This morning I got to thinking about where I could be in 10-20 years. I am 33 right now. My main thought is when can I retire, and that sort of depends a lot on how long it will take me to pay off my student loan.
I began crunching the numbers, but in looking at my lender account I realized I was doing it wrong. I currently owe roughly $68k in student loans. So I began to do the math. I am paying $400 a month right now. 68k divided by 400 is 170 months or a little over 14 years. Not bad. But those of you who understand loans better than me are probably already shaking your heads.
I then went on to figure out how much sooner I could pay it off. If I pay $400 until I build my tiny house, then start pumping my extra funds there, paying 1000 a month to my student loan, I figured I could pay off the 68k in just 5 years! I see you shaking your heads. Why are you shaking your head?
Turns out I was forgetting a very large and important factor which is: interest. Yup. Take a look at this snapshot of my loan details.
I don’t mind showing this, there is no personal info here. As you can see at the bottom there, my total amount to be repaid is over $135k! And that’s due entirely to interest. By my rough and probably wrong calculations, if I paid just the $400 it’ll take me closer to 30 years to pay off. Of course I won’t pay just $400. My loan is designed to go up to almost $800 by the end.
However, I am safe to pay just $400 for the next 2 years, roughly how long I hope to take to build my tiny house. So, after those 2 years I’ll be able to start paying $1000 a month to it. A bit more shoddy math tells me that at $1000 a month (after 2 years of $400 a month) I could pay my student loan off in a little over 10 years. Now that ain’t bad! (Also not perfect, because the more I pay the less interest I accrue and so the smaller the final payoff amount will be…I think?).
So, 10 years. At 43 I will have paid off my student loans. Now I won’t be putting every cent to my student loans. As I said I’d put $1000, but that isn’t the $1000 I have extra each month, because I’m already paying $400 to my student loan. I’d just be adding an additional $600 to it. That leaves $400 a month that I can save.
The plan then is to start a 401K once my tiny house is built. Put around $400 into that every month and let it build up. So over the same 10 years that I’m paying off my student loan, I’m saving up at least $48,000, possibly more depending on interest and how I invest it. So I am on the right path to be in pretty good financial standing in about 10 years.
That of course doesn’t account for things such as suddenly needing a new car, or other expenses that crop up. But still, it would be a nice little amount set aside by age 43. By then my student loans are paid off, and I could put even more into my 401K over the next 10 years. By the time I am 53 I could potentially have almost $250k saved up, again not accounting for interest and however I invest it, but also not accounting for crazy expenses.
Living in a tiny house, with utilities and rent at under $300 a month, with gas and groceries just for me less than another $300, total cost of living around $600 a month, less than most people pay just for rent, I could potentially quit working at 53. By 63 I could be sitting on half a million in savings.
Of course, life never turns out the way we plan. Especially if I have difficulty with my poor spending habits. I didn’t account for spending frivolously on things. But I also didn’t account for not having to pay my parents rent when I move out, or getting more raises and making more money. I didn’t account for losing my job and making less money. I didn’t account for a lot of things. This is kind of a middle to best case scenario.
But it does help to have a goal. It may help my frivolous spending habits to know that each purchase I make increases the time I have to work. That getting a brand new car may mean adding another couple of years before I can retire. Or that getting some $600 thing I don’t need and probably wont use could instead go to my student loan, and reduce the time it takes me to pay it off by about a month.
I also can’t help but think about the fact that my bank account is always in a state of chaos. I live paycheck to paycheck when I don’t need to, because I don’t keep my finances in order. But if I just paid more attention to my spending, kept better track of my bills and finances, and didn’t spend money on stuff I don’t need, I could live a much less financially stressful life. Because I’d always know what is in my bank account.
It’s hard to focus on something 20 years away and work for it now, when instant gratification feels so good. But imagine how grateful my 53 year old self will be towards my 33 year old self when I am sitting on the little porch swing outside my tiny house, sipping hot cocoa and reading a book on a Tuesday afternoon, without financial worry or strain.
Of course there are things I’d like that would eat into that money. I’d someday like to buy some land to park my tiny house on. I can’t decide if I want that to be down in GA or up in ME or hell maybe someplace else. I love Maine, but I’m not tied anywhere. I don’t have any family up there anymore. The only thing tying me to that state is nostalgia. I could move to Colorado, or Canada, or New Zealand, or basically anywhere I want.
And who knows. Maybe I’ll finally write a book, it’ll be a huge success, they’ll make a movie out of it, and I’ll retire at 40. The future is unwritten. But what I do know is that I’m not doing myself any favors if I continue to buy shit I just don’t need.
To that end, I plan to budget myself, to make a weekly list of expenses, and to stick to that. I’m going to live a simpler life and my future self will thank me.