Week 12: Siblings

Ladies and gentlemen,

My sister Alysha:



It is no small thing to have a relationship with your sister that you can be proud of.  My sister and I have one.  We didn't always, but our moments of tension are more and more rare.  Instead we behave like a team and enjoy banter in person, over the phone, and thank goodness, G-Chat.

My sister is working for a group called the IDP foundation and frequently travels abroad to look at education policy solutions that really make a difference in developing communities.  Her focus has been Ghana, and she has traveled there regularly over the past 9 months or so.  We like to pitch in as a family, so take a look at the video my sis put together with the help of the team at Havey Productions.

Cool stuff huh?

In other news, I just finished work on my new video for my amazing friends at ChiveEvents in Boston.  These are three women who are redefining what it means to have a responsible business.  I absolutely love what they do and am so happy to be able to help them.  This video will debut at an event in Boston tomorrow, but for those who not only check in on 80 till 30 from time to time, but also read to the end of the blog posts, you can see it now.

Week 11: My Time

In the truest sense, it is your time.  You decide how to spend every precious moment of it.

I think I've know this at different levels for a while, but since separating from my job, I have found a wonderful freedom to determine my own schedule and make time for things I never had before.  The ten-step commute from my bedroom to my office helps :).

Week 9: The Letter

I'm behind again.  I know.  Cool stuff coming :)

Week 8: Interest Rates

There are several different 'strategies' to paying off debt.  Mathematically, the most efficient way to pay off of debt is, to quote Get Rich Slowly, (a blog that several of my readers have recommended to me):

1. Order your debts from highest interest rate to lowest interest rate.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the highest interest rate.
4. Throw every other penny at the debt with the highest interest rate.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate.

While that approach is widely recommended, it assumes that you will have the discipline to stay on track.  But if your highest interest rate debt also has a high balance, it may take months or years to pay it off.  In the meantime, it can get frustration to be chipping away at a mountain of debt, and not feeling like you are making much progress (ahem).

There is the additional issue that your highest interest rate debt may not be the debt that is accruing the most interest each month.  For example, a high interest rate, low balance debt, would actually accrue less interest than a mid or low-interest rate debt with a high balance.

Allow me to illustrate with my own debt.  I have 6 student loans at various interest rates.  The highest interest rate (thank God) is 6.55%.  I actually have two loans at that rate and their balances are at $6228.18, and $4268.35 respectively.  I also have two more loans at 3.25% interest, but the balances on those are $15449.31, and $15997.43 respectively.  As such, the lower interest, high balance loans are actually higher in real-dollar interest than the loans at the higher rate with the lover balance.

Allow me to illustrate.  In the graphs below, I show the balance remaining to be paid, the interest rate, and the dollar amount that would be added to the loans in a year of interest accrual at their current balance and rate.  The highest interest rate is in yellow, and the most expensive interest is in red.

If I paid the highest interest first, I would not be attacking the loans that are racking up interest fastest.  I assume a financial adviser would have me pay them off in this order instead:

However, at my target rate of repayment, it would take me until this time next year at the soonest to knock out those big-balance loans, and at the rate I am actually paying right now, it will be two years.  That is a lot of time to be vigilant without checking a loan off the list . . .

Hence the snowball method.  Again quoting Get Rick Slowly:

The Debt Snowball method is similar to the traditional approach except that instead of attacking high-interest rate debts first, you attack low-balance debts first. Why? Because you’ll get the psychological lift of pinging debts off in rapid succession. And if you’re like me, this makes all the difference. The Debt Snowball approach is:

1. Order your debts from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

What that would look like for me is interesting as it would actually have me pay off my highest interest (and lowest balance) loans first anyway:

So, I'm going to split the difference, give myself some early gratification, and get 'r done like this: