I’m looking at a nice percentage increase in my net worth over the past month. The increase was assisted by helpful side income and decent performance in my investments. Continue reading to see the numbers. I know you want it.
To reiterate as I do every month, I pay off the amount I have on credit cards—actually, just one credit card—every month, so the balance doesn’t concern me. With regards to my outstanding car loan (at 2% with a family member) and student loans (4.25%, decreasing to 4%), there has been significant discussion here on Consumerism Commentary with a lot of input from readers. Most people are divided between paying the loans off as quickly as possible since the cash is generally available, and paying them off as slowly as possible, as the cash could be invested elsewhere, making more money thanks to compounding interest or stock market increases.
I’ll end up somewhere in the middle. I’ll probably pay off the car loan soon after it comes back from repairs. I have not yet decided how quickly to pay off the student loans. The interest is tax deductible, so that drives down the cost of the loan.
There is more to come when I post my Income and Expense Statement later tonight.
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First, congratulations on the gains! 8.13% is a very impressive number. Since I didn’t see you set a goal for this year, I am not sure how far away you are in achieving it. But if we can continue to get the kind of help from the market for the last two months of the year as we got in October, your number could be over $70K when 2007 begins.
As of your loans, since we have a favorable rate in savings, I will side with those who support paying it off slowly. Since the car loan is not a big number, paying it off first makes sense, though it has only 2% interest rate.
Thanks, Sun. At the end of last year, I believe I set an informal goal of $60,000 for 2006. Looks like I was a little better than on target. Perhaps I’ll hit $70,000 before the year is over.
Good job on the growth! It’s always nice to see the bottom line go up up up!
I’m about where you are on the student loans. Mine are currently fixed at 3.625% and we have about $19,400 on them, and they aren’t due for another 18 years. On one hand, getting rid of them quicker improves our cash flow and eliminates our debt, on the other hand, it’s really cheap debt and the interest is tax-deductible (which actually led to a huge increase in our tax refund last year, believe it or not).
What do we do right now? We put every dollar of my net income (which is fairly pitiful, really) towards paying them off, so they go down as I earn. This approach may not work for most, but it works well enough for us.
Congrats – I too am impressed with the >8% increase – your still rolling!
Flexo: Even if $70K is not guaranteed by the year end, it’s within reach.
Dimes: I am not sure if you have any other investment at this point or not, but is it a good idea to put every dollar of your net income towards your 3.625% rate student loan? The loan will stay with your for another 18 years, but your time frame to retirement is much longer than that and if you spare, for example, $50 from the loan payment and invest that $50 every month, the gain you will get eventually will be much, much greater than what you would otherwise save by paying off the loan, IMHO.
Congrats, Flexo! It looks like your side business is really helping you along. It looks like you sell stuff on eBay and Amazon Marketplace, but is that your “business,” or do you do anything else. I do understand that you do some web stuff, but is that the actual business?
Great job with the increase! I especially like the increase in the Roth account, mine had similar increase over the month.
Actually I haven’t sold anything on eBay or Amazon in a long time. The side income comes mainly from advertising on this blog with some help from a few others. I haven’t done any (paid) web consulting in the last months, either.
To throw an iron into the pay-off loans or not fire:
Why are you not making this a purely mathematical decision?
If you can make more money with an investment (Citibank e-savings is at 5%, your student loans are less) then keep the money invested and make minimum payments on your loans. If not, pay your loans.
PS: I understand that there is a potential for “political interest” above and beyond the financial interest on a family loan, so I agree with getting rid of that regardless of the math.
PPS: Don’t forget to discount deductible loans by your Marginal Tax Rate (or if you want to get exacting, the max deduction by the actual rate as tiered out).
I agree with Sun’s post. My significant student loans are being paid off via asset accretion from inflation (my rate is at 1.25% currently). The longer I pay off the minimum, the less I have to pay later on.
I just came across your blog and it has inspired me to get right for next year.
Flexo,
Any pointers on how to calculate an automobile’s depreciation? Obviously I can look at Kelley Blue Book, but I do not know the monthly depreciation.
Also, I was wondering if anyone knew of an accurate way to determine the value of one’s home. I want to be able to balance the current value of my home with the loan on it.
I agree with Sun. The student loan will be with you for another 18 years. I believe it would make much more since to allocate some funds toward investments rather than pay down your student loans.
I’m in favor of paying off both the student loan and the car loan. The reason is one of psychology rather than pure math. Forming “no debt” habits early and deeply will be helpful throughout your future life. Adding to that thought is the shaky economic outlook going into 2008.
Save the debt for something really critical, like a necessary medical operation or unexpected unemployment.