Property Ownership: How to Detect and Avoid Fake Sellers

What is a fake seller and why would anyone want to knowingly waste time and money on something so lame? It may seem like a bogus idea, but fake sellers are out there. Trust us, we know. From our short-lived personal experience to boot! I feel a story unraveling…

From the onset, we knew what we wanted. We have been mulling the thought of buying a property for a year and a half, and we had extensively narrowed down the price range, location, and types of homes we would be willing to consider. Additionally, we had been spying on the market over the course of the last few years. For every home type that we were considering, I knew the neighborhoods in which they were located, the price ranges, and the typical pros and cons of the properties. I knew which agents were specialized in selling those particular places as well. So the time came when we were ready to make a leap of faith, I reached out to an agent who specialized in lofts in Orange County, CA.

Originally, we were very specific in which lofts we wanted. We wanted a loft in our current and exact neighborhood. We specifically wanted one that faced the market and commercial area, rather than one that faced Main Street or Memory Lane, which limited our search to less than twenty particular properties. We requested that she reach out to any owners to see if they would be willing to sell their loft.

She returned to us on the same day saying that there IS one owner who is interested in selling. He isn’t listed on the market, and is willing to do it without opening the deal up to other buyers And by that night, we were looking at the property.

That’s where the good parts of this story ended.

The owner had an asking price that was $50,000 more than the average value of the property. He claimed that there were upgrades to the loft, which was very true. We looked at the property and we agreed there were updates. We pulled up a comp report and analyzed the selling price of neighboring lofts in the last 6 months. They were usually selling for $575-$590k and the seller was asking for $650k. We accounted for the upgrades he had made to the home and the slightly larger square footage, and the comp report analysis returned at a value of $612-$617k. Since we really wanted the space, we offered $620k, trying to work with the seller.

Unfortunately, when the counter-offer returned, we knew this was not going to be the home. He returned with a counter offer of $645k AND we had to pay for all of HIS closing costs. He was using the downstairs space of the loft for a digital business and did not physically need to be here in California. Since he does not live in this state, he viewed the selling of the house as an inconvenience and is not willing to put any effort in the selling of his house. When we confronted his agent about the ludicrous price, he simply shrugged his shoulders. He knew that the loft would be appraised at a lower rate than $650k and that the difference will have to be covered by the buyer in cash. The seller’s agent informed us that this entire thing is an inconvenience to the Seller, to which we replied, “Then why bother say he wants to sell?” And like that, we dropped them like a handful of hot coals.

How to Spot Fake Sellers

So here’s the rub. Fake sellers can easily seem like real sellers. They do all the things a real seller would, such as put the house on the market, place FOR RENT signs on the lawn, have an agent and host open viewings. However, whether knowingly or unknowingly, they waste their time and money doing all of this because they are not really READY to sell. If you don’t know how to detect fake sellers, then you cannot avoid them. And if you don’t avoid them, then you may waste precious time and money to fruitlessly negotiate buying a house that isn’t really for sale.

  • Are the sellers realistic? The number one reason that people cannot sell their homes is because of a grossly high asking price. When you hear that an owner is having difficulty selling their home at such a high price, beware! As with the case of our first loft offer, what it actually means is that the seller is refusing to accept the market’s opinion of what their house is worth. They may have an alternative motive, such as making up for the costs they’ve spent to upgrade their place. Or just to try to get more money from a buyer who knows nothing about the current market. This, by the way, is different from real sellers who mistakenly place too high of an asking price. Real sellers will wise up over time. Fake sellers will not. My advice is to move on.
  • Are the sellers motivated? Getting a seller who is motivated is important. Most sellers are motivated by a life change, such as a job transfer, a recent marriage or divorce, retirement, etc. Having a REALLY motivated seller makes it better for the buyer, because they will have a better chance at negotiation. Our fake seller was obviously not motivated at all, which made it easy for him to be uncompromising. Lack of motivation is a giant red flag. Run the opposite way, especially if you hear them say “they are just testing the market”.
  • Do sellers have a time frame? Deadlines make things happen. If the seller has no deadline, then he is in no rush to meet deadlines. It’s easy for fake sellers to start an escrow process and decide to not meet deadlines and kill the deal. Only because there is no urgency to sell the home.
  • Are the sellers forthright? Genuine sellers are open about the condition of the home and the legal status. Why? Because they are aware that withholding vital information can ruin the sale. Early disclosures of possible problems help indicate whether you’ve got a real seller on your hands.
  • Are the sellers cooperative? Real sellers want to sell their homes. They will look for ways to make the transactions go more smoothly. Inconsistent behavior is another red flag. If seller’s become uncooperative or start missing their deadlines, they may have lost the motivation to sell. When you start to see these signs, ask why they are happening. Otherwise, you may be in for a surprise if the deal ends up blowing up in your face.

