Welcome!


This is the story of life's financial struggles & victories through the eyes of a young woman up to her eyes in debt. Enjoy :)

Find me on Twitter! @OhStudentLoans

Saturday, January 7, 2017

New Year New Me

Quick update on where I am now after my announcement of being debt-free in late November. I have been debt-free for a little over a month now. In that time, I have purchased long-term disability insurance through my employer, upped my 401k contribution to our company’s match of 6%, and am 3 months away from having my $10k emergency fund fully stocked.

I jumped the gun a little by upping my 401k contribution before having my emergency fund fully stocked, but due to recent deduction changes at my work, my paychecks are exactly the same in 2017 at 6% as they were last year when I was only contributing 1-2%. That being said, there was no harm inflicted on my saving schedule by jumping on the increase a few months early.

As for my emergency fund placement, I have decided on Capital One’s 360 Money Market Account. The runner up was Synchrony Bank’s MMA. Although Synchrony bank gives you the debit card access that Capital One does not, they both allow you to access your money fairly quickly should you need it. And if I remember correctly in my research, the both allow you to tie the MMA to your personal bank’s savings account where you can make the transfer if need be; Capital One’s processing time being a day or two quicker than Synchrony’s. What the decision ultimately came down to? Interest rates. For a sum of $10k or more, Synchrony offers 0.85% and Capital One offers 1.00%.

After my emergency fund is fully stocked (hopefully March/April), I will open a Roth IRA. Since my goal is to allocate 15% of my gross income into retirement accounts, I need to contribute the remaining 9% (after my 6% 401k contribution) to this Roth IRA. Why not just 3% into Roth since my company is matching my 6% giving me an overall of 12%? Glad you asked. Because I have learned that you do not count matches as a part of your 15% contribution; I will be thinking of the 6% match as simply gravy.

So this is where I am. I feel behind in comparison to some friends my age, but I feel ahead in comparison to others. At the end of the day, I am 29, and am thinking I’m right where I need to be in order to set up the rest of my financial life for success. Should I have picked another college where I needed very little to no loans? Maybe. Should I have started a Roth IRA at 16 when I got my first job? Maybe. Should I beat myself up for what I did/didn’t do in the past, and succumb to a life full of minimum payments in addition to paycheck to paycheck living? No. 29 might not be the ideal age to finally be debt-free and start building a net worth, but it beats the pants off of 39 or 49 or 59. That is what I have to remind myself when I start to compare to those around me. This is not to say there is anything wrong with becoming debt-free and building a net worth at 39, 49 or 59, because that also beats the pants off of never doing it. I am merely allowing myself the grace to be okay with where I am.

In my studying, I have read that a lot of folks state the time in-between debt pay-off and wealth building is where the momentum starts to die. The two main scenarios around losing momentum are:

1. People fall into the “normal” trap of buying the things they couldn’t afford while in debt. They tend to get excited about becoming debt-free from student loans, medical bills, and credit cards all to have the “money” for a new car, new wardrobe, or new home, and the debt slowly but surely begins to exist again.

2. People continue to live a debt-free lifestyle (yay), but never invest which leaves them with absolutely no wealth (boo).

I still have SO much to learn about the financial world, and am so excited for you all to be on this journey with me! Cheers to not losing momentum in 2017!!

9 comments:

  1. Congrats on your accomplishment! You've probably heard this in many different ways, but paying your $113k debt did more than satisfy a loan: it provided value that others never realize until much later in life. Some of this includes understanding the importance of budgeting, tracking your expenses, and living within your means. And your writings here as well as the articles about you will inspire others who face student loans or are trying to get out from under them.

    ReplyDelete
  2. Congrats! I am curious why you chose to stop your 401K at 6% contribution. I know that your firm does the first 6% match (mine does too), but I believe you still have some significant room until you hit the limit annual limit of 18000. The Roth limit is 5500. I am not saying your decision is wrong, just asking for your thought process? You could do both -- or up your pre-tax savings. I know some people say that the Roth gives you more control over your investments, but that also can depend on your plans.

    ReplyDelete
    Replies
    1. I agree. Once she hits the emergency fund goal she should work to max both Roth IRA and trad 401k. The only reason to invest in a taxable account is for fun or you know you want to retire early or you have maxed out your tax advantaged space.

      Great job knocking it the loans though! Moving that money right into savings is the best move you can make.

      P.S. $450 rent?? That is crazy cheap!

      Delete
    2. Thank you both! And absolutely I can elaborate on that. My income is not high enough right now to max both out so I am choosing to max out the Roth. I am stopping my retirement contribution at 15% of my gross income; I do not want to allocate any more so that I have room to save for a car, and play around in investments in order to have a shot at accumulating income generating assets. Allocating any more than the 15% into retirement right now would limit my 'living' money so I am drawing the line there. Hope this answered your questions!

      Delete
  3. You are a true inspiration, Jessica! 29 is an extremely young age to be debt free if you compare yourself to an average American. An average American household has $16K in credit card debt, so you're in a great position right now.

    On a side note, I personally don't mind being in debt as long as my investments bring me a return that is higher than my cost of funds. If I need to to take a mortgage with 4.5% interest to buy an investment property that brings rental income of 9% per year, then long live the debt. But a student loan is definitely one you want to get rid off and nice job doing it so fast.

    ReplyDelete
  4. Hi Jessica,

    I understand you want to contribute the 9% towards the Roth and still have living money and savings. More than 15% asside, it would be smarter to put that 9% towards your 401k rather than the Roth, simply because your 401k is tax-free savings, while a Roth is after-tax. It's a different story if you plan on opening a Traditional IRA, but you should always go for the tax-free, which a 401k and Traditional IRA offer, not a Roth.

    ReplyDelete
    Replies
    1. Hi Brandon,

      Thank you so much for the advice! I do already have an existing traditional IRA, but have decided that even though the contributions are made with after tax dollars, the Roth grows tax free (401k does not) so therefore, my plan is to open a Roth. By having all 3, hopefully I can cover my bases.

      Thanks again!

      Delete