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Don’t Put Out the F.I.R.E with a Lifestyle Creep

February 7, 2019

Unless you’re on a desert island somewhere, it’s likely you’ve heard of the F.I.R.E movement. If you haven’t Gilligan, the F.I.R.E movement stands for “Financial Independence, Retire Early.” Basically, it’s a movement started in which many finance savvy people increase their savings in hopes of retiring early and living their best life. Sounds great right? It may sound great but there are really only two ways to participate in F.I.R.E and that is increasing your income level or increasing your savings. So, how does the Financial Independence Retire Early movement relate to lifestyle creep?

What is Lifestyle Creep?

Lifestyle creep might be a term you haven’t heard before, but you’ve probably experienced it or witnessed it. As your discretionary income goes up, your lifestyle becomes more expensive. It’s that train of thought that can really get you in trouble with your bank account. You know the thought, the good ole “I worked really hard this week I deserve a new purse.” That is where lifestyle creep really starts.

 

If you suffer from lifestyle creep you’ve probably also thought of things like. If you can afford a better car, why not drive a better car? If you can afford an apartment without roommates, why have roommates? So, what’s wrong with these thoughts, because if you can afford it, then you should do it, right?

 

Lifestyle Creep and Financial Independence Retire Early Movement

It’s a really delicate balance when income goes up and you feel entitled to nicer things. Suddenly the ability to afford something makes your current situation or current belongings seem like they are not enough, whereas they were just fine yesterday. This is a nightmare for most people involved in the F.I.R.E Movement. So when does it make sense to increase your budget based on higher income and when should you hold off? Here are some things to keep in mind that will keep you away from lifestyle creep and keeping you in the race of Financially Independent Retire Early movement.

 

Always “pay yourself” first.

To pay yourself means to invest in yourself—specifically, your future self (oh hey, F.I.R.E). Increase your contributions to your retirement when your income increases. If you get a raise every year, set a reminder or put your retirement contribution on autopilot to also increase by 1% (or whatever amount works for you). If aiming to be in the F.I.R.E movement you may want to contribute over 1%. This is how people end up “maxing out” retirement contributions, without ever feeling like they are taking a hit in the present to save up for the future. Just ask anyone who’s ever done so. They’ll tell you it may have been the hardest thing they have ever done at the time, but their future self was really grateful!

 

Look at the big picture.

If you get a job offer and will suddenly make 40% more, but your commute will be long, does it make sense to move closer to work if your residence will also cost more? That depends on the big picture. Maybe the amount of time you’ll lose to commuting is worth more than the higher rent or mortgage? Maybe, you will be able to get a house in a better school district, which fits with your long-term plans?  If the commute is farther with a lower mortgage, and you can pay down debt or increase your savings. You need to run the numbers. Check out our below examples of two different scenarios that we estimated. Please note that these are estimated costs.

 

Scenario #1

For example, let’s say that you work in Manhattan, New York…

You currently live in Blairstown, NJ and live rent-free thanks to Mom and Dad.

Your commute to NY takes 4 hours by bus and costs about $400 a month.

If you pay $400 x 12 months = $4,800 a year spent on commuting

In 2019 there are about 250 Business days (excluding public holidays and weekends)

250 business days x 4 hours = 1,000 hours a year you spend commuting.

 

Scenario #2

Let’s say that you move to Hoboken and have a roommate.

You pay $1,000 a month on rent.

Your commute is about 1 hour a day.

Let’s say it costs about $150 a month to commute.

$1,000 a month x 12 months = $12,000 a year on rent

$150 x 12months = $1,800 a year on commuting costs

$12,000 year rent + $1,800 year commuting = $13,800 a year on commuting and housing

1 hour x 250 business days = 250 hours a year spent commuting

 

Now, this example really gives insight into that big picture. Yes, it costs more to live in Hoboken and you have a roommate, but look at that time saved! If your time is of high value to you, Scenario #2 is likely the best choice for you. If you are participating in F.I.R.E and want to save money or pay down debt as much as possible, Scenario #1 is likely the right choice for you. Regardless, which option is personally best for you, understand these are the types of numbers to run when looking to make big decisions.

 

Do I need this or do I just want it? The treat yo’ self trap.

Let’s say your discretionary income goes up, should you get that household repair or a non-urgent medical procedure? By all means, this is not an example of lifestyle creep and you should use your higher income to make it happen. Now, if you find yourself flush with cash and jealous of your neighbor’s new car, you should pause.  If you believe that you have worked hard enough to deserve a big trip. Planning a vacation just because you can, is an example of lifestyle creep. We aren’t saying you don’t deserve a vacation, but that vacation should be planned on a responsible budget.

