Debt

Fresh off the indulgent heels of the New Year vacation, my post paycheck raid of Costco, and endeavors in Nagoya, I started to notice a big trend in the way I was spending money. Particularly the way I was spending too much of it. With a week left until paycheck all my good times had worn thin, and the budget I’d put in place was stretching beyond limits. After months of living paycheck to paycheck, I realized I finally needed to put into action some sort of plan to become financially free.

Last year I’d used a handy online service called Mint to keep track of my purchases. At the time it wasn’t really too difficult — half my paycheck went to rent while the other half went to student loans — but it was still nice to check-in and see how much negative my net worth could be on any given day. My post graduation stint in New York had stacked my credit cards to their limit which I barely managed to reign in after 0% credit card transfers and a plump tax return. When I came to Japan my credit cards (thankfully I only have two) were back to being maxed out as I had to pay for move in fees, furniture, and food, and wait it out until the first month’s paycheck. I stopped using Mint entirely because I had no idea what to budget and the yen was especially weak against the dollar. Unfortunately, Mint has yet to enable foreign currency, and since I was still paying student loans I was using both the yen and the dollar.

I got pretty good at handwriting my expenses on scraps of paper in my free time. They would include the easy essential like rent and utilities, but then the difficult questions popped up like, how much money should I send home? and, what are the chances that I go to a big city for a weekend? As one is want to do around New Years, I decided it was a good enough time to revive smart habits and keep track of my spending. In this case, I literally mean every cent I get and spend. It’s pretty easy to do because there’s also a cell phone app I can use. Before everything would plug into my debit/credit card accounts and automatically get marked in my budget. Now I have to consciously plug in each time I spend money: on food, bills, clothes, games. I use a 1:1 ratio for yen to dollars which also means that I’m technically saving money while all my trends seems more expensive, too.

february budget

By Valentine’s Day I was broke and finally coming down with the unavoidable cold that had stricken at least half my students. Stuck inside on the still cold weekends (a wet and rainy winter) straining my stock of groceries with dinners of rice and whatever canned goods I could find, I found a sort of resolute second wind to analyze my future even deeper. When it came down to figuring what I wanted to do — after having contracted for another year, meaning I’ll be in Japan until summer 2017 — the more pressing question seemed to be how I would be able to do it.

When I left St. Olaf, and before I really went, I had no clue what money has to do with anything. My family (including the many friends of my family) has always taken care of me, and there was no limit to supporting the things I wanted to do. With it was the facade that none of my eccentric interests from nordic skiing to running camps, volunteering with church, and gallivanting internationally with a youth choir  or study abroad programs came with any difficulty. Even the federal loans in my name that had been taken out for me for school went untouched all for years of school. I had no clue that when I got my first job outside of my work study that I should be saving for the future. And even when my college roommates mentioned it’d probably be a good idea, I still had no knowledge of the real price I was paying for tuition, or the fact that I could’ve started paying off my loans before I graduated. I should say that I think St. Olaf has made substantial improvements to increasing student awareness of post-grad life and employment opportunities, but for me, who was already a it stubborn and naive, it was three years too late. At the end of my senior year I had a brief session where my loan paperwork was put into a file and the dates of repayment were explained to me, but even that I couldn’t make heads or tails of. Instead, I connected my bank accounts, automated my payments (which would start six months after graduating, or January 2016), and set everything aside.

Until now, that is.

over time network

Many of my friends were lucky enough to graduate without debt, and I often become envious when talking with them. With only $40,000 in loans even I can’t fret too much, but it’s still at least $500 out of the bank each month. When calculating the interest by meeting just the minimum payments I was looking at paying $10,000 more than what I’d taken out. Even divided over a decade, a thousand dollars a year that I could instead save and put elsewhere didn’t seem nearly worth it. What about my emergency fund, inevitable housing down-payments, that thing they call a 401k?

So, the first big questions are answered: How much do I owe? How much will I pay? and when will I have to pay it?

The next questions were the real challenges: When do I want to be debt free? How much money can I afford to budget? What’s the snowball method everyone talks about?

The ideal date, of course, would be before I leave Japan. I feel there’s no use in saying as soon as possible because that has no tangential goal to it. Although, with the plan of only staying twenty four months in this country, and already being through six of them getting rid of all my debt which well over a year’s worth of salary even before taxes will probably be unlikely. So instead I’ve set an arbitrary five years as an absolute, with the formal plan being three years from now. I still want to live comfortably, but within my means. I’ve discovered that creating sound financial habits seems to be a better goal than constantly wiping away debt only to watch it grow again.

