How to Decide if Property Ownership is a Good Financial Decision for You

This post may contain affiliate links. Please see my disclosure to learn more.

Well, we are doing it! We are in the throes of purchasing our first property! Currently, we just started the escrow process, so it’s all new enough to accurately relay our experience on zee blog. I have been MIA on the finances front for a while, but I’ve decided to start a new series on Property Ownership (I say property ownership because, as you will see, we did not go with a traditional home, therefore I think home ownership is too selective of a title), in which I hope to cover a collection of thoughts and well-meaning advice.

The first of which is this: You’ve got to know what you are doing when buying a home. Unless you want to get your money swept from underneath you or risk ending up with a home that you absolutely hate, I highly suggest getting informed before even considering any of this. May I suggest starting with the Home Buying Kit for Dummies? Not saying you’re a dummy, just saying I read this from front to back and felt confident in the home buying process, which went quite smoothly for us. In fact, today’s topic of deciding where to buy is outlined in their first chapter. Sans my own personal stories and interjections. You’re welcome!

Deciding Whether to Buy

We all make consumption choices in our lives. Whether that’s a cup of coffee, a sustainable product, or an eco-friendly gadget. Sometimes, purchases can lead to buyer’s remorse, especially when they fall short of our expectations. When it doesn’t cost much, you can get over it quickly by either choosing to return the product or deciding you will not make the same mistake twice.

As a very mindful consumer, you likely already know that I weigh the pros and cons of every purchase I make. This is especially important with large purchases, such as a car or home. Sloppy shopping can lead to financial and emotional disaster. And I love the analogy that consumer debt is the equivalent of financial cancer. So, buying a home should not be taken lightly. It should not be an entirely emotional decision. And it is not right for everybody. If that is something you did not to hear, then I am very sorry.

The goal of this series is to go through the process that Mike and I went through in order to help ensure that we have a home we are happy with, we get a good deal on the property, and most importantly, that owning a home helps us accomplish our financial and life goals.

But before we could have even decided whether owning or renting was best for us, we had to learn the advantages and disadvantages of both!

The Pros of Ownership

Not everyone should buy homes, and not at every point in their lives. That’s a statement I believe in. That being said, there are many pros to owning your own property.

  • Owning should be less expensive than renting!

This is the first guideline that Mike and I wanted to follow. We have thrown away so much money in rent. How much, you ask? Our first 18 months, we paid $2,800 a month for our beautiful 1,599 sq. ft., 2bed, 2ba live/work loft in Orange County, California. For those of you thinking we are financially crazy, I just want to point out that an 800 sq. ft. 1bed, 1ba apartment in an apartment complex runs around $2000-$2200 in our area. I agree, it is crazy expensive to live here. I also agree that we weren’t exactly financially savvy when we started out. After 18 months, the next 8 months we received a huge rent reduction to our space. We made a bargain with our landlord which stated that we ourselves will fix any problems (that totaled to no more than $200 per month) that came up, and she reduced our monthly rent from $2,800 per month to $2,600 per month. Additionally, we took on cohousing and we further reduced our rent to $1,900 per month, while giving our roomie her own bedroom, bathroom, and access to the entire house for $700 a month. She was happy because she avoided having to hemorrhage $1,500 for an old, run-down studio space, and we were happy because our rent went down almost $1,000 with those two simple changes. The savings of $900 over the course of 8 months was $7,200! YAY US!

All of this to say, that over the course of the last 26 months, we have spent $65,600 in rent. If we didn’t have our roomie, then we would have spent $71,200 towards rent, with nothing to show for it. Now if it seems like your monthly rent looks way smaller than the price of a home, which is likely to be hundreds of thousands, think again.

A very simple calculation of the home you can buy that would have approximately the same monthly cost as your rent can be completed using the following equation.

$______________ per month x 200 = $ _____________________

Example: $2, 800 per month x 200 = $ 560,000. The property we decided to put an offer on? $499,900.

Another consideration between the cost of buying and renting is the cost of doing so today versus the cost in the future. As a renter, you are fully exposed to inflation rates. A reasonable annual increase in rent is 4% per year. Remember that if you pay $1,000 in rent per month, that is the equivalent of buying a $200,000 home. Well, in 40 years, with 4% inflation per year, your rent will balloon to $4,800 per month, which is like buying a $960,000 home! On the flip side, after buying a home, your housing costs are not exposed to inflation if you use a fixed-rate mortgage to finance the purchase. So only the comparatively smaller property taxes, insurance, and maintenance expenses will increase over time with inflation.

This isn’t to say that you must buy because of inflation. But, if you are going to continue renting, you must definitely plan your finances accordingly.

  • You can make your house your own

This is a great pro to all the creatives out there. However, a word of caution:

Don’t make the place too unique. I understand that you may have a distinct taste or style. And while that may lead you to a happy life in your home, it could make it very difficult to sell in the future. If you do make improvements, focus on those that add value, such as adding skylights, energy-efficient  upgrades, and updated  kitchens and bathrooms.

Avoid completely running yourself into financial ruin. It’s easy to get carried away in the emotions associated with owning a new home. There is this urge or pressure to make it look picture perfect straight away! There is nothing wrong with making your home a dream one the slow way. When you feel the urge to throw all your money straight into renovations, think of the things you already have. Say, a roof over your head?

  • Avoiding Landlords You Can’t Get Along With. Mike and I have never personally had an issue. However, we have heard stories of landlords who neglect their tenants needs or continually refuse to fix rental units that are falling apart.

The Pros of Renting

  • Signing up for a place to rent is definitely easier than going through the process of securing a home. You don’t have to deal with financing, inspections, and other possible issues like you would if you were buying a home.
  • When you have a rental property, your landlord will be responsible for property maintenance and upkeep!
  • This was actually one of our initial reasons to continue renting. Renting allowed us to not feel tied down. In the last few years since we got this place, we were going through so many changes. We got married, Mike got a new job, we started tackling our student debt, and wanted to travel the world. I just started work and Mike and I did not know if we would like our new jobs and if this is the area we wanted to stay. Luckily, since then, we have fallen in love with our city and our jobs. We have proven to ourselves that tackling the student debt is doable, and we are comfortable enough to now tackle on housing. But if you are at a stage in your life where you need any sort of flexibility at all, then maybe renting is better for you right now. If you plan on not keeping your property for more than five years or plan to move soon, buying and then selling a property is not the way to go.
  • Increased liquidity. Many people buy their first home and wipe their finances clean with the down payment and the closing costs. Plus they have to make their monthly payments. Renting will help prevent you from being financially stretched.
  • Better diversification. Buying a property could mean that your wealth is tied up in the house. As a renter, you can invest money in a variety of investments, not just one.