 

When making any purchasing decisions ask yourself, “Are these wants more important than other needs?” We’d recommend thinking long-term when it comes to making purchasing decisions. What’s more responsible, paying off debt and continue reaping the reward of not having high payments or added interest or making a purchase like a car that you don’t “need”? Maybe there is a compromise like paying off your current car and setting a goal to upgrade next year, or maybe you can plan a trip for next year and save for it while you are concurrently paying down debt.

 

It’s dangerous to deserve better. We are constantly bombarded with flashy advertising, slick marketing, and more choices than ever before. It can be really easy to think that you deserve something better, but in reality, is that new item really going to bring you long term happiness and security? Many participating in the F.I.R.E movement will say items are just items and that real happiness comes from relationships and memories.

 

The F.I.R.E mindset can get even tougher when many of us have had parents who treated us like the most special people ever who gave us what we wanted. That’s not a bad thing until you start making decisions based on what you think you deserve, instead of what you can practically achieve. Thanks, Mom and Dad, but I don’t mind having roommates for another year, or it’s not a big deal to keep driving a car that’s older but works fine.

 

Check those budget boxes.

If your discretionary income has gone up either because you got a raise or other costs went down, you need to do some budgeting. Typical steps that personal finance experts advise working on include getting up-to-date on all of your bills if you aren’t already. Second, have a $1,000 emergency fund. Lastly, experts advise people to focus on high-interest debts before building a savings account with 3–6 months of expenses in it. Then look into things like investing, saving for your children’s college or paying off your house!

 

Achieving a higher income is great! It’s a wonderful feeling when you see your hard work paying off and making life easier. Don’t end up being someone who makes more than enough to live comfortably but you’re still living paycheck to paycheck. Lifestyle creep is so important to recognize and avoid. Keep your financial goals in order and continue to work towards them. Whether your goal is to be Financially Independent and Retire Early or to pay off your debt, you got this!

 

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2020-10-23
Ace Your Interview: Job Interview Tips

Life after graduation is full of responsibilities, like taxes, groceries and full-time jobs, but also full of opportunities. To capture these opportunities, you need to be prepared, and the best way to do that is to make sure you give the best job interviews possible. Here are a few job interview tips to help:  

Write a Top-Notch Resume

First step: get your
resume into shape. Make sure you fill it with your valuable work experience and qualifications. Your goal is to showcase the most successful and productive version of yourself possible.   Volunteer work, certifications, awards, and other accomplishments can all have a place on your resume. Many people like to build from resume templates you can find online, but if you use a resume template, just be sure you’ve thoroughly checked the verbiage to make sure it doesn’t sound scripted.   Your resume should show off your unique talents and skill set, as well as any numbers or figures that back up your work.  

Do the Research

One of the most important job interview tips is doing research beforehand. You want to be knowledgeable about both the job and the employer when you are being interviewed. Look at the company website to learn about company history, accomplishments, and other information. Also, take some time to read recent news about the company.   When you know what the company is looking for, you’ll be able to easily answer questions about how you will fit into the work environment.  

Know the Common Questions

Many interviewers ask the same, basic questions to better understand their candidates. While some may ask curveball questions, as well, you’ll be a step ahead if you come prepared with answers to common questions.   Examples include “Tell me about yourself” and “What are your greatest strengths and weaknesses?” Even though these sound like very basic questions, it’s important to give a thoughtful answer. Take your time thinking through responses prior to the interview. Indeed has a fantastic list of 125 such questions to ensure you are never at a loss for words.   Don’t stress about knowing all the answers; just practice the ones you think are most important. Then, if they ask you something unexpected, you’ll have a few ideas to pull from.  

Practice

Once your research is done, it’s time to practice. Ask a friend, parent, sibling or roommate to run through interview questions with you. Focus on answering smoothly and confidently.   In a similar vein, treat any job interview you go to as practice. If you don’t get the job, you’ve still gained valuable interview experience.  

Ask Questions

One job interview tip some people don't think about is to prepare your own questions.   A job interview isn’t just an opportunity for a prospective employer to learn about you. It’s also a chance for you to learn about them. Ask questions you really want answers to, not just questions you think will impress the interviewer. Honest questions demonstrate interest and can help you decide whether you’d like to work for the company.   Ideally, you should prepare your questions in advance. That way, you’ll be ready when the interviewer asks, “Do you have any questions for me?” If you’re at a loss for words, questions about corporate culture and growth opportunities are always good options.  

