Shorten Your Life With Debt

I recently wrote about how I am working at getting rid of days I have to work by investing to receive dividends. But I got to thinking again about a different way to think about things. Thinking differently is the key to innovation. I am trying to go through university without taking on debt and I began to think about how incurring debt is like giving away some of your life by adding work days to your time.

The average student graduates with $25,000 (this figure is for US students, Canadians should have less). This is likely 50% or more of your first year’s salary. I don’t think anybody would want that hanging over their head, let alone somebody who won’t be making a lot nor what they expected.

I have a line of credit from TD and the interest rate is 4.5%, which is more fortunate than a lot of students out there, although not the best. While I am in school I am only required to pay the interest every month. Assuming I kept that $25,000 for my senior year that would be $1125 in interest without making a dent in the amount I owe the bank. I calculated that someone with $50,000 of after tax income takes home $192.31 every work day. So my first six days of full-time work after I graduate will simply pay the interest for the school year already completed. Then I need to keep paying interest and eventually pay off that $25,000.

If you are simply paying he minimum on the debt than more than one week of every year, or one out of every 44 days you work you reap no benefits from your labour outside of paying that interest. Being smarter than that you would try to pay it off as quickly as possible. Making $50,000 you could save one quarter of your income and pay off the principle alone in two years. Adding the interest to your payments might add another month to your efforts. So $1,000 every month you work during the most important time for you to invest your money.

Would you go to work and one day of every week ask them not to pay you? This is what that student debt would do to you. With the year of interest payments and then the 25 months of paying one quarter of your income you lose 136 days of your life by having this debt. Doesn’t seem worth it if you can avoid debt.

This does not even take into account additional debt such as a car loan (unnecessary) or credit card debt (also unnecessary) or any other debt for that matter. Each dollar of debt you have adds time that you have to work to your life, essentially shortening your life with debt. You can’t literally buy time on Earth but this is as close as you will get.

So debt is actually killing you in a small way, a leech sucking the life out of you. Usually it is slow enough so you don’t notice all the damage it is doing, until you don’t have the money to go on vacation because you have to pay your student loans. Or maybe you are “lucky” and you don’t see the leech until you are 65 and working longer than all your friends and family. See that leech trying to get at you now, and keep it at bay so the debt can’t harm you.

Poor Student was featured at NerdWallet in The Carnival Of Personal Finance.

Replacing Work Days To Achieve Financial Independence

Recently I have been thinking a lot about dividends. I have just bought a stock that will pay me about $50 every year as long as I hold it (and most likely increase). I was thinking about how much I like that, how it got financial independence closer. Then I thought about how dividends get me closer to financial freedom, as replacing work days.

I have mostly seen dividends measured against the expenses the person has. So if I reached my goal of $200 in dividends this year and my expenses were $50,000 I would be covering 0.4% of my annual expenses. This is a little disheartening.

I wanted a way to make this seem better in my own I use theĀ  mind. When I think about it I think that living on $50,000 would be more than I could need, I could live pretty well on that. There are 260 work days in a calendar year so that means someone with a $50,000 income (after tax) brings home $192.31 each day they go into work . Now my goal of $200 in dividends this year buys me one work day of freedom. In my first year investing I have replaced one work day.

And you can take it further even. This summer I am working 7:30-4. I am used to longer hours so this is a nice change. I used to work 7-6 every day. I am going to use that as the typical day. I would wake up at 5:30 and get home around 6:30. Work cost me 13 hours of every week day. I am investing money, and all my dividends are working at replacing work days. Thirteen hours of my day were not spent the way I would choose to spend my days. Thirteen hours multiplied by 260 work days means 3380 hours every year I am not in control. While my true wage would be higher, the total time (waking up, preparing, commute, lunch, etc.) I spend that revolves around employment is higher than my paid time, so my “true” wage would be $14.80/hour.

Now my $200 of dividends buys me back 13 hours and 30 minutes.

Any way you spin it, it is still 0.4% of what I need (assuming $50,000 expenses). I need 250 times that to achieve financial independence. But thinking of it in terms of replacing work days or hours makes the effort seem much more tangible.

May Dividends

I wrote my goals in January, I was so naive. Seriously check out what I wrote for the dividends goal. I actually had the nerve to write that I thought it would be easy to make $200 from dividends in 2012.

I have been posting these monthly updates since I got my January dividends. I got $7.57 in dividends that first month. I thought that was awesome. I thought that number would go up every month by a fair amount and I would soon be pulling in a great amount for anybody let alone a student. Again, pretty naive. This month I got $7.60. Luckily this is as low as my monthly total will ever be. I have a stock that pays quarterly so four months of the year my total is higher than this.

With this month’s dividends I have received $42.48 this year so far. Dividing that by 5 months that have passed and then multiplying that by 12 to get an annual estimation I am on pace for $102. That total is inching upwards but is nowhere near my original goal.

I am not worried about reaching the goal. I know that I set that goal far out of reach. But I do look at the monthly dividends of others like My Own Advisor and $25,000 Dividends and can’t help but fantasize getting as much as they do, and some day getting enough to pay for everything I will ever need to buy. That is far off yet but every month that dream gets a little closer.

These posts are my form of trying to inspire others to take joy in dividends like I do. And I like having a place to track my progress. Already I can go back and look at January and see my lowest monthly totals are already three cents over January’s dividends. Next January I will hopefully get to look back and laugh at how small of a month that was.

9 Week Productivity Challenge

My first year of university went well I think after really considering it. I wish I had done better in my classes and that I had also gotten out more, but that is what next year is for. I have committed this summer to getting better, nothing specific. Anything I can do that would make me better I have tried to do. I think I have made these kinds of declarations before but this time was different (something people say all the time). So when my blogging friend at Economically Humble came up with this challenge I jumped at the opportunity. Here are just nine of the things I want to do in the next nine weeks are,

1. Invest 50% of my summer earnings. I have very ambitious goals related to my financial independence. One of the easiest things I can do to help myself achieve this goal is to invest early and often.

2. Lose 15 pounds. I am running a Warrior Dash on July 22 and I ave been training hard for it. I do not need to lose the weight to run it, it just puts a measurement on the true goal of getting in racing shape.

3. Spend more time with friends and family. I have been working andĀ  then pretty well coming home to unwind. Then I am too tired to do much on the weekends even. I want to enjoy summer with those that mean most to me.

4. Get ahead on my school work. In post-secondary education you get four months off in the summer to do with as you please. This is a very poor learning strategy, so I want to read a couple of chapters from the textbooks I still have in the subjects that I will be taking next year. Which will make the upcoming year easier as well.

5. Apply for scholarships. I haven’t done this as much as I have wanted to, and it is something I really need to start taking seriously.

6. Go camping. Camping is something I enjoy, which is weird, you wouldn’t think it would be fun to pretend you are homeless. But I like it and I want to go camping at least one weekend this summer.

7. Pick my classes early. this is the key to getting a desirable schedule. Last year I had class at 8:30 am every morning because I procrastinated until late August to pick my courses. This year the open date is late June so I will have my classes picked before July, if not on the first date.

8. Apply for co-op. I want to try out careers before I commit to one, so I need to make up a persuasive application to get accepted to the co-op program at my school.

9. Save up half the cost of a laptop. My laptop has been unsatisfactory for a while. I have been saving up amazon gift cards that I get easily from both Swagbucks and Superpoints so I can get this very expensive purchase practically for free.