Do NOT Fall for the Following Pitfalls

  • Renting because it seems cheaper than buying. You must consider the monthly cost as well as the future cost. See discussion above.
  • Buying when you expect to move soon. Additional costs that come with buying and selling a home are pretty large. Unless you plan on keeping the home for a while after you’ve moved, it may be better to wait until you are more sure of where you will be one year from now.
  • Allowing salespeople to sell you something you don’t want. Many people in the biz have a vested interest in getting you to buy, because they work off of commissions. But remember that when you buy a property, you will be the one coming home to it every day. You will be the one paying for it. So make sure that you do you!
  • Ignoring logistics. You should probably think through how every aspect of your life is affected by your home purchase. Imagine buying a home that has everything you are looking for and is within your price range, but which adds an hour commute to work. How much would you resent that home? Or imagine having a home that happens to be located in a loud neighborhood, and you are a light sleeper. These are important things to consider!
  • Don’t become house poor! Either you own a home, or it owns you. Nuff said.
  • Being peer pressured. This is a toughie. Typical me, I had to really dig deep and figure out why I wanted to buy a home. Was it entirely socially ingrained? Was it purely from a financial perspective? Was it part fantasy? I had to rationalize and confirm (and re-confirm) that I was not being peer pressured into this. That this is something Mike and I decide to do, for reasons of our own. Just because siblings, friends, and co-workers are buying homes, it does not mean you should too. Maybe they own a home, but have no finances left over to travel. Maybe their house is keeping them from quitting their work and pursuing a passion. Don’t assume their life is better than yours. And as always, never compare your beginning to someone’s middle.
  • Misunderstanding what you can afford. To be honest, if you haven’t gotten a feel for your financial situation and life goals, you are just guessing how much you should be spending on a home. So having a good grasp on your financial stance is the place to start. Also, unless you are a high-income earner, if you do not have a back up plan for unexpected life occurrences, you may find yourself in a tight situation. A job loss, family emergency, or natural disaster can make you house broke in an instant. Understanding all of this and having a back-up plan is very wise!

Given all of these pointers, only you can ultimately decide if buying a home is right for you. Not me, not your peers, not your real estate agent, and, no offense, but not even your parents. More importantly, you must analyze whether NOW is the right time for you. It may be that waiting until you have a bigger down payment, a more stable job, or a better financial back up plan is the best option. Something we as humans tend to avoid thinking about is the worst case scenario. But think about it you must.

Also, learning about the property buying process is quite necessary. If you are feeling a bit overwhelmed after reading this post and need a place to start, start with this book! I highly recommend it. Do you have other recommended reading for first-time home buyers?  Feel free to share with the community in the comments below!

Graduate from Undergrad in Three Years and Save $$$

Are you in an undergraduate program trying to plan what classes to take? Or better yet, are you a high-schooler, looking far ahead into your future, trying to figure ways to save? Are you a parent trying to plan your child’s college career, with the hopes of giving them sound advice on how to avoid more student debt? No judgements if your child is still in a crib. In fact, a big pat on the back for you, for considering this stuff super early on! If you fall in any of these groups of people, may I recommend doing something that I myself did as an undergrad?

Try to graduate in three years or less, and save $$$!

Related Topics

The first step: Stop the Negativity!

You may be saying to yourself some of the following negative self-talk, but I want to address them now and talk you out of that nonsense. Nip it in the bud, so to speak.

Avoid the following negative thoughts:

  • “Graduating in three years requires a special program, which my school does not have.” Not true at all! I myself graduated from a four year undergraduate college, in a three year span of time. All you need to do is hit your particular program’s requirements, and that’s it! Just make sure to plan ahead.
  • “Only Einsteins and nerds finish early because you need to be very smart in order to graduate in three years or less.”  You need to be very organized to finish early, not necessarily smart. It may require a bit more effort, but it does not mean that some people are born with the ability to do this and others are not. Everyone should at least try. If you don’t end up finishing in three years, you should be just as proud to finish in three years and one quarter. Every little bit that you shave off of your schooling counts!
  • “Graduating early means I won’t have my FULL college experience! I will miss out on some of the fun my friends are having.” Actually, quite the opposite! Finishing school in three years freed up that last year when all my other friends were still in school. It gave me the chance to work three jobs, and I had a more flexible schedule than my friends who were still in college! While they had to plan for tests and study for exams, I was able to move my work schedules around to make time for lunch dates, or hang out nights. If anything, I was able to experience MORE than they did!
  • “What difference does an extra year make? Shouldn’t I just take classes that I am interested in or that I enjoy FOR FUN while I’m at it? What’s another couple of thousands of dollars?” If I could kick my young self for having this kind of mentality, I would. Back then, I did not understand the value of compounding interest. I did not have a sense of the value of time. I did not realize that something so small now, can make such a big difference later. The money you save from finishing undergrad early can be invested into something that will give you a higher return over time, rather than be taken out as a loan that will be charged interest over time. Instead of losing money, you could be earning money. Time is on your side, and investing early is the way to go!

Ways To Graduate Early

There were many things that I did to allow me to graduate one year early. If I had a do-over, I would do even MORE, to try to shave off a little bit more time. Here are some tips!

