Very interesting that you make 20 student loan payments per month now. Crazy, almost. I’m curious what you’ll notice, what impact that will have. I hope it cuts a year or two off!
As for me, September was quite the spendy month. I’ve mentioned how expensive our move has been, and September is when many of the bills came due. We spent $36,000 (half of which was a car). That’s quite a chunk of money.
So, I had to make a decision about how to manage these payments, since I didn’t have $36,000 in available cash. I couldn’t just close my eyes and ignore these payments — I didn’t want to pay high credit card rates. So, I took action!
OPTIONS FOR HANDLING LARGE EXPENSES
Here were my options:
1- Stop buying stuff. Well, that ship had sailed, and we were intent on making our new apartment comfy as quickly as possible. We’re going for minimalism but not frugality.
2- Sell Investments. I have some investments that I’m drawing down, and I could have done that more quickly. Or, I could have sold investments from the LLC, or something. I didn’t really consider this because it wasn’t practical.
3- Reduce 401k contributions. Currently Mrs. Rich and I max out our 401k accounts to the tune of $36,000 per year (the limit is $18,000 per person per year). That’s $3,000 per month. We could have afforded all our purchases if we had stopped contributing.
This is not something I’m willing to do. That $3,000 per month is actually worth more than $3,000. Since all of that money is pre-tax, and we are in a high tax bracket, that $3,000 is actually more like $3,750. In other words, if we take home that $3,000 rather than put it in the 401k, we would lose $750 per month.
But wait, there’s more. We would also lose out on the company match, which is an additional $1,000 per month.
But wait, there’s more! We would also lose out on the interest being accrued in the account at a rate of 2.25%, which is not much but not nothing.
All told, stopping 401k contributions would be a terrible financial decision — we’d lose almost $1,800 per month in otherwise “free” money.
4- Increase debt. As you probably guessed, I went with this option. I did a credit card balance transfer of around $11,900 at 0% interest. The fee was 3% of the transfer amount, around $350. The debt is due in January 2019. Compared with losing $1,800 per month, $350 is small beans.
Some people will avoid debt at all costs, and I respect that. I also respect math, and in this case I went with the math. My goal is not to be debt free right now, my goal is to keep my net worth growing.
Debt, of course, as you know, can be taken to the extreme. I’m not going to borrow more than I need to. But in this circumstance, debt solves my problem rather easily. We have solid jobs and good credit, so I’m not worried about paying it down.
NET WORTH CHECK
Okey doke, let’s look at some numbers.
I went with a 3-month view to make myself feel better. Despite all the spending, our net worth is still up $12,841 over 3 months. I expect the next few months to be expensive, but eventually we will settle back in to normal spending patters.
Note: Click on this next graph to enlarge it.
The graphic shows our progress from September 2015, when I started tracking the goal of being a millionaire at age 45. I’m still ahead of the required pace.
This encourages me and should encourage Mrs. R as well. We’ve grown our net worth by $200k in 2 years! We have a lot going on, we have some debt, we have more expenses ahead, but overall we’re doing well.