Poll

Would you count accelerated payments for student loans as spending?

Yes
2 (6.5%)
No
29 (93.5%)

Total Members Voted: 31

Author Topic: would you count accelerated payments for student loans as increased spending?  (Read 2111 times)

CCCA

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We are considering paying off my wife's student loans, which are about $30k.  We spend about $300 per month to pay off the principal and interest.  I know its mostly a matter of semantics but I'm curious whether other Mustachians would consider paying off the loan faster than the normal amortization as "spending".   E.g. if we decided to pay it all off this year, should our annual spending reflect this payoff amount?


We are aware relative merits of paying off vs not.  The question focuses mainly on the slightly disparate goals of (1) minimizing our recurring spending and (2) maximizing the size of our 'stache. 

boarder42

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Who cares it won't be spending when you're FIREd so it isn't relevant to anything

notactiveanymore

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While we were paying off student loans, I categorized things broadly in my mind as Savings, Debt Payments, Required Spending, and Discretionary Spending. I didn't think of debt payments as spending because it increased my net worth.


boarder42

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People greatly over think spending and savings rates here. The shockingly simple math is a get your foot in the door post. The only thing relevant is

What do you plan to spend in retirement. Some things like healthcare is covered by your company. You will likely spend more on that. Taxes you likely pay more now so this expense will decrease. 

Once you know this you can figure out how much you need. Then just take what you plan to save each year and extrapolate

CCCA

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While we were paying off student loans, I categorized things broadly in my mind as Savings, Debt Payments, Required Spending, and Discretionary Spending. I didn't think of debt payments as spending because it increased my net worth.


Interesting approach. Does your "Debt Pyament" category also apply to mortgage payments as well?
Doing that would certainly reduce our "spending".

notactiveanymore

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While we were paying off student loans, I categorized things broadly in my mind as Savings, Debt Payments, Required Spending, and Discretionary Spending. I didn't think of debt payments as spending because it increased my net worth.


Interesting approach. Does your "Debt Pyament" category also apply to mortgage payments as well?
Doing that would certainly reduce our "spending".

We don't have any debt now. We paid off the 55k at 6.8% in student loans and now we're saving up for a down payment. I probably wouldn't treat it the same way with a mortgage because most of your mortgage payment is not increasing your net worth. We were paying the loans so aggressively that it was pretty close to a dollar for dollar return, especially for the last half of the 21 month payoff.

Like previous posters alluded, these kinds of numbers don't really matter except for how they are useful to you and your long term planning. It was encouraging for us to see we were putting about 48-55% of our net each month towards either debt or savings. Since the pay off had a finite end point it made sense for our projections to consider it as separate from "spending."

nereo

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Don't miss the forest for the trees. As long as you are aware of the arguments about paying down debt vs investing more than any money put towards either results on you being on better financial footing.

NoStacheOhio

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In my monthly cash flow spreadsheet, they're money going out, but on a more macro level, they're more like saving.

BlueHouse

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I would not count it as spending.  I would categorize it as savings, because your choices are to put it in the bank or to pay something off sooner.  (of course you could also buy new stuff, but you're not considering that). 

It increases your net worth by reducing a liability, so that's the justification. 

When I pay extra on my mortgage, I count that as savings.  Many people do. 

khangaroo

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In my spreadsheet budget, I have 3 categories: saving, bills, and credit cards (spending). When I was paying off my student loans, I had a sub-category underneath bills that was "Additional Student Loan Payment." So I guess it depends on your categorization and definition of saving/spending.

How I define a savings contribution is if it increases your tangible assets. In this sense, the payment would not fit because you are not increasing your assets, you're paying down a loan.

cchrissyy

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I categorize extra payments as "loan principal" in mint, which is treated as a transfer.   

It's neither income nor expense, it is just a neutral movement on my balance sheet. An asset and a debt fall together.