Paying back student loans sucks. Paying back six-figures worth of student loans sucks even more. I know, I know. I’m the one who took out these loans to finance a medical education. And I was able to actually become a doctor with a doctor salary, so at least the return on investment is there. But still, paying back student loans sucks. Let me show you why.
Student Loans and Our Expenses
This was our spending in January, represented in pie graph form. Usually I like pie, but not this particular one. As you can see, my student loan payment accounted for 77% of our total expenses last month. Home (mortgage) was 17%, while other (utilities, bills, discretionary spending) accounted for the remaining 6%.
Regular readers of my blog know that I’m currently on a $12,500-a-month payment plan with the goal of having my loans completely off the books by October. Don’t get me wrong, I am fortunate to be in a position to even consider putting this much toward my loans. Still, looking at that pie chart is painful, so just allow me the opportunity to vent a little bit.
As a human being, it’s hard to not think about all of the things you could do with that amount of cash. For instance, I could go to the dollar store and have one heck of a shopping spree! Or I could charter a yacht for one week. Oh the possibilities…
Focus, SRGO-san, Focus
Although my mind can wander from time to time, having clear financial goals and a solid plan help to get me back on track. They are like Mr. Miyagi to my Daniel-san, helping me tune out the noise and keep my eye on the prize. Another thing that helps is reading all of the debt-free stories of other personal finance bloggers and imagining how great it will feel to finally be free of my student loans.
The main thing that keeps my mind occupied, though, is planning for what I will do after my loans are gone and there is an extra $12,500 a month in cash flow. Sure, I could spend that extra money and let my lifestyle catch up with my income. But that’s not how I roll. Even though I’m several months away from paying off my loans, I’ve already started to think about what to do next.
Accelerate Our Retirement Savings
With our current savings rate, my wife and I are on track to reach financial independence within the next eight to nine years. Compared to my initial projections, that’s pretty fast… light speed kind of fast. But you know what, light speed is too slow. We’re gonna have to go right to ludicrous speed. If we continue our current savings rate, take all of that former student loan payment money and invest it for retirement, we could reach financial independence within the next five years instead. Now that’s ludicrous speed!
Pay Off the Mortgage Early
Another thing we can do with the extra cash flow is pay off our mortgage aggressively. At the moment, I’m still on the fence as to whether I want to keep the mortgage around or pay it off early (topic for another post, perhaps). But if we take that extra capital every month and apply all of it to our mortgage, we will be able to pay it off in full within the next three years. Completely debt free in three years? Inconceivable!!
Explore Other Investment Opportunities
Finally, we could use the additional cash to pursue other types of investments and asset classes. Our portfolio consists primarily of low cost index funds, but I am thinking about expanding into other holdings such as real estate. The thought of owning an investment property is intriguing, although I would prefer not to have two mortgages out at the same time. Also, coming up with a down payment for property in my state (California) would take a fair amount of time. One other possibility is investing in real estate through crowdfunding sites such as RealtyShares. We would be able to get into the market with much less capital up front.
Preliminary Thoughts and Plans
At the moment, we’re leaning toward ludicrous speed and accelerating our retirement savings. Even though the idea of being completely debt free sounds appealing, I think I would prefer the ability to PTFO from my job if I wanted to. Maybe we’ll do a combination plan and put half toward retirement and the remainder in a “mortgage payoff” fund. This will be a separate taxable account where we would invest the extra mortgage payments instead of using them to pay down the principle. In this scenario there will be separate, non-retirement money that we can use to pay off the mortgage at a later point if we so desire.
Or, in the ultimate form of indecisiveness, we’ll do all three. We’ll save a little more for retirement, invest a bit more in alternative asset classes, and make some extra payments towards the mortgage.
Paying Off Debt is Supposed to Suck
I know I started this post off as somewhat of a Debbie Downer. The reality is that paying back any kind of debt is going to suck. Doing so at a faster pace is going to suck even more. As one blogger put it, you’re going to suffer while paying down your debt. So whatever you have to do to stay focused and see things through to the end, do it. For me, I’m thinking about that student loan debt free feeling. Also, planning ahead keeps me motivated and moving toward the finish line.