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Is A Master’s Degree Worth The Pay Raise?

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Being strapped with student debt isn’t easy. It creates a whole new obstacle to hitting financial freedom, but it can be mitigated. So does it make sense to invest on the side and pay the regular monthly payments on student debt, or go all-in and pay off huge chunks of student debt at once? Today’s guest, Robyn, has this exact question (which many of you may have as well).

Robyn lives in the Bay Area, one of the most notoriously expensive housing markets on the planet. That being said, she is paying very low rent, under $700 a month, split with her partner. Robyn has student loans and a small car loan, but wants to go back to school to get her master’s degree so she can hit her career goals. There would be a pay raise after she got her master’s and she loves her job, so she’s keen on staying in her sector for awhile.

Scott and Mindy go through a few examples where it may be best for Robyn to go more heavy on investing, instead of paying off the student loan aggressively. This is especially true now that the government has given the option of 0% interest payments on student loans for many students (including Robyn) until at least the last quarter of 2021. So what makes more sense, get rid of debt or go in on investing?

Mindy:
Welcome to the Bigger Pockets Money Podcast show number 188, Finance Friday Edition, where we interview Robyn and talk about grad school, student loans and saving for retirement.

Robyn:
Do I want to be an aggressive investor? Do I want to be more cautious? I personally don’t know about things like Roth IRAs and index funds and whatever other funds are out there. So, I think a lot of it is just trying to figure out what the differences are and what is most beneficial to me now and in the future. So, I think that’s the homework part of this for me, I think.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my visionary co-host, Scott Trench.

Scott:
Oh, thank you, Mindy, but I think I’m more of a pupil of finance than a visionary.

Mindy:
Ooh, you went the opposite way of vision than I was thinking of. Scott and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or simply just start out on your investing and financial freedom journey, we’ll help you reach your financial goals and get money out of the way, so that you can launch yourself towards those dreams.

Mindy:
Scott, let’s get this boring part out of the way first. The contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I nor Bigger Pockets is in engaged in the provision of legal, tax or any other advice. You should seek you own advice from professional advisors, including lawyers and accountants regarding the legal, tax, and financial implications of any financial decision you comp-

Scott:
Contemplate. Now, let’s go ahead and talk to Robyn about finances.

Mindy:
Today, we’re speaking with Robyn, a 35-year-old woman living in a very high cost of living area. She’s in a long-term relationship and would like adopt a child in the future. She’d love to be financially independent within 15 years, but doesn’t really know what that looks like. She’s here today to get a few ideas regarding grad school, buying a home, and saving for retirement. Robyn, welcome to the show. I’m so excited to talk to you today.

Robyn:
Thank you so much for having me.

Mindy:
So, let’s jump right into it. Let’s build a balance sheet. Let’s talk about what income you’ve got coming in and where you’re sending it.

Robyn:
So, I do have a full-time job and I bring home after taxes about 4,100, and then I do have a small part-time job, where I bring in anywhere between $700 to $800, really just depends on the needs of the business. Right off the bat when I get paid, I put money aside into a savings. So, it’s anywhere between $1,200 to $1,500 a month, and that was really for they say you should have, what, three to six months’ worth of savings in an emergency fund. So, I tried really hard to put that away first before I do anything else.
Then I also created where all of my bills get paid within the first five days of the month. So, I pay everything, my phone, my car, my insurance, just everything goes within the first five days, and then anything else that I have left over is a little bit of my play money. I buy my groceries, my toiletries, and then usually before the next payday, so let’s say if I have another $200 leftover at the end of the month, then I’ll just put that back into my savings.
Then the money that I make from my part-time job, that automatically goes into separate savings. I don’t spend any of that, and that is what I have been saving to pay for grad school just because I don’t quality for grants or I’m having a really hard time finding scholarships. So, I anticipate having to pay a lot of that out of pocket. So, anything from my part-time job just automatically goes into that specific savings, and then my full-time job really just pays for everything else.

Scott:
How do I think about this at a net level? Are you saying that out of your 4,100 from your full-time job, 200 or so per month is going into savings and you’re spending about everything else, and then the other $700 or $800 is going into a separate savings for grad school?