My best advice is to do the same as we did. If you find yourself dealing with an unrealistic, unmotivated, and uncooperative seller, it’s time to walk away. Find something else. Maybe that seller will wise up, but then again, maybe not. You don’t want to waste your time and energy trying to coax reason into a seller like that.

Plus, you may find that it ends up being a blessing in disguise and you find a property that checks off even more boxes! Like we did!

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 whether 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 want 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. 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 co-housing 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 of dollars, 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

  • Simplicity. 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.
  • No upkeep. When you have a rental property, your landlord will be responsible for property maintenance and upkeep!
  • You have flexibility! 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 we 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!

Frugal Challenge: Get Rid of as Many Subscriptions as Possible + Exciting News!

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

Subscriptions are the bane of my frugal existence. Monthly recurring fees for a product is a consistent way to continue throwing money out the door. I dislike them so much because you aren’t just spending money once or twice, but rather, multiple times at a set rate. It’s like signing up for a definite way to lose more money. As you can probably tell, I stray away from subscriptions if I can.

When we were first organizing our budget, we saw that we were doing a lot of wasteful spending. We wanted to trim that down, and the easiest way to do that was to go through our monthly subscriptions and cut as much of them out as possible. We were already really good about not having subscriptions to things such as cable (we don’t even have a TV in our house!), but there were so many other things that we were not very good about (gym memberships, for example).

These days, there are so many monthly subscriptions one can sign up for. It makes sense why companies are creating more and more membership programs. It’s a way to reel consumers in and commit them to their product long term. It’s a way for companies to get your money without having to do any further selling. I would recommend you don’t get into that habit. It may be more convenient, but it’s also dangerous because the recurring payments are pulled silently. Therefore, a once-conscious decision to buy a product becomes increasingly unconscious. When you are unconscious about where you’re money goes, then you have no control. Getting rid of subscriptions is a way to get better control over your finances.

Related Posts

A List of Subscriptions You May Want to Cancel

There are many monthly subscriptions that you can consider getting rid of in the name of saving money. I know some of these may seem impossible to let go, but I challenge you to flex those frugal muscles!

  • Cable
  • Internet
  • Spotify or Other Music subscriptions
  • Netflix or HBO
  • Costco Membership (also, Sam’s Club and others)
  • Magazine Subscriptions such as Texture
  • Make up Subscriptions such as Itsy
  • Grooming Subscription Boxes such as Dollar Shave Club
  • Clothing Subscriptions such as Stitch Fix
  • Meal Prep Deliveries such as Blue Apron or Freshly
  • Amazon Prime
  • Gym Subscriptions/Memberships
  • Movie Passes
  • Kindle Unlimited
  • Barkbox or other pet subscriptions
  • Wine Club
  • Coffee Subscriptions such as Beanbox
  • Disneyland Passes or other theme park passes
  • Music lessons, Pottery Classes, and other hobbies

Which Subscriptions We Currently Keep

While I would love to say that we have gotten rid of all of those things, we are also human and we have kept a few subscriptions for ourselves. Below is a list of monthly recurring payments we currently keep:

