How Switching Your Student Loan Forgiveness Plan Can Save You Tens of Thousands of Dollars!

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

How would you like to save $10,000 a year, simply by switching the loan forgiveness program you are on? We know we did! A recent conversation with Travis Hornsby of Student Loan Planner informed us that we could speed up our loan repayment simply by switching from IBR to REPAYE! The information that Travis shared with us was so valuable, because it could in fact save us tens of thousands of dollars on our student loans! That’s equivalent to refinancing to a lower rate, thus cutting down our repayment timeline by over a year, while still allowing us the safety net of being in a loan forgiveness program. After conversing with Travis for an hour, I would highly recommend Student Loan Planner as the starting point for any student or new grad looking for student debt advice.

So how do we save $10,000 this year? It’s simple. All we need to do is to switch from IBR to REPAYE. Today, I will outline why.

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A Case Study: IBR VS REPAYE

We were under the IBR program since we embarked on this journey to repay our student debt of $574,000. Before you consider which loan forgiveness program you want to choose, you should probably read Finance: Student Loan Forgiveness Options: IBR VS PAYE VS REPAYE. We had initially chosen IBR despite the fact that the monthly payments would be 15% of discretionary income vs REPAYE’s 10% of discretionary income because of this one factor: IBR allows you to file taxes separately as a married couple and it will only consider the loan holder’s income, versus REPAYE which will consider the income of your spouse as well. Since Mr. Debtist also makes a six figure number, we figure that we would have the better deal using solely my income.

Here is an example of how to calculate that:

Let’s use estimates from our personal story to calculate the difference.

Assume that our loan is an even $550,000, my income (the debt holder) is $125,000 and Mr. Debtist’s income is $120,000.

Under IBR, they would calculate our yearly loan payment by multiplying my income by 15%.

125,000 * 0.15 = 18,750

Now we divide that by 12 months to find the monthly payment.

18,750 / 12 = 1,562.50

Therefore our monthly payment would be $1,562.50 under IBR.

Under REPAYE, we need to use the total household income of $245,000 to calculate the yearly payment, however we will only be paying 10% of our household income.

245,000 * 0.10 = 24,500

To find the monthly payment, divide by 12 months.

24,500 / 12 = 2041.67

Therefore our monthly payment would be $2041.67 under REPAYE.

As you can see from this example, IBR would be the better payment plan because you would be paying the cheapest amount per month and allowing the program to forgive as much as possible.

HOWEVER, there is a rule with REPAYE that IBR does not have. REPAYE will subsidize 100% of the interest accrued for the first three years, and 50% of the interest accrued after the first three years, which changes the game. Let’s see how.

Under REPAYE, the government will subsidize the interest that does not get covered by your minimum payment. We have already calculated the monthly payment to be $2041.67, and we know that each month, we are accruing about $3,000 in interest. Let’s convert that to yearly payments.

$2041.67 * 12 months =  $24,500 owed this year under REPAYE

$3,000 * 12 = $36,000 of interest accrued.

This year, based on last year’s income, we owe $24,500 in total payments under REPAYE. At $3,000 per month, the total interest accruing this year is $36,000. Therefore, our payments under REPAYE are not even enough to cover interest, as is usually the case with a loan this large.

So the difference is calculated as follows:

$36,000 – $24,500 = $11,500.

Which means that for the first three years, the government will subsidize $11,500 (and if it’s been more than three years, then they will pay $5,750) per year! You would be missing out on tens of thousands of dollars just by being on the wrong program! We certainly did.

Why We Didnt Make the Switch

We decided to be under IBR right when I got out of dental school, BEFORE we decided to pay back our loans aggressively. The reason being in my first year, I only worked for the last three months of the year, having waited for my license to be approved after graduating in June. In my first year’s taxes, I made $25,000. So taking 15% of $25,000 would be cheaper than 10% of $145,000. Now in the second year, the numbers completely changed since I started working full time for the entire twelve months. My salary jumped from $25,000 to $125,000. The ultimate question: Why didn’t we make the switch?

In April of my first full year of work, we had decided to pay back the loans aggressively. Meaning, our monthly payments were MORE THAN the minimum amount required. In order for there to be excess interest accrued on the loan, our monthly payments should not exceed the interest gained, which was about $3,000. But since we were paying our debt like CRAZY, we were actually paying $6,500 towards the loans, so no interest was accruing and it did not matter if we stayed in IBR or went to REPAYE.

Or so we thought…

We were VERY wrong!

A Common Misconception

According to Travis Hornsby of Student Loan Planner, REPAYE calculates the difference between the interest accrued and the amount paid back on the loan at the beginning of the year. REPAYE assumes that you will only make your minimal payment each month, which means that they lock in the assumption that $11,500 would be accruing in interest (for our particular example). Every month, they will subsidize a portion of your loan to make up for the interest that will supposedly accrue, REGARDLESS OF THE MONTHLY PAYMENT YOU ACTUALLY PAY. It doesn’t matter if we pay $6,500 towards the loans or if we pay the minimum amount. Either way, REPAYE will subsidize the difference between the minimum payment and the interest that’s being charged. So we have actually missed out on an opportunity here! What’s passed is past, but we are definitely jumping from IBR to REPAYE ASAP!

What Switching from IBR to REPAYE will save us.

