At the end of last year, I stated that I wanted to pay down ~$34,000 in consumer debt (outside of my mortgage). I am writing today to report on both a level of success and a switch in strategy.
How am I faring?
In short: decently.
I am not currently on track to hit my $34,000 this year. As of today, September 17th, I have ~$16,000 left to go. I want to revisit the reason behind my goals and update about how my strategy has changed.
My colleague PK and I both have similar opinions about the stock market and liquidity in general at this point in our financial lives.... It is time to de-leverage!
Freeing up cash-flow for me triggers a similar positive reinforcement mechanism as building up equity in a house or even purchasing investments. On the other hand, I am young enough to appreciate the time value of money and look for more ways to leverage current net worth into future gains. For this reason, I have prioritized maxing my 401(k) contributions for the year above paying down this debt.
Taxes, Taxes, Taxes
There is an annual $17,500 contribution limit for employees to their 401(k). This is the same for everybody until the age of 50 when you can make "catch-up" contributions of $22,500.
The major point of me writing this: your opportunity to contribute expires each year. Thus, if I go under by $5,000 on contributions this year, I will be unable to make it up next year. Since my debt is relatively low-cost (4.75%), I am prioritizing the the stock market and the tax savings of the 401k over paying off student loan debt.
Past performance is not an indication of future results, but so far this year I've done well- my return is beating the S&P 500. I am heavily into foreign equities at this point.
The Trifecta
I feel a bit guilty switching up my plans mid-year but I felt I needed to be honest about my goals and my results. I don't feel I can complete the trifecta all at once. Add onto this a major renovation (~$4k) of my master bathroom and I still feel proud of most of my accomplishments. My trifecta in order of importance:
- Roth IRA $5,500
- Traditional 401(k) $17,500
- Consumer Debt $34,000
So far, I have paid off:
- Roth IRA $5,500
- Traditional 401(k) $5,800
- Consumer Debt $18,000
Only 3 1/2 months left to go, it is going to be tough to hit these goals but I am remaining steadfast!
Cheers,
Cameron Daniels