Dress the Part

When dressing for a job interview, you should think about the first impression you’d like to make on your potential employer. If you aren’t sure about an outfit, err on the side of caution. It’s better to be overdressed than underdressed. When in doubt, it’s hard to go wrong with simple, business-professional clothing.   Of course, this is by no means an all-purpose interview cheat code. Different employers will expect their employees to wear different things. An interview at a bank will require far more formal dress than an interview at quick-service restaurant.   Again, though, err on the side of caution. You likely won’t be passed over for a job because you were too well dressed. To top it all off, research has shown that dressing up can significantly boost your confidence.  

Follow Up

After the interview, consider sending a thank-you email to the hiring manager. Express your gratitude for the interview and impress upon them your interest in the position. Be enthusiastic. You’ve got one more chance to make a positive impression.   If you get the job, congratulations. That’s fantastic. If you don’t, don’t stress. You’ve done the best you could do, and you’ve gained valuable interview experience to boot. Sometimes it takes time to find the perfect job. With your interview experience, you’ll be all the more likely to get it. If you’re looking for a job in the medical field, check out this article on common resume mistakes for medical professionals.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Happy couple admiring their home
2020-10-22
Should I Build Home Equity or Pay Down Student Loans?

Owning a home is a goal for many people. In fact, 40% of young millennials are saving to buy a home. If you already own a home, congratulations on achieving your goal! If you are now faced with a mortgage and student loans, you may wonder which debt you should prioritize. Should you build home equity or pay down your student loans?    Here we will explain what home equity is, how to build it and when it’s better to focus on home equity or paying down student loans.   

What is Home Equity?

When you pay on a mortgage, even if you haven’t yet paid it off completely, you’re building equity in your home. Home equity is the difference between the market value of the house and what you owe. Here’s an example of how to calculate it:  

How to Calculate Home Equity

  You can calculate your home equity by subtracting the balance of your mortgage from the current value of your home. The value of your home is determined by the fair market value of your house or the appraised value. This number is the true value of your asset (your house) since it takes into account the amount you owe on the loan.    Your home equity is calculated in your net worth. You may have heard that home equity can be “tapped into.” This means you can borrow against the equity of your home and use the money in a variety of ways. A home equity loan can cover home renovations or pay off higher-interest debt.    Your home is valued at $375,000 and your mortgage balance is $275,000. You determine the equity by taking the value of $375,000 and subtracting the mortgage balance of $275,000. The equity in your home is $100,000.   

Home Equity and the Housing Market

  Your home’s equity often increases when you make mortgage payments, especially when paying down the principal on your loan. Your home’s equity can also increase when its value rises. Although the value is determined primarily by the housing market, you can raise the value through home improvements.   Just as the value of your home can increase based on the market, however, it can also decrease based on the market. The only sure way to increase your home equity is by paying down your mortgage loan. The more of the loan you pay off, the more your equity increases.  

Building Home Equity vs. Paying Down Student Loans

  If you follow the normal payment schedule, you’ll increase your home equity slowly. If you make extra payments towards your mortgage, you can build equity faster. However, if you also have student loans, should you build home equity or pay down your student loans instead? Let’s take a look at some factors that can help determine the best course of action:   

Interest Rates

If either your mortgage or any student loan has a variable interest rate, you may want to focus on that loan first, because you are at risk that the rate can rise and leave you with a higher payment to make. In addition, if one of your loans has a much higher interest rate than the other, you may choose to focus on it first.  

Security

With student loans, in certain instances, if you are facing financial hardships you can temporarily suspend payments. Mortgages offer less flexibility with payments, therefore missing payments can result in foreclosure and losing your home.  

Loan Balances

If you have student loans with lower balances than your mortgage, you may be able to pay them off more quickly. Then, you can continue to build equity after paying down your student loan debt.   

Tax Implications

You may get a bigger tax break by building equity versus paying off student loans. However, this doesn’t apply to everyone. Interest paid on student loans is deductible, however, there is a cap on how much. As of 2020 the cap is $2,500. Your income must meet the requirements to be able to deduct this amount.    Interest paid on mortgages is also deductible, but only if you itemize your deductions. The mortgage interest deduction can be much higher than $2,500. To learn more about either of these options, consult with your tax advisor.  

Refinancing Your Student Loans With ELFI

If you don’t want to choose between building equity or paying off your student loans, then consider refinancing your student loans with ELFI. Use our student loan refinance calculator* to see how much you may be able to save.   

