We hear many woeful tales of student loan debt, but not very many of them are $350k worth of misery. I thought Tara Dunn and her partner, Michael, had such an interesting story because
a) $350k in student debt is a serious number;
b) They come from very different backgrounds in terms of money;
c) And their measured and balanced approach to digging out while still living.
This Is Tara & Michael
Tara, 28, and Michael, 29, live in Baltimore, MD with their one-year-old son, William. Tara is transitioning from a temporary gig as a homemaker back into a career as a high school math teacher and Michael is a resident physician with a major local hospital. And this is their story:
Different Perspectives on Money
“My parents helped me form my first budget the day I got my first allowance payment, in first grade. It was pretty simple as far as budgets go—half of my allowance (which was $1 per week, per grade level) went into savings at the credit union, and half went into my piggy bank for future fun purchases.
I really looked forward to other income, like birthday money or payment for pulling weeds at the neighbors’ place, because I got to decide where it went. My dad was laid off a lot when I was little, so we were often working with a very small household budget, but my parents modeled sound financial decisions throughout my childhood and adolescence.
Michael saw an example of a very different relationship with a very different amount of money at home as a child, and at first we had a lot of trouble budgeting because our natural approaches were nearly incompatible. For a long time, I budgeted for both of us, telling him just the bare minimum about our situation– if in the previous month we spent a little more than our fast food spending should average out to, for example.
Life Just Got Real
Two years ago this month, Michael graduated from medical school and suddenly our income was biweekly paychecks instead of August and January student loan disbursements.
It was so much harder, because we had to worry about cash flow for the first time. Before, I would just set aside all the expected expenses (rent, utility estimates, a few hundred dollars held back here and there for possible car or computer repairs) and work from the rest for the semester, knowing that if we wanted to spend two months of budgeted dining out on a fancy dinner we could just go do it, as long as we didn’t dine out for the rest of those two months. But with paychecks, we couldn’t do that.
We needed something better than the spreadsheet I cobbled together my first semester of college and kept tweaking over the years. And in the last few months before we moved, our credit card balances grew out of control due to costs associated with the transition (mostly Michael’s job interviews).
We moved to Baltimore with a reliable car, the first month paid on our lease, a few hundred dollars in the bank, and nearly eight thousand dollars in credit card debt.
But So Many Goals
We weren’t meeting our goals. I don’t think we were even sure what our goals were. When Michael’s first paycheck arrived and we finally knew what our income would look like, I quickly drew up a temporary budget on the nearest legal pad.
Luckily, this wasn’t difficult as a family living on a single salaried income. It was pretty sad to look at though.
Half of our income went (and still goes) to renting our one-bedroom apartment. A few other fixed expenses (student loans, various insurance, internet, etc.) and some ballpark figures for expenses like groceries and gas left us with just enough. Not a lot, but enough.
Michael set up a small automatic transfer to savings on payday– mostly because it felt so good to save, and definitely not because it made the math work out better in the long term, because it didn’t. We decided that for our sanity we should eat out once a week before grocery shopping, and on the last day of every month we dedicated whatever was left to paying off our credit card debt.
A Custom Budget That Worked For Them
Over the last two years we’ve moved from that legal pad taped to the fridge to a YNAB subscription. It’s not too different, really, but it’s much easier to use and make changes to, and we can take it with us via the iOS app when one of us is thinking about making an impulse purchase. And the ability to see our budget and our accounts in the same place is wonderful.
Try YNAB free for 34 days! No credit card required.
Being able to set money aside for something like our aquarium membership or our cat’s yearly microchip fee, and record how much is there and what it’s there for, is invaluable to us too. But the thing that amazes me, really, is how much our budget has naturally tightened up over this time.
And at the same time, our priorities have slowly shifted and we’ve become much happier about our finances, and with the idea of letting available funds just sit and wait for their purpose.
Progress Looks Like…
Looking back on the numbers helps us feel good about the way we’re doing things too. We started by paying off that eight thousand dollars in credit card debt.
Once that was done, we focused on saving $10,000.
We met that goal about six months ago, 18 months after moving here.
We’re in a transition period now. Our son is a little more expensive to feed and clothe as a toddler than he was as a baby, so those lines in our budget have increased a bit (30% for our groceries, almost 50% for dining out, and about 75% for his clothes).
Our “extra” money, recently, has been going toward paying off our student loans. Michael owes about $275,000 to the federal government and, unfortunately, $15,000 to a private holder. My decisions let me off a little easier, with only $50,000 in federal debt at the time of my graduation. We’re starting with my debt, and it looks like we’ll be finished paying those loans back by about 2020.
Priorities Are Personal
Could we have saved more, or paid off our credit card debt faster? Sure, definitely. Did we want to? Sort of. But it didn’t make sense for us. The money we lost to interest those first few months was worth the benefit of sitting down once every week to a meal that we don’t cook ourselves during that time.
And our budget, more than anything, reflects our lives and our priorities and our goals. First we live. Then we have fun, but just a little. Then we save.
Our budget wasn’t perfect at first, and it probably isn’t perfect now, but even the worst budget is a good starting point, and right now ours makes it much easier for both of us to understand what our family’s finances look like. And that’s exactly what we need it to do.”