(Making Less than the Median Income for a College Grad)

June 1st 2015 is officially my debt free birthday. I graduated from college May 30th, 2013, and set a goal upon graduating of paying off my student loans in 2 years. I won’t publish my income publicly, but I will say that the median income for a college graduate in 2012 was $46,900, and that is more than my annual salary. My job is amazing and my income is fair. I didn’t become a youth pastor for the money! But whatever money you make you manage. With my income I managed to pay off my student loans.

I didn’t write this post to brag, although I’m very proud of this achievement. I wrote it because there is a national student loan crisis. I just read a terrible op-ed from the Times about defaulting on student loans and unfortunately many people my age have bad habits of personal finance. More than that, few of us received any formal education on the harms of accruing vast amounts of car, credit card, and student loan debt, and we are learning the hard way. I hope by sharing my experience it will inspire some others to change their habits and thereby change their future. I firmly believe that money management is an important issue, even a moral issue. Having been blessed with great privilege and opportunities I want to manage my money to honor God and benefit others.

But that’s not what I hope to convince anyone with this post. It is not prescriptive, it’s descriptive. I’m fully aware that certain blessings, like getting a job straight out of college, a graduation gift that helped pay for my car, and countless other things have contributed to me becoming debt free. My situation is not your situation and I cannot tell you what to do. But the reality is that 1) in our economic system the power of compounding interest is powerful to build debt or wealth 2) to have a college degree positions one to earn great money and 3) that leaves an incredible number of choices. Here are some choices I made with the money I made in the past two years, I hope they help you in making your own choices.

I decided no amount of student loan debt is “good debt”: Student loans are good debt only insofar as going to college increases your long-term wage earning potential. But after getting the degree there is no such thing as good debt. Dave Ramsey puts it this way, “would you be happy not to have the debt? Would you breathe a sigh of relief? Then it’s not good debt.” I agree. College was one of the best times of my life. If I could go back I would go to the same school and rack up the same loans. I am so grateful my parents and grandparents were good stewards and generously paid for a good portion of my schooling. But I hated coming out of school with student debt. It hung over my head, accruing interest every day and annoying me like a pestering fly. I also hated the fact that the minimum payments could let me be financially lazy and forget the tens of thousands of dollars of debt secretly shackling me. I could easily forfeit thousands of dollars and financial freedom if I wasn’t proactive. I got tired of losing money and knew “the borrower is the slave of the lender” (Proverbs 22:7). So I resolved to systematically execute my loans.

I shared my apartment… and my room: Coming out of school I moved home. I understand not everyone has this luxury and I have my wonderful parents to thank for this. I also received some great advice from my oldest brother Charlie on renting. During my junior year of college, we were talking about life after college and he said, “Jeff, pay as little as you can in rent. I overpaid on rent during my 20s and I could have saved SO much money if I had not lived in as nice of places.” I took his advice to heart. I paid my parents rent, but not much, $300/mo for 4 months after I moved home. Soon after that two of my friends moved up to San Jose and we decided to get an apartment together. Remembering Charlie’s advice, I told the guys I had one stipulation. I would not pay over $600 per month in rent. We found a 2-bedroom apartment for $1550 that wasn’t too far from work, and the three of us moved into it. Soon afterward we added a 4th roommate and we were spending only $393.50/month in rent! Since then I’ve been sleeping on bunk beds and sending all the extra money toward loans. In college I slept on bunk beds, so this hasn’t been a difficult transition. Sure having zero fridge space and jumping off the top bunk in my sleep (it’s happened twice… terrifying) is less than ideal. Yes, we’ve trapped two rats in our living room and police helicopters occasionally shine spotlights through our neighborhood. I just pretend this stuff makes life moreadventurous. Rent has probably been the greatest area of savings for me. Deciding to share a room rather than overpaying for housing gives great margin to my budget. Thanks Charlie!

I tracked my expenses and set a budget: I use Mint.com. It is a free tool for tracking expenses, budgeting, and net worth. It will automatically set a monthly budget for you that you can intuitively adjust each month. Tracking expenses helped me to slow down my spending, especially toward the end of the month, and motivated me to consider each expense as part of my larger financial goals. Part of my monthly budget was student loans. It’s kind of crazy to me that I averaged over $1000/mo in student loan payments over the past 2 years, but it consisted of setting a minimum payment amount of $400, often paying more, and periodically paying large lump sums like money from the side jobs noted below toward the loans. I still have room for improvement with budgeting well and sticking to the budget. That’s fine because I’ll be doing it for the rest of my life. The main goal? Make sure each month I’m spending less than I make.

I bought a used car with cash: I’ll just say it. Buying a new car has to be one of the worst financial decisions a lot of people make when they get a job. Yes, for most jobs you need a set of wheels, but they in no way need to be expensive. Cars are one of the biggest depreciating assets you will buy. Cars lose value. It’s what they do. Immediately after driving a financed car off the lot, you’re underwater on the purchase. If you can afford to buy an expensive depreciating asset that’s one thing, but with my student loan debt that was out of the question. For me it’s always been the simple math of a cost-benefit analysis. Do I want to spend 15k over the next 5 years on a car that will be worth 9k after those 5 years? No. Please no. So, I found a gas efficient, cheap car (2001 Honda Civic) and bought it with $4,000 cash. I looked at 4 other Civics before purchasing this one because I wanted to be careful not to buy a money pit. The Silver Bullet has been fantastic to me. I’ve put 30,000 miles on it since purchase and all I’ve had to do is change the oil. Cha ching!

I took up side jobs: Alongside my day job I have made some extra money here and there by working side jobs. I’ve coached 4 lacrosse teams and 3 volleyball teams in the past 2 years. I don’t do it primarily for the money. Coaching is a way of connecting with the community and tapping into my passion for sports. But the money is nice! Instead of using that money to buy new toys I’ve thrown most of those windfalls straight into loans. Now I get to look forward to investing that money in other things. First on the list is paying for grad school out of pocket, (Yes it’s a little depressing to be putting more money into education, but at least there are no loans!) I also took a trip to Israel this past January. I got a great deal, but it was still $2,500. I had made some dumb decisions with credit cards over the summer and did not have the capital on hand to pay for the trip out of pocket, so I took up some extra work street sweeping. That was not for the community, nor was it a passion; I did that for the money. It’s not glamorous work, but it’s work, and well worth the trip to Israel!

Those are some major decisions I’ve made in the past 2 years to become debt-free. I look forward to having more choices now that I’ve shed the burden of student loans. One final thought. I compiled a spreadsheet with all of my loan payments recently and noticed that over the past two years I paid roughly $26,000 in principal and $2,000 in interest. If I had paid the loans in 10 years I would have paid $9,905 total in interest. That’s $7,000 dollars I’ve already saved by paying off those loans! That’s a raise of $875 per year. Nice. And here is the kicker. Like I said earlier, compounding interest is powerful. What if I put that $875/yr into a mutual fund with middling returns of 8% per year? In 8 years that $7,000 would be worth $10,051. These are the sorts of calculations that made it impossible for me to just wait and pay off my student loans. In my mind it simply costs too much to pay the minimum on loans. Here’s to you friends, may your debt free birthday come sooner rather than later!

Jeff