  • Take as many AP (Advanced Placement) or IB (International Bachelaureate) courses in high school as you can. I did the work in high – school. I took 11 AP courses in high-school. The great thing about these is that some colleges accept certain AP classes as credit towards general education college courses! I entered my first year of college as a “sophomore” and had first choice in which courses I wanted to take, which made it even easier to plan ahead!
  • Plan your course of action. When I entered college, I was given a list of classes that I was required to take in order to graduate early. I kept that list throughout my whole college career and when it came time to choose classes, I would simply go through the list and find classes that I wanted to take but were also required. It wasn’t until my final trimester (we were on the trimester system) that I took a class that was not a requirement, for fun. Why did I do that? Because it gave me the units I needed to be considered a full-time student, which had a flat rate and which actually made the tuition cheaper than if I paid per unit to be a part-time student. Go figure!
  • Take as many units as you can handle. The minimum units you need to be considered a full time student was 12 units. You can likely graduate in four years taking 12-15 units a trimester. But I had other plans. I was taking 16-20 units a trimester, and one particular trimester, I believe I took 22 units. The exception was my final trimester, where I took only 12 units, the minimum to be a full -time student.
  • Stay focused. You are here for SCHOOL. The biggest excuse I heard recited to not take more than 12 units at a time was that early twenty-somethings want to enjoy life. They don’t want to be focused on JUST school work. They want to have time to go to parties, hang out with their friends, make new experiences. But you are at college for school. Focusing on that doesn’t mean you won’t get those new experiences, or have a good time.
  • Don’t listen to the naysayers. When I told others that I was going to finish college early, there was a lot of pushback. In the early stages, I had a lot of people telling me it would be difficult to do, that I would stress myself out too much and hate college all-together. When that didn’t happen, they said that I was missing out. As it got closer towards the end of my college career, I started having people trying to convince me to stay. “Just take classes for fun!” To which I replied, “I’d rather live life, for fun.” Don’t listen to the naysayers who think you can’t do it. Don’t listen to people trying to convince you you’re missing out. And definitely don’t listen to those who try to convince you to stay even longer, and spend more money or take additional loans. The person you should be living life for is yourself, and your future self will thank you.

If you need further convincing, maybe math will do the trick.

Tuition Costs Saved by Graduating in 3 Years: $8,000

Additional Money Earned by Working 3 Jobs in the Final Year: $18,000

The Difference: $26,000, which I funneled into student loans and credit card debt. 

 

 

Finance: How to Budget for Travel

This post may contain affiliate links. Please see my disclosure to learn more.

It’s no secret that the number one priority in our lives from a financial standpoint are my student loans. Off course, more important matters such as health, relationships, and happiness trumps that, but really not much else is prioritized before the loans. However, even before paying down the student debt entered the picture, Mike and I had decided early on in our relationship, before we even got married, that a top priority of ours would be travel. That hasn’t exactly changed, as you can probably tell from all the travel posts on this blog. Today, I wanted to go through how it is that we have the means to travel on a very tight budget.

Related Posts: 

Set your priorities

Our ability to travel the world is built on a clear understanding that travel will remain a top priority for both of us. By defining this activity as extremely important, it makes it easy for us to give up less important things if it means that we will be able to travel. From the very beginning, even before we started paying down student debt, this is something both Mike and I felt strongly about. In fact, it was at the very forefront of our conversation when we started to check the feasibility of paying down over $550k in ten years. The first question to answer was, “Will we have enough money to still travel?”

Since this is such a high priority for us, we would give up almost everything in order to make it happen. The only exception, off course, is being free from my student debt. We were willing to give up buying a house, buying things in general, dining out (if it means dining out when we travel), the newest tech gadgets, and so much more. We were already frugalists before, but having travel as a motivating factor makes us even more successful at being frugal weirdos. When your priorities are clearly defined, the budgeting part becomes easy.

Set a budget

It is very important, especially in our particular situation, to plan for travel. I think that budgeting is useful for every category of spending, but it becomes imperative for those categories that will make your life happier. We don’t want to leave the decision of whether or not we can go somewhere to the whims of everyday life. In other words, we want to avoid the excuse “Life happens”, and we actually want our lives to happen.

Our budget for travel changes according to where we want to go. Typically, we decide on an amount to set aside every month using our favorite budgeting tool, YNAB! We will probably continue that trajectory for a couple of months. We treat it like money stashed away in an envelope. We use the “cash” in this envelope to pay for anything that involves travel expenses. If we ever go over, we would have to borrow from another envelope that month. As an example, overspending $50 in travel would require us to pull $50 from our allocated grocery money. In the past six months, we have not over-drafted from our travel envelope. When calculated, 2.6% of our income each month went towards travel.

Keep in mind that this is our top priority! Yet only 2.6% of our income went towards travel. That’ll give you an idea of how frugal we’ve been and how focused we are on paying down my student debt. 100% of my post-tax income in our first year of student loan repayment went towards the loans, plus help from Mike too!

To be fair, the budget is changing every once in a while. For example, since we have a huge three-week trip planned for the beginning of next year (where we will be visiting ten cities and two countries halfway across the globe!), we will be increasing our travel budget to 3.5% of our income for the last 6 months of this year. Nothing wild and crazy, but it is fluctuating as needed.

Have a plan

Call me Type A (and you would be right in doing so), but I don’t like to travel without a plan. Mostly because I find that travelling without a plan can sometimes be very costly. Choices will need to be made in the spur of the moment, and while that is fun at times, it also means limited research can go into choosing the best financial option. Plus, not having a plan makes the previous goal of setting a budget very, very difficult. It is hard to guess just how much money you need to allocate if you have no idea what you are allocating your money to. That being said, this isn’t to say our plans are entirely rigid. We have flexibility and I am the first to admit that our recent trip to Banff did involve cancelling an entire day of hikes in exchange for napping on a hammock lakeside and resting sore legs. And if we come across an ice cream shop that we want to grab ice cream at, we aren’t going to say to ourselves, “Oops, not in the budget. Can’t.” But typically, these changes aren’t so drastic that it throws our financial game plan out the window entirely. Within the budgeting, we have already budgeted for the possibility of a change of plans.

Save for the big stuff.

Usually, when we go someplace, there is one activity that we are uncompromising on. We don’t just visit a place to randomly visit. We went to Germany for Oktoberfest. We visited Mexico City because we wanted to eat at Pujol. I wanted to go to Banff to see what was left of the glaciers while I can. We went to Oregon after hearing about how a devastating fire last year wiped out all of its beauty. And we are going to Australia to celebrate our two year wedding anniversary on New Year’s Eve in Sydney. These are the big things. If you have a particular reason to go someplace, then go ahead and go for that reason! But go knowing that it requires you to save for the big stuff. We scrounge up the savings by giving up some of the everyday spending that a normal couple would make. I always say how easy it is for me to give up dining out regularly, if it means I can dine out when I am traveling elsewhere, and eat local food in a different country. We had no problem celebrating our first year wedding anniversary eating pizza, if it means that on our second year, we will be watching fireworks over the Habor Bridge in Sydney. Interestingly, even THAT is a free event! But you see what I mean. Don’t skimp on the big stuff, especially if there is a specific reason for your travels. Skimp on the little stuff that you could do without. I promise, it’ll make the big stuff that much more valuable.

