Achieve Financial Life Milestones One at a Time

I really think that we should all try to focus on one thing at a time.  Every time I try to split my attention across multiple ideas I get a little frustrated.  I think this applies well to the idea of personal finance.

It seems like most people in the US don’t really follow this path.  We try to have it all as soon as we possibly can.  After we get out of school and start working, we want it all.  We buy a car with payments.  Get married.  Buy a house.  Furnish the house.  Have kids.  Buy a bigger car.  Buy a bigger house.  And on and on.

This leads to a massive amount of debt and bills.  After ten years, people look back and realize that they have no idea how they got into the debt and signed up for the bills they are paying now.  It gets hard to dig your way out.  If you have credit card debt on top of it, you’re even more frustrated.

I’d propose that we do it a different way.  I think people should do things one at a time.

College: If you go to college, go right away after high school and put all of your focus into it.  If you have to take out student loans, that’s okay, but keep in mind how much the total balance you owe is.  Write it on a white board on your fridge.  Update the number every semester.  Looking at that will help you to not screw around as much and focus.  Also, avoid any long term relationships in school.  You’ll have time for that later.

First Job: Once you graduate and get your first job, keep living the college lifestyle.  Keep living with room mates or in a small studio apartment.  Find the cheapest livable place and stick it out for a while.  Don’t buy any new furniture.  Check out thrift stores and garage sales.  Immediately max out your 401K, Roth IRA and any other tax advantaged accounts.  Put the rest into your student loans.  Your job right now is to save as much as possible and pay off any debt as fast as possible.  Avoid getting into a serious relationship as much as possible.  If you do end up in one, make sure to talk about what you are doing with your money. Definitely don’t finance a car.

Post Student Debt: Now that you’ve paid off your student debt, you’re feeling good.  You should be totally debt free now.  You should also still be maxing your retirement accounts.  Now you’re seeing an excess amount of cash flow coming in and you’re starting to wonder why you still live in a dump.  That’s okay!  Your job now is to save up a 20% downpayment for a primary home.  Depending on where you live, this could be a house or condo.  You’ll also probably have started some kind of relationship at this point.  It would be good to ear mark some savings for a wedding.

Home Purchase and/or Wedding: Now that you have a solid foundation of savings, you can think about buying a home. Make sure to buy something that you can rent out if you need to move. You may be thinking about getting married too.  That’s great!  Just don’t take on debt to do it.  Make sure you put 20% down on your home and buy just what you need.  You should still be driving a car you own outright.  There are plenty of options out there for $5k or so. You also are still maxing your retirement accounts.

Kids: Only have kids once you can really afford it.  They can cost $300-$500k to raise, so make sure you are ready.  Don’t have kids if you are in any debt other than a mortgage.

These are just the main big life events.  There are many other milestones along the way.  The main point is to do things one at a time.  If you buy the house, wedding, have kids, nice car and everything else all at once, you will be buried in debt.  This is extremely stressful and really sucks.  Freedom in life is all about freedom from these types of stress.  Do things one at a time and you’ll thank yourself later.


How to pay off your student loans as fast as possible

As of last week, my wife and I have paid off $96,000 in student loans.  We paid most of it off over the past year.  It has been an awesome experience and a pain at the same time.  It’s a wonderful feeling to start from zero though.

We’ve struggled with what to do with student loans for years.  They have gone in and out of deferment and income based repayment a few times before we finally decided that it was time to get rid of them once and for all.  I totally believe that this is one of the best decisions we’ve made.  So I put together a list of a few of the best ways to pay them off as fast as possible.

Pay them first:  Once a month, the day of my paycheck, I would immediately pay a large chunk of the loans off.  This made it feel like we never had the paycheck in the bank account.  Think back to when you’ve been tight on money in the past.  It’s super easy to just not buy things.  We can stay in and eat ramen in college because there is no money available to do anything else.  If you create that sense of brokeness by dumping all of your cash into the loans asap, you’ll feel like you can’t spend on other things.  Once it’s gone, it’s gone.  Nothing you can do about it.

Pay as much as possible:  We mulled this one over a lot.  There is definitely a thought to pay less while spending your money on other things. We all want nice things and to enjoy life, but the loans were a priority.  By putting the maximum amount possible into the loans, we felt like we were broke every day.  Mainly because we were…  You’d be amazed at how scrappy you can get when you have no money to spend.  Treat any new money as if it is burning a hole in your pocket and has to go asap.  Make sure to only put it into the loans though.

Pay things one at a time We’ve wanted to buy a house and travel more, but put that off while paying these loans back fast.  I wanted to buy those other things so badly, but am glad that I didn’t.  To me, the idea of paying loans plus a mortgage plus a car payment plus travel, etc. just sounded hard.  I don’t like the idea of spreading yourself really thin with lots of payments.  We made the conscious decision to put off buying a house and other big life “milestone” type of things while paying the loans.

Keep investing:  While we put off buying things like houses and cars, we did keep investing in our 401K and IRA accounts.  The tax benefits of retirement accounts are just too good to pass up.  These should be first priority over student loans.  At the very minimum, you need to contribute up to the match on your 401K account.

Ignore everybody else:  You’ll see all of your peers “pass you by” on social media.  Your friends and family will buy houses, cars, go on trips, have kids, get pets and all kinds of other exciting things.  You have to ignore this.  Either those people are super rich or they are using debt to achieve most of those things.  I would bet on the latter if they are under the age of 30.  Stop caring about what they think and enjoy your frugality.

