SETTING OUT INTO the business world, I was age 27 with a negative net worth. Among life lessons, there are many strong contenders, but nothing introduced me to “adulting” like debt. For that, I had undergraduate and graduate school expenses to thank.
Having secured a good job out of business school, I started to rebuild my finances. My grad loans had a relatively high principal amount and an interest rate of 6.8%, so I prioritized that debt over my undergrad loans, which were much lower in principal and charged just 3%.
I was acutely aware of the dangers of increasing my living standards overnight. Going from ramen to sushi wasn’t in my best interest. I continued to live like a grad student.
These choices gave me more cash to deploy toward three goals—debt reduction, retirement and building a cash reserve. Not wanting my debts to derail my other goals, I decided on a hybrid approach. I contributed the amount needed to get my full employer 401(k) match, and also set up a monthly automatic contribution to a Roth IRA. After I paid myself via my 401(k) and Roth investments, I focused on developing an emergency fund. My goal was to build this up aggressively until I hit $10,000.
With this bit of liquidity to fall back on, I felt better about directing more toward my graduate loans. I set my retirement contributions to increase annually in conjunction with my annual raises. My bonuses went toward grad debt, retirement and everyday savings. My life wasn’t exactly sexy in materialism, but it was rich in discipline.
My strategy of not letting the perfect get in the way of good worked for me. I managed to pay off more than $65,000 of graduate student loans in two years, while slowly inching toward my other goals. Those small, deliberate actions compounded nicely.
Anika Hedstrom’s previous articles were Site Seeing (Part IV), Upping the Ante and Home Economics. Anika is a financial planner with Vista Capital Partners in Portland, Ore. She loves to nerd-out and, when given a dollar, will save 96 cents.