Robyn:
Yeah. Exactly. So, that 4,100, I would say anywhere between 1,400 to 1,700 automatically goes into savings, and then whatever is left over, goes into my bills, and then my part-time job is 100% just automatically goes into savings.

Scott:
So, you’re saving $1,400 a month easily going towards your emergency reserve then not 200, and 700 or 800 on top of that to what you’re considering a separate reserve. So, you’re saving net 2,100 at least on a bad month, most months.

Robyn:
At least, yeah.

Scott:
That’s awesome.

Robyn:
I feel like I’m in a really good place financially. I just don’t know what to do with it.

Scott:
Perfect. Oh, I think this is a great challenge for us on BP Money. How would you describe your assets, your current savings, any debts, those types of things like loans or investments?

Robyn:
Sure. So, in my emergency savings, I have a little over 10,000. My grad schools savings, I have about 4,500. My checking currently is about 2,000, and then I do work at a local community college. So, my CalPERS retirement currently is valued at about 23,000. As far as my debt, the only thing I have is student loans, which is about 47,000 to about 48,000, and then I have a car loan, which is about 9,500 at this point. Other than that, it’s just bills.

Scott:
Okay. Great. Then let’s revisit your goals. What are you specifically looking to achieve with your financial journey? Are you an all-out aggressive fire journey or are you looking for something more modest, you really love what you do and just want to make smarter decisions with your money or you like to invest in real estate? How do we frame those?

Robyn:
So, as far as my goals, I struggle with this because my boyfriend is really, he’s an aggressive saver. He’s really into the fire movement. So, his goal is to retire in 10 years, but I love what I do for work. I really want to be in education for the long-term. So, obviously, my goal is to pay for grad school. I’d like to adopt a child in the future. I’m open-minded to the idea of real estate. My boyfriend and I, we talked about buying a multi-unit property, a duplex, fourplex, something like that. So, maybe one day owning a house of my own. I would like to be able to say I could officially retire at 50 and then just pursue some passion projects that still keep me in the industry that I’m really enjoying.
So, I guess I’m just really open-minded to the possibilities. I just don’t know what that route looks like to get me to, I don’t know, to something where, like I said, I can pursue more of my passion projects.

Scott:
Okay. Great. Let’s talk about your plans for grad school because I believe that is the biggest financial decision that you’re immediately facing right now or that is currently impacting your financial decision, your situation. You already have 47,000 or 48,000 in student loan debt. Is that right?

Robyn:
Correct.

Scott:
How are you going to finance grad school besides the savings?

Robyn:
Well, I’d like to keep my fingers crossed and that I can find some free money. So, hopefully, that’s obviously a goal, but it’s not a guarantee. So, outside of that, I just anticipate to either accrue more student loans or try to pay as much out of pocket as I can.

Scott:
Great. What is the advantage of grad school in your chosen career field?

Robyn:
So, it’s significant. I’d really love to be a dean or maybe a vice president of a college someday. So, with having a master’s degree, my income increases by 30,000 to maybe 40,000 at least with just having that master’s degree.

Mindy:
So, you work at a community college. Is there any opportunity to take classes for your master’s degree at your community college where I am assuming that you get some discount on tuition?

Robyn:
Yeah. So, they do offer some classes maybe towards the undergrad, but, unfortunately, not for the master’s program. They do have partnerships with a few local universities, but they’re very specific in the degree. So, it would be let’s say if I was pursuing a college counselor or specifically a teaching degree, then I could potentially get some additional assistance, but that’s not a degree that I’m interested in pursuing. They do offer, specifically in my position, I’m considered classified, so more administrative type roles. So, they do offer $1,000 per semester towards continued education. So, that’s something that, obviously, I could utilize as well.

Scott:
What do you think the grad school will cost you and how long will it take? Is it full-time or part-time? Three questions.

Robyn:
So, I’m pretty determined I got my undergrad in about two and a half years full-time, over full-time. I was taking 18 to 20 units a semester all year round in the summer. So, I was pretty determined. So, my goal is to finish my master’s program in a year and a half, maybe two years if I have to. So, that’s the timeline.
I am anticipating to accrue, not necessarily accrue, I’m anticipating it to cost me anywhere between … Ugh! It hurts me to say this, about 60,000 maybe 80,000, depending on the program that I pursue. I do anticipate, like I said, to be a full-time student. The faster I can get this done, the faster I can secure a higher paying job, move up within the district. So, that is my goal.