Enjoy your frugality:  It can be really fun to find cheap ways to have fun and live your life.  You can enjoy being a minimalist in your tiny apartment.  You can go hiking a lot.  You can go to free events in the park nearby.  You can learn to cook your own food.  You can shop at local farmers markets.  You can shop at thrift stores.  There are so many fun things to do that cost almost nothing.

Downsize your living situation:  If you are renting, you should be living in the cheapest place that you can find in a safe area.  Ideally live in a studio or one bedroom.  Or with roommates.  Keep living the young 20s lifestyle until the debt is paid off.  You might not like your tiny apartment.  Use that annoyance to motivate yourself to pay those loans faster.  One of the biggest things people complain about is that they have no money to pay their loans, but they live in a nice place in a cool part of town.  This makes no sense.  Nice places are for rich people.  If you’re in debt, you’re not one of them.

Avoid car payments:  This is huge. There are so many transportation options that don’t require a nice car.  You can take public transit.  You can bike.  You can buy an old car.  There are a lot of nice cars for sale for under $5,000.  Take advantage of this.  There’s no reason to have a car payment ever.

Live on half of your income:  All of these things lead you to this big one.  Live on half of your income.  No matter what.  You should be doing this even after your loans are paid off.  Life is tough and you can lose your job at any time.  If you live on half, you have plenty to spare in rough times.  Think of it this way.  If you are going to be working for 30-40 years, then be retired for 30-40 years, you will need to make 2x your expenses for life.  1x to get you through the first 30-40 and 1x to get you through the second.  Starting your working life by paying half of your income into your student loans will set you up to keep living on half until you can retire.


Stop worrying about losing your job

A big reason most of us are unhappy with working in an office is due to fear.  We are afraid of losing our jobs and the paycheck that comes with them.  If we lose our jobs we think that the entire world will end.  We won’t be able to have a home or feed ourselves and our families.  We think of the worst possible thing and imagine how bad it would be if we lost our jobs.

It’s this fear that keeps us sitting in our cubicles day in and day out.  We may hate our jobs for years, but we are too afraid to do anything about it.  We don’t talk to people or stand up for ourselves because we are afraid of being fired.  We don’t take vacations because we don’t want to be seen as lazy.  We work all day without breaks so that we look like hard workers.

We don’t look for other jobs that might make us happier because we are afraid of change.  We ask ourselves what will happen if it doesn’t work out.  What if we don’t like our new boss?  What if we get laid off from that job?  We tell ourselves it’s scary out there.

This isn’t healthy.  It stresses us out constantly.  This kind of life gives a kind of stress that people have never experienced before the modern workplace.  It’s chronic stress.

It used to be that people were afraid of starving, or being killed by a lion, or falling off a cliff, or something truly dangerous.  Now we are afraid of losing a job title.  We are afraid of losing a paycheck.  Yes, we may starve because of it, but probably won’t.  It confuses us.  Our bodies can do things to fight off lions and starvation, but they can’t do anything to stop this chronic stress.

We spend our days doing our job.  We sit all day.  We fret about inconsequential things.  Then we sit in traffic on the way home.  Sometimes we have a few beers to relax on the really stressful days.  Then we wonder why we’re always tense and have to go to the chiropractor.

A life of fear won’t get you anywhere.  Even if you work the office job your entire life you’ll still probably die of the heart attack brought on by the stress.  We might make plenty of money and never have to change jobs.  On paper, we might be a total success.  Inside we’ll be a wreck.

I’ve met people who are 50 years old and have been working in their jobs for the past 30, yet they are still deathly afraid of losing their jobs.  What a hard life.

I propose that we give up this fear.  Let’s stop worrying about whether or not we have a job tomorrow.  Just stop worrying about it.  If you get fired tomorrow life will go on.  It won’t kill you.  You can find another job and another way to make money.  You can change your lifestyle if you need to.  You can become a hobo.  In the end, it doesn’t really matter.

The important thing to remember is that no matter how much you worry about something, you can’t stop it.  You can fret and worry and be afraid about losing your job, but it won’t change anything.  You will still get fired if they want to fire you.

By no means am I saying that you shouldn’t work hard.  Do your job and do it well.  Be the best at your job.  Be awesome at it, but don’t worry about losing it.  Worrying will only stress you out.  It won’t stop anything from happening.

Like a lot of people, I was laid off last year.  It really sucked.  I was working for a company that was having financial problems and they had to make cuts.  I was one of them.  I did a good job, showed up on time, was nice to everybody, and was all around a good employee.  I still got canned.

Losing a job sucks, but I think everyone should go through it once in their lives.  It helps to put things into perspective.  I had been worried for years about losing my job.  I didn’t know what I would do if I lost it.  I thought my whole life would fall apart.  It didn’t of course.  I was unemployed for a while, but I found something.  Everything worked out in the end.  It may take longer for some people, but things will work out.  Even if they don’t, you’ll be ok.

The big thing I realized though is that no amount of worrying would have helped me keep my job.  It was going to happen.  I was a great employee and I still got canned because of “budget changes”.  I wish I wouldn’t have been stressed out about it.  I wish I wouldn’t have been afraid of losing the job.  I could have really enjoyed my time there if I didn’t stress out about the possibility that I might be laid off.  What a waste of time and energy to be stressed for so long.

Just remember that even if the worst possible thing happens and you lose your job, your house, your family, your car, your clothes, and can’t even feed yourself, worrying about it won’t help.  Worrying everyday won’t do you any good.  Be prepared for things, but stop worrying.

Coming soon:  How to prepare for losing your job.