I made my final payment on the student loans this past week. The remaining balance was the better part of $7k. After paying all the bills for June, I saw that I had the money in my checking account. And for some reason I have tortured myself with these loans. Despite aggressively paying extra principal each month, and despite refinancing them from 6.8% interest to under 4% interest, I was still never able to compartmentalize the phenomena of being responsible for these loans – every time I looked at the statements I felt compelled to throw more money at the debt, and the closer the balance reached zero the more I wanted to pay the fuckers off.
So after seeing I had the cash to cover this debt in my bank account, I decided to finish it off with one final key stroke.
I am writing this post on a Saturday, and I pulled the trigger earlier on Tuesday. The situation has begun to sink in, although it’s still not entirely “real” to me. It’s great not to have this balance needle at me any more, but I think it will be even greater to see money come into my checking account that is not immediately earmarked to pay off debt. Instead, that money can be used to acquire assets.
For a moment there I almost felt guilty. In a way, this was a irrational decision. The interest rate was under 4% and I was at the tail end of the loan; the part where most of your payment goes to principal. The prevailing notion is that you can do better by playing interest rate arbitrage and investing in the stock market, real estate, peer to peer lending, etc. And there is also something to be said for liquidity. Cold hard cash to deploy when opportunity strikes or need arises. Once you pay off a loan, you can’t get that cash back if you need it. So there is an opportunity cost to paying off debt early. Aggressive investors play the arbitrage game, find higher returns elsewhere, and keep liquidity in mind if a good opportunity comes along.
That feeling of guilt has largely faded away. The debt was like a splinter under my fingernail, and I’m glad the day has come where I could finally pull it out. No real regrets at this point. I’ll let you know if that ever changes.
I think the exercise with the student loans and my desire, my borderline unnatural urge to pay them off, says a lot about my personality. Ever since I graduated and saw exactly how much I owed my burning desire has been to pay this debt off. As soon as I had the money available to pay more than the minimum payments I was paying extra towards these loans. This was before really exploring the personal finance blogosphere. It’s clear to me that I am not a huge fan of unsecured debt. I don’t plan on taking on any more in my lifetime.
I remember early on I was trying to figure out what was better: to pay off debt early or build up investment accounts. It was the exploration of that topic, the search for a bright line rule, that got me to some of the personal finance blogs that I now read regularly. The decision to use excess cash to pay off debt vs invest is a somewhat deep subject, and one I plan on discussing in further detail in its own stand-alone post. The bottom line is that there is no bright line rule. Everyone’s situation is different. In my case, while I aggressively paid down debt, I still decided to build up investment accounts to the extent that it made sense from a tax perspective.
I am glad that I also contributed to investment accounts during my debt pay down period, and I think there are 3 main benefits for doing so. First of all, I was able to realize some tax benefits by doing this. Secondly, I was able to get my nest egg snowball rolling a little by contributing to investment accounts over the past 3 years or so. Building long term wealth is all about time in the market, not timing the market, and the best time to start investing is 20 years ago. The second best time is 3 years ago. And my final reason is liquidity. Most of my money is locked away in IRAs, but I do have a modest taxable brokerage account, that I could liquidate if needed.
Of course, by contributing to these accounts I delayed the time it took to pay off my loans, but once again I don’t think I will regret the path I have taken. I’m pleased with paying these loans down in under 4 years and it feels great to have that entire ordeal behind me. I feel privileged to even have the choice of whether I make extra payments or contribute to investments. That is a first world problem of the highest order.
And ultimately, the loans served their purpose. It allowed me to finance an education to create a better future for myself. I still think there are problems with our education system and financial forces behind it, but ultimately the decision to go to school and take on debt was a decision I made. No one held a gun to my head. I consider myself lucky to escape with mostly graduate school debt, to have gone to a state school vs. a private one, and to have invested in a valuable degree. In retrospect I am not sure exactly what I would have done differently, but I will think on it and perhaps write further on the subject.
So now that my debts are mostly cleared (I still have a small car loan and small mortgage), I have a modest portfolio to build off of. The car loan will get paid off quickly. I have only made minimum payments on that loan (at 2.99% APR), and I’ll likely zap it over the next few months. The portfolio sits right around $75k. It’s a good start, but not near enough to provide any kind of real financial security.
As I look ahead my new goal is to be able to walk away from my day job in 10 years and 20x my portfolio. I’d like to also acquire more cash flowing real assets and build out my online business. The goal is to have my money work for me, rather than the other way around.
The practice of law is hard, and only getting harder. Like most people, I did not go to law school out of love for the law. I went because I was adrift in life, afraid of putting myself into the job market and failing, and thought it was my best shot at making decent money and ultimately finding happiness. I thought hitting the “snooze” button for 3 years and going to grad school would somehow weather the economic shit storm and avoid the pain of finding a good job. I was wrong. My problems were there to greet me the day I graduated, only now they had 70,000+ friends behind them.
The bar association is slowly gutting the legal profession, while technology is also driving many lawyers to obsolescence. I don’t mean to whine; just stating the facts. I have no problem with technology, and certainly there will continue to be a need for highly talented lawyers, but even if you were to not factor in the pressure on the industry, you still have the pressure of being a practicing attorney. It can be extremely stressful, especially if you are a trial lawyer, and the practice of law has chewed up plenty of people.
With all of that said, I have enjoyed practicing law. I think it’s a great privilege to be an attorney and I love being self employed and helping clients solve difficult legal problems. I also love being in Florida. Growing up my family moved around a lot for my Dad’s work, and I’m glad that I can stay in one place if I so choose. I don’t regret my decision to become a lawyer, and I think the entire exercise has made me a better person.
The legal markets will continue to evolve, but I plan on evolving as well. I started at the bottom with little. In fact, I started $120k in the hole. I also had poor self image, I was totally insecure, I had no money, no network, and no clue what I was really doing. I timidly put one foot in front of the other and started walking towards the light. The past 4 years have been an amazing journey of self discovery. Who would have guessed that beneath all the layers of self-loathing and neurosis there was actually something that resembled a spine and pair of balls. There was even a desire to get off my ass and make something happen. To finally face reality and become a man. Who would have known.
This first leg of the journey was all about laying the foundation. The next part is about building the empire.