Monthly Archives: October 2014

Floor 22: Set Rules for Grocery-Bill Reduction November

As discussed previously, Mr. DebtFreeJD and I aim to reduce the grocery bill for November.  We came up with some ground rules.  They are:

  • No eating out, unless we are specifically invited by friends.  In that case, suggest takeout pizza (from the world’s best pizza place) and beer.
  • No buying “frivolous” food/drink things for ourselves.  Only for the other person.  I.e., Mr. DebtFreeJD may buy me chocolate.  I may buy him a banana muffin.  But we may not buy those things for ourselves.
  • No wasting of food.  At all.  DogDebtFreeJD may be called to serve as an emergency garbage disposal if necessary.

I’m excited to have a new project for the upcoming month! Happily, Mr. DebtFreeJD tolerates my craziness.

And don’t worry, DogDebtFreeJD.  The kibble will continue in the same amounts as before.

Whew! Says DogDebtFreeJD.

Whew! Says DogDebtFreeJD.

 

October Debt Payment Progress

As I’ve mentioned before, I graduated law school with three loans, each one equal (very roughly) to a year of tuition at law school.  We paid off Loan #1 a little while ago.

This morning, Mr. DebtFreeJD and I hopped on the computer, and killed Loan #2!

Here’s the tally for October:

Starting Debt: $125,933.50

Current Debt: $44,687.65

Debt Paid Off: $81,245.85.

Progress, progress.

Floor 21: Tackle the Food Closet of Doom

In the month of November, Mr. DebtFreeJD and I plan to tackle a big category of our expenses: grocery store spending.  We’ve made a pact not to throw away any food in the month of November.  More generally, we’ll try to keep grocery store spending way down.

On the theory that the first step to solving a problem is figuring out that you have one and that the second is figuring out how big of a problem you have, I began with THE FOOD CLOSET OF DOOM.

There are many bloggers out there who have beautifully apportioned and meticulously organized homes.  I sometimes work 14 hours a day.  Ergo . . . we do not.

Despite my work schedule, we cook most nights.  We have a pantry.  Before tonight, I was never sure what was in there.  I waited until Mr. DebtFreeJD was out for dinner this week, bought some frozen Eggo Waffles for dinner, and (heart in hand) set out to tackle the FOOD CLOSET OF DOOM.

That white blur in the bottom right is Dog DebtFreeJD photobombing this picture.

That white blur in the bottom right is Dog DebtFreeJD photobombing this picture.

I took everything out, cleaned the shelves, and re-organized.  I found:

  • Actual, useful food (beans, canned tomatoes, beans, etc.)
  • Various purchases made during a misguided heath-foods phase (quinoa, macha powder, etc.)
  • A ridiculous amount of spices, including a possible life-time amount of nutmeg
  • Four aprons.  Why do we have four aprons?  We don’t even like to clean. I got rid of two of these.
  • A dog bed.  Dog DebtFreeJD has eaten all previous dog beds and has sufficient fluff that she’s happy sleeping on the floor/cramming herself into our bed in a pinch.  We don’t need this. It can go.
  • An old vacuum cleaner.  If we don’t need four aprons, we certainly don’t need two vacuum cleaners.  Goodbye, old vacuum.
  • No clean towels.  (Laundry is running right now).
  • The bedsheets I was looking for over the weekend when we had houseguests.  They’ve been moved to their proper place.

After these and sundry other discoveries, I re-organized all the food so that we’ve got a sense of what we have (and don’t).

BEHOLD:

IMG_0069

Even enough space to move Dog DebtFreeJD’s water and food bowls to a location where we won’t constantly be tripping over it.

OK, so the DebtFreeJD household won’t be on Pinterest anytime soon.  But, I am pleased with the results of the initial legwork of preparation for Grocery-Bill Reduction November.

Loans and the Law: Bankruptcy and For Profit-Colleges

In my first installment of this series, I took a quick look at how student loan debts fare in bankruptcy.

