Happy New Year!
If you read my 2021 Financial Review, then you know 2021 was a pretty good year for me financially. Given this upswing, you might think I’d be headed into 2022 fairly optimistic and confident about my financial future. And you would be correct…kinda. More like half correct.
While I am perhaps more optimistic about my financial future than I have been at any other point in my adult life, I am also the most conflicted. When I said that my progress in 2021 changed how I felt about myself, my student loan debt, and my finances, I wasn’t being hyperbolic. For the past two-and-a-half years, I felt trapped by my debt and, given all the opportunities I have been afforded in life, I felt a great deal of shame about being trapped. However, making it under $90K in student loan debt, a new job, and the greater financial security that comes with that progress, means that my financial horizon now seems…bigger? That I have some obligation to future AfroPenny to do something more than just pay off my student loan debt…?
As I mentioned in my student loan refinance post, one of the things I am most excited about that resulted from choices in 2021, is the increased simplicity of my financial picture. I want that simplicity to extend to my 2022 Financial Goals, so there will only be three…
1) Earn the 20% match from Organization C (my new employer). – I don’t think it is possible for me to do anything other than contribute enough to earn the full 20% match from Organization C. This would result in $15,000.00 of my gross salary going to my 403b this year.
2) Save $1,000.00 as a non-emergency fund sinking fund. – Just because I didn’t plan for it doesn’t make it an emergency. This pot of money would be used to cover things that I should plan for in my budget…that I generally don’t. This includes things like my annual Costco or Prime memberships, car registration, car inspections, oil changes, Microsoft Office, insurance, etc. I would like to hope that if I didn’t have my student loan debt that I could devote the mental energy to better budget for these things…but I know that won’t be the case. I’ve often said one of the great things about being in your 30s is no longer pretending that you are going to change and, instead, learning to plan for who you are. I think one of the reasons that I have been successful at debt repayment thus far is that I have been mostly singularly focused. I am hoping that establishing a sinking fund prevents me from wrecking my budget when these expenses pop up but doesn’t take any time or attention away from my other goals.
So far, so good. Here is where I need help…
As I shared above, my new financial horizon seems bigger than just paying off my student loan debt. And this has been affirmed by other folks who have been both proud of the progress I have made but who also want me to start thinking about “other things.” My parents are split: my father thinks I should tough it out a bit longer and pay off my student loan debt while my mother thinks I should buy a house. The Wizard (my best friend) thinks that now that I have a fixed, low-interest rate on my student loans, that I should be in no rush to pay them back and should instead invest in property or ETFs. Gentleman Avery thinks I should pay off my student loan and get rid of the mental burden that accompanies it. (Note: I had talked to him about how my student loan debt made me feel at one of my lowest points. He wasn’t particularly considerate so I haven’t really told him about all of my progress but he does know about the new job.) To be fair to all of them, none of them know exactly how much student loan debt I have remaining. But you all do…which is why I am soliciting your advice. I think I really have three options for my third goal and would really like your input as to what I should do…
3a) Allocate all additional money to student loan debt repayment. Repayment goal for 2022: Make it below $60,000.00 in student loan debt. – I know! So this would pretty much be a continuation of the status quo with a massive goal for this year. This would be a lot easier if I were benefiting from the continued interest rate and payment forbearance on federal student loans that was just announced by the Biden Administration despite the fact that they said there would be no additional forbearances…but water, bridge, and all that jazz.
While I am drawn to this goal, there is also part of me that wonders if the additional hustle is worth it… Using the How soon could I pay off all my debts? calculator, I figured out that I could be student loan debt-free by 40 if I made payments of $2,000.00 per month (shoutout to Paula who also mentioned a similar number in her comment about my new job). Even with goal 1, this would just be a tiny bit of a stretch each month. This amount would become my budgeted monthly payment and wouldn’t vary as my interest rate is fixed. Any additional income I made beyond that amount, including any raises in the future, would be mine to do with as I liked. So…
OR
3b) Make $2,000.00/month student loan payments. Allocate any additional money, including bonuses and raises, to other investment opportunities and increased quality of life. – I recognize that this is still a large amount that is still very dependent on me living a relatively frugal life. However, at the moment, it seems like I could still make this payment with little to no “hustle” as long as I stuck to my rather lean budget. Alternatively, the other good thing about 3a) is that making the cuts now, while we are still in a pandemic, I am unpartnered, and without children, is an easier choice to make now than it might be a couple of years down the road… That being said, I would also expect that my earnings would also have increased a couple of years down the road.