  • Seamless FP – This monthly fee is a fee for our financial planner. I have spoken extensively about his value and the amount we receive from having him versus not having him is huge. I still, to this day, attribute the fact that we have paid $97,000 towards my student loans to him (see wonderful news below!). If we never had his help, I don’t think this blog would even exist, nor do I think that we would be as frugally weird as we are now. Thanks Andrew!
  • Yearly fee for blog – It earns me some income as a side hustle and is something I use every day. The income from the blog offsets the yearly fee for all blog expenses, which include WordPress, PicMonkey, and ConvertKit.
  • Internet – I have actually suggested to my husband that we nix our internet, you know, as a social experiment. I have even created a plan to write blog posts on Word and email them to myself and upload via my cell phone which already has a plan under my parent’s family plan. But as a frequent video-gamer and constant reddit user, he values the internet way too much. So we have kept the internet. That I understand, because I can see the value in it.

The True Cost of Subscriptions

Right now, you’re probably thinking to yourself, what’s $10 a month? That’s $120 a year! Let’s take the example of the Movie Pass which is $9.95 a month. The movie pass gets you unlimited movie screening for that month, up to one free movie a day. Did I watch $120 worth of movies in one year? No! The reason? Because not having a pass does not push us to want to see movies. Sure, it’s considered a “value deal“, if you use your movie pass everyday to see a different movie. But, if you did not have that deal, would you spend $120 at the movies? Do you really like movies that much? We spent $20 in the last year at the movie theatres. Plus, you have to calculate your time too. A movie is 2-3 hours long. If you spend 2-3 hours everyday watching a movie so that you can get the most “value” out of this deal, then I suggest you also enter into your calculation the value of your time. What is your hourly work rate? What is your worth? Multiply that by the number of hours you were sitting in the theatres. Can you use that time to work more in order to get an even better value? The answer is probably yes. Personally, I have priorities higher than watching movies. Such as financial freedom. Would you rather watch movies everyday and work until your sixty five? Not me. Like I said, I don’t like movies that much.

The Impact of Getting Rid of Our Subscriptions

Getting rid of as many subscriptions as possible really got us closer towards our goal of paying down loans. It was a practice that significantly trimmed down our monthly budget. What we found was that the subscriptions are what kept us coming back for more. Once we got rid of them, the products were hardly missed. We only took what we needed, which ended up saving us money. 

Plus, have you ever signed up for a subscription “just to try it”. Maybe you were offered a really good initial deal. Your intention may have been to cancel it before it renews. But life gets in the way and makes you forget. Or it adds stress, trying to keep track of which subscription ends when, and trying to time your cancellations appropriately. I know I’ve been there, balancing getting the most out of the subscription and avoiding another month of the same stuff. I elected for a simpler life, devoid of all that stress. I wouldn’t trade it for what used to be.

The Good News

We are out of the $500,000’s and are in the $400,000s! We started with $574,034.50 worth of student debt. I am so happy to say that as of the beginning of July, we have escaped the $500,000s and entered the $400,000s! This isn’t to say that we owe it all to subscription cancellations. But subscription cancellations are a good place to start. Why? Because it forces you to flex your frugal muscles. Getting rid of things that you have been repeatedly dependent on is not an easy task. Some part of you is going to want to go back to the gym, believing that free exercises at home are not enough. I admit, unless you have the equipment at home, it’s not going to give you the Arnold Schwarzenegger body that someone may have sold to you as ideal. But it’s enough to keep you healthy and fit. Off course, everyone has their own set of “needs”. I simply recommend evaluating those needs, and assessing them for their true value. How do those “needs” get you closer to becoming the person you wish to be, or living the life that you wish to live?

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!

Finance: Why I Consider the Loan Forgiveness Program as a Risky Chance

When you graduate with a loan as large as I have ($550,000 in debt!), it is easy to view student loan forgiveness programs as the superheroes of our lives. There are many different loan forgiveness options that you must choose from, but once you’ve chosen one, you are given the choice of paying a sliver of your income every month, with the promise that at the end of your program, the remaining (accruing) balance will be wiped forever from your life! It’s an ultimate quick fix to a problematic giant standing in the way of your financial independence. The small monthly payments are on autopay and the looming terror is out of sight, out of mind, for the next twenty or twenty five years. So why the skepticism?

