Well – I suppose it’s time to get a little personal. There’s no real way I can meet my goal of writing a couple of articles a week without delving into my life, so we might as well get started now.
I’m an MBA student (on top of a full time job, and two kids under 2 years old – life is, um, interesting right now). I’ll be done with classes in October, so I’m about a year and a half in. And I have the loans to go along with that. Fortunately, I’m not going to top-tier B School, so I’m not six figures in the hole for this education, but it’s also not insignificant. Until this month, I’ve been hustling to pay the loans down as quickly as possible.
So, why did that change? Well, since the birth of my daughter, I’ve been thinking a lot about my goals and the processes to get there. I’ve done quite a bit of reading, and spent a good amount of time thinking about what I am REALLY looking for when I set goals. As it turns out, paying off my student loan in 2014 is just a function of a deeper desire – a desire for security for my family.
Now, I need to qualify what I’m about to say, because it doesn’t work for everyone. I am, by any measure, fortunate. My wife and I have stable jobs that we love. We have a wonderful support system, and we’ve been pretty disciplined with our budget and avoided any significant amount of debt (other than our mortgage, and my student loan). These factors are key, because that means that this particular monthly payment isn’t really a stress point for us.
As I was making this month’s payment (pre-payment actually, I’m not scheduled to start repayment for a year) – I realized that it wasn’t really making me feel better about what I really want. So, instead, I made some adjustments to my pretty extensive personal finance spreadsheet, and figured out that I’m better off taking the amount I’d aggressively pay in to the loan, and simply saving it.
Why? Well, for the amount I owe, the interest over the 2-year horizon I now have to pay it off is minimal. Especially when you consider that interest is tax deductible. Also, the safety net fund in my Betterment account is pacing towards beating the interest rate on the money I owe. Essentially, I break even.
HOWEVER – what I have at the end of this year is now a decent pile of cash to fix a car, pay a medical bill (because with kids you get one of those about every 3 weeks), cover a month of daycare, or keep this whole ship afloat in case of a real disaster. I get peace of mind.
Just to recap, this works IN MY SITUATION. It’s not for everyone, and in fact, for most people, getting 100% out of debt quickly is the way to go. I’ve gone that route before, and it works. But, in this case, I can achieve the same thing on my family’s balance sheet – but with extra security in the short term and (hopefully) the magic of compounding interest in the long term.