Be frugal, still.

There is no need to skimp on every adventure. What’s the point of seeing a country when you don’t want to spend to see a country? Off course, there’s transportation that we need to pay for to get around, and food to be eaten. But, where you can, be frugal still. Our budget would not be the small sliver of a fraction of our income that it is without us being frugal, still. Here are the ways in which we save quite a bit on travel money.

  • We travel hack in order to buy our flights. I have written about the pros of travel hacking and what that has afforded us in this year alone. Long story short, we have used only points to book all our flights for this year! Our favorite travel hacking credit cards are Southwest Rapid Rewards, Chase Sapphire Preferred, and the Chase Ink Business Preferred.
  • We opt for AirBNB whenever we can. Typically, we find that those rates are cheaper than most hotels.
  • We book with Turo to save money on car rentals. Turo is the car version of AirBNB and we have had a great experience thus far with this company.
  • We reach out to friends and family in the locations we travel to. Some of our favorite trips are made more special by the company we keep. A plus side would be a place to stay, or a way to split the costs. I stayed at an old college roommate’s apartment when I visited Salt Lake City, UT. We stayed in my high school best friend’s extra bedroom when we visited New Orleans. Both of these friends drove us around everywhere we went! My sister provided an air mattress and shared her bed when we went to visit San Francisco. She also lent us her car for the weekend. Our Munich trip meant a free ride to the Castle Neuschwanstein when we hit up a friend’s cousin’s family. Also, we were invited to their house and got served the most amazing dinner, which to this day, remains one of my favorite memories while traveling. We reached out to my family to see if they wanted to go to Oregon with us, thus splitting the car rental fee and the AirBNB costs among seven people. All of this to show, not only is group travel more fun and entertaining, it saves you money as well!
  • We skip the touristy stuff. As I become better versed in traveling, I have found that less and less attraction lies in the touristy stuff. We would rather fill our days with free tramps through nature, exploring the city by foot, people watching as we eat at a café, and so on. We have found ways to see cities without having to spend much. I used to book excursions on every trip, until I realized that some of the best excursions are free. Our most recent Banff trip was focused around hiking all day. Trips to Calgary and Munich involved mostly walking around the city. Oregon was a mix of both. Skipping the touristy stuff also means that you can explore your way, without having to adhere to someone else’s timeline.
  • We don’t buy souvenirs to take home. Most of the stuff they sell in souvenir stores are absolutely useless and unnecessary. Unless we come across something that we think someone back home would really like, we do not shop for souvenirs for the sake of bringing something back. What we bring back to our friends and family are photographs and stories, mostly.
  • We borrow “just-this-once” items. When we go on camping trips, we borrow sleeping bags. I borrow my dad’s camera lenses when I go on big trips. I borrow clothing from my mom if I don’t have it in my minimalist wardrobe. Borrowing is such an important life hack, because it prevents us from purchasing things that we will only use once for travel.
  • We choose to disconnect. Going to a different country may require signing up for an additional payment plan in order to use your cell phone and other techy gadgets. Whenever possible, we simply go without. A trick would be to just opt for signing into the WiFi in cafes or our AirBNBs. Since a majority of our days are spent soaking in every last little detail of our current surroundings, we don’t really have a need for our cell phones. Planning the night before by looking up directions or the next day’s itinerary makes it a lot simpler too. Choosing to disconnect saves us not only money, but also, time since it keeps us from wasting time being “plugged in”.

These are just some of the ways in which we remain frugal while we travel. But like I said before, none of this equates to deprivation. It simply requires you to analyze what parts of travel you actually value, and what parts are simply excessive consumption. Once you’ve identified those priorities, it is very easy to cut down the spending in some areas in order to have enough in your budget to be able to see that one item on your bucket list. And if you need to, you can always borrow from other “envelopes” throughout the months leading up to your trip!

What about you? What are some ways to squeeze in a little extra money towards travel on a tight budget?

The Student Debt That is My Privilege to Own

I frequently write on the blog about the effects that my student loans have on my lifestyle. Specifically, the weight of such a heavy thing to bear, and the astounding cost that it takes to pursue a dream career. It’s shaped so much who I’ve become, that I have even adopted the cheeky, and equally lame, pseudoname “The Debtist”. Amidst the writing, one thing in particular may have been misconstrued. That is, this whopping student debt, though extreme to say the least, is my privilege to own.

I never spoke about this before, but my mother wanted to become a doctor. It’s hard to say which came first. If she wanted to become a doctor and that’s what led me to decide on dentistry at a young age of eight years old, or if I voiced my dream to become a dentist which prompted my mom to share her own aspirations to become a doctor. Either way, one dream came true, and the other remained just a dream. My mom is a very highly motivated and smart person. She was the top student of her class, from kindergarten until high school, which, in the Philippines and in the 70’s, having a female as the top of the class was not a common thing. She was the first feminist I have ever met, and I would say that she was way ahead of her time. In the Philippines, there is no such thing as undergraduate school. After high school, you go to college for your chosen career and work right out of college. When it came time to applying for college, my mom applied to two majors: one was medical school, and one was engineering school. Why did she apply to both?

She was born to a family with eight children. Of the eight, she was the middle child. Despite being a relatively well-off family, providing for a family of eight with one working person in the Philippines is still not an easy feat. Money can be tight, at times. Back home, there was no such thing as student loans. In order to go to medical school, one would have to pay for the tuition costs up front, in cash, 100%. And medical school is very, very expensive. If my mom were to go to medical school, she would need to come up for the money herself, because her parents were busy trying to keep a family alive.

She remembers the story well, and every time she re-tells it, it makes my heart sink. She chose engineering as a back-up because it was inexpensive, and still a math and science related career, the two subjects she excelled at most. The day they found out if they got into their schools of choice, the results of the engineering school were released first. A list was posted on a school wall with the names of the students that were accepted. When she found out that she got accepted to the engineering school, she immediately accepted it and never looked back. She never did look at the results of the medical school, which were released later that day. I asked her why she never looked to see if she got in, and she says, “Why would I? There was no way I would have been able to go anyway. I might have just been sad my whole life knowing that I was accepted and could not have gone.”