The Bottom Line 

Each person’s financial goals and situation are unique, so you have to make the best decision for you. Hopefully, however, knowing more about both options and which is better in certain circumstances will help you make an informed decision.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.   *Subject to credit approval. Terms and conditions apply.
Man feeling overwhelmed by student loans
2020-10-15
What to do When Your Student Loan Payment is Overwhelming   

Having student loans is not unusual. In fact, 45 million people have them. It’s also incredibly common to feel overwhelmed by your student loan payments.   A survey of student loan borrowers found that almost 65% of respondents said they lose sleep because of the stress caused by their loans. If you find yourself overwhelmed by your monthly student loan payment, there are some options you should consider to lessen the burden.   Before you can explore alternatives, however, you need to know the types of loans you have. Certain options are only available for federal loans as opposed to private loans. Check the Federal Student Aid website to determine any federal loans you may have, and request your free credit report to see any private loans. Once you’re familiar with your loans, you can consider new courses of action.  

Create a Budget

If you don’t already have a budget, create one! This will allow you to see if you can afford your current student loan payment. It will also show you areas where you’re spending unnecessarily. If you find there just isn’t enough income to cover all your necessary expenses, then you can begin working on different ways to reduce your student loan payment.  

Research Different Payment Plans

If your federal student loan payment is overwhelming, consider switching to a different payment plan. When you initially begin repayment, your loans are automatically put on the standard repayment plan. On this plan, your payments are based on a ten-year repayment term.   A Direct Consolidation Loan can help you change your payment plan to help make your payment more affordable. It can also help consolidate multiple federal loans into one loan. (Note: Consolidating your federal loans is different from student loan refinancing, discussed below.)   This will help you qualify for certain longer repayment plans, resulting in a lower monthly payment. One of the drawbacks of extending your payment term is you will end up paying more in interest costs over time.  

Income-Driven Student Loan Repayment

Certain loans are eligible for income-driven repayment plans. They can help make your payments more affordable and are based on your income and family size.  

Graduated Student Loan Repayment

If an income-driven repayment plan does not work for you, you can change to a graduated repayment plan. Your payment will begin low and increase over time for a ten-year term.  

Extended Student Loan Repayment

Another option is an extended repayment plan. To qualify, you must have certain loans over at least $30,000. Your payment may be fixed or may increase over time for a 25-year term.  

Look Into Refinancing

If you have overwhelming private or federal student loan payments, consider student loan refinancing. Refinancing may lower your interest rate and reduce your monthly payment. This is a good option even if your current payment fits your budget.   Refinancing can help lower your monthly payment, and can also save you thousands of dollars in interest over the life of the loan. Refinancing means obtaining a private loan to pay off your existing student loan or multiple loans.   Student loan refinancing differs from consolidation, which is only for federal student loans and may not necessarily reduce your interest rate. You can refinance private or federal loans, or both, and can also change your student loan repayment term to better fit your needs.   Here is an example of how refinancing can save you money:   If you have $65,000 of student loans with a 6% interest rate and have 10 years remaining on your loans, you will pay approximately $722 per month. If you refinance and qualify for a lower interest of 3.61%, your monthly payment would be reduced to approximately $646 per month. This equals savings $76 per month in savings. You will also save more than $9,000 in interest over the life of the loan.   To see how much you could save, try ELFI’s Student Loan Refinance Calculator.*  

Increase Your Income

Of course, increasing your income is easier said than done. If your student loans payments are becoming overwhelming, however, it may be a necessary step. Increasing your income through overtime hours or a side hustle can make your payments more manageable. A side hustle can be as easy as babysitting or dog walking, or more involved like starting a side business based on a passion.   If you haven’t begun repayment on your loans, but know you will face a significant loan payment after graduation, consider these steps:  

Build a Budget Early

Start a budget before repayment begins that includes your future student loan payment. This will allow you to see if you will be able to comfortably afford your payment. It will also help you build an emergency fund and a strong financial foundation.  

Seek Employer Student Loan Benefits

Look for an employer that offers student loan assistance. The number of companies that are offering student loan benefits is increasing, although the benefit is still rare. Some offer monthly benefits that can help you pay your loans off faster. Others offer a yearly benefit amount for a certain number of years. Either way, extra money from an employer to help pay loans will help you reduce your loan amount faster.  

Work Toward Public Service Loan Forgiveness

Apply for employment that may qualify for forgiveness. If you have federal loans, certain employment can qualify for forgiveness under the Public Service Loan Forgiveness program. Certain loans and types of employment are required so be sure to pay close attention to the requirements.  

Bottom Line

If you have an overwhelming student loan payment, explore your options to reduce your payment while furthering your debt-free journey.  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.