Jan 10 2014, 2:56pm CST | by Forbes
By Marisa Torrieri
If you had a financial fairy godmother, what would you wish for?
A new home? A robust retirement account? An emergency fund that could cover you no matter what?
Well, we don’t have a magic wand, but we do have the next best thing: four real-life cases of people who’ve achieved enormous financial goals.
On Day 11 of the 12 Days of LearnVest, it’s time to get motivated. What better way than seeing how others like you did it? From the woman who repaid nearly $100,000 in student loans in four years to the couple on track to pay off their house in five, let these true stories inspire you to make your money dreams come true.
Plus, we even got some insight from a LearnVest Planning Services CFP®.
Read on to hear from the people well on their way to achieving their ultimate financial goals—as well as David Blaylock, CFP®’s take on the lessons you may be able to apply to your own situation.
And go ahead, tell us in the comments: Which big money goals will you be pursuing this year?
—Erica Wong, 28, New York City
Where She Started: In 2009, about three months after Wong graduated with a degree in civil engineering—and about $3,000 tucked away in savings—she started working full-time as a structural engineer with a $59,000 salary.
How She Saved: ”First I had to find out exactly how much I owed,” recalls Wong, who was fortunate enough to have parents who allowed her to live with them outside New York City for below-market rent. “Then I listed loan institutions, interest rates and amounts on a spreadsheet. I started with the highest interest loan and threw all the money I could at it.” Then, as each highest-interest loan dissolved, she’d tackle the next-highest one and so on. While most of her loans were public, she also had one private, consolidated loan.
Wong paid her highest-interest loans manually (she submitted her payments each month instead of automating her payments and letting the bank take care of it), and for the ones with lower rates, she would set to automatic payment on the longest repayment plan she was allowed by the loan institution—the longer loan period meant a smaller minimum payment.
During a typical month, this meant putting about $1,600 toward the highest-interest loan and $500 toward the others, which was no easy feat: Wong wound up devoting about 66% of her post-tax income to her student loans, then another 20% to her parents for rent. “It left me with about $400 of disposable income a month,” she says. “That’s about $13 a day.”
The Hardest Part: ”I was miserable for the first year, constantly questioning why I went to work just to pay off student loans,” she recalls. Living on $13 per day meant making changes: buying clothing only when something needed replacing, scaling back lunches and dinners out, and discovering affordable new hobbies, like hiking, through Meetup.com.
Dialing down her lifestyle wasn’t easy. “It was soul crushing—it made me feel like a failure,” Wong says. “But I also knew if I wanted a life without the bondage of student loans, I needed to pay it off. Mathematically, my best option was to pay the loans off as quickly as possible and save on interest payments. So I continued on. I just took it month by month, and I got used to it.”
Where She Is Today: ”I paid the final 10 cents on my last student loan in November, approximately 4.5 years since I started working,” says Wong. For now, she’s shifted her savings strategy to tackle other goals. “I would love to catch up on the retirement savings I’ve been largely neglecting for the past 4.5 years,” says Wong. “If I can pay off $90,000 in a little over four years, what’s to stop me from saving up $100,000 in the next five?”
While she is still living with her parents to help with their mortgage, she may move out in the coming year. “Coming off paying most of my income into student loans, it gives me tremendous satisfaction to begin building assets,” she says. “I appreciate the experience and the money discipline I gained from dealing with this amount of debt, and expect my life will continue in a money-conscious, alternative consumer style.”
The CFP® Says: ”Setting a goal and sacrificing to achieve it is a lesson that will serve Erica well for the rest of her life,” says Blaylock. “She used a debt-repayment method called ‘Rack and Stack,’ where you attack your highest rate debt first while continuing to pay the minimums on the other debts, clearly to great success! The one note of caution I have to add is that neglecting retirement savings to tackle student loans isn’t usually the wisest move. Time is the biggest ally we have when saving for retirement, and it can be difficult to make it up later.”
—Dan DeRose, 28, and Cady McGuire, 30, Charleston, S.C.
