Savings Account – JerseySmarts.com

What Would I Have Purchased If I Wasn’t Saddled With Student Loans?

Posted on July 26, 2012 by Joe

Show me one person who says they haven’t sat around and thought about what it would be like to win the lottery or strike it rich and I’ll show you someone who is lying. Daydreaming is one of humanity’s favorite pastimes! Who doesn’t love to sit there and say stuff like, “If I hit the Mega Millions, I’d buy my Mom a house, myself a house, everyone in my family new cars, I’d give a bunch of money to charity, and then I’d invest most of the remaining money and live off the interest.”

Wait until the next time the Powerball lottery gets to one of those outrageous dollar amounts and I guaranty that you’ll hear those conversations going on all around you.

For those of us who graduated college or graduate school with inordinate amounts of student loan debt and have successfully completed or been engaged in a repayment plan, we have a slightly different version of daydreaming. The truth is that this small cohort of student loan borrowers doesn’t sit around and wonder what it would be like to have millions of dollars to play with; instead we sit around and daydream about what it would be like to have all of those student loan payments that we sent off to play with instead.

This isn’t one of those entries where I’m going to bore you with intricate financial statistics or complex equations talking about the amount of money that I lose everyday to interest expenses on my student loans ($3.32). Instead of all of that stuff, I’m going to eyeball a round number to indicate how much I think I’ve spent on student loan principal payments, interest payments, origination fees, transfer fees, and consolidation fees. I’m going to suggest that this estimated round number is between $135,000 and $145,000.

What this range doesn’t calculate is what I might have gained if I would have had the opportunity to invest these funds, but that’s another post for another day.

Those of us who willingly took on exorbitant amounts of student loan debt with the full knowledge that we would be saddled with a repayment obligation that we always intended to meet (lots of qualifiers in the beginning of this sentence…) get a bittersweet feeling when we sit around and think of what we could have done with years and years of student loan payments (which are usually over-payments each month). This past weekend, several of my college buddies stayed over at my place after a group of us went out to the bar. The next day when a few of us were sitting around and talking about different things, the topic of student loan payments came up and it got me back to this familiar form of daydreaming: What would I have done with all of those payments if I didn’t have these student loans?

Immediately, three things come to mind.

First, I would have a substantial savings structure including more equity investments (stocks), fixed investments (government-backed bonds and certificates of deposits), and liquid savings (regular savings account). Granted, I have different levels of these savings structures in place right now, but I’d definitely have more and more varied types of these savings accounts if I had all of that student loan money back.

Second, I would have a more secure housing situation. Now this one is a little bit trickier than just something as simple as, “I would have purchased a house by now.” The area of New Jersey where I live (the northern Jersey Shore area) does not produce reasonable real estate prices right now. Sure, I could have used some of those funds to purchase a home, but the amount, type, and location of the home that I would be able to purchase would not be as much, the type of, or in the area where I’d want to live – so I wouldn’t do it. Plus, the time period when I would have been buying a home would have put me right in the group where the value of the home would be declining quicker than the amount of the outstanding loan principal. So… I wouldn’t have purchased a home.

Instead, I would have set aside a substantial amount of money (around $20,000 to $30,000) to be my “housing reserve fund.” I would still budget my monthly rent from my monthly cash flow, but I would have these funds available in the event that I had to vacate my current place, that I wanted to move, or that I just needed funds for housing-related costs. That housing reserve fund would have provided me with the type of long-term stability that most renters don’t have the benefit of enjoying.

Third and finally, I would have either purchased or been in the final stages of building a vacation home. I know, I know – this one seems crazy. I get it. There are folks at my office who call me Mr. Austerity because of my strong discipline to strict rules and regulations when it comes to the financial aspects of our company. In other words, I hate spending the company’s money even if the company wants their money spent! And I’m a stickler for following a strict set of rules in the office because I think companies need structure and if they have that structure already in place, then they should follow it.

