Paying Yourself First

So, having my student loans paid off is still settling in, mentally; I find myself double-checking in mint, just to make sure, you know, that they're really gone. And also to look a little despairingly at the credit card balance still remaining, which is going to take longer to ditch; if only I'd had just one more month at my old rate of pay.... Oh well.

But that sort of brings me to what I want to talk about today: what worked for me and what didn't. I got the loans paid off in a year, which was my initial goal, so that's all well and good. But what I did not do was pay them steadily. I could have paid (roughly) $1600 a month for twelve months, around 41% of my take-home pay. Instead, I used several months of my grace period making payments of other kinds: purchasing a used car, paying off credit card expenses incurred in moving and in the wisdom teeth removal I had to have last spring, buying furniture. I didn't start making student loan payments until the end of September, with my third monthly paycheck. This already had me in a place where I'd have had to pay just under $2000 a month for ten months. But I wasn't steady at that either; I missed a month almost entirely in February to make a tax payment, and there were other months where after I'd paid off my credit card, which I wasn't really budgeting, I had much less to put to debt than I'd have liked to. In the end, I was behind enough that for the last several months, in order to meet my goal, I had to pay $2500 a month! This meant a hit to other goals: paying cash for moving expenses, starting a savings account, etc.

What I learned over the course of this last year is that if something really matters to me financially, I have to do it immediately and up front. If my goal is to pay my student loans (never again!) I have to figure out how much needs to go out, pay it as soon as a check comes in no matter what, and just do it. If my goal is retirement, same thing, I should basically never "see" that money. Because if money comes in and I think "I'll pay what I can at the end of the month," the odds are pretty good I will have found something else to spend much of it on :)

I didn't do a lot of truly frivolous spending over the past 12 months. But in retrospect, if I'd been paying out consistently on those loans every single month, before starting to spend what was left, I would have been stricter about a number of things, ranging from furniture to entertainment to food (of course, always food). It's a good thing for me to keep in mind as I embark on a lower-income year: put the money where your priorities are, first, and then figure out the discretionary spending from there.