Twenty five years is an extremely long time. I know, because I have barely passed my twenty five year mark. I also know that because after I add on twenty five years, I’d be over fifty. To be honest with you, I don’t want to keep this lifestyle up until I’m fifty. A lot can happen in twenty five years. The immediate assumption is that no matter what happens in the future, we will be grand-fathered in this loan forgiveness program.  But although it’s an immediate assumption, it doesn’t mean it’s logical or true. Because nowhere in the fine print does it say that. But our brains are wired to make up stuff that will put us at ease. And so, some like to reason that this must be true, and I know I can’t convince them otherwise. Because, what do I know?

Well, here is what I know.

  • I know that there are people out there who chose a ten year loan forgiveness program. Only to be told after their ten years that they do not or no longer qualify. Some haughty know-it-all will likely say, “Well, that’s THEIR fault for not knowing their own program!” But as we all know, they don’t make programs easy to know. The fine print just keeps getting smaller AND longer.
  • I know that my sister took a five year contract with a charter school in a city far away from her family and friends with the promise of getting $40,000 forgiven from her student debt after the five years. However, you cannot apply for the forgiveness until you’ve completed all five years. Last year, the amount forgiven changed. It went down to $17,000. Still a good amount, but not the promised $40,000. Her five years ends in June. So in June, she would have given up five years of her life living in this far away city to only get back less than half of what she thought she was going to get back. Which is depressing to think about, since she turned down multiple amazing opportunities with higher pay for this program.
  • I know that in the ONE year that I have been out of dental school, there has already been talk of the loan forgiveness program being extended to THIRTY years. An additional five years of minimum payments, a continually accruing debt, and a higher percentage of your loan that you have to pay in taxes at the end of it all. More, more, more.

Therefore, you are right in saying that I just don’t know. I don’t know the future one year from now, so I sure as heck don’t know the future twenty five years from now. I don’t know who will be in the government, who will be controlling our laws, how the program will change, if the program will still apply to me, and if the program will even exist. And with a loan this large, I will not leave this up to chance.

What I do know is that I CAN tackle this giant, so I WILL. I will not let him rule over me, stop me in my path, instill any fears or doubts.

Will you tackle him, too?

 

Finance: The First Year of Paying Down $550,000 in Student Loans, An Update

Hi guys! So it has been about a year since our search for a future home turned into a commitment to pay down my massive student debt instead. I figured I would give you an update as to what paying down $550,000 at 6.7% interest looks like.

We arrived at our decision to tackle the loans aggressively in April of 2017 (our decision tree, here). The most important thing to note with a loan this large is that committing to it means REALLY committing to it. It wouldn’t be advantageous to choose to pay down the debt, and then fall back to IBR midway. From a numbers perspective, you would just lose unnecessary money that way. If you choose the loan forgiveness route, then the goal is to pay AS LITTLE MONTHLY PAYMENTS AS POSSIBLE, so that a huge chunk gets written off. If you choose the standard repayment option, then the goal is to pay AS MUCH MONEY AS SOON AS POSSIBLE. So, with a steely grip on the reality that we did not want the debt to dictate and shape our lives for twenty five years, we went head first.

Here are the numbers.

To be completely honest with you, $550,000 is a ballpark estimate. The real number is a principle amount of $538,933.50 and an accrued interest of $35,101. Meaning the total was actually $574,034.50. YIKES!

So what did we do? We decided that we will essentially live off of one income, and use the other income towards loans. We figure, out parents raised us on a single person’s income, so this can’t be that difficult especially since we don’t even have kids yet. The verdict: We were right! It was surprisingly easy. Which makes me wonder, where were we spending all that money before hand?! I don’t even want to know….

