Adam's Interweb

At the end of last month, I paid off my student loans – it was quite hard to write a $14,000 check, but once it was written, I didn’t regret it at all. It feels great knowing they are out of the way. The only debt I have left at this point (other than my primary mortgage) is a second mortgage I got when I bought my house (my down payment didn’t go as far as I had hoped due to closing costs, new house expenses, etc). This one is higher than my student loans ($18,000), but it’s possible that I can knock it out by the end of the year assuming no major financial issues arise between now and then. I may end up having to sell some stuff to make this happen, but we’ll see how that goes…I’m willing to do what is needed to take care of business.

This morning I sent in my monthly payment with a nice little $500 additional principle attached and I’m already starting to feel better. Debt free, here I come!

1) Cut the cable

Do you really need those 100 channels you never watch?  I have an HDTV that picks up over the air channels and I can assure you that my FOX, NBC, ABC, and PBS look just as good, if not better, than anything you would get on cable.  It does mean giving up certain channels (I do miss Sci-Fi, Discovery, and a couple of other ones), but it saves a ton of money and you don’t have to deal with the cable company.

2) Check the unit price on grocery items

I find it amazing that identical items in the grocery have vastly different pricing.  Two different brands of the same pasta sauce may have the same price per item, but if you look at the unit price, you may see that one of them actually gives you quite a bit more sauce for the same price (you can’t always tell this by the size of the container).  Another really surprising thing is that larger “family size” items are often more per unit than the “regular” size item – sounds strange, but if you check out the unit price on the labels, you’ll see what I’m talking about.

3) Use fans instead of air conditioner when possible

This certainly depends on where you live, but around here, it’s quite hot in the summer.  If I know I’m only going to be in a couple of rooms in the house, I’ll just open a window or use a fan since there is no point to chilling the whole house.

4) Never buy on credit (specifically don’t pay interest)

Hopefully it’s obvious that it’s always worse to end up paying more for an item than what the store charged…if not, these tips probably won’t help…  The best thing you can do for yourself is to stop using credit cards – go with your bank check card.

5) Minimize impulse buying (still working on this one – but it usually works well with #7)

This is one of the hardest things for me to do – you see the new gadget come out, want the extra pack of candy in the grocery that you didn’t plan on, decide it’s time to buy an HDTV…  The best way I’ve found to minimize this is to keep very little money in my checking account – I move it all to investments (either mutual funds or savings accounts like ING Direct).  That way, I can get the money if I need it, but I don’t have enough to make a huge purchase unless I go through a transfer process that takes 3-5 days…by then, I may decide I didn’t really need the item anyway.

6) Know where your money is going / Implement a budget

It’s really important that you know where your money is going - I don’t particularly like doing a true budget, so I track all expenses (including categories) in Quicken, then review spending each month to see how I’m doing against my mental budget.  Doing a “real” budget would be more helpful, but I haven’t found a nice way to do the budget the way I want in Quicken. 

7) Treat yourself to something nice

When I first decided I would start cutting my expenses and saving up to pay off my student loans early, I kept myself from buying anything unless I really needed it.  The problem I ran into was that sometimes it would feel even worse than being broke – sometimes you just need to have a little something extra.  I’m taking buying a $50 video game or $100 night out - not buying a car or something crazy like that.  If you don’t treat yourself, what will probably happen is that you’ll eventually break down and spend like crazy for a bit and it’ll put you back to square one – sounds crazy I know, but trust me, it’s better to set aside $100/mo blow money instead of spending $3000 one month because you couldn’t take it anymore.

Use utilities efficiently

Nothing special here - use compact florescent light bulbs, turn off the lights when you’re not in the room, minimize hot water usage, don’t water the lawn if you don’t have to, etc.  Turning off the computer at night can save about $20/mo – you’ll be surprised at home much it costs to use different items you have around the house.

9) Be as frugal as possible, but not cheap (buy good quality / be proactive)

I’ll explain this one via an example - 6 months ago, I bought a little battery-powered drill for $30.  I used it to drive in some screws here and there and it worked fine.  I recently decided to put in new cabinets and needed to do more heavy duty work.  Well, the drill basically bit the dust – it couldn’t take the stress.  So now I need a new drill… If I would have went ahead and bought a good quality drill from the start for $100 or so, I would have come out much better than having to go buy a new one now (plus the time lost messing with the cheap drill trying to finish the job).  These days, I try to buy the middle priced version of whatever I’m buying – I don’t care for paying premium prices, but I don’t mind paying a few dollars more when those few dollars create enough value to justify the extra expense.

10) Avoid marketing as much as possible

This sounds dumb, but the more marketing you’re exposed to, the more stuff you’ll want to buy – that’s the point of marketing after all.  Now that doesn’t mean that you’ll buy something just because you saw a single ad, but it does mean that the more ads you see, the harder #5 gets.  I know I’m going to have to stay away from Apple keynotes – I don’t know why, but they always make me want to buy the newest thing Apple thought up…so far, I’ve been able to resist, but it’d be even better if I would just stop watching…

So I set a goal for myself at the beginning of 2007 – that goal was to be debt free except the house by the end of the year.  (Yeah – I drank the Dave Ramsey kool-aid…well, mostly at least…)  After the first few months, I figured out how to trim my expenses even more and figured out that I could actually pay off my student loans by my birthday (end of September).  At the end of 2006, I paid off all credit cards and any other foolishness I had – so I only have 3 “debt” items laying around these days: student loans (~$15K total), 1st mortgage, and 2nd mortgage.

I’m on track to pay off my student loans by the end of September, but it’s really tempting to pay off the 2nd mortgage first.  Both are about the same amount (second mortgage is a few thousand higher, but that just means waiting a month or so to pay it off if I chose that route), but the interest rate on my student loan is 4.25% while the second mortgage is at 8.25%.  Because of that (and the terms around each loan), my student loan payment is $125 a month and my 2nd mortgage is $190…so paying it off first would free up $190 instead of only $125.

But here’s the catch (and the reason I’ll probably still pay off the student loans first) – in a worst case scenario, I could probably sell the house and at least break even (if not, I wouldn’t owe much).  In that case, both mortgages would be taken care of, but the student loan will still be there.  No matter what happens (practically…there are a few legal things that I’m going to ignore), I’m stuck with the student loan for up to 14 more years (the remaining length of the loan).  It seems really risky to me to pay off the second mortgage before the student loans.

Realistically, my plan would be to pay off the student loans first (just to have them out of the way), buy some new camera equipment (as a celebration type thing…and because I “need” it…), fill up the 5K for Roth IRA 2008, then focus on knocking out my 2nd mortgage as quickly as possible.  If raises go as usual next year at work, I can probably expect I would have the income to do all of the above between now and Jan 1 2009.  It’s just a question of what else will happen between now and then.

Anyway – I’m 80% sure I’m going to go ahead and pay off the student loans as planned, but it’s still a hard choice because of the interest rates (and the fact that I could invest it and do decently as well).  But when it comes down to it, I’ve really liked not having credit card payments and it feels great not to be paying on my everyday items anymore.  I can only imagine what it will feel like to have the house paid off one day…  The really amazing thing is that it’s not *that* hard – oh, it’s hard, but not *that* hard.  At the very least, it’s been interesting having to make all these choices now that I have a “real world” income.