Happy New Year everyone!
Before looking ahead to 2016, I want to look back at the goals I set at the beginning of 2015 and try to figure out what went right and wrong. Rather than string together a long list of New Year’s resolutions, I had just one big, barely plausible goal: to get my net worth above zero, which would require that I counteract $47,000 of debt.
In 2015, I paid off $21,000 in student loan debt bringing the total down to $85,000, and increased my retirement savings increase by $42,000 to $100,000. Combining the two, I increased my net worth by $63,000 — to a positive $15,000 over the course of the year.
The monthly breakdown of each matters here, but I’ll get into that in a bit.
How I did it
The biggest single change that happened to my finances was that I got a big match to my 401(k) contributions at work. I don’t discuss work much on this blog and don’t get paid a ton, but I get a big match, get contributions to my Health Savings Account, and have pretty decent health insurance. My employer has not been insignificant in getting my financial house in order and for that I am very grateful.
The biggest tangible change that I made to my finances this year was refinancing my student loans from as high as 8 percent down to a variable 3 percent with SoFi. The loan’s potential for cost savings is huge on its own — my old 20-year loan at 8 percent could have cost me $80,000 more than my new SoFi loan — but its true value may be in giving me some room to breathe and allowing me to look at my finances more comprehensively.
The biggest mental change came in the steps that I took advantage of this psychological freedom. In theory, it should make no difference whether I save and pay off loans first, or pay for food, rent, and other living first.
But as much as I like to think I’m too clever to be outsmarted by this order, in practice, I always do a lot better when I set up big, overly aggressive payments with each paycheck — then get creative for the rest of the month figuring out how to pay to house myself and eat.
In the first half of the year, I increased my automatic student loan payments to $3,000. When the rate on my student loans was cut in half by the SoFi refinance, I slowed for a couple months to figure out how best to take advantage. When I got frustrated by the slow-moving market, I realized that it made sense to set up huge, automatic withholding for my work 401(k). Because my retirement savings are pre-tax, I got even crazier by withholding $4,000 per month.
As you can see in that chart, the results were pretty good — even in spite of some wild fluctuations in the market.
The big lessons I learned
I’ll generalize what I think the big lessons are.
- I made the most of an opportunity that work afforded me to get an employer match by making big contributions.
- I freed up some mental bandwidth by refinancing my student loans.
- I recognized and mitigated a weakness when I took some debt payoff and retirement contributions out of my own hands and automated them in a big way.
More to follow on these as I work out my own philosophy and set my sights on goals for the new year. Hope you had a great 2015 and that your new year is off to a good start!