With that being said, we have been successful at making our minimum payments of $6500 per month! YAY! We were even able to add a little extra every so often due to diligent saving habits (See The Ever Growing List of Things I’ve Given Up In The Name of Frugality!). But that does not take us as far on the path of financial freedom as we would like. It took us a few months to completely pay off the interest that had accrued, but it must be remembered that the loan is at 6.7% interest. So that means that interest continues to accrue over all this time. So what does that look like? Well, once the accrued interest was paid off, approximately half of the $6,500 was going towards the interest accruing per month. Which means that the loan is only getting paid down at a rate of about $3,000 per month. And that, my friends, is how lovely interest works! Womp, womp.

So, $55,367.22 was paid towards interest. Only $28,632.78 went towards paying down the principle amount. When my husband first looked at the little pie chart graph that I had on the corner of my computer screen summarizing our progress, he said, “Well, THAT’s depressing!” For someone who is only looking at that, it CAN seem pretty depressing. However, I know better. This. Is. Amazing.

The accrued interest is already out of the way, which tells me that next year is going to look a LOT better. I can already see a higher proportion of the monthly payments being applied to our principle. It started out as slightly less than half of our payment being applied to the principle. However, as of early this year, slightly more than half is being applied to principle. I know it’s hard to look at this as any way other than a linear projection, but it really, truly is an exponential one, albeit with a slow start.

The amazing part is that we have survived our first year and our lives have actually been much improved. Choosing this journey has nudged us to be proactive with our life, not only with our financial decisions, but also with our lifestyle choices. We are experiencing less stress than when we felt helpless and unable to address the student loans. We are experiencing more happiness than when we were trying to buy our way to a meaningful life. I work less than I did last year, and love myself more. We are healthier and have better relationships. And it all started with us learning how to get our finances in order and in our efforts to remove money from our life equation.

I am very happy with this decision and I am excited to see what the next year of payments will bring.

PS: I am excited that we will hit the $400,000’s during me and Mike’s birthday months in June/July!

Also, for the curious, I have never, not once, felt regret in funneling extra money towards my student loans. I have felt buyer’s remorse. I’ve regretted going out to eat. I have regretted going to events that required spending money. I have regretted buying gifts that I know will end up in a landfill some day. But I have never regretted letting go of money in exchange for a little slice of freedom. I’m just saying.

Finance: Why We Chose Standard Repayment Over Loan Forgiveness

We started our loan repayment journey under the IBR program, as advised by so many professionals. But I always knew in my heart that this was not the best path for me. Apart from the fact that IBR resulted in more money paid towards my loans overall, there was the issue of it extending twenty five years into our distant future. I am one who values freedom above many other things. When I was young, I hated when people told me to do things that did not line up with my values. My most hated explanations were “Just because” or “Because I said so”. Talk about lack of motivation. I despised myself when I was forced to do something, because authoritative figures claimed to have the upper hand. I remember thinking to myself, when I get older, I will have control over my own life. Today, I have that same fire feeding a resolve in me to stay free, from things financial or otherwise. I want freedom to do certain types of work. I want freedom from a tight work schedule. I want autonomy in my decisions. I want the freedom to travel whenever I want to. I want to have free time. All of this also requires to be financially free. Having graduated dental school at 26 years old, the IBR program would mean that we would have this burden hanging over our heads until we were past 50 years old. Psychologically, the burden was too much to bear. It was the psychology of the thing that really pushed me towards frugality, financial independence, and hopefully in the near(er) future, freedom.

When I graduated dental school and I finally started working, Mike and I were facing numerous large payments related to moving in together, creating a home for ourselves, getting married, and going on a honeymoon. And while I would not take back any of the decisions we made, we weren’t exactly saving much at the time. The great part is, we weren’t going into debt either. Whereas some people may take out loans for things such as weddings and honeymoons and moving, we definitely stayed within our means and I am proud of that fact.