Where They Started: The couple bought their house in February 2011 for $205,000. After saving for over two years, they made a $46,000 down payment, plus the $6,000 in closing costs. “Our total mortgage loan was $164,000, so with taxes and insurance, our monthly payment comes to about $1,300,” says DeRose, a supply chain analyst with a major airline manufacturer. His wife, McGuire, is a hairdresser.
“Paying off our mortgage was important to us because it will give us a lot of financial security, which allows us freedom from work,” says McGuire. “We are both happy with our current jobs, but would love to explore other avenues to keep life interesting. Not having a monthly mortgage payment means we can have that freedom while we’re still young.” Altogether, the couple has about $22,000 in emergency savings spread over two accounts (they hope to add another $10,000 once the house is paid off), and no outstanding debt other than their mortgage.
How They Saved: ”We set up what we called our ‘House Fund’ prior to buying our home, where we saved the $46,000 for a down payment,” DeRose explains. “We maintain that system and ‘pay ourselves first’ by adding $600 a week to this fund, on top of our $10,000 emergency fund, and when the balance in that account hits $15,000 about every two months or so, we apply $5,000 to our mortgage principal.” The couple also made sure to buy a house well within their means, so they could live off only one income if need be.
DeRose credits Robert Kiyosaki’s book “Rich Dad, Poor Dad” for teaching him the “pay yourself first” principle. “No matter what our other financial needs are each week, we always save this $600, no excuses,” he says. “Every penny of our tax returns goes toward our mortgage as well.” The couple also nixed the usual suspects, like frequenting Starbucks, regularly buying lunch out and recreational shopping. “We do take a big vacation annually as a rule—last year we spent a week in Barbados and the year before we did 10 days in Puerto Rico. We’re savers, but it is important to enjoy the fruits of your labor as well,” says DeRose.
The Hardest Part: ”We haven’t been discouraged because we have stayed the course of our financial goals,” he says. “We can’t emphasize enough how important ‘paying yourself first’ is to us. That is our biggest motivator.”
Where They Are Today: The couple currently owes $81,800, which they plan to pay off by the end of December 2015. “When our mortgage is paid off two years from now, my wife and I plan to continue saving for our son’s education (we, along with our parents, contribute to a 529) and investing in our own financial future,” says DeRose. The couple also intends to increase their retirement savings, continue saving for future travel and then look into investment properties. “At that time we will be completely debt free,” he says.
The CFP® Says: ”I love the idea of paying yourself first, but I would prefer to see people in a similar situation to Dan and Cady make sure they have their emergency fund ready to cover about six months of living expenses and make substantial contributions to retirement before applying extra money to their mortgage.
It’s good that they recognize the importance of pursuing multiple goals at once (like retirement savings and their son’s college fund) since by focusing on one goal to the exclusion of others, we may lose valuable time as far as saving for retirement and run the risk of being unable to cover an emergency, should one arise.”
—Glen Craig, 41, Lynbrook, N.Y.
Where He Started: When Craig’s wife was expecting their second child in 2007, she couldn’t bear the thought of putting the baby in child care after the standard 12 weeks of maternity leave. Instead, they set a goal of saving enough for her to stay home for one full year: $30,000 in only seven months.
How He Saved: Since Craig, who was working in the advertising industry at the time, and his wife, who works in education, each earned about $55,000, they immediately started putting Craig’s paycheck directly into a savings account and got used to living off his wife’s alone.
While they had a comfortable emergency fund and continued contributing to their 401(k)s, they cut back on non-essentials like eating out, including lunches at work, premium cable, “and really any spending we didn’t think was necessary,” says Craig, who details his financial accomplishments on his blog Free From Broke. “We also made sure to be mindful of our spending. When we went to the store, we made sure to make a list of what we needed—and stuck to it! Impulse shopping had to end.”
The Hardest Part: ”We were concerned with how well our savings would last, especially in the beginning,” Craig recalls. “But it didn’t take long to realize that the small sacrifices were making huge strides in our savings. We thought we’d burn through them, but once the baby was born, we discovered that the changes we made allowed us to live comfortably on one income and we didn’t even need to use that money—instead, it made a nice start to the down payment for the house we eventually bought for our family. Our son is almost 7 years old now, and we still think it was worth it for my wife to have that extra time at home with him.”
