Thursday, November 4, 2010

Day 19 - The Start

Nov. 2, 2010


There comes a time where you just have to draw a line in the sand. I'm
not sure what it was that put us there, but Oct. 14 was that time.

Debt is an interesting thing. In some cases, it can be useful.
Investors use debt and leverage to boost their returns, especially
real estate investors. Families use it to help buy homes. In these
cases, you pay down your debt and are left with an asset - a home, an
investment, etc. Debt also allowed us to attend some top-notch schools
and get some top-notch degrees. However, as we pay our debt back, we are left
with what? A piece of paper and an education - the same piece of paper
and education we had before we started paying off the debt. When
paying off a mortgage, you have the end goal of owning your home free
and clear; with a student loan, there's no such carrot, other than not
having to send a chunk of your paycheck into a black hole every month.

I don't think this is the time or venue to discuss the merits or
drawbacks of using debt to pay for school. For people our age, taking
loans to pay for school (often multiple degrees) was taught as the
thing to do. We never really thought twice about it. Similarly, many
people jumped on the bandwagon of buying a home (regardless of their
situation and income) - and we see how well that worked out for a lot
of people.

Looking back, would I do it again? Would I take out loans to get my
degrees? Probably. I think the payback has probably been worth it for
both of us (although I do occasionally have second thoughts). However,
if I did it over, I probably would have worked more during school, saved up more money before hand, or really chased scholarships a lot harder - basically, do
anything to minimize the loan amounts I needed.

Anyway, as a result of our educational endeavors, we’ve been writing checks off
to various lenders each month, eating away at a significant portion of
our take home pay. We try to justify this - saying if we didn't have
these degrees, our paychecks would be smaller. We’d like to hope that the
paycheck increases our education brings us is more than our monthly
student loan payments - although that is not something I can easily
prove, or disprove.

I mentioned we drew the line. Something clicked. Sure, I was tired of
seeing people, who I knew made less than us, buy homes, nice cars, go
on nice vacations, and wonder how they afford it and we couldn't
(although I knew the answer). But that wasn't the tipping point. I got
tired of not being able to move into a nicer house or to go on a nice
vacation. I also got tired of calculating what we could buy each
month, or how much we could save, if we didn't have to make monthly
loan payments. Those weren't the tipping points either. I got sick of
second guessing every purchase we made, wondering if that money would
be better spent paying down debt. I got sick of constantly having that
number in the back of my head - we still owe this much money -
constantly, thinking about all of that money going into a black hole.
It's tough to enjoy a nice meal out or the new bike I
want if I second-guess the purchase - and then feel guilty about it,
knowing I should be paying down debt. It's tough to enjoy a
vacation, if you're worried about every penny you spend and how that
relates to your debt. It just gets old.

Of course, the alternative was to continue to make minimum payments,
budget that into our cash outflows every month, and ride the loan out
into the sunset (20+ more years). But for some reason, that annoyed me
too. I don't think I could stand having to have the annoyance of debt
for that long.

So, if it was going to bother me, if it was going to interfere with my
life and prevent me from doing things, buying things, enjoying things
- why not just bunch the misery into a shorter time period. Why not
just cut everything we possibly could out of our budget for a short
period of time, suck it up, pay off our debt (or a good chunk of it),
and then go on living life as we want to.

Of course, this isn't just about paying off a large part of debt. With
that comes budgeting, understanding where every penny is going, where
we spend our money, where we waste money, and learning how to cut our
costs. When you start looking at these things closely, it's amazing
how money can (and used to) just disappear each month.

I don' t know why we never thought of this before. I guess we kept
tricking ourselves and coming up with excuses. I think we finally
realized we had to make a stand - and that's why we started this
project.

M.
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