Scott:
Okay. What’s your annual salary right now?

Robyn:
My annual salary right now is, oh, I want to say it’s about 75,000, I believe.

Scott:
Okay. Great. The reason I’m asking is just I want to give you a mental model about thinking about the cost of the education. It doesn’t mean it’s a bad choice. It’s just here’s how to value the investment, right? So, if you’re making 75,000, your time is worth, let’s round up to $40 an hour or we can round down to $35 an hour. Let’s do 40 because that’s easier math for me.
So, if you think this is going to be full-time, that’s about 40 hours a week times 50 weeks. Let’s call it 2,000 hours times 40. What is that? That 80 grand. Sorry. We already know that. So, you’re going to invest 80 grand or two years of earnings or the after tax value of those earnings into this education. That’s what you’re foregoing because that’s a part of your cost. So, let’s call it 50,000 after tax per year. So, it’s $100,000 that you’re going to invest in the education in the form of not earning income while you’re a full-time student, and then you’re going to take on between $60,000 and $80,000, which you could potentially defray if you are able to get a scholarship or free money or somehow reduce those costs over that time period as well. You can also offset those costs by working a second job, which you’re currently doing already in addition to being a full-time student with that.
So, the cost here is going to be somewhere, let’s call it $175,000 if you believe those numbers, and you’re going to get a $30,000 to $40,000 raise, which is probably about 25, if I’m rounding here per year after tax. Does that sound about right? So, that will be a seven-year payback.

Robyn:
I’m just curious because I do anticipate to continue working full-time while I go through this program. Is that part, I mean, are you incorporating that in your thinking.

Scott:
I am not. I think I asked that question poorly. What I was trying to get to with the part-time/full-time was whether or not that was going to be in place of your job, but if it’s in place of your job, then you’re just hustling and probably you’re going to replace your second job with that. So, a huge chunk of the cost that I just described are no longer part of the equation. So, now, your payback is three years, which is more attractive with that.
I mean, it’s not about what the specifics of that are. It’s just knowing that’s the framework. Your time is worth something, and there’s an opportunity cost there. The cost of it is real, and you got to think about it after tax. Whatever you can do to shorten the timeline, reduce the cost, advance the time when you’re able to realize the benefit of the degree, the better off you’re going to be. I think that a two or three-year payback is wonderful. I think a five, seven or eight-year, 10-year payback is tough and you need to change those numbers.
Based on what we just discussed, your payback is probably only three, four years, and the faster you can accelerate it, the better off you’ll be. So, there’s no right answer to it. I just wanted to give you that model to think about it in terms of as you move towards that. I think that will be a helpful way to think about it because you’ll be able to I think save some money and keep those numbers in mind and know the cost.

Mindy:
I have a couple of things to have you think about as well. Back on episode 80, we interviewed rich & REGULAR. Julien said that he worked at a college while he was attending the college, and he said that … I will never forget this. He said it was $25 a semester. I said, “Did you mean $25 an hour?”
He said, “No, $25 a semester.”
I had never heard that before. That was unfathomable to me. I said, “You gave them a $20 bill and a $5 bill and they let you take classes?”
He said, “Yes.”
I think there was a cap. He could only take 20 hours or something like that for 25 entire dollars. I’m like, “I would have stayed there for my entire undergrad, I don’t care, or graduate college or whatever, I don’t care how much I hated the job if it was $25 a semester.”
So, in your situation, I don’t think we’ve gotten to your expenses yet, but I have a sneak peak. So, you have subsidized housing based on your college or based on your job. So, if you were to separate service with them, your housing expenses would go way up. So, I’m wondering if there are other colleges in the area that have the same or similar subsidized housing options because that is huge in your area, but it would also have the master’s degree that comes with the discounts. I’m not sure how tied down to his job your partner is, but is there any opportunity to potentially move to another college in a different area that’s maybe lower cost of living or maybe has these opportunities so that there’s less money coming out of your pocket? I don’t really think it does you many favors to leave the subsidized housing with this job to go spend way more money on housing and slightly less on college as well. So, I don’t know. These are just things to think about, but are there any other colleges near you that have the subsidized housing option?