Where He Is Today: ”Since that leave in 2007, we’ve had two more children,” says Craig, who is now a stay-at-home dad and blogger. “For my wife’s last leave, we had to use a COBRA plan while she was out, since I’m now self-employed and couldn’t put the family on my health insurance as I had during previous maternity leaves. We had the money in savings to cover it, but now we want to build that back up for the next challenge, as well as continue to contribute to long-term goals like retirement and college savings.”
The CFP® Says: “The main takeaway from the Craigs’ story is the importance of planning ahead. He and his wife weren’t thinking only about the cost of diapers, but also how they were going to cope with the expected loss of income during an extended leave. Not every dual-income family can transition to living off one salary, but everyone can anticipate the cost of a big life change and plan accordingly.”
—Racheal Caswell, 29, Los Angeles
Where They Started: After Caswell and her fiancé, Kevin, got engaged in February 2013, they set a goal to save $10,000 for their wedding one year later, which they believed would afford them a nice, small event.
“When we first started saving, we each had our own savings and checking accounts, but without a joint savings account, we essentially started with $0,” says Caswell. “I was making just under $80,000 a year working in public relations, and he was making closer to $60,000 as a web developer.”
How They Saved: ”We opened a joint savings account and started contributing $500 each in March 2013,” Caswell recalls. “At the time, we weren’t expecting our parents to be in a position to help. After we started planning, though, a few things happened: Our guest list started growing, and we discovered things like the venue and various rentals cost a lot more than we anticipated. We raised our budget to $15,000, and thankfully, my family was able to contribute $3,000, so we only had to save another $2,000 to meet our goals.”
The couple is holding their wedding in Escondido, Calif. (about two hours outside of L.A.), on a property where their bridal party and immediate family can stay. “We looked at several places in Los Angeles,” Caswell says, “but for the money, this place offered so much more.”
In order to make sure they could each put aside $500 a month, they moved to a less expensive apartment (saving $200 a month) and saved another $100 per month by cutting cable. “Since the new place is smaller, our utilities are a lot cheaper, which saved another $100 each,” says Caswell. On top of that, they committed to bringing lunches to work more often, and eating out only a few times a month.
“We’re actually having a relatively small wedding, all things considered,” says Caswell. “Originally we wanted only 50 guests, but our guest list kept growing, both with people we wanted to include and people our families wanted us to include. We still had to make several hard decisions to keep it under 100 people.”
The Hardest Part: ”When we realized our original budget wasn’t big enough, I did get a little discouraged,” admits Caswell. “But frankly, I’ve lived on so much less money in the past. I paid for college in Los Angeles on my own, and worked three jobs to make ends meet before getting started in my career, so I just had to remind myself that there’s always a way—whether that means agreeing to take something out of the wedding budget, pushing back the wedding so we have more time to save, or finding something else in our monthly expenses we can give up.”
Where They Are Today: ”We hit our original $10,000 goal in December 2013,” says Caswell, “and we should achieve the adjusted goal by February 2014.” Caswell says she and her fiancé expect to have an additional $7,000 in savings before their honeymoon (they hope to go to Thailand)—a total of $22,000 saved in less than two years.
“We’re also asking friends and family to donate to our honeymoon fund in lieu of gifts, because we feel we have all the essentials we need. Whatever we don’t spend on the honeymoon will stay in our savings account for our next goal—a down payment on a home. We also each have separate emergency funds and retirement accounts, to which we have continued to contribute while saving for the wedding.”
The CFP® Says: ”I’m not surprised that Racheal and Kevin had to increase their estimated budget—costs for large events can add up quickly and are often more than what we might expect. If you aren’t able to cut back on living expenses like they were, you need to revisit your budget and explore lowering the cost [of the event] rather than increasing your savings. You should never go into debt for a party or event. I’m glad they paid in cash and decided not to enter married life with credit card debt from the cost of the wedding.”
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such,he people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.
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