With great responsibility comes student loan payments.
I think of myself as a traveler, but I certainly don’t make a lot of money. Growing up I always envisioned traveling entailing high costs which only the very wealthy could afford. While the wealthy certainly travel easier than I do, I managed to journey half way around the globe with student loan payments.
The first step in the financial journey to travel was getting a job in a foreign country. As a hagwon teacher in South Korea, I am guaranteed a ticket here, home and immigration sponsorship. Without those guarantees, I wouldn’t be here.
The next step is probably the hardest for me personally. Budgeting. I hate budgeting it’s so tedious and involves so much math. Sometimes the math gets hard, too, like when I have to figure out interest rates on my loans. Luckily there are plenty of calculators on the Internet for me to use and figure out that prickly interest rate.
I finally determined I could afford an $800 monthly payment on my loans which total roughly $28,000. Yes, that’s a huge chunk of change to say, “anyangyeso” to each month. However I know I want to pay off all my loans as quickly and efficiently as possible, which leads me to…
For those of you who have not read Dave Ramsey’s The Total Money Makeover, he posits an idea that if you pay off your smallest loan first than roll that money into the payments on your next loan it will be easier to pay off all your loans. He says each time you pay off a debt, you get an emotional high that will keep you motivated to pay off the next debt. It’s a solid idea. (I know I loved the feeling of paying off my credit card last month.)
But as other financial gurus point out, the snowball doesn’t account for interest. (You know that percentage that means you just keep paying more and more money.)
Thus the avalanche method advises debtors to pay off their loans from the highest interest rate first on down to the lowest interest rate. I like this approach because it means I’m giving less money to the banks. The plan is to simply pay off one loan at a time with the highest interest rate first.
I decided the best approach for me to pay off my loans was a combination avalanche and snowball. I already knew I was paying $800 a month. However I had several loans with the same interest rate. I ordered my debts from the highest interest rate than by the lowest amount owed. This way I’m efficient, paying off the highest interest first, but I still get the emotional high of paying off a loan more quickly. My first student loan is scheduled to be annihilated in June 2011. (Haha!)
In addition to my student loans, I’m also currently building up my emergency savings. As any Finance 101 class will tell you, savings are important for those big and unexpected costs in life.
To figure out my emergency savings goal, I dreamed up my worst case scenario. Fleeing the ROK at the last minute, with no job and no where to live seemed sufficiently apocalyptic. I’ve estimated I will need $3,500 if this happens. That number includes the cost of a plane ticket home, an apartment deposit, a month’s rent on an apartment, a minimum student loan payment and basic living expenses.
I think for most people you could probably just figure out your life expenses for a month to determine how much money should be in your emergency savings. However for those of you who don’t like math, I often hear the number of $1,000 quoted as the place to begin the savings.
I should also point out that many money experts say to build up your savings than move onto paying off debt. However I’ve determined I feel safe and secure with my $500 savings and am building up my savings more slowly with a payment of $500 each month. This means by the time my contract ends in July I’ll have $3,500 saved. Just in time to NOT be homeless. However the situation of waiting for optimum savings may not be ideal for everyone.
Remember finances are personal. What I do with my money, may not be what’s best for you to do with your money.
Finally after emergency savings and student loans, comes my travel savings. This is the pile of cash I use to see the world. Of course, this money only comes from my extra earnings as my teaching pay check is just enough to cover student loans, savings and living costs. So how do I travel?
1. I maximize my income. I just so happen to be lucky enough to have marketable skills.As I’ve mentioned before I freelance write and occasionally people even pay me for it.
My determination to pay off my loans quickly while traveling however has meant an increased dedication to my part-time job as a writer. Currently I have the goal to make $500 a month freelance writing. Nope, that’s not enough to pay for very much, but it’s enough to save up for a big trip at the end of my contract while still paying my student loans.
2- Low cost of living.
I’ve also been pretty lucky in that I’ve maintained a low-cost of living. I live in an apartment my academy pays for. I have no rent. I have no car. My basic bills for electricity, gas, internet and phone average 78,000 won a month. I even get a free dinner five times a week at work.
I’ve budgeted 600,000 a month for living costs like groceries, going out and the occasional doctor’s visit. So far, it’s been okay. I even have a small pile of extra wons adding up for the day I withdraw all my money.
3. Travel cheap.
I go to countries with low costs like Thailand and Vietnam. I’m constantly looking for bargains on plane tickets and hostels. I stay in cheap places like jimjimbangs and I eat cheap street food when I travel.
4. Give up the lovelies.
I no longer drink cognac. I only allow myself three cups of coffee a week. (It costs more than the average lunch.) I eat a ton of kimbap and ramen, which is the American equivalent of chips and salad. I don’t go on shopping trips anymore. And I no longer go on weekly excursions to other Korean cities. I’ve cut my trips down to just once a month and almost all are in Korea.
As soon as I meet one finance goal, I give myself a gift. Paying off my credit card, coincides nicely with a trip to Busan and Jeju. Every time I do some money good, I spoil myself just a little so I get some positive reinforcement from all the working and saving.
6. Long-term thinking.
Every time I get frustrated or annoyed that so much of my money is going towards student loans and not towards plane tickets, shoes, books or a new camera, I remind myself that I’m eliminating a heart-attack from my life by paying off these loans now. I try to think about the bigger picture. The big trips that will happen if I do this now. The house I can buy some day. The financial discipline I’m learning now that will pay off in the future.
If everything goes as planned avalanching snowball style, my student loans will all be gone by March 2014.
Then it’s hola Spain and adios FedLoan and UHEAA.