With that said, there’s the extremely meticulous task of figuring out how much money I can throw at my pile of debt an when I’ll be doing it. Since I’ve been here I’ve been focusing on getting rid of the credit card debt I racked up in the past months. It’s finally at its last couple hundred which means by next paycheck I’ll toss in the amount in my savings and unshackle that chain. Except if you remember I have two credit cards. While the one with the most expense on it is currently at 0% APR it also had double the amount of the other, remnants from New York, my junior year of college, or even the first time I’d gone to Japan. The fact is ever since I’ve had it, it’s always had a charge on it. This was definitely the mountain I’d been chipping away at.

As I mentioned before, I really had no clue what to do about money. A big reason for that is still letting my mom work as my health insurance and tax advisor, but those also come with the perks of taking care of my co-pay and getting an early tax refund. Such is the case for next month as my taxes have already been filed. There is so much that I fantasize using that money for: camping gear, a Playstation 4, even getting a car or at least upgrading my bike. However, now is the time for self control. I’ve looked at my debt as a game, and I definitely plan to win. My tax return can almost single-handedly take care of my last credit card, so it’s going towards nothing else.

Getting rid of credit card debt also means I could put the almost two hundred bucks I was spending every month, to the bigger behemoth of student loan debt. So, $200 added to the $500 seemed good enough, but there are still plenty of factors to consider. Every month of living in Japan has been a bit of a puzzle because of the exchange rate. When I first landed the yen was up to $1.22 to the dollar. That meant I lost more than a fifth of what I sent home. Thus the dilemma: should I send money home at a constant rate, or should I save over here and wait for the yen to get more even? The correct question is the latter, as the yen is finally dipping towards the $1.10 mark. But even then, can I trust my habits yet to conserve any surplus of money I’m hanging on to? At this point I’ve settled on sending the Japanese equivalent of $1000 home. It’s rough and arbitrary, and maybe once I see how all this planning unwinds I can reassess it, but for now I like the safety of knowing  I’ll have a meager cushion in my American bank account and an even point to work with over here.

monthly trend

Reaching the final stretch of financial figures — or at least my horizon line — the ultimate question was which loan to pay of first. I’ve got a private loan from St. Olaf that is the most expensive individual one (9%), a loan from Discover for when I studied in New York (8.5%), a federal loan through St. Olaf that I pay off quarterly (5%), and then an accumulation of federal loans that were distributed each semester equaling half of my total (avg. 4.4%). I’ll spoil it here and tell you that I’m paying them off in that order, but it was a decision with some thought. Economically it’s the best decision to pay off the loan with the highest interest because that results in the lowest overall interest cost. However, there was plenty of research to persuade me to take on the “snowball method” of paying off a small loan first. The idea is with the elimination of any debt no matter how small you become more motivated to stay on track. Except, in my case, I would already be clearing my credit cards which was already a sort of snowball in itself. Instead, I took the “stacking method” without the worry of self control or necessary motivation.

It certainly is slow progress, but it seems everyday I read some new article about personal finance, login to my Mint account, or draw up another budget for the next month which inspires me to continue the debt-free path. Especially as I turn toward considering what I could and want to do when I leave Japan, not having to worry about student loans keeps my options open. A scary part about living here is knowing that the salary is limited. Maybe I can be an artist in the future, but will have to take on unpaid internships, or consider myself a freelance writer without a steady income, and probably likely I’ll wind up in another city with absurd costs of living. Now I’m relatively safe (far from the reaches of Donald Trump’s presidency) and while I’m safe I might have to do the safe thing.

You hear a lot about the student debt crisis, and I definitely don’t think enough is being done through the government to regulate it. How can we expect higher education to be a necessity in entry level jobs without providing students the means to survive while having that entry level salary. I’m certainly glad and shaped by my experience at St. Olaf, but I applied to college as this issue was burgeoning across mainstream media. I guarantee my choices would’ve differed had I been smart enough to figure out the true cost of college.

Gavin asked me while we were discussing this at lunch the other day, “Wouldn’t you rather use that money to have fun now?”

Yes, of course I would, but I used to always think, what if I die tomorrow? All that saving would be for nothing. Although I still like to apply that thought to many aspects in my life (writing, travel, friendships), money is one where it can’t apply. With money I have to think, what if I don’t die tomorrow? As much as I don’t want to face the fact that I’m growing older the fact remain that I will eventually turn thirty. By then there are plenty of things I’ll want to finance, least of all being student debt.

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