Life After Student Loan Debt, Help Me
As I am closing in on paying off my student loans ( I know you have heard it before, but I’m talking days this time), I get the excitement and financial worries that come along with deciding where my future investments will go. It is really a topic that I have considered over the past year in great length and research. I think everyone’s situation is unique so some of the plans and ideas out there didn’t fit me, so I read and analyzed even more.
In my early retirement blueprint I suggest that all personal debt should be paid off. In my situation I plan to break my own rules, but only a little. Paying off my student loans is such a deep breath moment for me, I have been out of college for almost 10 years and during this time I paid off 85% in the last 2 years, I just want to breathe. Quite honestly I’m sick of paying off debt. I need a break, not massage my hamstrings with evaporated warm goat’s milk type of break; I just want to stop sprinting towards the finish line all of the time. I think I’ve hit a point in my financial life that I’m sick of seeing my debt go down; I want to see my investments rise like a mountain. Even Steven Money is going to jog to the finish of my last personal debt.
I am still keeping my allocated $200 monthly payment towards this personal loan debt (this is actually more than the minimum payment), but what I am going to do differently is make my plan entirely reliant on my side hustles. My main source of side hustle income is eBay where I sell gently new and used men’s clothing, also as my blog gets more and more people who don’t want to throw themselves down a fiery pit after reading, the greater chance I have for making money via Even Steven Money or even some freelance work. I’m not ready to put a For Hire sign on the door, but I’m serious about adding a writing gig or two along the way.
That is really only one small change in the big picture of reaching my financial milestone after paying off my student loans. One important detail to share is it’s not that I’m only freed from $199.85, a number that I will remember for the rest of my life as this was my monthly payment on my federal student loan during the last 2 years of student loan payments, it’s bigger than that. I was taking every last cent possible and directing it towards my student loans, so the bigger than that is I am freeing up half of my income!
If you look at the top row in green and white these are the current income streams that represent the Even Steven Money Household Income ESMHI for short and I’m sure to catch on globally. For example you will see that in the investment and debt repayment on your left in bold, Student Loan debt repayment only comes from Even Steven.
As you can also see under the Florida Mortgage we currently have three sources of income being directed at this including 1) Mrs. Even Steven 2) Chicago Income 3) Florida Income as we make this a priority in our early retirement plan. Financially a few things will happen when the Florida Mortgage is paid off.
- Go from 2 mortgage payments to 1
- We are in better place financially with less risk
- Rental income will increase substantially as the mortgage payment is gone
- Creates flexibility, take away your mortgage payment see if that opens up the world a little
The major decision that needs to be made is what is the best use of the X next to Even Steven and Student Loan?
I’ve read fantastic articles by the Mad Fientist on Traditional IRA vs Roth IRA and why the H.S.A is the ultimate retirement account. I’ve read similar and equally fantastic articles by JLCollins and his Stock Investment Buckets, Root of Good on how to shrink 150K to $150 in taxes, and Go Curry Cracker on how to never pay taxes again. I’ve read each article more than once over the last year plus and every time I read them I think that this is exactly what I need to do when I pay off my debt. Not to get lost in the shuffle of options, I have also read Dividend Mantra who is keeping his investments in a taxable account. All are interesting reads and I’m sure each writer would tell you each situation is different but these are great general guidelines to live by. Well then let’s look at my situation, see what’s on the pages of my book.
My financial plan over the last year or two has looked something like this:
- Make paying off our rental real estate a priority by taking the dominant amount of the income and apply to the mortgage
- At the same time Even Steven will pay off any personal debt
- All throughout the
75 years to FI we will gradually increase our tax deferred investments (401K, IRA, H.S.A.), although this money is tentatively planned for when we turn 59.5 and have access, the plan is to still use the Roth Conversion ladder
- As we close in on the last year of FI in late 2019, we will build up a cash emergency fund equal to 6 months, but preferably a year in savings (some of this my have already been accomplished as the only numbers I calculate for FI assume that my only contributions are to the mortgage payment and I will make minimum payments on my personal debt)
- Any taxable accounts investments that produce income for example: dividend stock, CD, peer to peer lending, etc will be a small buffer for any errors in numbers or problems with our investment real estate (similar to the last bullet point this could be built up depending on how well Even Steven does along the way)
As I read our financial plan out loud, I hesitate on a few things and I wonder if I’m trying to prepare for the unknown. As I second guess updating my tax deferred investments to higher contribution rates, I wonder if moving back to Miami or at the least the expectation is holding me back. Do I need to build up more cash for the possible purchase of another home? Should I be creating a dividend income stream in my taxable accounts so it’s possible that the move can happen with or without a permanent 9-5 job? If I stuff my tax deferred accounts full and have very little cash in my own account will I regret this in 2 years or 5 years going into FI?
I read the articles again this week about tax deferral and reducing taxable income and I while it would be great to hold off on using our tax deferred investments like 401K and IRA, I think it will be extremely tight using only our real estate investment income to cover expenses. I have always looked at our rental real estate income as the ultimate wealth building tool or the catalyst to our Early Retirement Blueprint, but as I begin to diversify or build up our investments, I am beginning to think about wrenches being thrown into our plan. In some ways I feel like I’m playing checkers, but the other player gets to move his pieces without me seeing, I can only anticipate his moves and lean towards what I think the invisible player will do next. I think there are weaknesses to every plan, ways that more money can be saved or changes that could affect the outcome, but the more I look into each move the more I believe that stuffing my 401K, H.S.A, and IRA full of money is a greater strategy than saving cash for a future house that may happen or creating a taxable dividend account like Dividend Mantra, to each their own of course right. I think those things will eventually happen over time, I’m just not there yet. As I transition from paying off debt to choosing investment vehicles, I have become dazed and confused in my own thoughts and plans, if you have read this far I would love to hear from you, help me decide what you suggest in my situation.
What do you think? What would you do with the extra money based on my financial situation?
**Update Don’t forget to check out my interview with Brian from Debt Discipline and find out something new, I shared a few new things like my dream job and last purchase I made that I regret.