From debtor to creditor

Well, I did it. As of February 25th, when my final payment cleared, I am officially free of student loans.

It was somewhat anticlimactic — a part of me wanted animated fireworks or a "Congratulations!" from the Department of Education website — but I've been feeling really good about it all week. This evening we're getting together with friends to hang out and celebrate.

Below is my entire payment history on my federal loans. It starts after I consolidated my loans. As you can see, I didn't pay the minimums for long: I paid off my private loan in May of 2012, and started paying this one off aggressively thereafter.

In December 2011 I set forth to pay off my student loans in two years. It took me 14 months. This is good news, since it means I can start building my stash ahead of schedule. The bad news is the almost $9k of 0% credit card debt I've amassed during that time, which I must pay off by April 2014 to avoid finance charges. If I were to attack that debt as aggressively as I attacked my student loans, I would be free of it around July.

I mentioned in this post's title that I'm becoming a creditor. I've started investing with Lending Club. I first heard about Lending Club from Brave New Life, and most recently of course Mr. Money Mustache has taken the plunge. I decided that now my excess income has nowhere to go, I wanted to earmark most of it before it even shows up as a commitment device to keep saving and investing. One such commitment is $500 per month to Lending Club, which at $25 per note (the smallest amount you can invest at a time), means I can invest in 20 notes per month. This means I won't be fully diversified for quite a number of months, which is an additional risk. I am hoping to counteract this risk by being extra picky about which loans I fund — in this case, I intend to submit two or more questions per note I'm potentially interested in, and only fund the notes where I'm satisfied by the borrower's answers.

After building up a cash buffer of around $2k, I'm going to make a similar commitment of funds (probably via an automatic bank transfer) to a brokerage account. This way I won't burn a hole in my pocket, and I'll have spare cash around to jump on attractively-priced equities whenever an opportunity arises.

Paying off my loans is great, but it's one step in the journey. Now I can finally start focusing on asset accumulation which I've really been looking forward to. I'll also keep working on debt reduction since I feel like I won't feel truly free until I'm debt free. That will take a while but at this rate I know I'll get there.

A year of self-haircuts

It's been a year since I bought a Wahl clipper per Mr. Money Mustache's advice. In that time I shaved with a razor maybe half a dozen times, and I never went to a barber. I can confidently say that this has been one of the easiest and biggest wins for me during my time as a Mustachian.

In terms of pure numbers it's a no-brainer. I estimate that I used to get a haircut every six week or so. That's about 8 haircuts per year, rounding down. At $17 per haircut ($14 plus tip), that's $136 per year on haircuts. I usually shave every two to three days. Let's say I replace my Mach 3 Turbo blades every 3.4 weeks, to make the numbers convenient: that's 15 blades per year, which I can find on Amazon right now for  $15.99 for a 5-pack or $28.99 for a 10-pack; let's take the lower $2.90/blade number and say that's $43.50 per year. Shaving cream is $1 per can, and let's say I go through one every six months, for $2 per year.

My Wahl clipper was $25 and saved me $181 in a year, which by my count is a 624% return on investment this year.  Pretty good!

I saved a lot of time, too. A trip to the barber takes somewhere between 45 minutes and an hour and a half, including travel time and wait time. Cutting my own hair takes maybe fifteen minutes in the comfort of my own home. And the time saved is prime time: I visit the barber on the weekend, usually during the day when I could be doing anything else with my time; whereas I can (and do) cut my own hair on a random Tuesday evening. So I estimate I've traded 9 weekend hours for 2 weeknight hours, which is a pretty awesome trade.

Now, I don't want to pretend like it's all roses. The average quality of haircut I receive from a barber is noticeably higher than that which I give myself. I screwed up my sideburns once or twice while I was learning how to cut my hair, and I haven't even attempted the fancypants layering technique that the professionals can do. At best I've learned how to make my hair passably well-kept, which is good enough for me. If I were so inclined (which I'm not), I think I could pick up a technique or two approximate more closely the haircuts given out by professional barbers. That is time and effort that you may be willing to invest yourself.