But once the dust settled and we found peace in our space and identified our roles in everyday life, we stopped having something to spend money on, and we started to see that we were not bad savers after all. In fact, we were saving at such a quick pace, that we would have saved up for a down payment for a house in two months’ time! We started to talk about buying a home for ourselves, when our financial planner asked us a simple question. Do you realize that at this rate, you can pay down your student debt the standard way in less than ten years?

At first, I was aghast. I had spent months trying to convince USC financial advisers, and Mike, and even my financial planner, that there had to be a way to do this. Mike deemed my conclusions as too optimistic, and slightly delusional. He always said, the numbers just don’t work. But in my head, they did work. The numbers don’t lie.

I then went on to bombard our CFP with a million questions. Excited, I could not wait to tell Mike when he got home that night. I remember being so stoked. Initially, he did not believe me. It wasn’t until our financial planner created a spreadsheet that demonstrated our capability to conquer the loan in 9 years, that Mike started to change his view. We were going to be free from these chains fifteen years earlier than we thought!

But with it comes a cost. We will have to give up buying a house, for now. We have to continue a fairly frugal lifestyle, and have concrete intentionality with our money. We have to be able to psychologically see a majority of our paycheck going towards paying down the loans every month. We have to give up the social status symbols that our friends will be collecting under their belts. In exchange, we will have fifteen additional years of freedom. What say you?

I say Hell Yeah! Mike and I are simple people anyway, as can be seen in the rate at which we were saving. We could rationalize not buying a house, not buying a new car, and not getting the latest gadgets. I could not rationalize being tied down by my career choice until I’m past fifty. We decided that yes, we will choose standard repayment over loan forgiveness!

One caveat. We are still enlisted under the IBR program. Why? Under the standard repayment plan, we have to make minimum payments of $6500/month to be able to pay the debt in 9 years. Under IBR, the payments are closer to $400/month. If one of us loses a job, $6500/month is impossible on only one of our incomes. Especially so if I was the one to lose a job. Switching a hundred percent to standard repayment will make us vulnerable to the whims of whatever life may throw at us. The failure of Mike’s start-up company, the selling of the practice I work at, if we decide to have children, disability for either one of us, these are all things that can greatly impact our finances and if we commit to a standard repayment, it can heavily mess with our ability to pay the loans. And trust me, you do not want to default on student loans. However, under IBR, we are able to pay more than the $400/month without penalty, so we stick with IBR in case of a future emergency, but continue to make the larger payments.

Unfortunately, this does not allow us to refinance our loans. Once the loans are refinanced, we become ineligible for IBR. So although the IBR interest rate is a whopping 6.7%, our financial planner convinced us that the IBR buffer for not-so-awesome life moments is well worth the extra interest rate. Once the loans get paid down to a more manageable sum, then we can refinance, since a smaller loan will be much more manageable.

So therein lies our decision tree, our little story.

Finance: Tackle Undergrad Loans During A Gap Year (ASAP)

There are a few financial decisions that I made in my early twenties that I am very proud of, and a few that I am not so proud of. For decisions that fall in the latter category, I sincerely wish that someone could just create a time machine so that I could send myself back to my younger self and shake some common sense into her. Or at least allow me to go back in time and have a one-on-one discussion (likely at a cafe somewhere) regarding my retrospectively realized financial mistakes, with the hopes of guiding her towards the right direction. But alas, there is no time machine.

However, knowledge lost to me should not be lost to others. I am fortunate enough to have a little brother, six years younger, who recently shocked everyone we knew by deciding to switch from pursuing a path to physical therapy to becoming a dentist such as myself. At first, I told him not to do it, mostly out of fear that he was entering the profession for the wrong reasons. It’s not exactly the profession for everyone. You have to love being inside people’s mouths, and I sincerely believe that description fits a very small group of people. And in exchange for this privilege of being surrounded by teeth, there is a costly price, which includes not only dedicated time towards earning the degree, but a huge monetary cost as well. I could see a young man entering the profession thinking it’s all fun and games. You can call your own hours, you get a decent pay. But you lose a lot of hours compared to your peers, studying the craft and paying off the debt. Additionally, you don’t see a majority (in my case, any) of your pay if you are dedicated to paying off the loans by the time your 38 years old. And by the time you are free from the debt, your peers would have had a 17 year head start on building their lives over you. I was simply afraid he would become a tooth doctor and then regret the bondage and the responsibility that comes with that. The worst you can do is choose to spend your days doing something you don’t absolutely love.