Having student loans is the reason that I am a doctor and my mom is not. Although it does not cost half a million dollars to become a doctor back home, there lies an even bigger barrier, which is the lack of access to an opportunity to create an equal ground for all citizens. Student loans are a heavy toll, but they are what allowed me to pursue my dream in the first place. Because without them, I would not have been able to afford dental school, either.

I became a dentist because of a deep interest in helping others. I was recently asked in an interview whether I knew what I was getting myself into. Specifically, if I knew the cost of dental school prior to applying and if I knew the average salary of a dentist in my area that I would be making when I got out. My answer was no. It may seem absolutely foolish to enter a career without knowing those facts, but at the same time, I didn’t become a dentist to be rich. So to me, money was not at the forefront of my thoughts. The implication was that I did not know what I was getting into and this is why I am in this mess in the first place. But that isn’t true. Money was not my motivating factor, so I doubt it would have been a deterring one either. Money never made it into my life equation. The minute money dictates whether one pursues a dream is the minute that money wins. I was going to become a dentist so that I could help those in need, no matter the cost. Even now, I look at my loans and realize that 100% of my income goes towards paying for my education over the next ten years. Essentially, I will be working for free until I am in my mid to late thirties. However, I simply attribute that as a medical professional’s responsibility, to sacrifice a bit of our lives for others. Don’t get me wrong. The high cost of education still irks me, and I still question the value of the money that goes into the schooling in terms of what you get out of it, but I understand that this is just part of the process of becoming who I am in this particular educational system.

If anything, I have my loans to thank for creating such a meaningful and intentional life. I can’t say for certain that I would have ever created such a disconnect from material goods and money, or a heavier importance towards gratitude, giving, and general non-maleficence if it didn’t come from a necessity to live with less. The loans have forced me to live without the trivial things, thereby adding value in the form of the priceless. This is why the loans are so much a part of who I am, and why I am willing to identify myself as a Debtist. In the interview, I realized that the loans were misunderstood as something that is all-bad, but they are not. Instead, I am using them as my driving force for good.

I would like to thank my mom for being the inspiration that pushed me through with my decision to pursue dentistry. Even though I may not be financially free, I am grateful to have had the freedom to become whoever I wanted to be, with the understanding that being able to pursue the thought of financial freedom is a privilege in and of itself.

Finances: Why We Are Refinancing and Leaving IBR Behind, For Good!

Before we head off to Portland, OR, we wanted to share with you guys some very exciting news! We are finally pulling the plug on student loan forgiveness, completely! We are in the process of refinancing our student loans, and leaving IBR behind, for good!

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Why haven’t we refinanced sooner, you ask? Well, there is a clause in the student loan forgiveness program IBR that states that once we refinance our loans, we will no longer be eligible for the student loan forgiveness program in the future. Meaning, if something happened, like one of us lost our jobs, we would still need to continue to make the $6,500/month payment from now until forever (or at least until we are free from the loans). If we stuck with IBR and one of us lost our jobs, we could revert back to paying the minimum payment under IBR (which is calculated as a small percentage of your income), until we could dig ourselves out of the rut. You can see why refinancing can be a tricky thing. A life event that changes our financial situation could immediately cause us to get in trouble with the IRS if we cannot maintain that $6,500/month payment. In other words, we were giant wussy pants and scared of what could happen. We were not quite ready to leave the safety of IBR when we decided to pay down our loans a year ago.

However, under the IBR program, my student loan with Great Lakes is charged an interest of a whopping 6.7%! By refinancing, we could lower that down to about 5.5%. It doesn’t seem like much, but on a loan this huge, it makes a big difference. To give readers an idea, for a 10 year refinance at 5.5%, our monthly payment would decrease from $6,500 to $5,300! Or, put another way, if we continued the course of paying $6,500/month, then we will be done with our loans in 7.5 years! I don’t know about you, but both perspectives are extremely exciting and extremely enticing.

I have spoken about us paying down $84,000 towards my student debt of $550k+ in the past year. Initially, we didn’t know at the start of our journey whether we would be able to make the large monthly payments. We wanted to try it out, but were afraid that we would not be able to support the lifestyle we want and still have enough for the loan amount. What we found was that we were able to alter our lifestyle in order to make our payments, and our lives have much improved from it. After one year, we are extremely confident that this is the path we want to take, and that we can do this! We are no longer afraid of the what-ifs and are ready to take a leap of faith (in ourselves) and just turn our backs on student loan forgiveness for good!

So what happens if some life event occurs that dramatically impacts our finances? We haven’t forgotten about the possibility of one of us losing a job, or a natural disaster happening, or a family emergency occurring, although cross our fingers, legs, toes and arms that none of these ever come to fruition. But we HAVE thought through a series of possibilities that could help us in such scenarios.

  1. Have an emergency fund. Over the past year, we have built up an emergency fund that could support us for 2.5 months if one of us loses a job, or for a little under 2 months if both of us lost our jobs. We will continue to add to this emergency fund and over time, it should be a very big safety net for us (or it could help us pay down loans faster towards the end!)
  2. Make use of the lower monthly payments. There are TWO ways we could make use of the lower monthly payments. The first is to pay the $5,300 per month minimum payment, and stash the difference ($1,200) in the emergency fund every month. Although a viable plan, that isn’t the path we are going to take. The other is to continue paying $6,500 a month since we can support that payment, and plan to be done in over 7 years. Because we would be paying extra $$ a month, we would be paid ahead. Meaning, if something were to happen, we would have accounted for future payments already, and would likely have a buffer of time before we are back to our originally determined schedule.
  3. Rely on the loan’s forbearance policy. Loan companies want to get paid. If someone really cannot make payments, then the loan’s forbearance policy will temporarily allow non-payment for a set number of months. The interest will still accrue, but it is a back-up!

Luckily for us, our jobs are very flexible and we don’t really see ourselves without work for long periods of time, but you never know what the future may hold, and sometimes life gets out of control. So, yes, it IS still wildly scary for us to be doing this! Too risky for some. But I believe in our abilities and focus and determination. And we want to inspire other people to feel like they could be freed too.

How about you? Feel like this is too crazy a venture, or would you be willing to try too?

The Value of Having a Certified Financial Planner (CFP)

This post may contain affiliate links. Please see my disclosure to learn more.