It remains to be seen how long my clipper will last. It shows no noticeable signs of degradation, and I freely admit I have not been doing much to maintain it. Whenever it does decide to die, either tomorrow or in one or five or ten years, it will have paid for itself many many times over.

In conclusion, I highly recommend buying your very own Universal Men's Grooming Device (or clipper or trimmer or whatever you want to call it), and using it to maintain all your facial hair. I was skeptical at first and now I am a true believer. Worst case you spend a little more for a crappy haircut and go back to your life at the barber shop. Best case you save thousands of dollars and hundreds of hours over the course of your lifetime. Give it a shot!

January update

A few notable things happened during January and it's time I filled you in.

I realized I needed a better handle on my 0% credit card debt after I blogged about it last month. Almost $9k split across multiple credit cards with different introductory rate periods was really stressing me out. I found that the Chase Slate* card offered 0% APR for 15 months, with (get this!) a no-fee balance transfer promotion. That's a pretty unusual offer nowadays so I decided to take advantage.

It looks like they're still offering the no-fee transfer promotion, too, so it could be something to consider if you're carrying credit card debt. Just remember that if you do transfer a balance, you're not allowed to carry a balance on any other card you have ever again, or Mr. Money Mustache will punch you in the face. I'd like to avoid credit card related face punches so I've set automatic bill payment for the full statement balance on every other credit card I have. In this way my debt will continue its downward trajectory automatically, since I won't be able to pile on any more credit card debt without thinking about it.

Now I have 15 months to tackle $9k in 0% credit card debt. That's enough breathing room to fund some tax-advantaged accounts before April 15th while still vanquishing my student loans.

So let's talk about my student loans. My march toward financial freedom has been largely automatic for at least the past few months. I made a payment of $1600 on 12/27/2012 and one of $2940 on 1/22/2013. As of today my balance stands at $4,049.68. The balance of my checking account is $4,251.72. Thus I have the rare pleasure to report that, for the first time in 8 years, the balance of my checking account exceeds that of my student loans. I don't want to cut my finances too close this month, so I'm going to wait until my next round of debt service occurs before I send in my final payment, but it looks like I'll be student loan free in early March.

Now for the (relatively) bad news: last month was the first month I ever missed a credit card payment. The cause was solely inattentiveness. I thought I had auto pay set up on all my credit cards, which was true except for my Amazon.com Visa. My bill pay reminder emails were filtered automatically out of my inbox and I went more than a month before checking them. They even sent me snail mail to tell me that my payment was late; I let it sit for two weeks before opening it. The only way I found out was an automatic alert from my Credit Karma** account saying that I missed a payment.

This is obviously no one's fault but mine. As soon as I found out I immediately logged in and paid my balance in full. It was only about $300, mostly Christmas spending. At first I was a little upset that my previously "good" or "excellent" credit score was now only "fair". But the more I thought about it the more I think it's a blessing in disguise. For one, it was the kick in the butt I needed to get my figurative house in order: I had been letting little things slip like chores, home maintenance, emails, etc. But the bigger benefit is that it effectively removes my ability to continue the kind of credit shenanigans I've been doing for the past year.

I don't anticipate being negatively impacted by the hit to my credit score. I already have all the credit I could possibly want; indeed, I have too much. I'll be de-leveraging for at least another year or two, paying down my 0% debt and car loan. I already have a mortgage and a personal line of credit. The only other credit I could possibly want is a home equity line of credit, and it will be a few years before we have enough equity for that.

Never borrowing money is a great way to get ahead financially. Sure you can do better, in theory, leveraging your credit to take cheap money and invest it for higher rates of return. That is a risky approach. It is much safer to spend less than you earn, save and invest the difference, and keep out of debt.





* This isn't a sponsored link, so I won't get any money if you apply using it.
** Credit Karma is free, and while they don't give you your actual FICO score, I highly recommend the service.

