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I am currently considering a few expensive purchases.  I am looking at a new flat screen HDTV to replace my old analog TV.  I am considering Lasik eye surgery.  I am considering a new road bike.  I like nice things and experiences, and I am happy to spend the money if it is something I will really enjoy.

However, I can’t just go out and spend $500 on a TV without thinking twice.  I cannot justify spending nearly $2000 on my eyes when I still have about $13,700 in student loans.  I surely will not spend $800 on a bike when I have one that works just fine and I have other priorities.

The keys to making expensive purchases are to be able to afford what you buy and be sure it is what you really want.

Be able to afford what you buy

This is pretty self explanitory and obvious to many of us, but a lot of people go out and buy new things on credit that they really can’t afford.  A $500 TV can cost thousands if you buy it on a credit card and only make minimum payments.  I don’t even want to think about the cost of Lasik on a credit card over 10%.

If you have a big purchase in mind, save up ahead of time.  I will still buy everything on my card to get my 2% cash back, but I will pay it off in full the same month.  To save, you may want to put a certain amount in a savings account every month or just let your checking account grow if you have the will power to avoid spending.  You can set up a goal with Mint.com

Make sure it is what you really want

Buyers remorse is a bad feeling.  When you buy something that you didn’t really need or want, you will probably regret it later.  If I buy something that costs more than $100, I always sit on it for a day or two to make sure I really want it.  For bigger purchases, like the TV, I wait a month or more.  If you still want it after a waiting period, go for it!

Prioritize

If you are in debt, don’t be stupid.  Pay your loans off before you go buy a luxury item.  If you want a bunch of expensive things, it is a good idea to decide which is most important and slowly work your way down the list.

How do you prepare for a big purchase?  What are your steps and criteria?  Please give your thoughts in the comments.

In Fight Club, Tyler Durden famously said that “the things you own end up owning you.”  I have written about how hard you have to work for your possessions once before, but I decided to take it a step further and find out how much time I have to work every month to pay bills.

It turns out that I spend nearly 75% of my time at work for recurring bills, including rent, student loans, and utilities.  That means only about ten hours every week are for the things I like to do, such as eating and entertainment.

Click to See Full Size

You can also build a calendar like this.  I have put together a free spreadsheet on Google Docs to help you figure out how much of your paycheck goes to fixed bills.  From that spreadsheet, I created a second Google Calendar that I used to input the work days per month.  It turns out that my biggest fixed expenses are taxes, rent, and student loan payments.

This was an eye opening exercise.  Take a run through and let me know how it goes in the comments.

If you thought graduating from an MBA program that is incredibly expensive would not help your net worth, I have news for you, you are wrong.  Since March, my net worth has continued to move on up.

I am still on track to have my student loans paid in about two years and love watching my cash reserves increase (goal of $4,000 emergency fund by December 31st) and my investment accounts grow.  Click the image below to enlarge.

I encourage all of you to check out the personal finance arsenal and personal balance sheet to find out why I do this and learn how to track your net worth yourself.

I have cut back on spending from last month, but I watched the stock market sink further in the last week, so my investments are not performing as well as I would like.  I am focusing on saving up in my “emergency fund” and aggressively paying down my student loans.

I am currently paying $500 every month into my student loans.  I am in the deferment period, which means that my loans have not “priced” yet.  I am not required to make any payment at all.  Whatever balance is outstanding at the end of the six month period will be amortized to create my future monthly payment.

I don’t have a whole lot in my cash savings account.  I am keeping myself on a tight budget to pay down my student loans as rapidly as possible.  At the current rate, my loans will be completely paid in two years.  I have about enough saved for two months of expenses at my current spending rate, which could be lowered if needed.

I am required to begin paying the loans in September.  Should I keep paying the $500 per month until September and then make the minimum?  Should I save up now while I can and start making higher payments when I have more put away?  Should I do something completely different?

What do you think, save or pay off the loans?  Please give me your thoughts in the comments.

I live paycheck to paycheck.  There you go, I admit it.  However, I am there intentionally.  We all make choices in our lives that impact our financial situation.  Sometimes those choices have the unintentional affect of making us live paycheck to paycheck.  Others give themselves enough financial flexibility that they don’t worry about their bank account balance.  I propose something completely different.

As you know, I use Mint to monitor my budget.  I think it is a great tool to keep my spending on track.  I usually go over in some areas and under in other areas, but do everything I can to make sure I do not go over my total spending goal.

I have a backup plan, however, for when Mint is not enough.  I only have enough money in my checking account for two weeks of spending.  I move everything else into a savings account each payday.