So… the idea of me taking some of this money and purchase a vacation home may seem somewhat insane. I assure you, though, it’s not crazy at all. In fact, there are a lot of reasons why I’d either be savings towards buying a vacation home or I would have already purchased one. Among those reasons are the fact that I would buy a home somewhere in or near the Poconos – where the real estate and property taxes are much, much cheaper than in New Jersey. Plus, there are a lot of beautiful areas in that part of Pennsylvania where you can have a wonderful home with gorgeous, wildlife views. Don’t get me wrong – I love living on the Jersey Shore, but I also really enjoy the peaceful feeling of being surrounded by nature.

I’d also be looking to get that vacation home to host group gatherings. In other words, it would be a nice place where my family could gather for events and holidays, where I could host barbeques and parties for my family and friends, and where I could host other events (planning sessions for my team at my company, annual strategy sessions for some of the nonprofit fundraising work that I do, etc). With respect to regular usage, I’m lucky that my company allows me to work from home on Fridays, so I would probably spend most weekends (weather permitting) up in the vacation home, especially during the summer months when the traffic down the shore is incredibly annoying.

The distance between my office and the general area of the Poconos is about an hour, which is a little bit longer than my daily commute so the distance isn’t a big deal at all. I could easily leave my office on a Thursday afternoon at 4:00pm, head to the vacation home for the weekend, and be there by 5:00pm. Then, I could just as easily leave the Poconos and get back to the office on Monday morning. In the event that I opted to do something like this, then I would probably move out of my current area of the state and, instead, move somewhere a little bit closer to my office. Not too close, though – I’d still like to be within close proximity of the northern Jersey Shore area due to attending Monmouth University basketball games, teaching at the local college, and attending other events in the Long Branch/Asbury Park area. My new apartment wouldn’t have to be too big or costly, either. A standard efficiency arrangement would be fine given that I’d have most of my nice stuff (like high-end electronics) up in the Poconos.

In short, I think I could definitely make that type of living scenario work out. And I’ve given it a lot of thought so I’m sure I’ve thought through most of the difficulties. Oh, and I wouldn’t worry abo-

Hey! Wake-up!

Those are just the daydreams from someone in my situation. You know, someone who has pushed more than $135,000 into student loans over a 6 year period; someone whose 12-month budget shows a whole lot of additional money getting pushed into student loan payments to finish these things off. And here’s the kicker of the whole situation: I might be 12 months away from being free of these students loans, but that doesn’t mean the financial daydreams you read above would be kicked into high gear. Not at all.

Instead, once my student loans are paid off I can then just begin to think about budgeting to start saving to meet just one of those daydreams.

And that is a splash of ice cold reality in the face of some fun daydreaming, don’t you think?

About Time to Reassess Different Accounts and Financial Arrangements

Posted on October 30, 2011 by Joe

Earlier this month, I noticed an advertisement on my local bank’s website. The advertisement said something like “FREE HIGH YIELD CHECKING – 2.01% APR!” Like most folks, I really don’t pay much attention to these advertisements on the interwebs because, you know, who has the time to worry about those things? So I paid no attention to the advertisement the first time I saw it or the second, third, or fourth times I saw it. In fact, I really didn’t pay the advertisement any mind until about a week and a half ago when I was sitting around thinking about the different financial institutions where I keep my various accounts and investments. Since this advertisement was telling me that I could get a high yield (i.e. earn a better-than-average interest rate) on money sitting in my checking account, I thought I should probably investigate what they were offering. After a few clicks on the Kearny Federal Savings website (I bank with Central Jersey Bank, which is now a division of Kearny Federal Savings) and I was reading information on the free high yield checking account option. According to what I read on the web, it appeared that my usage patterns in my checking account qualified me to get one of these high yield accounts and I could earn myself a cool 2.01% APR.

Here is the ad that was on my bank's site. Notice the rate has fallen to 1.76% from 2.01%.

Like most people, I don’t like to mess with my day-to-day banking or investment accounts so I took some time to mull over whether I should bother with the high yield account or just leave well enough alone. Though it took me a few days, I finally decided to go over to my local branch of Central Jersey Bank and talk to them about the high yield checking account option.