In the second, let’s look at a related, but different issue – how for-profit-schools fare in bankruptcy.  In recent months, a number of for-profit schools have declared bankruptcy, such as Anthem Education and the operator of several for-profit schools, BioHealth Colleges, Inc.

Forbes reports that when a for-profit college or university files for bankruptcy, it can become ineligible for Title IV* federal student aid programs.  Congress defined which higher-ed institutions can receive federal student aid in 20 U.S.C. 1002(a) (codifying Title IV).  Guess what doesn’t count?

An institution shall not be considered to meet the definition of an institution of higher education . . . if  . . . the institution, or an affiliate of the institution that has the power, by contract or ownership interest, to direct or cause the direction of the management or policies of the institution, has filed for bankruptcy, except that this paragraph shall not apply to a nonprofit institution [.]**

In other words, if you’re a for-profit and you file for bankruptcy, it seems that Congress doesn’t allow your students to get federal student loans.  And that can be catastrophic for a for-profit school.  As the Bankruptcy Blog put it, “[a]n institution of higher learning without the benefit of Title IV eligibility has little prospect of continuing to serve its students and community.”

Some bankruptcy attorneys, therefore, are pushing Congress to change or tweak the law. Going back to the Forbes article, one suggested option is that for-profit-schools should be able to hold onto Title IV funding for a short period of time.

What do you think?  Should for-profit schools still be able to get Title IV funding after declaring bankruptcy?

*Title IV here refers to Title IV of the Higher Education Act.  There are lots of things called “Title X” in law.  This almost always makes things more confusing, rather than less.  Knowing the title of an act usually is useless – you need to figure out where it has been codified to understand whether it has been amended or still good law and to understand how it works with other provisions of the same section of code.  Chalk one more up to the superpowers of legalese.

**This is at 20 U.S.C. 1002(a)(4)(A).

Disclaimer: THIS IS NOT LEGAL ADVICE!!!!  I’m not a bankruptcy lawyer, and I don’t litigate student loans lawsuits, or anything related.  In sum: #1 I couldn’t offer competent legal advice on this even if I wanted to and #2 I don’t want to and am not offering legal advice.  Lawyer hat is off, blogger hat is on. So don’t rely on anything I say in these columns to make decisions about your own life – but DO think of these as conversation starters on interesting topics.

Floor 20: Refinance Loans?

I graduated law school with three loans: a Direct Grad Plus loan at 7.8%, a Stafford loan at 6.8%, and a loan directly from my law school at 8%.  Each of these loans corresponded, very roughly, to a year of law school.

We’ve now killed the Direct Grad Plus loan.  The Stafford loan is on life support.  However, the loan from my law school is (alas) alive and well.  And accruing interest daily on its $44,700 principal.

I’ve been considering refinancing this loan from my law school for a number of reasons.  First, I’m paying an 8% interest rate on it.  This is practically usurious in my opinion.  Second, the loan is annoying to pay – the school sends me a bill through the mail each month, and I mail back a check.  Third, there is no instant gratification of making a large loan payment.  I can’t check the balance on-line, or hook it up to my Mint account.

I poked around, and have applied for a five-year variable rate loan from Sofi.  This kind of refinance is clearly not for everyone – I am only considering it because (1) we intend to pay off the loan entirely in the next nine months; (2) I don’t expect LIBOR – which it is pegged to – to do anything crazy in that time period; and (3) if LIBOR did go crazy, the rate of the loan is capped at 10%, which is not too dissimilar from the 8% I am already paying.

After running the numbers, I’ll pay about $1,500 in interest at the current 8% interest rate over the next nine months on this loan.  With a Sofi refinance, I’ll pay about $700.  I’m still thinking about whether to take the plunge, but so far, it seems like an easy way to save about $800 with about two hours worth of work.

I asked Dog DebFreeJD her opinion about whether to refinance.  She expressed her approval by asking for a belly rub.

IMG_8339 (1)

Anytime, Dog DebtFreeJD.

