The First -$100K Is The Hardest

The First -$100K Is The Hardest

In the personal finance world, you’ll often hear that the first $100,000 is the hardest to save. After that, you should see some serious momentum from your investments which will do more of the heavy lifting for you. If you’re starting from $0, that’s absolutely true.

For me, starting from a -$130,000 net worth with 3-6% interest on my student loans working against me the entire time was probably the hardest part. I hope, anyway! (By the way, net worth just means things you own minus things you owe. I owned nothing and owed $130,000 = -$130,000.)

I’m stoked to announce that in the three year period from January 2016 – December 2018 my net worth increased by $105,000!

How?? Two things. I took advantage of a generous employer retirement match, and I reduced my spending and used that surplus money to pay off my student loans faster.

Employer Matched Retirement Savings

I’m one of the lucky ones, with my job not only matching but doubling my retirement contributions (up to 5% of my income). Over the last few years the balance has grown to $35,000 – even though I’ve only contributed about $9,000 of that personally. Cha ching!

If your workplace offers a retirement match, look into it TODAY. Yes, even if you still have debt to pay off. When your employer matches your contribution, it’s a little like getting 100% on your money (200% in my case!). Compared to 5% on a student loan, it can really add up over time. Your debt repayment journey might be slightly longer, but you’ll have more cash in the long run!

Bonus? Employer matches are often automatic and come out of your income before you even receive a paycheck. This is a fairly effortless way to build a savings habit. Anytime you can reduce the friction between you and a good money decision, it’s a win!

Accelerated Student Loan Repayment

Student loan companies are the worst, and I think we can all agree on that. They have an interest (literally) in us repaying our loans as long as possible. So why follow their payment plan?

When I graduated, they gave me a standard 10 year repayment timeline and a standard minimum payment. What’s the problem with repaying your loans over 10 years? Interest! The longer you keep a balance and the higher that balance is, the more money you’ll pay them for owing it.

For example, even rounding up the minimum payment on a $25,000 loan from $265 to $300 could mean you’re done with that debt a YEAR earlier and over $1,000 richer if your loan was at 5%. Now think about how fast you could be done if you had more than an extra $35/month to throw at it!

Before you get into the habit of paying minimum payments, think about what you can afford to put toward your loan – not what they tell you to put towards it. Whenever you can pay more, you’re saving your future self a lot of time and money! Do your own math and see how even small amounts can affect the big picture at undebt.it (it’s free!).

Your First 100K

I know it sounds great to have a company that compensates you fairly, and it also sounds great to say ‘just pay more on your student loans,’ but what if you’re not there yet? I feel you. In my first year of repayment, I was barely making the minimum payments. If you’re curious, here’s how I turned that around and paid off $30,000 the next year.

My issue was mostly a spending problem, yours might be an income problem.. or both! Either way, I hope you’re thinking about how you can reduce your spending, increase your income, pay off your student loans faster, or grow your net worth.

The length of time and the goal for your change in net worth might be completely different from mine, but the idea is the same. Be aware of your money, have a plan for the future, and make incremental changes in the right direction until you get there.

If you want to start small, the number one recommendation I have is to begin tracking your spending. Whenever someone hits me up for money tips, the first question I always ask them is if they know how much they spent the previous month and on what. You’d be surprised how often they don’t have even a ballpark answer! (Been there!)

I use a budgeting app called You Need A Budget to track my spending. I don’t often recommend products, but this is one I’ve used and loved for several years so I have no hesitation sharing it. The first month is free, and most people save enough that month to pay for their next year, so you’re not losing anything by giving it a shot!

Photo by Alexander Mils on Unsplash



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