There’s no great “POW!” moment to end this portion of the entry, so be forewarned. I went over to the branch and the woman who assisted me was excellent and showed me how my usage qualified for the high yield checking account. We talked about the different checking account options and I opted to go with this account. So now my checking account is earning 1.76% (the rate went down a few days ago and will probably continue to go down each month – hey, I know it’s a promotion, but it’s a good one).

While I was talking to the woman at the bank, I thought I might open up a savings account, too. I haven’t had a savings account at a brick-and-mortar bank in a long time – probably dating back to when I was in my first or second year of college (which, terrifyingly enough, was over a decade ago). For a long time now I’ve had a savings account at ING Direct and I’ve been very happy with its performance. Of course, the initial interest rate that I was receiving over at ING Direct was something like 4.50% and that’s dropped down to 0.90%, but I understand that the drop was more a function of a poor financial market than factors inside ING Direct (or any other bank for that matter). Anyway, I wanted to open up a savings account and two issues stopped me dead in my tracks.

I wound up staying with ING Direct

First, the interest rate that was being offered was 0.30%. Look, I understand that banks can’t pay even the 0.90% that ING Direct can pay because they need to invest and lend the money in savings and checking accounts and earn a nice spread to pay for their buildings and people, but 0.30% isn’t even competitive. Yet, I was still going to open up the account until the woman I was speaking with told me about the minimum balance requirement. I can’t remember what the minimum balance requirement was exactly, but it seems to me that it was a $1,000 balance at the end of each month or a $3 fee would be assessed.

A $3 fee for not keeping at least $1,000 in a 0.30% savings account? Yeah right! Give me a break.

Instead of dealing with that hot mess, I decided to just stick with my ING Direct account as my only savings account. I would liked to diversify and have a second savings account, but silly restrictions like the one noted above are not something that I have the time or the inclination to worry about. With respect to savings accounts, though, I’m thinking about looking into Ally Bank since they’re offering a similar rate to ING Direct (0.85%).

This process did get me thinking, though. In particular, I started thinking more about the checking account that I use for Usable Web Solutions, LLC. I keep most of the funds for my small website business in Sovereign Bank, but I really haven’t been thrilled with their service since they were acquired by Santander a few years ago. Certain things have become a hassle that shouldn’t be a hassle. For example, they rebranded and changed their debit cards and so they sent me a new one to use. Like any new debit card, I had to activate it over the phone. The problem was that the phone activation system forced me (automatically for some reason) to an operator for final activation. Then this woman on the activation line may have asked me 50 questions to get this stupid card (which I didn’t want, request, or need) activated.

I'm not sold on Santander's customer service

It was like they missed the bigger picture of customer satisfaction and convenience. But convenience is something that Sovereign Bank has never really understood because they’re usually closed whenever I’m out of work and near a branch to make a deposit. This is an area where the old Commerce Bank really rewrote the rulebook in my opinion. By being open for longer hours each day, into the night, and on the weekends Commerce Bank provided the type of customer service that the New Jersey banking market really hadn’t seen before. And it was great!

And then TD Bank came in and crapped all over Commerce Bank’s customer-friendly reputation, but that’s another story.

In any event, this entire process has me thinking about some of my other banking and investment accounts. I’ve scheduled a meeting with my company’s 401k agent to talk to her about my asset allocation in my 401k account. For some reason, I’ve got a gut feeling that now is the time to invest heavily in aggressive, struggling funds. Yeah, they’re probably going to go down again, but I think they’re going to come roaring back in the next 2 – 3 years. I guess we’ll see, but I want to meet with the agent to be sure that my feeling is reflected adequately in my asset allocation.

Ahhh... the good old days!

Further, I’ve been thinking about my credit card. For the last four or five years I’ve used a Worldpoints MasterCard that is branded with my fraternity. For the longest time I thought that each time I made a purchase, my fraternity received a small kickback. Last year I found out that my perception of this program was incorrect and the fraternity simply received an annual fee from the credit card company for the co-branding arrangement. So the affinity that I had towards this credit card is gone even though I’ve used the Worldpoints option to receive a few checks (each for a few hundred bucks) because I frequently use my credit card (and pay it off immediately – I haven’t paid one penny of interest in years on the card).

