I’m a little late on this month’s Race to $1 Million update, but I needed a little bit of extra time because I have to make a confession. But before I get to the confession, here are this month’s results.
The Hoff – $50,536.00 (-$3,000.00)
Difference – $23,861.25 (+$4,534.09)
I am destroying the Hoff. I’ve probably mentioned it before, but The Hoff has some serious expenses coming down the line over the next few months and I don’t. In fact, I can already tell you that next month is almost certainly going to be my best month ever.
If you remember, my goal for 2011 is to pull within $20k of The Hoff. After next month, I will meet that goal and eventually start kicking The Hoff’s tail! Now, I’m ready to make my confession.
I Might Pay Off My Student Loans
You may have read my most popular post where I recommend not paying off your student loans when you can get a better return somewhere else. I stand behind this 100%. It is mathematically stupid to pay off loans when you can meet minimum payments and invest other money at higher returns.
You also might have noticed that I deferred my student loans for the next nine months because I was a part time student at a community college last semester. I will continue to pay on the unsubsidized loans because they are still accruing interest. However, I’m not paying a dime on the subsidized loans because the good old federal government is paying that interest for me.
Here’s the thing; I’m not terribly confident in the stock market right now. I’m still investing in my retirement accounts, but I haven’t put any additional money into the market in months. Instead, I’m storing it in my 1% ING savings account.
As I keep accumulating cash, I will begin to pay off some of my unsubsidized student loans. Obviously I want to keep as little money in cash as possible, because if I have a choice between getting a 1% return in a savings account or paying off a 5% loan, it’s smarter to pay off the loan.
Then, once I have the unsubsidized ones paid off, I will work on accumulating cash between now and whenever I have to start repaying these stupid loans. Depending on how I feel about the stock market at that time, I’ll either decide to pay them off or invest in something else and start making minimum payments again.
A lot of people attack their student loans with a bull rush attack, throwing as much money at them as possible until they are gone. I’m going with a more subtle, ninja attack: pay them aggressively when it gives me the best return, and pay the minimum when it doesn’t. I’m like Tum Tum from The Three Ninjas!
Now all I need to do is figure out what I’m gonna do with that extra $300 a month that isn’t going to student loans anymore.
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
We had two student loans and we worked like ‘ninjas’ to pay off one of them, because it had a higher balance (2x), a higher interest rate, and therefore a higher monthly payment than the other one. We got that one done ten years early. The other one is still there but we’re taking the same approach of paying it down a little faster than normal, but no real hurry.
Love the race against theHoff. That’s the second time he’s come up on my radar in less than 24 hours. Last night, my wife and I were watching America’s Got Talent and I couldn’t remember who the original judge was that is no longer there. It was, of course, the Hoff.
I think that’s a good approach. Pay off the high interest and keep the low interest. That’s what I’m doing.
It makes a lot of sense to go for that guaranteed return of 5% vs 1%. I find it ironic, though, that your lack of confidence in the stock market has been met by a pretty good week so far.
I have faith in the long term stock market. I don’t have faith in the short term because I don’t trust our government today. This administration is so anti-business that I can’t see any real growth happening until 2012.
So when I posted about the salary based payment plans, you said you didn’t want your tax dollars going towards paying the interest on other people’s loans. I hate to ask, but how are your deferred loans any different?
Anyway, sounds like you have a pretty good plan lined up.
Good point. Just because i don’t necessarily believe the system is right, doesn’t mean I can’t take advantage of it. 🙂 If I made the rules, I would only defer student loans when someone is a full time student; not half time. But I don’t make the rules, I just play by them. 🙂
I’ve been attempting to work on my student loans for about a year, and i’ve paid off 1 of the three. THe other is painfully close, but this summer i’ve got weddings coming out my ears and it seems like they are eating up all my cash that I’d normally throw at the student loan!
well if the govt is paying the interest for you on one of your student loans, that’s great! funnel the cash somewhere else and get the other debt down first… good plan. but you definitely need to make your excess money work harder than that 1% interest rate.. good luck!
I’m also a huge proponent of having “smart” loans and “smart’ debts … there’s no reason to pay off debts when you can invest that money for a stronger return! Keeping the subsidized loan is a no-brainer. The 5% loan is more difficult, since its hard to guarantee that kind of return. Keep us posted on your progress!
I raed your post “not paying off your student loans” and it is a good point there. we deal with this stuff to you can come and visit 🙂
I am sort of divided between paying off my student loans faster and saving cash in an emergency/downpayment fund… My loans are 6.8% though, so it is probably better to take that guaranteed “return” than to keep investing. I figure I can liquidate my investments to use (in dire emergencies) but I won’t ever be able to get my extra loan payments back from the government.
Hey guys, I am not up-to-date with this race to $1 Million – can someone please explain to me, what are the terms for your race? Who is competing and how much time has passed since you have started it?
Just a quick note as I wanted to tell you that the you vs. Hoff net worth updates are my favorite part of your site. I’m sending good karma your way to keep pulling ahead!
I am in the same boat….one month I’ll pay extra to the Student loan and the next month I’ll send it all to my non-qualified investment account. Either way helping out the bottom line!