OR
3c) Make minimum student loan payments. Allocate any additional money, including bonuses and raises, to other investment opportunities and increased quality of life. – This is the Wizard’s suggestion and my least favorite option. However, it would be an unfair thought experiment (and question for you all) if I didn’t at least consider it. I think my fear is that all that would really happen is that my quality of life would get upgraded. Maybe move out from the city and purchase a house? I have no investment acumen and no real interest in learning about the market (I have tried podcasts, books, and YouTube), and so if this money didn’t go to a house or savings, I worry I wouldn’t invest it or not invest it wisely.
So, what do you think?
I have decided last year’s quote from C in 2021 is going to be my mantra for 2022 as well as it is where I think I am in terms of mindset at this moment:
I think it’s important to not totally abandon the idea of getting out of debt, but also not sacrifice the rest of your life to “serving” it. – C
I hope this 2022 finds you, your loved ones, and your communities in a better place than we have been for the past few years. Happy New Year!
Ms. Afro Penny 
This is another “all choices are good” kinda thing, but personally, I find that goals that are the same every month are just kind of boring. The $2000/month option would be more psychologically wearing on me than keeping my lifestyle low and putting everything on the debt. I just do better with all-or-nothing goals.
On the other hand, I think you could really use a year where every. single. penny doesn’t go to debt or make you feel guilty if you spend it on something else. So I’m wondering about some kind of combo. Like, in odd months you throw everything at debt, while in even months you stick to $2000 and put the rest in sinking funds? Or put bonuses and other extra income on debt, while living on/saving money from your paycheck (beyond the $2K)?
Definitely don’t do the minimum payment thing unless you have an emergency month 🙂
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I also love all-or-nothing goals. I am generally a 100% or nothing sort of person. While I just said that learning to accept who you are in your 30s is good, practicing moderation in most things is something I think is worth working towards…
“On the other hand, I think you could really use a year where every. single. penny doesn’t go to debt or make you feel guilty if you spend it on something else.” – I think the guilt is something that I have left in 2021. I know it’s been like a day but I am SUPER proud of how far I’ve made it. I don’t know why getting under $90K hit different but…seeing my balance start with $88,XXX.XX doesn’t make me anxious. I know it should but it doesn’t.
Ha! Trust you to come up with an alternative!. Okay, I’m going to call this option “3TheC.”
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Hello,
I voted other as in : split any additional money above the minimum payment and allocate 50 % to investment and 50% to additional student loan payment. Best of both worlds 😊
Long time reader here, I like your blog.
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Hello, Eva 🙂
Thank you for being a long-time reader and for the blog affection.
And thank you for voting! I think my only thought is, what constitutes investment? Are you thinking market? Buying a house? Investing in real estate? (The Wizard is a real estate investor and I could go there if I wanted. Maybe.) I will mark this alternative down as “3TheEva.”
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Oh, regarding your friends and family…. I’m more on your dad and Avery’s side here I think. How could you buy a house? Unless your parents are going to give you a down payment (which would be a different story)…. And while investing isn’t a terrible idea, I think it’ll be less psychologically satisfying than paying off more debt.
About investing (which you will have to do with your employer match, which, 20%???? Holy hannah!!!!): I did just enough reading to convince myself that trying to get fancy with that was dumb. I only have investments in retirement funds, but they are all in index funds and I am very happy with that. The target date retirement funds that your employer plan will offer will be just fine, but I also have a bunch in the Vanguard Total Stock Market Index Fund, which just mirrors the market as a whole. The great thing about this is it is very set it and forget it.
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“How could you buy a house?” – Would not take or borrow money from my parents. It would look like “3TheEllen” with me making minimum payments on my student loan and then saving for a year to make a down payment. While housing prices anywhere near the city are WILD, if you are willing to go a bit further out OR live near a different, smaller city (my state has a couple), you can find reasonably priced homes.
About investing…I KNOW! I really don’t have a choice with that match. Goal 1 set itself. Yea, that’s what I have done at University A and University B and will be what I do with Organization C (just index funds and leave it alone). I really was looking for the Wizard to tell me that a 20% salary contribution and match in my mid-thirties is “good enough” on the retirement front but she was like, “no, you need to do more…”
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I voted for other…let’s call it 3B and a half. I’m on board with your mother and the Wizard, potentially, depending on what your feelings are about buying a house.
When I was in my 40s, I focused hard on paying off my mortgage, and I accomplished that. However, my mortgage rate was something like 3.5%. I knew it would have made more sense in terms of basic math to invest or save more, rather than pay off a low-interest mortgage, but I wanted the freedom not having a mortgage would provide. And it did feel good to reach that goal. However, due to wanting a house with a yard a few years later, I have a mortgage again (albeit one that is offset by having renters upstairs), and I often enough think that it would have made more sense to pour that money into my IRA. As you said, water, bridge, etc. It’s never bad to pay off a loan, but since your student loan is 3.5% (I think), it may be better to hang onto it a little longer and take advantage of that nice low rate.