This goes along with the idea of paying yourself first.  Every paycheck, I automatically take out 3% (matched by my company) for my 401(k), 3% for my Roth, and 3% in my company discount stock purchase plan.  Once the cash hits my bank account, I automatically put $250 per paycheck into student loans.  I then manually take a step to pay myself: I put $200 into my savings account.  I can live off of what is leftover.

Some weeks, that is a little tight.  I have made it through with only a little clearance a few times when I make my bi-weekly credit card payment.  That forces me to evaluate my spending and lifestyle.  I have cut back on eating dinner out and spending on things like movies and hobbies to make everything balance.

If you have trouble meeting your savings goals, try my strategy and let me know how it works out.  I know this is the extreme version of paying yourself first, but it has been working for me.  My savings are up and I am still happy with my lifestyle.  I just have to make sure that my lifestyle does not exceed my income and savings goals.

How to you make sure you stay on budget?  Please tell us in the comments.

On March 30, President Obama signed a new law that redefines the roles of much of the student loan industry.  The law appears to be better for the government and better for those taking out student loans.  Big banks are going to take a hit, however.

In the old world, students (or parents) would apply for the student loan through a major bank approved for student lending.  When I needed to apply, I found the best long term deal applying through Citi Group.  In exchange for processing and lending, the government subsidized the bank to keep rates fixed at 6.8% with no application or origination fees.

The savings for the US Government will be about $68 billion over the next ten years.  Some of the savings will go to increase subsidized Pell Grants, for student demonstrating financial needs, and other scholarship programs.

For existing loan holders, it doesn’t look like you will see any major changes.  I am expecting to keep paying my loans as usual, which means new servicers every year or so that screw up my account and take over a month to fix it.

For anyone with a new student loan starting in July, 2014, there are some great new provisions.  Student loan payments will be capped at 10% of annual income above a defined living allowance, where it was 15% before.  If you make regular payments at that rate for 20 years, your loans will be forgiven, rather than 25 years under the old law.  The forgiveness period is still ten years for certain government employees, teachers, health care workers, and the military.

If you are reading this, it is probably to late for the new laws to effect you directly, but your kids might have a much easier time dealing with student debt than you.

I have been on Mint.com for about 2 years and 9 months.  In that time, I have built up a pretty good history of where my money goes.  It makes me wonder how much money (and stuff) I might have in my bank accounts had I not been a student at a private school.  This is where my money has gone for the last 1003 days of my life. 

It is a little shocking to see how big of a slice of the pie the $51,000 I have paid for education (tuition, books, student loans) is compared to everything else.  Buying a car (fully paid off) is another big cost.  The big cost of rent did not surprise me, but the $9,000 on food did a bit.  The uncategorized are “Cash and ATM” and I did not input them in Mint.

No More Car Loan!  That’s right.  It is paid in full.  The title came in the mail last week.  I own my car outright.  I now plan to pay $500 every month to my car loan.

I also received a bonus at work in February.  I have set up a payment for this week for the amount of my bonus to my student loan.

I hope to pay down the student loans in far less than the 10 years I am given.  If I put my tax return, bonus, and $500 per month, I should be all paid off in two to three years.

Long before I had this blog, I had a car loan.  My old car, a hand-me-down 1990 Volvo Station-wagon with about 200,000 miles, decided to stop working while driving west on Belleview Avenue one summer morning.  Fixing it would have cost as much as the car was worth, so I decided to get a brand new one.

After all, I had a good job and was living at home with my parents.  It seemed like a good idea.  Now, two and a half years later, it still seems like it was a good idea.  I still love the car and I was able to pay off the loan two and a half years early.  That is half of the scheduled time for those of you who are math impaired.

Over the lift of the loan, I paid a total of $675.53 in interest to the credit union for my $10,995 loan.  That is not too bad.  I like to think of that $675 as my car rental fee for the roughly 30 months I have been using the car so far.  That is a savings of $573 from the total interest if I had only made minimum payments.

I took a screen shot to commemorate my last online payment.  Silly me, I didn’t check the “payoff amount” and was left with four cents that I could not pay online.  A quick phone call took care of that though.

I plan to keep this car for many, many years and I am glad I have it.

What am I going to do with all of the money I had been putting into the loan?  I am sticking to my own advice.  My debt snowball leads me to student loans from here.  I have just about $21,900 left there.  I am still in school, so most of the loans are not accruing interest for another 7 months.  I have paid about $20,000 into my student loans while I have been in school, so paying down the rest shouldn’t take more than another two or three years.

Do you have any good loan payoff stories?  Please share in the comments.