New years updates

Happy new year everyone. I'm going to post some updates on my financial status, and do a recap of how well I met my goals in 2012.

It has been a while since I've written at length about my finances. I'll start with my student loans and go from there.

Personal finance update

I made a payment of $1600 on December 27th, of which $43.31 went to interest. The interest is accruing more and more slowly every day thanks to my accelerated payoff.  This took my outstanding balance down to $6,954.92, just under $7k. Payoff is in sight and it feels good. As a bit of trivia, my next automatic payment is not scheduled until September of 2020.

My checking account has $3,612.33 in it, and I get paid this week. I'm keeping the balance higher than usual for two reasons: 1) as a safety margin in case I get fired or have to pay off my 0% credit cards in a hurry, and 2) in anticipation of funding one or more tax-favored accounts before tax day.

I ran some numbers last week projecting my personal finances deep into 2013. The results were sobering. I determined that yes, I could pay off my student loans by around May and still have enough money left over to both partially fund my Roth IRA (for $3k) and fund my Health Savings Account for around $1k. But I've accrued over $8k in 0% credit card debt over the past six months or so, and paying that off in a timely manner is going to throw a wrench in things. As such I'm no longer planning on funding my Roth for this year. I do have the cash to fund my HSA, and I'm favoring that approach because of the direct effect it will have on my tax refund.

Okay, let's talk about my 0% credit card debt. I've got a lot of it. It's part of my strategy to accelerate the payoff of my student loans and I feel I've been using my 0% cards to good effect. As of today I owe $6,372.19 on a Discover card (promotional APR lasts until August 2013), and $2,256.74 on a Capital One (I'm not sure when the promotional APR ends on this one, but I'd better find out).  That's $8,628.93 in total, almost as much as my car loan! It seems like a totally unreasonable number so I'd like to share some context.  $2200 on the Discover was a down payment on a couch, which was a joint purchase and which I was reimbursed for immediately from our joint checking account (and which I immediately used to make a dent in my loans). Another $500 or so was for the purchase of an iPad for my step mom, split 5 ways so my share was around $100, and for which I was reimbursed. On the Capital One, I recently charged a $600 dentist bill (that was awful but necessary) and a $800 bill for eye glasses (it is likely I overpaid, and my second pair was not fully covered by insurance). Both of these charges, and around another $200 of miscellaneous medical bills, I can and will reimburse myself for out of my Health Savings Account. All together that's about $4200 in interest rate arbitrage. That means my pure spending since mid-May is around $4,400, for an average of (roughly) $675 per month. This is still pretty high. I'll have to work on bringing down my miscellaneous spending in 2013.

My automobile loan balance is $9,303.19. The monthly payment is $184.18. I need to ignore paying this off until I have a better handle on my student loans and 0% credit cards.

My take away from all those numbers is that I have a lot of balls in the air right now. I'm playing with fire and I'll be relieved when my student loans are gone.

2012 goal wrap-up

(goals page is on the navigation bar at the top of the page)

I'll start with the good news. I had a financial goal to eliminate PMI from my mortgage, which we completed in March of 2012 by refinancing. That's $150 per month we're no longer throwing away, so that's good.

In 2012 I set three non-financial goals for myself. They were:

• (Be able to) do 40 consecutive push-ups
• Lose 10 pounds (be 158 lbs or less)
• Learn to cook 5 good staple meals that my girlfriend can enjoy

Of these I only completed the last one. I currently weigh 170lb, about what I weighed at the start of last year. I did set a personal record of 35 push-ups when I did my push-up challenge last September, but I never did push myself hard enough to hit 40. I guess I didn't want it badly enough.

But I did learn to cook a few meals. They're all easy since I'm still a cooking novice.