Since you’ll be making the 20% contribution to your 403b and getting the full match from Organization C (yay!), I don’t think you need to worry about making additional investments in the stock market right now.
What I do think is extremely helpful financially is owning a house. My one caveat is that it helps if you enjoy fixing up and maintaining a home. You will definitely need to spend money all along the way, on bigger things like a roof, and smaller things like a cracked walkway. If you don’t think that sounds satisfying, it makes sense to continue renting, and in that case, I’d vote for $2000/month towards your loan with all additional money also thrown at your loan (to avoid lifestyle creep, which it sounds like you’re worried could happen).
So my thought is this. Pay $1000/month to your student loan. This is more than the minimum, but it will still take nine years to pay it off. Save $1000/month for a down payment. Could you buy a fixer-upper house for around $100,000 in your area? You could save $4000 for a down payment with an FHA loan, and maybe $3000 for closing costs and a little more to do the immediate things needed when you buy it. You can make additional improvements slowly but surely. Between your mortgage and taxes/insurance, you’ll be paying well under $1000/month. If you wanted to cut that way down, you could even get a roommate.
Once you’re in the house and feeling financially on an even keel again, you can up the student loan payments to $2000/month if you want.
So, this is my thought, but of course I’m excited for whichever plan you end up choosing!
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First, Ellen, thank you for taking the time to type out such a thoughtful comment and for sharing more of your story with me. I know that it doesn’t take an insignificant amount of time and I really do appreciate the insight and advice.
“Since you’ll be making the 20% contribution to your 403b and getting the full match from Organization C (yay!), I don’t think you need to worry about making additional investments in the stock market right now.” – I mean, I’m not saying I’m starting to love this suggestion because no additional investment is exactly what I want to hear but… 🙂
I’m calling this option “3TheEllen.”
“So my thought is this. Pay $1000/month to your student loan…” – I think something you point out that I hadn’t considered is that if I did this plan for a year and then bought a reasonably priced home, that once I got “settled” I could go back to accelerated student loan payoff and try and still get it done before 40…
I think $1000.00 and done in 9 years (so just before I turn 45) is super reasonable and probably a really smart permutation but my student loan does feel like “unfinished business” that I’d rather not drag into the next decade of my life (always assuming I am blessed/fortunate enough to see it)…
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Having read through all the comments here, it seems to me like it makes a big difference to what you do this year whether the thought of buying a house really appeals to you. I do know a lot of people who have made that their goal, done it, and then been like “eh, this isn’t really all that.” There’s a bunch of work that goes into maintaining them and you’re on the hook for all of it, plus it ties you down to one location. I don’t really think it’s as much of a good financial investment as people think it is — or if it is, it’s more by luck than by planning, and you won’t know for a long time.
On the other hand, if you are fed up with landlords or are energized by the thought of learning home maintenance, possibly renting to others, or you are sure there’s a particular town or neighborhood you want to be in for a good long time, then it might be a good goal. I dunno, that stuff isn’t really something you’ve ever talked about — but maybe that’s just because you were planning to move for med school? If you are feeling ready to nest, then the $1000 to the loan, $1000 to the down payment fund could be a good option. Or you could do what I did for a few years and call it a life fund — all that money eventually became my buying-a-house money but for a long time I wasn’t sure whether it was going to be used for that, or to fund time off from work, or travel, or a car, or something else. I was just hoarding cash, really.
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As always you cut to the heart of the matter…
You’re right…about most of it. I’m trying to carve a path when the goal isn’t clear. However, if I am really honest, I think it has been a bit murky on a couple of fronts for a while. And while I’d like there to be clarity tomorrow, I don’t know that it will be the case. And when I feel like this, like I don’t know the way forward, and can’t plan, I try to leave myself with as many options (as much freedom) as possible. Maybe that is 3TheEllen? Maybe it’s 3a (I’m really shocked no one has voted for 3a thus far!)…
As always, you are appreciated.
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Oh man… C, Eva, and Ellen all have really good points and I’m not even going to pretend like I have any better insights than what they’ve already mentioned. I was in this exact position not so long ago so I wanted to at least give my real life example of what ended up happening with the scenarios I chose to go with. Hopefully this will help a bit!
Like you I refinanced my student loans to a lower interest rate. The only difference is that I did this when my student loan was down to $50k.
These were the choices I made and their effects.
1. I chose to contribute only minimum payments.
I completely agree with your and C’s thoughts on all-or-nothing goals being a huge motivator. When I decided to start off with making only minimum payments, I definitely considered making extra payments, but two years later, I still have yet to make any and have become complacent with only contributing the minimum.
