Edit: I’m leaving the original here, but as of November 2016, we upped the monthly payments to $4,300 per month, considering that we had started to experience some lifestyle creep, and wanted to make sure we’re always keeping our sights set on the goals. So, at $4,300 per month, we’re actually paying $51,600 in debt repayments each year. For comparison, the average household income in America is roughly $50,000. Even with such a large number, it’ll take us another two years to pay down one of my $50,000 debts, because so much goes to keeping interest down.
Penny over at She Picks Up Pennies had a great post about setting specific financial goals for the year. That got me thinking. I hadn’t done the yearly math before starting a conversation with Penny on Twitter, but when I posted our goal of paying off $3,500 a month in student loan debt, I picked up my calculator (smart phone) and multiplied the number by 12. Our financial goal is to pay $42,000 towards student debt every year, and possibly go up from there if we can.
Take a moment to let that sink in. $42,000 per year. That’s enough to put a family of four (yes, FOUR) above the poverty line.
As a breakdown of some of the numbers:
My Gross Salary: $50,000
My Net Salary: $33,504
Spouse’s Gross Income (est.): $76,800 (depends on overtime)
Spouse’s Net Income (est.): $50,400
Total GROSS Income: $126,800
Total NET Income: $83,904 (some of the difference goes into spouse’s retirement plan. It’s not all taxes)
That means we’re spending 50% of our net pay on student loan debt repayment each year. It’s also just over 33% of our gross income each year. Just out of curiosity, I ran the numbers for housing as well, and it turns out we’re paying about 16.5% of our net and 11% of our gross on rent, just for comparison.
So that leaves us with 33.5% of our net for living expenses, or just over $28,000 per year, or $2,342.32 per month. Which is just over what we’ve averaged for about the past year, according to YNAB.
This has significance for me for a couple of reasons. First, HOLY S*** THAT’S A LOT OF MONEY! It was a little difficult to believe at first, since we tend to take a month-by-month view of our finances. I don’t usually do the math out to include a full year so it was beyond surprising that we’re making payments more than many people earn. More than my entire take home pay goes to debt repayment. I’m literally working to pay of the debt.
Second, there’s room in the budget to get more aggressive, I think. 50% is great, but my next goal will be getting to $4,000 a month, or just over 57% of our net income. That’ll take the repayment time down to just over 9 years and saves $30,000 in interest.
I actually feel better for doing those numbers. Just knowing we’re throwing so much at debt, with plans to throw more means we can get out of the law school loans faster. I’m going to be so excited when it’s finally done!