After a lot of back-and-forth conversations about the whys and the whats and the hows, I could see this is what he decided he wanted to do. And in my family, once we made up our mind about something, there is no change of course. Despite my resistance to the whole thing, I could tell he was going to push through with it, whether I supported him or not. So I did what any big sis would do. I immediately switched to supportive mode, figuring that if he is going to do this thing, then I’m going to give all I’ve got to making sure he loves every moment of it. So now we work together at the same office, me guiding him towards becoming a better dental assistant everyday, and him helpfully suctioning saliva out of my patient’s mouths. Perfect harmony.

I started writing the finance part of my blog to help newly graduated dental students with a massive debt realize that they are not alone, and that there are ways to overcome that debt. Now, I have an even bigger responsibility to walk my little brother, and other newly graduated undergrads towards a path that would minimize that final number, as much as humanly possible. If I can’t send myself back in a time machine to save myself from all the silly mistakes, I can at least try to save my brother. I am not doing this so that he could be rich one day. Such is never my goal. I am writing this so he can be a free man.

So if I could travel back and tell my recently graduated undergrad self what to do while waiting to get into grad school, I would tell them one thing. Use your hard-earned money towards paying down your undergrad loans. This was a very feasible thing for me, since I graduated undergrad in 3.25 years and I had an extra 9 months of freedom between graduation and grad school. It was a year and eight months before I was to start my dental program. During that time, I was living at home, and working three jobs. The first was a job as a dental assistant, averaging thirty hours a week. . The second was a visuals specialist at Banana Republic, averaging ten hours a week. And the last was a tutoring gig in Newport Beach, averaging an additional 10 hours a week. All jobs paid me over minimum wage, which at the time was around $8.5 an hour. The dental assisting and the tutoring paid me $13/hr. The sales job paid me above $9/hr. I wasn’t paying for food or rent, with much gratitude towards my parents. But I was also not paying my student loans down. So where did the money go?

At that age, you work like I did and think to yourself, “I’m rolling in the dough.” I had no concept of the power of money at that time, for I had no one to show me, or to even talk to me about it. Friends were dining out every night, going to concerts and raves, watching movies, and buying everything they ever wanted. What did you think I did?There was no outward consideration towards my far off future. I couldn’t see that these loans would one day become shackles that slow me down from enjoying later joys. There was this concept being fed to young kids, summarized in four capital letters. YOLO.

I was twenty one years old, and I thought I was unstoppable. I had so much energy, I worked like a horse. I never realized that the pace was unsustainable and that I will not want to work like a horse for the rest of my life. And off course, once I clocked out, I went on partying like an animal. (Okay, not animal. I saw REAL animals in college, and animal I was not. Maybe a tame deer. Either way…) I  blew my money on frivolities, living my life under the following motto: “Work hard, party hard.” WHO COMES UP WITH THESE THINGS?!

I  wasn’t fully irresponsible (or so I thought) since I paid the minimum payments towards my loans every month. They told me paying the minimum payments is considered good. No one ever told me paying off the maximum you can possibly pay is ideal. I never even hit my principle balance. I was paying so little that my accrued interest stayed about the same. At the time, I was already dating my future husband, and he was also working hard to pay for his housing. Since I didn’t pay for rent, I thought I had wayyyyy more money than him, and offered to take him out to eat whenever I felt like it. I bought him many gifts, just because. I invited him to concerts and bowling and karaoke and anything I can throw my money at. What I didn’t realize was that he had almost zero debt. He took out a skimpy little loan, which was paid off a few months after he started work as an engineer. And there I was, almost two years graduated, with the same debt I had while I was in school.

