Archives for category: compounding

July 2008:

Credit card debt $31,000. Before I could start repaying the student loan debt, with its rather modest 7.25% interest, I needed to tackle the $31,000 in personal debt I had. One of the toughest steps was actually determining how much debt I had, what my expenses were each month, and what my income was likely to be. For the longest time I was like many others, people I still run into now, who not only have no idea what the make or how much they spend, they don’t want to know. Let that sink in. There are people in a great amount of debt who actively avoid learning how much they owe to others and how much they spend each month. That’s like taking a road trip and not knowing where your starting point is.

So I created a budget with excel and a budgeting program (it was a free version of Quicken that has now become Mint). I also used a debt pay-down calculator from the web and the debt snowball technique that Dave Ramsey and others advocate for. Below is a screen shot of the budget. I figured I could pay 2504.14 each month towards personal debt and still have a little left over each month.

One method of using the debt snowball is to pay the smallest credit card off first. This gives you a sense of accomplishment and success. To me, it seemed more important to pay off the credit card with the highest interest rate first, so I used this approach to the debt snowball. Each month I would pay $2504.14 to credit cards, and as each one was paid off I would then roll the amount from the paid off card to the next highest credit card. So after one month and Macy’s was done, I added that to Amex. I would then hide the card so I wouldn’t use it.

2008 budget


I presented a short version of how I paid off my student loans at the Arizona State Bar today.

Here it is:

Currently, I have $2478 in various retirement accounts. Two factors have contributed to my having saved virtually nothing for retirement: an accelerated pay off of student loans (about $190,000 in 7 years) and temp jobs that either have no retirement or retirement contributions that start after the project ends.

At 54 years old, assuming I keep my physical and mental health, I have 15-20 years to prepare my finances for 30 years of retirement. Talk about anxiety! How can I save enough in 15 years to live off of for 30?

As in most cases, however, I found that looking at some data relieves my anxiety somewhat. The Social Security Administration actuarial table from 2011 says I will likely live for another 29.54 years. That is less than the standard time advised by financial planners, who generally say to plan for a 30 year retirement. If I work until 70, I will likely live another 16.33 years. It’s still a little unbalanced–work for 15 to live on for 16.33–but more doable than 15/30. My family tends to be long-lived, and advances in medicine may allow for a longer life, so I probably should plan on 20+ years, not 16.

In addition to life expectancy, there is the magic of compounding. The more I can front-load my retirement contributions, the better. That money will continue to grow. And if the market is bad, then my contributions have more value when the funds I purchase into then increase. Bankrate’s retirement planning calculator says I am on track if I work until 70, live til 90, keep my current income level and retirement contributions, and have a 7% annual growth in retirement accounts. Most important, I need to live on less than 55% of my current income in retirement. Tough, but conceivable. If I live off 80% of my current income, which Wells Fargo recommends, then my money runs out in 5 years.

The Wells Fargo calculator is more pessimistic (or maybe more accurate), so I ran some numbers through it, too. Bad news at my current income and contribution level.

wf retirement

Luckily, my options are still open. I can increase my income and/or decrease my spending and increase my contributions to an IRA or other retirement account. Doing both is beneficial because I will be increasing my Social Security amount, increasing the amount to “save”, as well as getting accustomed to living off less so retirement will be an easier adjustment. Alternatively (and more likely), I work until I die so I don’t need to worry about money for retirement at all.




In 2008, when I was in the process of paying of my student loans I questioned the decision and the process. Paying $858/month when I was living in Silicon Valley, working at temporary jobs that could end at any time and having a high deductible health insurance plan, it seemed easier to pay the minimum and start saving for health emergencies or retirement. Then I sat down with a calculator and realized how much I can save by accelerating payments.
According to calculator, paying the minimum in student loans (about $858) will take 26 yrs, 9 mo and I would pay— $153,057 in interest (WTF!!!)
If I continued to pay $1358/mo (min plus 500 addtl) the loan would be repaid in 9 yrs 1 month and $453,112 will be paid in interest.
If I doubled the minimum, 7 yrs 9 mo and $36,802 will be paid in interest
To pay off in 5 years, I would need to pay $2420.36/mo and interest will be $22,979.