Since the only thing keeping me hanging on to this credit card is the Worldpoints feature, I’ve been researching other “cash back” credit cards and all of the reviews point me towards the Freedom Chase card. Sure, the interest rate is a bit high and variable (both unacceptable for someone who isn’t a credit risk at all), but I don’t carry a balance anyway so I wouldn’t be paying the interest. Plus, there are a variety of ways to double, triple, quadruple, and quintuple (that’s “multiply times five,” folks) the amount of points that you get for certain purchases with the Freedom Chase card.

So I’ve been thinking about possibly getting that card. And I’ve also been looking into the Barnes & Noble MasterCard because, you know, I’m a Barnes & Noble fan. They’re big draw is that for everyone 2,500 points you earn (i.e. every $2,500 you spend on the credit card), you get a free $25 Barnes & Noble gift card sent to you. You also get 5% off everything at their store. There are some months where I spend more than $2,500 on my credit card, so getting that monthly gift card would be nice. But then again, it would also be nice to build a whole bunch of points with Freedom Chase and get cash back instead of a gift card.

Nothing wrong with one of these big, massive banks sending me a check every once in a while, you know?

Anyway, what about the rest of you? Is anyone else out there reassessing where they put their money and which financial products they use during this cloudy economic climate?

Student Loan Update – Another Thousand Down, Much More to Come!

Posted on March 19, 2011 by Joe

Can you believe it? Can you believe that it has been over two months since my last student loan update? Remember when I wrote that I was going to relax a little bit for the first half of 2011 and make my standard payments to the United States Department of Education (USDOE) student loan that I have outstanding?

Well, I wasn’t lying. 🙂

Only $52 thousand left to go!

The reason why the last student loan update was nearly two and a half months ago is because I’ve redirected my financial focus towards rebuilding my savings account. And, thankfully, through my strict budgeting and financial monitoring I’ve been able to quickly build up a nice reserve in my ING Direct savings account. The truth, though, is that I’m only about a third of the way towards my interim savings goal so I’m going to continue banking money in my savings account for the time being.

However, I’ve been considering speeding up my student loan repayment plan. As you might recall, I previously suggested that I would begin putting a great deal of effort into paying off the USDOE student loan come the end of this summer. Well, as I sit here and review my finance and as I begin to finalize my living situation through June 2012, I realize that I’m capable of making additional payments on this student loan to the point where I could make some major progress in depleting this student loan balance by the end of the calendar year.

So… be prepared to read some more student loan updates in the near future! While I can’t guarantee that the updates will be as dramatic as my final few updates while I repaid my NJCLASS student loan from the New Jersey Higher Education Student Assistance Authority, I can absolutely guarantee that I’ll be putting more effort into getting rid of this student loan debt and getting on with bigger and better financial plans!

Be on the lookout – you never know when the next update is coming. Especially when I’m so close to breaking $50 thousand…

In May 2006, I graduated from Rutgers University with a Masters Degree and $120,720 in student loan debt. After completely repaying over $61 thousand in student loans from the federal Perkins loan program, the New Jersey Higher Education Student Assistance Authority, and CitiBank, I currently owe $52 thousand to the United States Department of Education’s Direct Loans program. Follow my student loan repayment story on JerseySmarts.com.

Guest Blog Post – Adjusting Withholdings to Bolster Savings

Posted on January 12, 2011 by Joe

Hey everyone! I hope that the snowstorm didn’t have you too packed in. Today, we welcome a guest blog entry to the website from a company that wanted to provide some information on adjusting withholdings to bolster savings. Their entry is listed below the division line below. Enjoy!

__________

When you don’t save enough during the year, any short-term emergency can have you scrambling to find a cash advance. Yet, saving money does for an emergency fund or even goals like retirement can be as easy as adjusting paycheck withholdings to automatically do the saving for you. You can set up withholdings to different accounts to fund different purposes.