Floor 19: Consider How You Got Into Debt

Aunt DebtFreeJD recently sent me a very interesting article: Why Do Harvard Kids Head To Wall Street?  The article, written a little while ago by James Kwak, a 2011 graduate of Yale Law School, discusses how kids at tippy-top Ivy League universities find themselves on a treadmill leading to Wall Street.  It’s easier to stay on the treadmill than jump off, and so they find themselves at Goldman Sachs (or some equivalent) after graduating.  And then, they’re still there.  And still there.  Kwak writes:

Sure, there are self-parodying, economically delusional, psychotherapy-needing,despicable people on Wall Street[.]  But there are also a lot of people who went there because it was easy and stayed because they decided they couldn’t afford not to and talked themselves into it.

There is also an equivalent treadmill for graduates from top law schools (which is discussed a bit in the article).  It goes like this:

  1. Get into Ivy-League law school
  2. Summer at a huge firm
  3. Graduate with north of $150,000 in loans
  4. Begin working at huge firm
  5. Make a lot of money
  6. Spend most of it
  7. Rinse and repeat
  8. Keep going with steps 5-7
  9. Retire

I don’t think there’s anything at all wrong with this.  Really.  Zilch.  Zero.  But if you’re on a treadmill, I think you should at least realize you’re on it, and make the conscious choice to stay on.

Law school loans are also a treadmill.  Here’s how I got into a huge amount of law school debt:

  1. Got into law school
  2. Went
  3. Took out a bunch of loans to pay tuition
  4. Woke up a few years later, and realized the loans were MOSTLY ALL STILL THERE

Loans seem like an easy treadmill.  You take them out.  The money seems kind of like Monopoly money.  You send off a check each month.  Painless, right?  Until you realize how much money you are spending over the lifetime of the loan!

Let’s take my largest remaining loan.  $44,687.65 at 8%.  Compounded daily.  Over the 10-year life of the loan, this is going to cost me north of $100,000!!!!!!!!!

When I figured that out, my first reaction was: @#$%#^@$#$!!

My second reaction was: Absolutely NOT.  I’m just not going to do it.

Thus, I’m jumping off this treadmill.  Just identifying that I was on it was totally transformative.  And it’s kept me on the lookout for other treadmills I might be on without realizing it.

 

 

Floor 18: Determine Size of the Emergency Fund

Let’s talk today about how size matters – the size of your emergency fund, that is.

People have different feelings about emergency funds.  Some people say to keep at least six months of living expenses.  Others say that while you’re paying down debt, it makes sense to throw every buck you have at your loans (since the loans are accruing interest, compared to your emergency fund, which probably isn’t doing anything for you).

Mr. DebtFreeJD and I have always kept a pretty large cushion of cash – maybe unreasonably large, considering the amount of loan repayments I have.  Like at least $15,000 large (but usually more).  For a while that was just inertia, but now I actively aim to have between $15,000 and $20,000 in our checking/saving accounts at any one time.

Why?

Well, not too long ago, we had an emergency.  A big honkin’ one.  With lights and sirens and ambulances.  I was out of work for about four months.  And boy were we glad that we had that rainy day fund when it started pouring down craziness.

Here’s the thing about an emergency fund.  When you’re young, healthy, and working, it seems like you’re never going to need that umbrella.  But when the storm clouds move in – and sometimes they do that regardless of the weather forecast – you are going to be sorry if you get caught in a downpour without any protection.

Honestly, at the end of the day, most people are probably going to be OK even without an emergency fund.  There’s almost always some other kind of safety net – parents, charities, social security, credit cards (ugh) . . . something to carry you through a short-term crisis.  But if you need to break the glass some day, having an emergency fund is incredibly stabilizing during the actual emergency.  People talk about having an emergency fund big enough to let you sleep at night.  That’s good advice in ordinary times – it is definitely comforting to have an emergency fund even when everything is going get.  That is nothing in comparison, however, to having an emergency fund when everything around you seems to be falling apart.  If you’ve lost a job due to downsizing, or have a health problem so serious you need to be out of work, or have some other enormous catastrophe going on, the absolute last thing you want to be thinking about includes: How will I pay my rent this month?  What will I do when my law school loans come due?  If I write this check, will it bounce? Etc. etc. etc.