Today, I wanted to pose the question, “Is having a CFP right for you?” When I first graduated from dental school, I was absolutely lost. Along with the feelings of excitement and pride with my recent accomplishments came a subtle (but over-powering) dread, and a very heavy, invisible weight. I knew I needed guidance, but did not know who to reach out to. I did not exactly have adults in my life who could act as good financial role models (my long historical relationship with money detailed here), and there are very few people I know (outside of my fellow graduates) who really had the problem of paying down half a million dollars in student debt at 26 years old. So I reached out to Andrew Davis, the CFP behind SeamlessFP, who happened to be the husband of a dental classmate, and whose work focused on guiding newly-graduated dental students, specifically. I think it was the best decision we ever made.

On the flip side, there are people who would argue that CFPs are a waste of money, and that money could be used elsewhere. Which is a fair argument. I myself am a big fan of avoiding outsourcing tasks as much as possible. It will take a bit of work, but handling your own finances is totally a doable thing! However, it requires time, which I have value over money. Delving into research isn’t such a scary thought for me, but spending all my free time learning the nuances of taxes, S corporations, estate planning, investments, and more is NOT an enticing thought. So what I want to discuss today is the value of having a CFP to us, and then I leave the decisions to you.

The value of having a CFP

The list of pros for having a CFP versus not having one is quite long, which is a good thing!

  • Pro: Outsource financial planning to free up time, in order to pursue interests, hobbies, work, etc.

As mentioned before, outsourcing financial planning frees up a lot of our time. Time is a resource scarcer than money in the modern world. People seem to always be running out of it, but are still quick to occupy it with tasks, necessary or otherwise. When you think about how much your time is worth, in dollars, can you really put a price to it? Time is the one thing you are constantly running out of, and will never be able to replenish, making it an extremely valuable resource. Being intentional with the tasks I choose to occupy my time is very important to me. Spiritual uplifting, emotional replenishing, mental healing, these are the things that matter and make it a life worth living. NOT constantly worrying, thinking, and dealing with money.

  • Pro: Peace of mind that we are hitting our financial goals in a very step-by-step (and legal) manner.

This is for the DIYers out there. I am a lover of DIY projects and take pride in my ability to be self-sufficient. However, no matter how much of my free time I put into studying the nuances of finances, I cannot possibly keep up to date with the ever-changing rules and regulations. Mike used to do his own taxes with TurboTax and that worked sufficiently well, but once we got married, added in an S-Corporation with its own separate payrolls, well things got too complicated. We started asking ourselves, “How do we know we are following all the rules? How do we know about the fine-print clauses that benefit us? Who will be flagging our attention with every change?” A financial planner gives us peace of mind, knowing that we are on track to hit our goals in a efficient (and legal) manner. There are many minute details that one could miss, but it makes us feel better knowing that we have someone else helping us with that.

  • Pro: Keep up to date with new changes.

The new Tax Bill that passed last year is a great example of this. Even now, nothing is quite set in stone as to how these changes will apply to us. By having a financial planner, we were alerted to the possible beneficial change for S Corporations in the upcoming year, something we would never have known, but definitely can impact our financial plan.

  • Pro: A resource for learning more.

This, by far, is the most beneficial to me. Andrew has been instrumental in educating us about our finances and different paths we can take to achieve financial freedom. He has recommended books, blogs, podcasts, and other resources. He was actually the one who introduced us to the FI community: a community dedicated to reaching financial independence by using life optimization “hacks”. We would not have gone so far on our financial road to freedom without life hacks such as co-housing, travel hacking, YNAB, and more!

Financial planning VS Investment Planning – What’s the difference?

It is important to differentiate between financial planning and investment planning. We do financial planning, which requires a long-term life plan, created by the marriage between our financial past and our dream futures. Our first meeting with Andrew was not something we expected to have. It began with a meeting dedicated wholly to gaining a deep understanding of our personalities, goals, and dreams. It almost felt like a therapy session, with questions such as, “If you knew you were going to die tomorrow, what would you spend your time doing today?” Don’t let that deter you. I think that first meeting was essential to setting the foundation on which we created our entire plan. The process continues to be a constant reassessment of life. Initially, we listed our priorities as traveling, buying a house, yoga subscriptions, guitar lessons, sticking with loan repayment program, and working until we were 65 years old. Now our life still includes travel, but our goals have shifted to standard repayment, renting for the next few years, working less hours, being a blogger, opening a coffee shop, and early retirement from our lines of work, which would possibly lead us to newer lines of work. In this respect, Andrew acts as more than just a financial planner. He is a psychologist, therapist, educator, mediator between spouses, confidant, & friend. This is NOT to be confused with investment planning, where someone advises you where to invest your money. That is included with financial planning, but not the other way around.

The importance of being a fiduciary

A fiduciary requires that someone acts in the best interests of a client. It is important that your CFP is a fiduciary in all aspects. Conflicts arise when CFPs have affiliations with third parties that may sway their advice towards promoting something that benefits them. For example, a person can receive a profit for selling an affiliate insurance. The insurance may be great, however, that person has a motivating factor that would make him want to promote that particular insurance. Even though it can be beneficial for you to sign up with that insurance company, the decision was not completely unbiased. We did not even realize the importance of being a fiduciary until we learned the concept from Andrew himself. 

If you are not sure whether your CFP is a fiduciary, ask! Try to find a fiduciary in all aspects. You want to ensure that you are being treated fairly at all times. Do not be afraid to ask how they get compensated, so that you can truly see where they are getting their money. It may seem awkward to inquire about it, but it is your finances on the line.

