I know I’ve already made a post about my main goal, which is getting out of my house BEFORE I turn 28, but that’s a pretty big and more long-term goal (deadline close to two years away). In order to keep myself motivated and put myself in a spot where I can comfortably afford that, I need to set and accomplish some short-term goals that will help lower my total expenses, allowing me to put more money towards my rent when I move out without having to increase my income (assume I mean utilities, as well, when I say “rent”).
The only real debts I have right now are my motorcycle loan (~$4,500) and my student loan (~$13,500). All of my other expenses are necessary, every day/every week/every month type living expenses that I can’t reasonably get rid of (food, gas, rent, insurance, etc). If I cared about nothing else in my life aside from getting out of my house, the obvious first step, and the one that all of the financial gurus would tell me to do, would be to sell my motorcycle. Trust me, I fully understand the thought process of “any interst paid is money utterly wasted”. But while selling the motorcycle would make the most sense financially, the bottom line is that having a few “toys” that make me happy is very important to me. Being happy in general is very important to me. As the Dalai Lama says, “The purpose of our lives is to be happy.” Being that I’m not in a terrible spot financially (ie no major credit card or high interest debt) and that the loan is only $4,500 and a 3.99% interest rate, this is one exception I’m willing to make to keep myself happy. The bike stays.
And this leads me to my first goal: paying off my motorcycle loan. Since the motorcycle loan is not only the highest interest rate (which is still pretty low at 3.99%) but also the smaller of the two loans, it makes the most sense for me to pay it off first. This will eliminate my highest interest loan and then allow me to put the money I was paying toward the bike towards paying off my other loan as soon as possible. My plan is to try to pay off the motorcycle loan by the end of this coming Winter. It is currently the middle of August, so this gives me roughly 7 months to pay the loan off.
$4,500 divided by 7 months equals $643 per month.
That’s a mighty large chunk of change every month, but if I can keep my non-expense spending to a minimum, there’s no reason I shouldn’t at least come close to hitting this goal. And since the minimum payment of $88 per month for my bike loan is already figured into my expenses, you can subtract $88 from $643 and see that it’s actually only an extra $555 per month I have to put towards the loan to accomplish this goal (roughly, add a few months of interest on to that).
The next goal I will be setting once I accomplish my first goal of paying off my motorcycle loan will be to pay off my student loan. This is a pretty big step and because of the size of the loan will definitely take significantly longer. Unfortunately, without knowing just how much money I might be making at the time I start working towards this goal and without knowing exactly how long it will take to accomplish my first goal, it’s hard to set a deadline for this one. I will come back to this and reevaluate in a few months when I see how well I’m moving along with the motorcycle loan.
The light at the end of the tunnel…
Once I payoff both the motorcycle loan and my student loan, which could take all of those nearly two years before I turn 28, I will then be debt free. This is basically what I need to accomplish to be able to comfortably afford my own place. The reasoning behind this is that if you take my current expenses of $1,267 per month and then subtract the monthly payments of $128 and $88 for my two loans, this drops my total monthly expenses to $1,051. After doing a bunch of calculations that I won’t repeat here at the moment, I’ve discovered that having my own place will increase my monthly expenses by an estimated $600 or so (higher rent, utilities, cable/phone/internet). This will bring my expenses up to roughly $1,651 per month, while my minimum monthly income is $1,800 and my max income is as much as $2,360 (assuming my income neither increases nor decreases from where it currently is – and I would actually hope it increases, although I don’t like to count on that). Even during a terrible $1,800 month, I would be able to scrape by and on an average $2,000+ month, I would be doing just fine. Average to above average months would even allow me to start working towards my next goals after I move out, which will be setting aside a good-sized emergency fund in the event of a loss of income.
Next up, I’ll be getting a little specific about where I stand with my current funds and figuring out how much extra I can actually afford to put towards my loans right now to make this whole debt-free thing happen.