In sum, having been there, done that, I’d say: keep an emergency fund large enough to let you sleep at night . . . during an actual emergency.

Floor 17: Make My Own Bread

You already know that I make my own cappuccino.   I am here to confess that I also make my own bread.

Well, my own flat bread (focaccia, if we want to get fancy).  Making a loaf of bread involves shaping and more rising, and people have lots of opinions about how to do it.

By contrast, making focaccia:

  • does not involve shaping
  • is hard to get wrong, and
  • as far as I know, the N.Y. Times has never written a guilt-inducing article about how to do it right (if it has, don’t tell me . . . I’d rather remain in blissful ignorance)

Baking focaccia is incredibly easy – essentially, you mix some yeast, water, salt, olive oil, and flour together, let it rise for an hour, roll it flat, let it rise for another 30 minutes, and then stick it in a hot oven for about 20 minutes.

Here are the best parts about it:

  1. It’s cheap.
  2. It promotes eating lunch and dinner at home – cheap squared!
  3. It’s delicious.  I would post a picture of the focaccia I made last night, but either Dog DebtFreeJD or Mr. DebtFreeJD made it all disappear.
  4. The kneading.  You don’t have to knead – people have bread hooks, and things like that, but if you have never kneaded your own bread, I highly recommend it.  It smells great.  It’s stress relief.  The olive oil moisturizes your hands.  It’s real, has nothing to do with a computer screen, and produces something delicious.  In short, after a long day or week of lawyering, kneading is amazing.  And that concludes my ode to kneading.

Actually, I’m not done on kneading.  Law involves a lot of stuff that’s pretty divorced from the actual mechanics of living – we don’t get outside much, most of my day is spent in front of a computer, and while I spent a bunch of time on the telephone and in my email, there’s not a ton of face-to-face interaction with people.

Thus, in my down time, I try to spend as much time as possible being outside or otherwise as far away from my computer as possible.* Kneading fits the bill for me.  What does for you?

*The irony that I am posting this on my blog is not lost on me.

 

Floor 16: Decide What Is Worthwhile to Blow $ On

Even though Mr. DebtFreeJD and I are serious about paying down my loans, we aren’t living a life of monastic asceticism. In fact, we still spend money on absolutely frivolous items. For me, the key is deciding in advance what I’ll splurge on – and what I won’t – and sticking to that plan.

For example, most mornings Dog DebtFreeJD and I walk to a local coffee shop. I get a coffee ($1.35) and Dog DebtFreeJD gets a dog biscuit (free from an adoring sales clerk).

Dog DebtFreeJD Using Her Dog Biscuit Extortion Expression

Dog DebtFreeJD Using Her Dog Biscuit Extortion Expression

Most of the personal finance blogs I read would probably consider getting frequent take-out coffee to be widely extravagant, and a bad habit that should be broken as soon as possible (including the always excellent Mr. Money Mustache).  Other people I know would think only spending a buck and change on coffee probably nets you some pretty awful coffee.  But, at the end of the day, I’m the one who gets to have a nice chat every morning with the same sales clerk, and Dog DebtFreeJD receives many pets from the same person (in addition to the free dog cookie . . . or three).  This is worth $9.35/week to me.

Likewise, last night Mr. DebtFreeJD and I went out with some friends to a local bar.  Several beers were consumed, as was a decedent amount of fried food.  I’d like to tell you that it worked out to a reasonable amount via some secret coupon we had or some great happy hour special.  But I can’t – it was definitely pricey.

The big thing is that I try to treat these things as luxuries.  We don’t go out to bars very often.  I get take-out coffee most days, but I don’t get expensive coffee and I try not to buy lunch out or other snacks throughout the day.  I totally admire the folks who can cut their frivolous spending to almost nothing (looking at you, Frugalwoods!)  But, alas, that doesn’t work well for me.  I like having my small luxuries – the key for me is deciding what they are, and then sticking to that plan!