13,100.
I’m thinking that I will probably split the money I allocate for school evenly between saving for next year and paying off existing loans. As for building dividend-paying securities, I’m still using 30% of all dividends to build my portfolio.
Thanks for your insights!
I agree with money that you may want to balance things off a little more. It does make sense to worry more about the present than the future so I like your idea of pulling potential investment money away and re-allocating it for other uses. It’s a tough goal, good luck with everything. At the same time you are trying to be more frugal with your spending, I would also suggest creating a separate wish list fund, even as simple as putting some money in an envelope every week, month, etc. There will be a point throughout the year where you want to spend some money on an item for yourself and at that point you of course don’t want to take away from bills, loans. Put aside a few bucks here and there which will slowly build.
Craig
http://www.budgetpulse.com
Hey Craig,
I’m still using 25% of my income as spending money. I keep almost all of this in cash, except for my designated ING accounts like ‘vacation’ and ’snowboard’.
This is the money I use for fun/recreation/whatever. I’m not too concerned with cutting back on this money, as it’s essential to have fun. What I am concerned with is cutting back my other spending; eliminating wants that are easy to justify as needs, and trying to save money at the pump, the grocery store, etc.
I’m going to be pretty well balanced; I’m simultaneously building my portfolio, paying off existing loans, and saving for next school year.
Great plan. It’s best to limit your leverage as much as possible - particularly when you’re in the advantageous position of being young!
Blake,
Great goal! I wish you the best of luck in making that a reality!
If I were you, I would pull all of my investments…Develop an emergency fund with that money (then you will not have to rely on credit to get yourself out of a jam) that is no less than $1000, and throw the remainder at the student loans…imagine graduating with no debt, or a smaller amount. From what I read here you seem to be big in the investment world but I’d like to encourage you to focus on your debt right now and once you have that handled in a few years, start investing again…just my thought though.
Again, best of luck to you!!
-Aaron
Hey Aaron,
I’ve long wrestled with the invest vs. student loan dilemma. In the short-term, it would make the most financial sense to pay for school when the markets are doing this crappy. However, I believe the first-hand investing experience I’m getting is well worth it. I’m 19 years old and getting a cold, hard lesson about bear markets and financial crisis. It’s tough, and if I could go back with this hindsight I would have acted differently, but now that I’m in I’m not going to bail. Moving forward though, I will focus a lot more on limiting my debt.
I do admit that it would be absolutely incredible to graduate with no debt. If I can meet the goal in this post and keep growing my passive income, I could possibly be fairly close.
As for the emergency fund, I’ve been growing mine slowly but surely for about 6 months now- got about $200 so far.
Thanks very much for your thoughts. There are greatly appreciated!
That is such a great idea! I actually just started going back to school and decided to go part-time instead of full-time so I wouldn’t get into so much debt. I was accepted to receive two large loans and made the decision to turn down the one and make monthly payments to the school so I would have less debt when I finished. I think what you’re doing is great and I totally agree that being in debt does suck even if it is for a good reason. Good luck!!
Great to see you setting up savings accounts Blake and having the goal no private loans next year. I worked in the financial aid office when I was in college and enjoyed the work and also the opportunity to see financial aid in action. Very motivating to work off debt while in college and get a head start on your classmates.
Good job, keep it up Blake! Even if you only achieve 50% of your goal, you will be infinitely better off than your peers!
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