• Quinoa and black beans
• Mushroom risotto
• Fajitas (this came as a kit but sauteeing peppers onions and beef with taco seasoning is not hard)
• Various chili recipes (throwing beans and spices into a slow cooker is pretty straightforward)
• Bul-gogi (my girlfriend didn't eat this one but I thought it was good)
• All kinds of pasta and pasta sauce

So... I could have focused more on my goals for 2012. I'm still putting together my list for 2013, and I'll be taking these failures into account as a learning experience.

Reflection

2012 was a good year. We completed my first-ever mortgage refinance. I got a 10% raise at work. I bought a car and took out my first-ever (and hopefully only-ever) automobile loan. My girlfriend (and myself by extension) got two dogs, and I adopted a cat.

I brought my student loan balance from $29,780.23 last January to $6,372.19 today, in part by accruing $8,628.93 in 0% credit card debt — a net debt reduction of $14,779.11, not including my car loan.

I'm feeling pretty good about last year and about the coming year. At the very least 2013 will be another year of milestones. I'll keep making progress toward Mustachianism, like a snowball growing larger as it rolls downhill.

Dry your clothes the awesome way

I never thought I would be one of those people who hangs up their clothes to dry. Here I am, three weeks into my own laundry drying rack experiment, and I can honestly say it is awesome and I'm not planning on going back.

The day after I fixed my furnace, I made another investment. I purchased a folding clothes drying rack off of Amazon.com (full disclosure: I just signed up for Amazon's affiliates program so I'll get money if you buy things by clicking on Amazon.com links from now on). I'm not sure what put me in the mood to make this investment and to change my default clothes-drying behavior. Perhaps because it's winter now, and it's mostly cold outside — that got me on an insulation kick where I used rope caulk to seal up my windows (maybe I'll write that story up later, though I don't think there's much to tell). And if I was willing to make that investment, then why not an investment in clothes drying which has an insanely high ROI?

Mr. Money Mustache wrote this up a year and a half ago. With a ballpark estimate of 1000% ROI, this is an incredibly worthwhile investment opportunity. I don't know enough to improve upon the 50-cents-per-load estimate on running a traditional electric clothes drying machine, so let's let that ROI estimate stand. What I can tell you about is how my new drying rack has changed my laundry habits over the past three weeks. Spoiler alert: I like what I'm seeing.

I'll admit that my laundry habits are pretty abysmal. I'm guilty of your typical college or adolescent behaviors: using the floor as a laundry basket, leaving clothes in the washer or dryer for hours, leaving clean clothes in a laundry basket for days (sometimes folded and sometimes not). But, while I can't say a drying rack addresses all of my bad laundry habits, it's a serious force pushing in the right direction.

How is air drying different? First, I have to do smaller washes. The drying rack only holds about half a "normal" load of laundry. In the picture above you can see maybe four t-shirts, four pairs of boxers, and some socks (and there are probably one or two things you can't see). It means I can't spend three hours on a weekend powering through my entire wardrobe. Maybe that's a bad thing, but it also means I get to avoid the laundry folding fest that I've come to dislike. The task of "doing laundry" now entails a series of five steps, each of which takes no more than five minutes at a time: collect dirty clothes, engage wash cycle, hang up washed clothes, fold dry clothes, put away folded clothes. Small loads means homogeneous loads that are quicker and more fun to get through.

Clothes that are already hanging don't wrinkle if you neglect to fold them as soon as they're done. They are a lot less fluffy than when they come out of a dryer — at first. This leads us to a fun new activity: beating up your clothes to fluff them up! You can flap them around in the air for a bit, though I much prefer beating them against a couch or my leg. It was an unexpected activity that I now can look forward to whenever my clothes are dry.

There's also the savings from having your clothes wear out more slowly. Dryers put a good deal of wear on clothing because of the high heat (and all that lint coming off the clothes probably doesn't help). Even estimating a modest reduction in clothing depreciation and conservative wardrobe turnover, this alone can save somewhere between $10 and $100 per year — nothing to sneeze at.

