So it’s been several months now since I’ve graduated college and started working. I’ll be honest with my readers; I am not an experienced financial professional. In fact, I have recently graduated college as the writers in this site all have so this is just based on my personal experience. To give a better background on myself, below is my financial profile.
- Been working for almost 2 months, netting about $2k every two weeks after taxes and benefits deductions
- Very light spender and temporarily light saver (addressed below)
- Moderate amount of personal student debt in my name (~$15k), heavily indebted after accounting for my dad’s Parent PLUS loans that he took on so I can attend college (~$45k). The reason why I mention my dad’s loans even though they’re not technically in my name is because I am helping him pay it off. Additionally, my sister is planning to go to college in a couple of months so I am ultimately responsible for paying off this debt burden. Fortunately, all these loans are from the U.S. govt. so they currently are at 0% interest due to the pandemic. When the pandemic is over, their normal interest rates are a lot lower than loans from private enterprise
- Currently on track to max out my Roth IRA and matching company contribution for my Roth 401k. Since I’ve started working very recently, my retirement accounts total to $2,300
- No real estate or other assets; no stock portfolio
So as you can see, my net worth is negative (2.3k-15k = -$12.7k for loans in my name or -$57.7k including my dad’s loans). The reason why I mention all this is because I’ll be describing my monthly personal budget which may bewilder the majority of people, but I am prioritizing my debt pay down. Additionally, I’ll describe how my Chase card fits into the budget.
Now most people create an Excel spreadsheet when making a personal budget. I have also created one but for sake of readability, it’s so simple I can even describe it without you looking at cells.
Income: $4k a month after tax
Less Expenses: $169 for rent (currently subleasing out the place which is why it’s so cheap)
$750 monthly Roth IRA contribution since tax deadlines are in April every year so I’ll be maxing out the $6k annual contribution limit
Available debt sweep: ~$3k
The sublease situation has been a recent development but as you can see, I’ve been putting ~$2-3k a month toward debt payments as I want to pay off the entire debt amount within 2-3 years. My credit card is basically my emergency spending; if some unexpected expense happens, I can use my credit card and when my next paycheck comes in, deduct whatever I spent from the paycheck to pay off the card. Of course, this only works if the unexpected expense occurred in the beginning of the month.
Thus, after the debt sweep I’ll have either no or very little flex spending available. Additionally, I have no savings as my entire paycheck outside of my Roth contributions and rent have been going toward debt payments. Fortunately for me, I am able to fall back on my parents as bad as it sounds. Due to the pandemic, I’ve been able to pay for no groceries and very little rent as I am living at my parents’ place. Thus, I’ve been able to maximize my debt payments.
Why am I doing this?
The main reason why I’m aggressively paying down my debt is because I plan to buy out a business in the future. This requires me to aggressively build up my net worth and one way to do that is to de-lever my balance sheet or pay down debt. The greater assets and lesser liabilities you have, the greater your net worth. A common path to finance a business acquisition is to obtain an SBA loan which requires a personal guarantee. Thus, I am building up my net worth by paying down my debt.
What you should do if you’re not planning a big purchase in the future
If you’re not planning on buying a home or business in the future, you should NOT be doing what I’m doing. Because interest rates on federal loans are 0%, you should be maximizing your retirement accounts. I am only maximizing my Roth IRA, not my Roth 401k which has a maximum contribution of $19k a year. Additionally, you’d want to save at least 3 months worth of your after-tax salary for emergencies but 6 months is ideal.
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