We need to make this jump because of the following:

  • It will save us tens of thousands of dollars in the long run.
  • Making the change will be the equivalent of refinancing to a lower rate without actually having to refinance! Which then gives us the safety net of staying in a loan forgiveness program. If ever life throws us a curveball (such as an accident, layoff, disability, sickness, or our worlds fall into chaos and we cannot work), then the loan forgiveness program will give us the flexibility to not HAVE to pay $6,500 per month.
  • After all the money we save, we can cut our repayment timeline down to 7.5 years!

Off course, not everyone under IBR should automatically jump to REPAYE! You have to pick the financial path that is right for you, considering your personality, your goals, your lifestyle, and more. If you are looking for sound advice on how to create a student loan repayment plan customized for your situation, don’t hesitate to contact Travis Hornsby, founder of Student Loan Planner, using my affiliate link. It will be a very rewarding hour! And check out my second podcast episode with Travis, to be released in 2019! Stay tuned.

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!

Frugal Challenge: Become Vegetarian One Week, Every Month!

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

I’ve attempted a lot of frugal life hacks in the past year, all with the goal of paying down my student debt of over $550,000 in less than ten years. These include co-housing to reduce rent, travel hacking to jet set around the world for free, and more. It seems I am very much up for these challenges, so I figure, why not start a series detailing some of the frugal hacks we come up with!

This month, we decided to start a new challenge. Become vegetarian for one week, every month. Seems arbitrary, but you can’t really deny that meat and fish are very expensive to buy. Even more so, when you have a determination to never come home from the grocery store with anything packaged in plastic. Because of that, we cannot buy meats and delis from large discount stores such as Costco and Sam’s Club. We also cannot buy them from cheaper sources such as Albertson’s and Ralphs. Pretty much, we have only been buying meats and fish and deli and cheese from Whole Foods, which sells them wrapped in paper. With the change of going zero plastic last year, we have watched with heavy hearts as our grocery bill went up and up and up. The fact that I gave up beef and alcohol more than a year ago hasn’t helped. So we decided that it’s time we wrangle in the grocery expenses, without going back to plastic.

We were talking to our friends about the meat dilemma when we were visiting San Francisco. It’s amazing what everyone else is thinking but not saying. Once the topic was brought up, it seems that we’ve all struggled with the concept of pricey meats at one point or another. One of our friends said that he knew someone who split an entire cow among him and his guy friends to reduce the cost. It requires contacting the farm and ordering the cow at a discounted rate, but, split an entire cow?! That’s SO much meat going into the freezer. It’s a great idea, but I am not sure it’s one I am ready for, especially since I gave up beef and Mikey will have to finish all of that. Also, the minimalist in me shudders at the thought of so much excess in the house. So Mike and I kept on thinking…

Our solution? Vegetarian for one week per month, to test two things. Firstly, if we can get better about eating more greens, and secondly, if it helps the financial aspect. This was week one. The verdict: Our grocery bill was LESS THAN $25! For two people who bring lunches into work every day and dine at home every dinner, that is spectacular!

How did we do it?

We meal planned our way to a lower amount. Mostly, all we bought this week was produce. I cut down the costs as well by baking my own bread, as well as preparing pizza dough from scratch and freezing them, so that they were readily available for the weeknights. Before we even stepped foot into the market, we took inventory of things we had at hand. For example, olive oil allowed for homemade pesto sauce that required just a handful of pine nuts and basil. Since pizza requires just a smear of the stuff, we now have pesto for weeks of pizza, readily available! Additional toppings for a pesto pizza included two mushrooms, one red onion, pepperoncini, and a can of olives. Since we were already getting basil, why not add margherita pizza to the list? This would only require us to buy two more ingredients: tomato sauce ($0.89 per can) and a single tomato ($0.99 per pound). The tomato sauce will also last for weeks upon weeks, or could be used for pasta at a future date. The total cost for 8 pizzas (with extra sauces for the future) was less than $6. Granted, home-made sourdough took half of Saturday to do, but I enjoy the task and it was so worth it.

Our meals this week consist of:

– Egg sandwiches using homemade bread with homemade tomato soup or pasta salad for lunch, a couple days of the week.

– Vegetable pizzas – I prepped enough dough for 8 personal pizzas. To be honest, neither of us can finish one personal pizza per meal. At most, maybe 3/4 of a pizza is eaten, therefore leaving 3/4 of a pizza (each) for lunch the next day given that I cook 3 personal pizzas in the evening. Which is what we do!

– Fried Rice – The most basic of fried rice was taught to me by my dad. It used to be a staple at our house when we were growing up, because it feeds many mouths and costs very little. I carry that tradition, today.

– Vegetable Stir Fry – It was the simplest and easiest thing I could think of, after the fried rice. Plus, more veggies!

– Vegetable laden omelettes. Breakfast for dinner, anyone?

We did cheat a little… but only because there was left-over ramen from last week, which also meant left-over pork belly slices. Mike was happy we were able to eat meat for a day. But no meats were purchased this week, thus resulting in a total of $25 in groceries. So that’s fine by us. Final ruling: roll-over meat from previous weeks does not count. Additionally, no intentional cheating allowed (a.k.a. purposefully buying extra meat the week prior!). We make the rules up as we go.

Let’s see what we come up with next month!

How about you guys? Willing to try going vegetarian for one week? How do you go about cutting the grocery bill, without purchasing plastic?

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?

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.