401K
Your employer will set up the automatic withdrawal of funds to a 401K plan. You should try to maximize savings in this area, particularly if your company does a matching contribution. Every year check to see if you can increase your deductions to bankroll your retirement faster. Remember to not touch the account if you can help it. Early withdrawals from a 401K come with hefty penalties and can set your retirement savings back by years. If you have to borrow from a 401K be sure to pay it back before it is deemed an early withdrawal. Also, keep in mind that should you borrow and then lose the job, the entire loan can come due at the time. If not repaid it is deemed an early withdrawal and cause you to pay taxes and penalty fees on the withdrawal that can amount to 30 percent of the total.

Savings and Checking
When you choose direct deposit you can have a portion that you designate go straight to a checking account to pay bills with the remainder going into your savings account for emergency purposes. This way every paycheck cycle you have an automatic mechanism to increase your savings. This tends to work very well because you actually don’t see or touch the money going into savings. If you don’t ever have an emergency or a major purchase to fund, it just continues to grow somewhat hidden from view. By the time you do decide to raid your savings, there could be hundreds if not thousands of dollars sitting in it.

An Interesting Dichotomy in My Personal Finance

Posted on January 5, 2010 by Joe

Right from the start, let me say that I don’t plan on getting carried away with the numbers in this entry and you shouldn’t either. I’m not digging into how much money I make or any of that type of stuff, so don’t look for that information here. Frankly, it’s none of your business. However, when I was going over some personal finance stuff with GGL earlier today I thought that it would be interesting to take my message to him and create an entry on the blog from its contents.

And so here we are.

In the last two days I’ve done really well in the stock market – like absurdly well. Granted, I’ve only been investing for about fourteen months, but yesterday and today were significant. I managed to bring my total earnings back up to above 100%. Most investors get excited about 10% – 15% gains and I am admittedly greedy by looking for triple digit percentage gains, but it’s my money so of course I want it to be wildly successful in the market! And yes, I understand that this is the market that we’re talking about and that there’s a strong chance that I’ll lose much of the last two days worth of gains in the next two days, but that’s part of the game.

Anyway, it got me thinking about my overall financial situation in a much larger picture. Since I started college in Fall 1999, I’ve been at a negative net worth. When I graduated Graduate School in Spring 2006, that negative net worth was approximately $121,000. That’s pretty bad. In fact, that’s absolutely horrendous. However, that negative net worth was comprised of 100% student loan debt. In the last few years, that number hasn’t really moved…until 2009.

In 2009, I rid myself of an automobile that sucked my savings account nearly dry, I committed myself to at least doubling the funds in my savings account (I wound up tripling them), and I lived according to an extremely strict budget which I planned at the beginning of the year and then micromanaged daily throughout the year.

But what’s interesting to me (and what prompted this entry) is that in 2009 I also committed myself to donating more money to nonprofit organizations. In other words, while I was trying to increase my net worth from a negative number to a positive number I was actually giving money away! Though I haven’t run the final numbers yet, I think that 2009 might have been my most charitable year on record. I might have given away more than $7,500 last year. For a guy who began the year with a net worth that was already $100,000+ in the hole, that’s an incredible feat.

Then I see days like today and yesterday where my stock portfolio jumps.

Then I think about how I know that I have another check already sitting at one of the student loan payment centers which will allow me to make another announcement about my total student loan debt dropping before the end of January.

Then I think about my negative net worth slowly inching towards a positive number.

Then I check my 401k and realize that it’s not doing so bad, either.

And after all of that I begin to see much more clearly that my total student loan debt (which is my only debt) is measurably decreasing while my investments, savings, and retirement funds are measurably increasing. That’s significant. That’s the result of creating a budget and micromanaging that budget throughout the year. That’s the result of making a plan and sticking to it – of committing yourself to being in a better financial position tomorrow than you are today.

That’s something to be happy about. 🙂