How this affects your decision: My loan term is only 5 years so even with making the minimum payment, I have a close-ish deadline to finishing my student loans. With your loan term of 15 years, I do not recommend choice 3C unless you are ok with keeping your student loan for a long time (which you don’t seem to be).
2. Instead of focusing on loan repayment, my focus was to invest more aggressively in my retirement accounts + brokerage account
How this affects your decision: I think it really helps to prioritize your goals and place your goals in order. What is your #1 goal, #2 goal, etc ? For me, I realized that my #1 goal was not to pay off my loans. My #1 goal is actually to FIRE and that paying off my loans was just a means to an end.
In actuality, my goal #1 goal is to increase my net worth. And I found that paying off my loan that only has a 2.2% interest rate aggressively didn’t make sense when I’ve been getting 10+ (and in some years even 20%+ return on my investment).
So what is your #1 goal? Are you looking for the psychological satisfaction of paying off your loan completely? If yes, then the answer is clear and it should be choice 3A. If not, then I would consider investing more aggressively if FIRE/net worth growth is a priority for you.
3. Buying a house
As you know, I’m in the middle of the home-buying process. It’s not done yet, so I really can’t tell you the complete pros and cons yet. I do know that owning a home was my #2 long-term priority hence why making minimum payment on my student loan was a no-brainer for me. Correct me if I’m wrong, but I don’t think you’ve ever mentioned home ownership as a goal ever before. And the fact that this mention came from your mom makes me think it’s not really what you want. Is it?
What I voted for: 3B.
I think 20% contribution for the company match is AMAZING already. But I would hate for you to miss out on other (investment/home) opportunities because you hadn’t left anything extra so I really love C’s idea of a life fund until you truly decide what you want to do.
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You and I have talked this out on your blog and in other ways but I forgot to respond here.
First, thank you for an exceptionally thoughtful post. Unfortunately, things have changed in a significant way since the start of the year and I am now no closer to making a decision about what to do that I was at the start of the year. However, the insight you have shared here about your own recent decision making is invaluable. I think things like “should I invest now” are even more significant because if I stay on my current path I will have only made no contributions to retirement in my 20s and only minimal contributions in my 30s. My 40s will basically have to be A) inventing something, B) winning the lottery, or C) continuing to live incredibly frugal so that I can then throw the money I was putting towards debt into savings.
In any instance, I will post a life update post shortly that will help to clarify what is going on and why I have been silent. I am hoping I can post it this week once everything is official, official.
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Ok!
So I haven’t read it all. I must have somehow missed this post. However with the part that I have read, you have got to listen to your Dad and Gentlemen Avery. Like I had this same issue. My sister said purchase a house. My mother said to pay off the debt ’cause like you, it was a pain in my side. You worked so hard for so long, what is a bit longer? The reward will be there and it will be all the sweeter knowing that you did it.
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I went back and read it all. I am going with the 3TheEllen. I have read your blog from beginning to end and I do not remember you ever speaking about a house so the 20% and $1000 to your loans sounds very reasonable. I also think that maybe the reason that you didn’t speak on a home was that you didn’t really think it was possible and now it is. If you only had $50,000 in loans, my answer would be different like my answer above. This is the best scenario.
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Sorry for the whiplash in the difference of comments 😄
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Haha! No worries…it’s been like that for me as well. I’ll share more soon.
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” I also think that maybe the reason that you didn’t speak on a home was that you didn’t really think it was possible and now it is.” This.
But as I said in my response to your other comment, there have been some big changes on the income front (mostly good but some disappointment) so I will be posting an update.
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Decisions, decisions…
The Pennyfolk have provided some thoughtful options. I just voted for 3a, although for me Ellen’s advice is a close second choice.
You’ve done really well so far, and I would put the higher income towards the debt (all or nothing, after goals 1 & 2). I would do it while you can, because you never know what tomorrow may bring. Sorry if that’s a little too real.
With goal 1, you’re already investing a whole lot more than before. So I don’t see a need to invest more than that until your debt is paid off.
If you’re really conflicted about losing out on an opportunity to buy a house, I also like Ellen’s idea ($1,000 to debt + $1,000 to home savings fund). After one year, you could always throw the $12,000 house fund at the debt (if you decide not to buy a house). Or you can buy that house if it’s still a good decision for you.
I bought my house before I got into debt, so mine is a little different experience than yours. I’m all for home ownership and building up equity. But you also can’t overlook potential repair and maintenance costs. For example, my home needs a new roof. Because of pandemic issues, estimates are coming in at twice what it would have cost before all of this mess…oof
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Hey Hope!
They really did. 3a you say… 🙂 It’s not a little too real at all…
There have been some changes to the income (mostly good but some disappointing) and I plan to do an update post tomorrow.
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