Last, I'm quite happy with the model of drying rack I purchased. It feels sturdy, both when it's standing assembled and during assembly and disassembly. Assembly and disassembly are quick and easy. It folds up small so it can be stored away when it isn't being used. And it's got a small footprint while still providing a bunch of hanging spots; the other drying racks I looked at took up way too much space.

In conclusion, I highly recommend you try air drying your laundry. For less than $25 it's worth a shot, and you just may find you enjoy it more than the status quo.

Save money by diagnosing furnace problems yourself

tl;dr I saved a bunch of money by diagnosing furnace problems myself, instead of calling in a technician.

Two weekends ago the furnace was on the fritz. It clicked on to start running and my girlfriend smelled gas. That was at 10pm. We switched off the furnace, called the gas company to send out a technician, and waited. He arrived after midnight, which gave us plenty of time to worry about all the things that could be wrong, how much money it would cost to replace everything, and of course, what it would be like for our house to blow up.

The technician was a nice guy. He assured me in no uncertain terms that our house was not about to blow up. He popped open the furnace case and took a look. It seemed the hot surface igniter was heating up, the gas was kicking on, but the gas wasn't igniting before an automatic fail-safe shut down the process (to prevent gas leaks). At the time he said our igniter was probably bad, that we should call a HVAC technician in the morning and not worry too much. (Spoiler alert: it wasn't the igniter, which makes sense since the igniter was heating up just fine).

Naturally I figured it was the igniter, since that's what the gas technician said. I also figured I should leave this matter to the professionals. The gas technician shut off the gas line to the furnace, wrote up some scary looking OPEN AT YOUR OWN RISK-type warnings and put them in appropriate places on the furnace — typical cover-your-butt stuff. So I called up the company that I already used to inspect our air conditioning unit. I fully expected to set up an appointment and do whatever they recommended.

But then we got into the details. I mentioned to the receptionist that the gas technician said it was probably our hot surface igniter. Is that usually an easy fix? "It depends. We might not even stock your igniter. What's the model of your furnace?" I read her some names and numbers that looked relevant. "It doesn't look like we have those parts in stock. I'll have to get in touch with a technician to see if he has a universal igniter that will fit." Alright, fair enough. How much will this cost? "$90 for the service call. After that it's parts and labor." Can you give me a ballpark on how much that might be? "Sorry, the technicians handle that." Really? You can't give me any sort of estimate? "Sorry." Alright, thank you. I'll call you back to schedule something.

At this point, I'm worried. I'm worried about opening myself up to a big financial risk, on the order of hundreds of dollars, for what might be a wild goose chase and replacing the whole furnace anyway. I'm worried about being over-charged on an easy repair, or a part I can get for half the cost online. I decide it's worth looking into myself first. I can always call in the professionals later.

First I crack open my furnace, warning labels be damned. I turn the gas on and have it run again. Same thing, igniter heats up, gas kicks on, gas doesn't ignite, gas kicks off. Okay cool. I'm still operating under the assumption that the igniter is bad, maybe it's not getting hot enough or something. I figure out how to unscrew it and pop it out. Now I start googling around for where to buy this part. Is there some local HVAC supply store I can go to? It's the weekend, and they're all closed. Maybe I can get it shipped quickly? Here's one, same model number, but it won't get here until Tuesday. Okay, that's an option.

There I was, all ready to buy a replacement part. But it would take days to arrive, and I wasn't even sure that would fix my problem. So I kept researching. Youtube is fantastic for DIY home repair how-tos. I found a couple of guys taking apart their furnaces, explaining what each part is, how the ignition system is supposed to work. That's when I learned that when hot surface igniters fail, they fail by cracking or breaking so they don't heat up at all. Hmm, very interesting, because mine was still glowing just fine. I didn't have an ohm meter to test whether or not it was broken for sure, but "the igniter is fine" was my new operating assumption and I made a note that probably I should own a multi-meter for answering such questions about when electrical devices are burnt out.