What a CFP has done for us, so far

  • Budgeting Help: Our CFP introduced us to budgeting, setting up our YNAB budgeting tool, and helped us develop good budgeting habits. 
  • Analysis between two potential jobs: When Mike was considering making the move from one company to another, we needed help analyzing whether it was a reasonable financial move. It was not simply a comparison between the two different income, but also required factoring in 401k investment matching, health benefit options, life insurances, difference in commute, and level of interest in the line of work.
  • Investment Planning: He has given us advice on how to manage our 401k portfolios as well as given us other investment tips when we reach out for help. We retain full autonomy as to where we want to invest and how much, but having a third person to go over the pros and cons at each step has been helpful. 
  • Health Benefits: We needed help deciding on a health plan, and have chosen one that works well for us thanks to Andrew’s help. After an analysis of our options, an HSA option was also open to us, and we decided to take advantage of that privilege.
  • Renter’s Insurance: Prior to our new place, we did not have renter’s insurance. After seeing the benefits of having that extra coverage at a small monthly cost, we decided to sign up for one right away!
  • Connection to a CPA: Taxes for SCorps can be a bit tricky. A CPA is advised so as not to miss a thing. Initially, I was going to go with the same person my parents have used for years. But after an hour-long interview with him, it became clear to me that he did not know much about taxes as they applied to dentists specifically. He did not even know about the different student loan forgiveness programs, or how an SCorp can be used for tax deductions. It was useful to be referred to a CPA who frequently does taxes for dentists specifically.
  • Set up my SCORP: This was so beneficial to me! It is possible to create a corporation easily online, however, he walked me through the pros and cons of having an SCORP so that I could make an informed decision as to whether this is something I wanted to do. The application for the SCORP was easy but we did meet some humps along the way that he quickly helped me to resolve. 
  • Setting up Gusto and ways to automate my SCORP: Once the SCORP was set up, our CFP took care of creating an automated payroll for me. We use Gusto to manage my payroll, and once it was set up, he easily walked me through the different ways that we can keep track of the payroll via my SCORP. All I have to do is wait for my payments, the system takes care of the rest!
  • Introduction to financial life hacks: I learned tricks such as travel hacking from Andrew and it was he who introduced us to the FIRE and FI communities.
  • Analysis of student loan repayment options: This is the part about our finances that has most affected our lifestyle. He walked us through the different student loan forgiveness programs that we qualified for. After a thorough explanation of each, he created an extrapolation of our financial futures under each repayment option. By using physical numbers, we were able to predict the lifestyle changes associated with each student loan option. Once we had our budgeting in order, he brought to our attention that we were able to pay down student loans without the forgiveness program, thus saving us more than $100,000 in the long run, as well as buying our freedom 15 years earlier than planned. That decision itself was so life-altering for the better, and we would have never gotten to that point on our own. 

We personally benefit from SeamlessFP

Andrew Davis is the CFP behind SeamlessFP. He focuses on helping newly graduated dentists create a financial plan. He does work with non-dentists occasionally, or dentists who have been practicing for a long time. I only know this because we have referred people in those categories who now are working with him too.

There are multiple options one can choose when working with SeamlessFP. A person can do a one-time consultation in order to gain help on a particular goal or project, or they can choose the full life-planning package. We chose to do the latter option. I did not want help with simply setting up an SCORP. I wanted a more thorough analysis of all of our financial details. I was determined to tackle as many aspects as possible to optimize our financial situation. After every meeting, he will upload a list of tasks via an online portal to be completed. This is helpful for people who need someone to hold them accountable to ensure that they continue moving forward with their financial path. Together, we re-analyze continually to see what we can change to optimize even further. A yearly re-cap meeting is held as well, where we go over our dreams and goals for the future (5, 10, 25 years out) so that we aren’t dully following a pre-set path. Besides, a lot changes in a year!

What I like most is that he is eager to help clients learn more about their financial options and situations. It is clear that having his clients make their own decisions (given the facts) is important to him. I can ask him one question, and we will go over the entire topic in detail, prior to him answering my question just so that I know the reasoning behind his answer. It’s scarce to find that these days, and I wholly appreciate it.He may give suggestions but he really makes sure you know that ultimately, the choices are still completely yours to make. It’s easy to see that his goal is to help his clients find the happiness they seek, by eliminating financial stress from the equation. It also helps that he is very accessible via email or text. Typically, responses occur within one day. Additionally, if you choose the latter option, there is unlimited access. Anyone who knows me will easily tell you that I am the type to ask multiple questions, always in search of a deeper understanding of all things. So a CFP who embraces that is gold. Off course, you want to make sure that the CFP you choose is right for you, if it’s right at all. If you have any interest in learning more about our friend Andrew, you can easily set up a one-hour phone call to speak with him and see what services he can offer you and which package is best for what you are trying to achieve.

Overall, I just wanted to shed light on how a CFP has changed our life in this blog post. As always, you do you.

 

Finances: How YNAB Helped Us Pay $84,000 Towards Student Loans in One Year!

This post may contain affiliate links. Please see my disclosure to learn more.

Looking back on it, it seems absolutely nuts that we have been able to pay $84,000 towards our student loans in the last year. Prior to getting our finances in order, you could say that I was not one who was highly motivated in monitoring my spending. Or rather, I may have been highly motivated, but not entirely good at it. Honestly, I did not know where to start.

I was never afraid of budgets. Some people are. They are afraid that it would be too limiting, or depriving, to set financial constraints on their having fun in life. I get it. YOLO, right? But honestly, that’s just the rub. YOLO. You only get one life, and I don’t want mine consistently anchored down by debt. I want to be free. So it was not the budgeting that scared me, but the lack thereof. In fact, I was always in search of ways to budget. However, I had no idea how to do it efficiently.

We used to implement that all-too-familiar way of assessing our spending by guessing, eye-balling, rounding up and down (depending on our mood), or sometimes, ignoring all-together. Additionally, much of our analysis was performed retroactively. As in, “Oops, I spent too much on groceries last month! Roughly $100 too much.” The estimates, off course, were always too low, and the recognition harbored a bit too late, after the spending was already a done deal. Yikes!

Enter YNAB. YNAB is kind of like that high-school teacher that slaps your wrist and sets a vagabond teen straight. The acronym stands for “You Need a Budget“, and is better than an angel on your shoulder keeping your finances in check. It is a very easy system that is based on the age-old envelope system of budgeting. It used to be that, without computers and programs such as YNAB, people would use envelopes to budget their money. Each envelope would stand for a category. For example: “Groceries”, “Rent”, House Maintenance”, “Savings”, etc. With each incoming paycheck, a person would split the cash in between envelopes, allocating a certain amount towards those categories for the upcoming month(s). One can never accidentally overdraw from an envelope, because once the money runs out, that’s it! In order to overspend in a category such as “Dining Out” for example, one would need to proactively choose to take out money from another envelope, thus consciously deciding to decrease spending elsewhere.