Robyn:
From my understanding, we might be the only district that offers it. Honestly, I haven’t really looked at any other schools. I’ve been with this district now for five years. So, I’m not quite sure whether other colleges or universities have the same opportunities, but it’s definitely something that I would consider looking into.
The other thing that I’m looking into as well is I know that there are a lot of businesses that offer tuition reimbursement for undergrad programs. For example, Starbucks, they offer free tuition reimbursement for students who are enrolled at Arizona State online. Same thing with Pete’s Coffees. They offer tuition reimbursement for Oregon State University. So, I’m trying to figure out, and I know that these are specifically towards undergrad. I don’t know about master’s program. So, I’m trying to figure out if there are employers that do offer that because if there’s a will, there’s a way, and if I have to work the minimum of 15 hours a week to get tuition reimbursement for my master’s program, I will squeeze it into my schedule someway and somehow.
So, I’m sorry to my boyfriend. You can eat peanut butter and jelly sandwiches for the next two years. I am not making dinner because I’m working or going to school. We all make sacrifices here. So, I’m trying to figure out some other options, but it’s just a lot of work to figure out which that align with the degree that I want to pursue, how that degree is going to impact my future. It’s just a whole bunch of pieces that I need to Tetris together to make the time, the money worth it in the long run.
Then something else that I found out about. So, a coworker of mine just bought a house and about three months ago, she paid off all of her student loan debt. This drastically impacted her credit because I guess her student loans were the oldest account that she had. So, when she paid that off, it shortened her credit history. So, she was saying that that also negatively impacted her ability to get the new house. So, that’s also something I’m concerned about as I go through this journey of, one, accruing more student loan debt possibly, but also trying to pay that off, how that’s going to impact me in the long run when I try to buy a house or maybe a duplex or things like that in the future.

Scott:
I guess where I am wondering how to be most helpful here is it sounds like you’re really on top of how … You’re willing to put in lots of hours, work your full-time job and go to school full-time, and maybe even work part-time on top of that to reimburse tuition. You’re going to find a way to creatively get those costs down as much as possible and you’re thinking through that.
So, I think you’ve got a lot of good things there. We have some tips like potentially thinking about can you work at, can you change jobs, but in your circumstance, there’s probably a barrier to that because of the great housing benefit you have. I guess what we could think about is what happens after this, and what you do outside of the planning for the graduate degree because from my seat, it seems like you’ve got that down. Mindy, I don’t know if you’re thinking about anything else, but I think you’ve got a great framework for approaching the next couple of years in terms of getting a degree and you’ve got a reasonable payback period on it, and you’re willing to bust it, to crank out that degree. So, I think that’s amazing. What would be the best place that we could advise or help? Mindy, do you have anything else to add about the graduate degree stuff?

Mindy:
No. I think the graduate degree has a good amount of thought put into it, and I love that she’s willing to do whatever it takes to put herself in the best possible financial position to attend college, to work during college. I mean, this rent subsidy is huge. She lives in the Bay Area. So, that’s very expensive. Her rent, we haven’t really gone through expenses yet, but her rent is $687 a month. That is unheard of in the Bay Area. So, leaving the job to pursue college full-time doesn’t really seem like a smart maneuver on many levels, but most specifically because of the housing is so inexpensive.
I am more concerned about the lack of any investments outside of the pension system that she’s paying into and would like to look at how we can get her started investing in after tax investments. I’m not sure what the right answer is right now because she is saving for grad school and that would be a huge amount of money that she would be accruing as debt. However, student loan debt is typically pretty low interest rates, whereas time in the market is so important.

Scott:
All right. So, let’s think about the capital allocation here. This is great. Right now, you have student loan debt. What is the interest rate on that student loan debt?

Robyn:
Right now it’s at 0%, and part of that is just because of the pandemic. They placed a hold on the interest that student loans were accruing. So, I think I’ve got that through the end of the year if I’m not mistaken or at least until September or October. Actually, I tried to log in to the website to see what the interest rate was or would be, and I couldn’t seem to find what that interest rate was prior to coming on the show.