With fresh resolve, I kept googling until I found a website for troubleshooting all the things that could possibly be wrong with your furnace. I found a scenario for all the symptoms I was seeing: igniter heats up, gas kicks on, but gas doesn't ignite. The website said that the gas nozzle might not be positioned properly, so it's not blowing over the igniter — that or something is wrong with the flame detector.

I re-installed the igniter, this time shifting it back or forth just a little bit from where it was positioned earlier. And what do you know, after a little fiddling, the gas ignited properly.

It was all pretty awesome. I solved a problem myself, learned a lot about my furnace in the process, and saved at least a hundred dollars. To celebrate, I invested some of the money I saved into tools for future money-saving endeavors: a multi-meter, a kill-a-watt, and a package of incense sticks (for checking for drafts). Total cost: $46.72 through Amazon.com. Previously I had bought some rope caulk to seal up my windows, and the next day I decided to take the plunge and buy a clothes drying rack — but those are stories for another time.

In conclusion, furnaces are not as scary as I thought before. Once the guy from your gas company tells you that the house is not going to blow up, you can learn a lot (and potentially save a lot of money) by looking around in there yourself.

Bringing home-made lunch to work

I've picked up a few habits from Mr. Money Mustache that, while they seem small at first, compound greatly over time. Making your own lunch is a great example. Eating out on any given day doesn't cost that much money (if you're debt-free). But eating out every day, or even just a few times a week, adds up fast. And in the same way you can have an eating-out habit, you can also cultivate a bringing-leftovers-to-work-for-lunch habit that will save you tons of money over the course of your working life.

Let's dig in with some numbers.

Restaurants around me charge anywhere from $5 to $12 for a lunch. I think this is relatively high-cost: even when I worked in San Francisco there were $5 lunch options on every corner, whereas the only $5 lunch I know of around here is Subway. Let's say buying lunch from a restaurant costs $8 on average.

Bringing lunch from home is much cheaper. On average you should be spending around $1 per person per meal in frugal mode. I know that a lot of people do better, too, reconstituting dry beans and mixing up delicious vegetarian meals with rice, lentils, and fresh veggies. But even if you confine yourself to the frozen meals section of your local grocery store, I bet that you can eat for less than $2.50 a meal. Let's agree on a very generous amount of $2 per meal that you prepare yourself and bring to work.

If we work 50 weeks per year on average, with 5 days per work week, that's 250 work days per year. If you bring your lunch every single day, it will cost you $500 for the year just to eat lunch while you're at work. If you buy lunch every single day, it will cost you $2000, for a difference of $1500 above and beyond the home-made lunch option. At a safe withdrawl rate of 3%, you would need $50k to generate the additional I-can't-be-bothered-to-cook-my-own-lunch income.

But the real world is rarely all-or-nothing. Let's take the scenario of buying lunch once per week. That's $6 extra per week, for fifty weeks out of the year, for a total of $300 extra dollars spent per year — a 60% increase over never eating out. That represents $10k in your stash (at 3% SWR).

Here is that same calculation for one extra lunch purchase per month: $6 per month is $72 per year, which requires $2400 in your stash (at 3% SWR). This scenario is much more reasonable. I think many debt-free Mustachians could find an excuse to treat themselves to lunch at a restaurant once or twice per month, especially in the company of some awesome co-workers who can all celebrate at least in part about all the money they've been saving by eating leftovers.

I have been watching my eating out for about a year now, ever since I started reading MMM. I would estimate I used to buy lunch two to three times per week; now I buy lunch perhaps one to two times per month. So my more-spendy self would spend somewhere between $36 and $66 dollars per month more than my less-spendy self. Let's take the average and say I've saved $50 per month, just on lunches at work, thanks to reading Mr. Money Mustache. That means that in just the past year, I've become $600 richer than I would have been. Just from lunch at work!

I hope these calculations can be yet another data point on how small incremental changes to your lifestyle can yield big effects.