I was even so foolish as to plan a trip to Hawaii with Mike. In preparation for this trip, and as a reward for working so hard on my year and a half off, I quit all three jobs pre-emptively at the end of May, three months before dental school was to start. I continued my usual spending, and then allocated a huge chunk of my hard-earned money towards Hawaii. Granted, that trip was our first trip together and ended up being our favorite trip until we went to New Zealand. So yes, YOLO. You never get the time back, and it was a great experience. But the trip cost something close to $5,000. At the time, my student loan was about $16,000. I spent a third of my debt on a vacation, without realizing that it’s all just borrowed money. The crazy part was that I had $5,000 in my bank account, (I actually had close to $10,000 in my bank account) ready to be used for Hawaii. That money should have been placed directly into student loans the minute I was earning it. Not knowing anything at all about the power of compounded interest, that could have saved me a good portion of my current loan amount, probably around $13,000 or so, since it accrued interest over the next 5 years that I was in dental school. That’s the thing about any loan with interest. It continues to add even more debt to your plate, and the longer you wait, the more money you waste. As a young twenty something, time is on your side. Address debt while you are still young.

Now, you may be saying, $13,000 out of $550,000 is not a big difference. It’s such a small sliver of the pie! But it is, because it all adds up. It’s not like you graduate and start paying back the principle on your loans right away. You address the interest that has been growing on it first. For the first five months, we didn’t even touch our principle. Five months of all of the paychecks of a dentist going towards a loan, and not bringing down principle can be a very depressing thing. I think people need to see that. Extrapolate that for 9-10 years, as if you are essentially working for no take home pay for ten years, and then tell me that the $13,000 does not matter. Every single penny matters. That should be the mind set newly graduated undergrads should have. That every financial decision they make will shape their future. Especially so if they are going to pursue further education. It’s not a matter of “YOLO, my future self can worry about that.” Your future self is still you.

If I could do it all over again, I would continue to live at my parents, like I was doing. That was definitely a decision I was proud of. I would put as much of my income as possible (which would have probably been 90% of it) towards paying down my undergrad loans prior to grad school. I would have worked harder while I had a lot of energy. I would have saved more by saying no to all the pressures to conform to this image of a successful, newly  graduated student. I would have worked until the very end of my “time off”. I would have probably skipped the Hawaii trip, or traded it in for a more financially friendly local trip to a national park. If I had done all of this, I would have been able to pay off all of my undergrad loans easily, while still living a fairly decent lifestyle, and possibly saving money along the way for my future graduate loans. Heck, I might have even been able to go to Hawaii and do that. Don’t believe me? Here’s the math.

Dental assisting: $13/hr x 30 hrs/week x 78 weeks = $30,420

Banana Republic: $9/hr x 10 hrs/week x 78 weeks = $7,020

Tutoring: $13/hr x 10 hrs/week x 78 weeks = $10,140

Total income: $47,580

Student Loans Total when I started dental school = approximately $16,000

Conclusion: I didn’t know anything about money at the age of twenty one.

Currently, my brother is gallivanting around Costa Rican terrain with a college friend. Before he left, I went over finances with him, grilling him on what he was planning to do while there, how much he was planning to spend, and pointing out tips to save money while traveling. The bottom line is that I can’t stop him from enjoying his life. I’m not even saying his trip is a life mistake. The Hawaii trip was a financial mistake, but it was also an experience that led us to realize how important traveling was to us. Ironically, the debt limits the extent with which we can travel. You win some, you lose some. He will likely learn something very valuable about himself on his travels. But I want him to at least hear from somebody that this decision will affect his future from a financial standpoint. I think every newly graduated kid deserves to hear that. If I could talk to my twenty year old self, I can’t guarantee she would have listened, or even fully understood. I mean, I would continue to make this mistake throughout all of dental school, again and again. But there is a chance that she would have changed her course, ever so slightly. And that makes a difference.