Scott:
What do you think it would be? Do you have a guess at what the interest rate will be once it returns, once it goes back from zero?

Robyn:
Honestly, I’m not quite sure. To be 100% honest, I was very frivolous with my money. I didn’t really pay attention to things like interest rate or into saving, so I couldn’t even tell you what I was paying in interest prior to I would say even three, four years ago.

Scott:
Okay. What do you think the grad school interest rate will be when and if you finance that?

Robyn:
Again, I’m not quite sure because the financing doesn’t necessarily go through the college. It’s through the Department of Education. So, once the pandemic is over and they start accruing, it’s up to the Department of Ed as far as what they set as far as the interest rates.

Scott:
Yeah. So, what I’m trying to get at here, and what I don’t understand, what I’m trying to think through is you’ve got emergency savings and you’re saving for grad school, but you have a debt right now with an interest rate. So, the only way it would make sense to save for grad school, given the fact that you already have student loans is if you the grad school interest rate is going to be way higher than your current student loan interest rate, which seems unlikely to me. Does that make sense?
So, right now, the interest rate is zero, but it will go up to something above zero. Mindy just looked this up. Do you know when that will be, Mindy?

Mindy:
That will be through September 2021, the end of the September of this year so far. I mean, they may extend it. They’ve extended it several times due to the COVID Relief Act. Right now, at 0%, I really like the idea of throwing a lot of money at that student loan so that it could come down. Scott, what do you think about that?

Scott:
Well, I think that right now you’re arbitraging at 0% interest rate for 0.01% in your savings account interest or whatever it is that you’re getting in your savings account interest, which is not a very good spread, and you’re not really arbitraging the 0% in your student loan debt. You’re going to begin paying that interest rate at a later date. So, I think that it makes more sense to pay off the student loan debt from my seat than it does to put that into additional savings beyond your emergency reserve, which I think is great. It’s great to have the emergency reserve that you have, but I think that whatever you’re comfortable with your emergency reserve, anything beyond that, it makes more sense to put that into against your current debt load and then just take out more debt for grad school than it does to save up separately for it from where I’m sitting. Any reaction to that? Is there a nuance that we might be missing for you, Robyn?

Robyn:
Yeah. I mean, I guess I’m just curious. Instead of putting this money into a bank savings account, do I use that to just invest and then just accrue, I hate to say this, but just accrue the debt and make my monthly payments and then once I have an opportunity to maybe take some of these funds out, then turn around and just pay it all off at one time? I don’t know. That’s just something I was thinking about. Yeah. Do I just use that $4,500 to pay and then continue to just invest that money afterwards? I’m not sure.

