The following is a guest post from Marissa at Thirty Six Months where she talks about getting rid of her student debt and becoming financially independent.
It is very unusual to find a graduate student in their 20′s these days without a mountain of debt, regardless of whether they worked through university or not. I am one of those graduate students.
Part of the reason for my debt is over-spending, a lot of over-spending. The other part is being negligent with my finances while I was in school.
I am currently in debt approximately $18,000, all of which are student and personal loans. I graduated with $31,000 of debt. My net worth is a different amount. I am from the school of thought where saving is also a priority along with paying off debt.
Why I was given a student loan when I made as much as I did was beyond me, but I clearly did not have my head on straight when I was younger. The last year and a half has consisted of me attempting to bring that down as much as possible without going to the extreme.
My work involves a lot of travelling, and luckily most of my travel expenses are covered by my employer. This helps a lot because I am attempting to limit my expenses. I do have my vices: watches, shoes, and Starbucks, but I have attempted to modify my mentality towards those as well.
Things that I am doing differently to accelerate my debt repayment:
Creating a budget. I know this is not rocket science but I had never created one. I just spent the money that I had access to.
Cutting on optional expenses. This includes my gym membership – I have a treadmill, and free weights at home and I play soccer twice a week. Optional expenses also means reducing the amount of times I eat. This is harder than it sounds since I commute for work and usually have after work meetings with my clients in a different city.
Shopping around for big expenditures. Things like car insurance, banks, work equipment, vacations. I used to spend $200-$300 on jeans alone without thinking twice about it. Oh how I wish I hadn’t done that.
Take on side projects for extra income. I started doing web-design and I do project consulting work for a few friends which has now snowballed into something bigger and I need to take on additional staff to handle the side work. I find that this is the key. You can only cut down on expenses so much, to accelerate the process you need to bring in extra income. There are a lot of resources out there for finding side income.
Things that I have prioritized along with debt repayment:
Creating an Emergency Fund. I know the goal is to pay off debt as soon as possible, but I like the security that an emergency fund provides. Credit lines don’t come close to this. I have been preaching about emergency funds to everyone. You never where life takes you or when you decide to quit your job and venture on the path of self-employment, or even better – travel for a few months. An emergency fund can cover any unexpected fees outside of what you budgeted for.
[Kevin] In spite of a controversial post where I suggested that using a credit card was better than using an emergency fund (or something along those lines), I pretty much agree with Marissa here. A pot of cash on the side is just another bucket of savings that gives you additional flexibility and freedom.
Stick to my budget. Creating a budget is easy; sticking with it is the hard part. We all think we can cut out shopping and eating out but the reality is that it takes a huge lifestyle shift to do that. I attempted to cut eating out all together, went out a few times, became very disappointed and nearly gave up on my budget. I think it is imperative to modify and adjust your budget to your needs and lifestyle. After all, if paying down debt is your priority then you will do what you have to do. I now include a set savings amount for a car fund, insurance fund as well. This avoids surprises latter.
Continue saving for travel. I love travelling. It is one of my passions. I love being lost in a foreign land and discovering things that tourists will never see. I live for those adventures. So when I started my journey towards financial freedom I had a choice to make: did I want to give up something that has always been a priority to eliminate my debt, or could I simply reduce the number of trips and still use them as a treat? I chose the latter and I am very happy with it. Oddly enough, I have become extremely frugal when travelling these days. I hunt for deals, find trips to off beaten paths and usually involve multiple people so we all share the expenses.
Investing. This is something I should have paid attention to a few years ago, but I am monitoring my investments and retirement portfolio closely now. My employer matches 50% of any investments in the company stock. I would have been stupid not to take advantage of this, they always allow paycheck withdrawals for RRSPs. I partake in both, but I am not actively managing the latter since it contains index funds.
I also opened up an e-Series account and an online brokerage and am slowly becoming actively involved in that as well. I don’t always know what the right call is, I like the idea that with enough research and common sense, you generally can make the right decision. A side note to this – women need to pay more attention to where their money is being invested.
There is no clear path to becoming debt free instantly; it is a mental shift. I am a lot more conscious of my decisions and being aware of my financial situation has allowed me a clarity that I value. If becoming debt free is important to you, then making the right personal and professional choices becomes rather simple.
This was a guest post from Marissa at Thirty Six Months where she talks about getting rid of her student debt and becoming financially independent.