The debt interview series marches on! This week, we’re blessed to have John and Sam from How to Fire!
It’s not often that someone as young as John and Sam approach life and money in such an intelligent way. I’m not only a fan of their work, but also envious of the jump start they have on a kick-ass life.
That’s John and Sam!
If you’ve followed the initial posts in this series, prepare for a curve ball. I’m pumped to take this baby in a different direction… because math is real, and math will make you rich.
Let’s get to it!
Tell Us About You
We’re both twenty-four years old. We live about an hour west of Philadelphia, and we both grew up here as well.
John is a Software Engineer working for a defense contractor. His undergraduate studies were in computer science.
He’s currently pursuing his Masters in Software Engineering. His current salary, including side hustles, is just over the 6-figure mark.
Sam works in the financial services industry. Her undergraduate studies were in finance. She’s currently pursuing her Masters in Business Administration. Her current salary, including side hustles, is around $50,000.
Let’s talk about your debt
Break your debt down in detail
Our story is going to be a little bit different than most you’ve probably read. When we first started to tackle our debt, we were juniors in college and owed over $65,000 (~40k student loans, 25k car loans).
This was at the end of 2014, beginning of 2015. We had discovered Dave Ramsey and were deep diving into his philosophy.
Over the next two years, we paid off approximately $35,000.
But then we realized that we could be investing that money rather than paying off low-interest debt. So, soon after graduation, we began investing our excess cash every month instead, while still paying our monthly minimums.
Fast forward 4 years to today and we currently have $18,478.35 (avg rate is 3.8%) in student loans and $9,484.14 (rate is 2.2%) on an auto loan. ($27,962.49 outstanding today).
(record screech) Wait… What?! Ok… I’m intrigued, continue.
When and why did you decide to become debt free?
Our original goal was to figure out how we could afford to live in our own apartment and not starve to death. We were sick and tired of eating PB&J and tuna fish sandwiches.
We soon found Dave Ramsey and took his Financial Peace University program. Budgeting has changed our lives in so many ways since then.
Our goals have evolved since then, and now our main objective is achieving Financial Independence. We’re still avid budgeters, but we do not follow many of Dave’s teachings anymore.
Our emergency fund is about one-month worth of our expenses, as we both have stable jobs. If a larger bill popped up, we would easily pause investing and cash flow the expense for a month or two.
We’ll likely build this up over time, but I don’t think we’ll ever hold more than $15-20,000 in liquid cash – it’s just lost opportunities.
Describe the process you used to pay off debt
Initially, we followed Dave’s teachings and implemented the snowball method- but after several months and a lot of research, we realized that the math behind that didn’t make sense.
We could save a couple of thousand dollars if we used the avalanche method instead. So, we switched to the avalanche method for about a year.
But then we discovered the concept that you could invest the money instead of paying off debt. At first, we were skeptical – coming from a Dave Ramsey mindset.
As we further researched this, it began making sense to us. So, beginning in 2016, we stopped aggressively paying off our debts and instead began focusing on investing.
Do you have any debt remaining? If so, when do you expect to become debt free?
Besides, the student loans and car loan we mentioned earlier, we also have a mortgage. The remaining balance is currently $190k.
And you guessed it – we’ll be investing rather than paying that off too (30 year – 3.75% fixed loan).
We may someday decide to throw a little bit of extra money towards the house as our income continues to grow, but I don’t anticipate doing that for several years if ever.
How did you celebrate paying off your debt?
We’re not completely debt free, but we do enjoy a nice night out to dinner to celebrate our milestones along the way.
What are your top 2 – 3 tips for anyone just starting on their debt free journey?
Understand that you’re not in this alone. Financial literacy isn’t taught in schools, and most people don’t have a firm grip on their money.
Our first tip is to sit down and figure out where your money is going by making a budget. Analyze your expenses and work on cutting out all of the unnecessary things in your life that you’re wasting money on.
Our second tip is: Remember that anyone can plan out a path to success but the real success begins when you learn to stick with your plan
What are your financial plans for this year?
We’re on track to save over half of our gross income this year. No big milestones to celebrate, just staying the course!
What’s your ultimate financial goal?
Our ultimate financial goal will be achieved when we reach financial independence! If you’re interested in learning more about FIRE, check out our guide here.
Where can people read more about you?
We blog about our own financial experiences, share tips & tricks we’ve learned along the way, and discuss financial independence & early retirement on our blog: HowToFIRE
Leave us with what helped inspire you to continue stop paying off debt.
What inspired us the most was the math behind investing vs paying off debt. You earn more when you invest extra funds, rather than throwing it at your debt. Keep in mind that this only applies when you have low, fixed interest rates.