So now that I have a job, I finally have money coming in again. Which is great. I get paid twice a month: once in the middle of the month and once at the end. And now that I know how much my take-home pay is, I have fewer crazy merry-go-rounds spinning through my brain than I did a few weeks ago.
The monthly saving/spending/debt repayment plan that I devised, based on my salary and semi-monthly paycheck amounts, looks like this:
Pre-tax retirement contributions:
- 403(b): $216 (This is the number that maxes out the partial employer match)
- Student debt repayment: $1000 (this is far more than my minimum payment)
- Roth IRA: $100 (I’m considering increasing this to $200)
- Betterment auto-deposit: $100
- Maybe I’ll go into detail about this in a later post, but for now I’ll just say that I am pretty content with my current spending habits. I’m super motivated to pay down debt these days and so don’t tend to make a ton of extraneous purchases.
Whatever is left over from my paychecks and any extra money I make will either go (depending on how I feel):
- into my Ally emergency fund to earn 1% interest OR
- towards debt repayment OR
- into my Roth IRA
A reasonably logical plan, right? Money to retirement, money to debt, money to investments, money to bills/expenses, and then do something responsible with the rest.
I got my first paycheck on March 15th and was super excited to start following through on my awesome foolproof money allocation plan. I had initially been planning to put $500 towards my student loans from each paycheck (for a total of $1000/month as outlined above), but I figured, hey, the earlier I make these payments, the less interest will accrue, so why not pay, say, $800 out of the first paycheck and $200 out of the second? Logical enough. I made the $800 payment early in the morning on the 17th and then went to work. Let me stress that this was a totally elective payment that I absolutely did not have to make.
And this is where the “oops” comes in. In my excitement I had managed to temporarily forget about three important points:
- I had very little money left in my savings account (i.e. emergency fund), as I had been unemployed throughout January and February.
- Rent was due on April 1st.
- February had been an exceptionally high-spending month (the highest since I started tracking my spending in January 2015), due to several very unusual and mostly unavoidable expenses at the tail end of that month, and as a result, I had an exceptionally large credit card payment due April 13th.
Over the course of the day I slowly started remembering all three of these points: Shoot, I have to pay rent…Shoot, I think my credit card balance might be sort of high…Shoot, my savings account is practically empty. By the end of the day I had finally put it together that I did not (and still do not today) have enough money, even counting my remaining emergency fund money, to pay both my credit card bill and my rent. This is a totally new experience for me—I have never before had a credit card balance that exceeded the amount of money in my bank account. It honestly unsettled me a little for the first day or so.
However, I want to be sure not to overexaggerate the seriousness of this situation. While I don’t currently have enough money in either of my bank accounts to pay both my credit card bill and rent, I will be able to pay each of them by the time they’re due, thanks to the paycheck I’ll be getting this week. And in the meantime I can put my groceries, etc. on my other credit card, which has a different due date, and in 1-2 more paychecks I should be mostly back on track. (It also might have been possible to cancel the student loan payment before the money was transferred, though I didn’t look into this.)
Oh, and not only that, but I remembered last week that I have two additional safety nets: between my Betterment* account and my Acorns* account, I have about an extra $900 cash that I could withdraw if absolutely necessary (though these are investment accounts, so I’d rather keep the money in there and let it do its thing).
I know this story probably makes me sound like I’m either a complete space cadet or completely terrible at math. In truth I am neither of these things. I just got really, really excited about getting a paycheck and being able to put more money towards my student debt, and in my excitement I didn’t bother to engage in any simple arithmetic.
I also think some of the confusion resulted from a phenomenon that Maggie wrote about recently: overlapping months. In other words, while I plan my spending according to the calendar month, my credit card billing cycles are not aligned to the calendar month. But once I get back on track, I’ll plan to align my credit cards so that the billing cycles end on the last day of the month, pay them immediately upon receiving the notices, and move on to the next month right away.
The lessons I can take from this experience are pretty simple:
- Don’t make elective student loan payments that are larger than the amount of money you actually have (taking credit card balances into account).
- Build your emergency fund back up so you don’t have to go into credit card debt if you have an actual emergency.
- Make adjustments to credit card billing cycles to avoid having overlapping months.
I’m also working on coming to terms with the amount of time it’s likely going to take me to pay my loans back. Sure, I can be super frugal, I can put a substantial percentage of my income towards loan payments, and I can try to make some extra money on the side. But I have a lot of debt (see debt progress graphic in the sidebar), and there’s no way I’m going to be able to completely get rid of it this month, or this year, or probably even next year, even if I try reallyreallyreally hard. Paying back this much money requires time, and time brings with it other expenses, like groceries and rent, and occasionally shoes or bike tune-ups, and balancing all of this is going to require a lot of ongoing patience and restraint and well-thought-out decisions. For a long time.
That all being said, I am actively working on making extra money on the side:
- I’m doing some freelance writing and plan to take on more (Know anyone who wants to hire me?).
- I’m still participating in scientific research studies as often as I can.
- I just applied to work for a tutoring service. I’m hoping my PhD will help me land some good tutoring gigs. (On the other hand, you can’t throw a stone in my neighborhood without hitting four or five people with PhDs. Hopefully not all of them are looking for tutoring gigs.)
And finally, on the topic of making extra cash to get rid of debt faster: I had the chance this week to look over an advance copy of Hustle Away Debt: Eliminate Your Debt by Making More Money, written by my friend DC over at Young Adult Money. This book is a comprehensive guide on how to get rid of debt faster by making extra money on the side, and it’s chock full of creative ideas and guidance on figuring out which type(s) of side endeavors may fit well with your skill set and lifestyle. I definitely recommend it if you’re looking for ways to increase your income and pay off debt faster. It won’t be available till May 5th, but you can pre-order a copy here.
Has anyone else ever accidentally put too much money towards their student loans or other debt? Tell me I’m not alone!