With the invention of things such as credit cards, this becomes an obsolete practice, but I think it is one that is very useful. Instead of retroactively analyzing our spending, we should be proactively planning for our financial futures. In YNAB, you can create categories of your choosing that would be equivalent to those envelopes. You can be as precise or as general as you would like. We prefer to be more general, because it makes categorizing easier. Our categories are separated into “Needs”, “Financial Goals”, and “Wants”. A few examples include:

Needs – Rent, Auto Insurance, Utilities, Cell Phone, Groceries

Financial Goals – Student Loans, House Savings

Wants – Activities/Hobbies, Travel, Mike’s Fun Money, Sam’s Fun Money, Dining Out

So as paychecks roll in, we are proactively placing budgeted money into each category. Every dollar we earn is accounted for, down to the last penny. The goal is to budget appropriately, so that none of the categories need adjusting during the month. Metaphorically, you don’t want to borrow from any of the other envelopes. It did take us a while to get a feel for how much we spend in each category, but that’s the fantastic thing about YNAB. It summarizes previous spending in the months prior really well. Over time, we were able to know exactly what number we would need to budget in each category to be absolutely prepared.

A word on those summaries. This is a wonderful way to get a picture of how much of your spending is going towards your “Needs”, your “Wants”, and your “Financial Goals”. For us, because of our student loans, 50% of our income goes straight towards hitting our “financial goals”. We try to keep “wants” to a low 10% of our income, travel included, which is why travel hacking is so important for us. Also, there are graphs to show you how much your net worth is rising, as well as comparisons of “Income VS Expenses”, if those are motivating at all for you.

All of this can technically be done on an Excel sheet, but it would take a lot of time and effort. What I love about YNAB is that it can link to your bank accounts and automatically record every transaction, whether that’s money going in or money coming out. The only thing left to do is to categorize each transaction. Also, YNAB will remember which transactions fall under which category. For example, we frequently shop at Mother’s Market and Whole Foods for our groceries. I no longer have to categorize those things, since YNAB will automatically do that for me, thus making my job easier.

Off course, YNAB comes with a fee, which luckily for us, is waived by our financial planner. The cost to use YNAB is $89.99 annually, which seems like a lot, but when I look at the number we paid towards student debt ($84,000), I don’t feel bad at all! I think that fee is totally justified, plus it makes the whole budgeting process easier and much more motivating than if I had to go through all of our bank accounts and credit cards and physically input each and every transaction, create analytical comparisons and graphs and pie charts, and let our financial situation take up all of my free time.

If you are someone who wants to know where their money is going, wants to plan for the future, or is already doing both but wants a simpler process, try out YNAB. I hear too frequently the saying, “I don’t know where my money goes!” It’d be nice if we never have to say that ever again. Plus, once you know where it goes, you have the power to redirect it, kind of like we have!

Finances: Using “Extra” Loan Money on Vacation Was a Financial Mistake

Right on the heels of my previous post is a suggestion for all current college students to avoid taking out the maximum student loans in order to travel the world. Lest anyone got the wrong idea, I think a follow up is necessary to shed light on the fact that I used borrowed money to pay for my portion of that trip to the Bahamas. More blatantly, I made a mistake, and learned from it, albeit a little too late.

By no means do I regret travelling, ever. There’s a lot to glean from expanding horizons and investing in your world view. You learn things about other people and other places, as much as your own home and yourself, that you will never learn in a classroom. And I paid an arm and a leg for a classroom. So it’s worth paying to travel. But it’s NOT worth spending borrowed money, which equates to borrowed time.

In your early twenties, it seems like a wonderful idea and the repercussions are not so easily visible. For the first time, you have the ability to have access to “extra” money, and the calling to reward yourself during seasonal breaks is all too strong to resist, but resist you must.

I was advised to take out my maximum student loans from the get go. You know, just in case. As in, just in case I find something else to spend that money on. Which, for a young twenty-something, isn’t entirely too difficult to do. I was told that once I was a dentist, I would have no problem paying it back. The premise was that I would be making so much money that it would be easy to get rid of that debt quite quickly. So worry about it later. What appeared odd to me was that when I got close to graduating, I kept being fed this “worry about it later” mantra. I was told I could (and should) put loans on the back burner for another twenty five years under a loan forgiveness program. Because by then, I’d be like, a millionaire or something, and it’d be suuuper easy to pay it back, surely. Which is the same reasoning they fed me when I started dental school. It was then that I woke up, and realized that all people are saying are “worry about it later.” I started worrying about it NOW and when I did, I realized that I was sold a lie.

Unfortunately, the realization hit me a bit too late. Towards the end of dental school, I had accumulated “extra” money, read as extra loan money. We took that trip to the Bahamas, and I wanted to pay my share for the trip. You know, with my “extra” money. I’d call myself a downright fool for ever thinking that borrowed money is money worth spending. Especially on frivolities such as trips. As a young twenty-something, I still did not have a full grip on the daunting largeness of my student loans. What difference does a few extra thousand make? Well, glad you asked (because I surely did not)!

Warning: The example below is not as hypothetical as it seems. 

Assuming you take a $550,000 loan out, but towards the end of your schooling, you had an extra $5,000 left. You decide to take an international trip and reward yourself for all your hard work. So instead of using that extra $5000 to decrease your loan to $545,000, you keep your loan at the maximum $550,000. If you decide to do a 10 year standard repayment plan such as I did, the difference after ten years is about $7,000. Which means that instead of a $5,000 trip, it was actually a $7,000 trip. That’s a 40% increase from what you thought the trip originally cost, assuming no inflation occurs in ten years (unlikely).

For those unconvinced, they ask, what does a difference of $7,000 make in a loan so large? The literal answer is slightly over a month of loan repayment. But the non-visible answer is hundreds of patients, hours of static postures, tens of times recharging your loupe lights, and more than a few times that your back aches, your eyes become strained, your fingers cramp, and you come across a stressful situation. It’s a month of your life spent earning an income and getting nothing out of it. Well, except a trip that you took in your twenties. So the real question is, how much do you value a month of your life?

The answer depends on what camp you fall under: YOLO or JOMO. If you fall under YOLO, then yes, maybe the trade off isn’t so bad. If you fall under JOMO, then the outcome isn’t so good. For the record, I did not regret that trip. I just regret the resources I used to get there. But hey, at least it wasn’t an engagement ring!

For those interested in traveling while in school, might you try travel hacking instead?