This data was extracted from Personal Capital and is a plot of my net worth. There is data from before October 2013, but at that time I hadn't linked most of my accounts, in particular my loans. Today was a significant day for me because I had finally reached the point where my net worth is positive.
My story is, I finished with about $150000 or so of debt out of graduate school in 2012 and finally started making an income and living on my own. Previously, my only previous job was a low-paying job during college, and this was during the 2007-2008 period. At that time I had no knowledge of what a 401k or a Roth IRA was, no clue about a stock or a mutual fund. The financial meltdown didn't register with me. Even in 2012 after starting my job I was still unaware of anything related to investing.
Some time during my first year of working I stumbled upon the The Bogleheads' Guide to Investing book. It was useful knowledge, but I didn't have the determination nor confidence to initiate the plans laid out in that book. It was only a year later, after reading it once more again, did I finally open my Roth IRA with Vanguard. I played it safe with just VTSMX.
With regards to my student loans, I was on the IBR plan. I had no clue the amount of loans I would be taking out back then and no idea of the difference between subsidized and unsubsidized. In retrospect, I was never explained any of this when I accepted the financial aid package. Maybe they briefly did but if they did, I never thought about the future. I'm sure they would have explained if I had asked, but they did not volunteer this information (say what you will, but without a good mentor, without knowing what to ask, without knowing where it's headed, you are young and you don't necessarily have the foresight to see this). In addition I didn't realize paying this IBR amount would make a negligible dent to the loan principal. I feel most students and graduates end up in this situation.
It's unfortunate I can't explain what happened between 2013 and the end of 2015. My loan about was about $160000 at that point and stayed constant from 2013 until July 2015. I probably hoarded cash during that time (ie sitting in checking account making the bank money; I also did not have the concept of an emergency fund in my mind at this time) and spent it on stuff. I did maintain my yearly maximum Roth IRA contributions, however. It must have been around this time that I realized, gee, I'm accumulating over $10000 per year interest; any payment less than about $850 means all I'm paying is for interest (and my payments were a pitiful $500 a month). Here's a plot of my student loan payments over time.
I started paying extra each month when I had the extra money. The increase in net worth over the first half of 2016 cannot be explained purely in terms of paying off student loans, which I won't get into, but let's just say I made some atypical investments that in retrospect I would not have with my current knowledge. In short, stick to the Bogleheads philosophy to investing. If you see charts and numbers claiming high returns and they compare these directly to the SP500, assume they are manipulated (not fabricated, but selected for certain timeframes to make them look favorable). You won't regret ignoring these; just play it safe, slow, and steady. Keeps life simple, keeps the tax returns simple.
Continuing on, in mid 2016, my new job started. This one gave me access to a 401k and a great 403b so I have been shoveling money into these accounts to the best of my abilities, so my net worth growth continued on the same trajectory. I also refinanced my student loans, more than halving my interest rate ($10000 to less than $5000 per year). I don't get a tax deduction on student loan interest no longer, plus my future income will be consistent, therefore I was comfortable with refinancing and losing the student loan benefits. With Personal Capital, when they were pulling data from Sallie Mae/Navient, it only looked at the principal and did not include the interest on the principal, therefore I was saddened to see that large dip once the new refinanced amount registered in Personal Capital.
Also of note, in 2016, I had been leaving money in a checking account, enjoying seeing my balance grow larger. The realization, however, that doing that just gave the bank extra money that it can use to make money for itself led to me opening a high-yield savings account and diverting my money there and leaving a minimum in the checking account. 1% is not much, but a dollar is still a dollar.
With loans refinanced, I paid a steady amount per month. The interest rate is low enough that I feel comfortable diverting money towards investments/savings instead of paying off the loans faster. Every two weeks the remaining extra money bumps up my investment accounts and my net worth number inches towards $0 and it finally broke the $0 barrier this week. I still have a long way to go, but that is another story.
It's a long post; thank you for taking the time to read all the way here. If you're early on in your life, mid-life, or even later in life, I hope you picked up a few useful tips and mistakes not to make from my story. Currently I am reading The Millionaire Next Door. I have read quite a few blogs on investing, retiring early, etc, so have a decent amount of knowledge regarding investing safely and reasonably. Even if you feel the same, I felt reading The Millionaire Next Door affirms that living frugally and prioritizing saving is the right path, and the anecdotes in the book about the mistakes people make help me avoid the same ones in the future.
Submitted March 16, 2017 at 09:23PM by xilex http://ift.tt/2m7Rcfi
