In the summer of 2015, my wife and I had just tied the knot and embarked on this exciting journey in somewhat of an unconventional way: living in her grandparents’ backyard. Living in our grandparents’ guest cottage had its pitfalls, from being awoken nightly by their raccoon-hunting dog to discovering Grandpa’s ritual of doing laps in short swim trunks in his pool (the things I wish I could un-see).
We made this unorthodox decision after I graduated with my master’s in finance and $26,000 in student debt. With a wedding a month away, here I was “blessing” my bride with something that typically lasts a lifetime, and, in this case, it wasn’t a good thing.
This predicament is all too common in the lives of post-graduates today. Student debt has surpassed $1.3 trillion and is the second highest source of household debt behind mortgages. Forty percent of student borrowers aren’t making payments, and one in six is in default. Unfortunately, it is not only millennials who carry this weight. The government has garnished $1.1 billion of Social Security wages to pay student loans since 2001, according to the Government Accountability Office. Student debt will stick with you well into adulthood, and filing for bankruptcy doesn’t even get you out of paying back a federal student loan.
Here we were, faced with the decision to either progress with a monthly payment plan and pay it off over time or dig our feet in, live with the grandparents and knock it out as fast as we could.
Being a finance guy, I had to run a few numbers. A $26,000 student loan with an interest rate of 6.8% paid off over 10 years resulted in a monthly payment of about $300. It’s a good chunk of money, but it was doable each month. However, we would also fork over an additional $9,900 in interest, turning the original amount of $26,000 into $35,900 when it was all said and done. On the flipside, paying off the loan as fast as we could would result in the loss of excess monthly spending power. There would be no Instagram pictures of weekend getaways or an apartment to ourselves. It’s what economists call opportunity cost.
For us, the clear answer was to put up with the unconventional living arrangement, forgo some discretionary spending and pay off the debt more quickly. Through this journey, here are some of the invaluable things we have learned.
The Importance of a Plan
Once my wife and I made the decision to be all in, our plan was simple. Every single dollar beyond our monthly bills and groceries went toward the student debt. Bear Bryant, the revered University of Alabama football coach, once said, “Have a plan. Follow a plan, and you’ll be surprised how successful you can be. Most people don’t have a plan. That’s why it’s easy to beat most folks.”
To avoid carrying student debt well into adulthood, we had to plan out where our income would go each month. By establishing a budget, we were able to see where our money was going, cut things out and redirect them toward our goal.
Learn to Say No in Order to Say Yes
I am not one to say no to people. I usually try everything in my power to say yes, even if it is inefficient or an added burden. My breakthrough came when I was reminded of a quote by Stephen Covey, author of “The 7 Habits of Highly Effective People.” He said, “You have to decide what your highest priorities are and have the courage – pleasantly, smilingly, unapologetically, to say ‘no’ to other things. And the way you do that is by having a bigger ‘yes’ burning inside. The enemy of the ‘best’ is often the ‘good.’”
My wife and I had to make a decision for each dollar we earned at our respective jobs. In order to say yes to our goal of paying off our student loan, we had to say no to living on our own, movies at the theater, eating out, new clothes and birthday gifts for each other. None of these are inherently bad things, but they were luxuries we couldn’t afford. Something had to give, so we chose one over the other. We figured the sooner we got rid of this loan, the sooner we could do all of those other fun things.
Life Isn’t Made in the Abundance of Possessions
When your self-imposed entertainment budget is limited, you find ways to make great memories without spending a lot of money. We had the opportunity to spend time with family, especially our aging grandparents. By literally being in their backyard, we could pop in for a chat about politics or projects going on in the area, and maybe steal a fresh cookie from the jar. We will cherish those moments forever.
By staying vigilant and focused, we paid off all the debt in six months. I realize how fortunate we were to have the option of a place to live that allowed us to save as much as we did. Most people don’t have that opportunity, so we were grateful. However, it was not exactly the life we dreamed of as newlyweds. We had to learn the discipline of sticking to a plan even when outside pressures made us want to cave. We had to learn to say no for the immediate future in order to say yes to something bigger – being rid of student debt. We were even lucky enough to discover new joy and memories along the way. Whatever your goal may be, I hope you find the perseverance to achieve it.
About the Author
Stephen Nelson, CFP®
Stephen joined the firm in 2016 to assist individuals, families, and businesses plan for their financial future through prudent and values-based advice. Trust, stewardship, integrity, and excellent service are the bedrock of every interaction with his clients. His experience prior to joining the firm includes investment management, financial planning and advising. He aims to educate,…
- Financial planning
- Investment management
- High-net worth families and individuals
- Business owners
- CERTIFIED FINANCIAL PLANNER™