Scott:
Yeah. So, here’s how I like to think about it. If you’re going to invest in an index fund, for example, or a long-term stock investment, you might expect from that return over a long period of time anywhere from 8% to 10% depending on who you’re asking, who you argue with. Maybe 12. Some folks will go as high as 12%. So, let’s call it 10% for our purposes here, but you’re also going to get a lot of volatility. It’s going to go up and down over 30 years.
So, I believe that if you want to get that kind of return or you want to invest in these types of things, you got to be willing to just think of it as a really long-term investment, something you’re not going to touch in the interim.
So, if you’re willing to do that, maybe you can assume an 8% to 10% return on that, which implies, “Hey, isn’t that better than paying off my student loan debt if it’s at 3%, 4%, 5%?” Sure, but there’s also risk involved in that assumption. You know that the student loan debt interest is going to be whatever it’s going to be. Let’s say you look it up and you find out it’s 5%. You’re getting a guaranteed 5% return by paying off the student loan interest debt instead of investing in the market.
So, it just depends on how you want to approach and what your time horizon there is. I think that the way I would frame it is debt is below 4% are like, “Eh, maybe it’s almost better to invest long-term because it’s so likely that I’ll probably get a better 30-year return than the 4% interest on that debt.” 5%, 6%, 7%, it’s in this gray zone, where I don’t think there’s a right answer. I think it’s a hard decision. You got to go with a debt check and figure out what’s right there.
7%, 8%, 9%, and I know I’m overlapping, that’s intentional because it’s an art. This is not a rule here, but when you get it past 7%, that’s a guaranteed return. That’s really high. How do we either refinance it to a lower interest rate or probably pay that instead of investing?
So, I think that’s where the research on what your interest rate now is going to be and what you think the interest rate on the future debt is going to be. If you find out, “Hey, there’s no way to finance grad school anything less than 10%,” which is not going to be the case most likely, then it would be like, “Okay. Let’s continue saving for grad school because I’m going to get a good arbitrage there and put that towards defraying very high interest at,” but it’s going to be … I bet you, without knowing more about this, that it’s going to be close to the same interest rate as your current student loan debt, in which case to me it would definitely make sense to pay off your current student loan debt rather than your grad school, save to pay off your grad school debt later if the interest rates are very, very close or the same, but it could make more sense to invest in something like a Roth IRA and an index fund than paying off either early and that’s going to be that art and personal knowing yourself and knowing your risk tolerance and your time horizon decision there.
On paper, it will probably pencil out better to do Roth, but it’s a guess at where things will be 30 years in an index fund investment versus paying off the student loan debt.
Now, one thing there is you probably heard Craig Curelop, who’s been on the show here, I think had a similar problem. He was like, “I’ve got 80,000 in student loan debt,” at some interest rate, like that, 4%, 5%, 6%, I can’t remember what it was. His idea was, “Hey, I’m going to house hack instead.” Why house hacking is special is you buy a duplex, you put down 5% on a $300,000 or $400,000 property, that’s $15,000-$20,000, and now you’re leveraged at 95% debt to equity, which means that if the property appreciates 3%, you’re getting that times 20. So, that’s a 60% return on an average 3% appreciation rate because of that.
So, there’s some investments that are just so absurdly profitable on average. You can still lose, right? Leverage cuts both ways, but the average is so high for that. You’re also not paying rent, those types of things. You’re paying down the mortgage. You can get a 200% ROI. It’s not unreasonable for the first couple of years of house hacking in some case. That’s not a good option for you because of what we discussed earlier where you’re getting your housing offset by the college, right? It sounds like that would be you’re going to drastically increase your risk and you already have low housing costs.
The point to that example is that if you see a way to get a really high return in something that’s not paying off the debt, maybe a side business that you have or a house hack or something like that, that’s just so astronomically better than the interest rate on your debt. It can make sense I think to invest in those cases, and then what he did is he did that two or three times, and then just paid off all his debt in one lump sum from the profits he made with that.
So, there’s certainly a case for that if you’re willing to do something like that where you see an opportunity to make an investment with your time or money that can dramatically outperform either of those alternatives, but you just got to be realistic with yourself about whether those are present in your life and sometimes it’s a creativity thing, and sometimes it’s just, “Hey, this is my circumstance,” and in your circumstance, you got a great reason for not being able to house hack.

Robyn:
Okay. Awesome. Thank you.

Mindy:
Do you have any plans to move away from your current location?

Robyn:
We have the opportunity to stay here at the rate that we’re at for the next seven years. We don’t have to be here for seven years. So, we would like to take advantage of this for as long as we can.

Mindy:
To be honest, at this rate that you’re paying, I would rather see you pay your 687 in rent, take the difference from the $1,000 that you were paying previously, throw that at your debt or throw that into your down payment for a house for in seven years when you’re looking to buy a house that maybe isn’t in the Bay Area, that is in a more affordable cost of living place. I want to move and have you job so I can pay $687 in rent. That’s pretty sweet. I mean, it’s a decent place, right?

Robyn:
Yeah. Well, it’s three flights of stairs. So, we literally just moved in. I feel like I got hit by a bus. My entire body hurts. We moved everything ourselves. So, outside of that, yes, we have a beautiful apartment. I got my office, a beautiful bay view. So, it’s a pretty sweet deal.
My commute is significant. I’m about 20 minutes from work and prior to that and, obviously, pre-COVID, it would take me anywhere from an hour and a half to two hours to get one way. So, I’m definitely saving on toll fees. I’m saving on gas. So, there’s a lot of advantages to being in this new spot.

Mindy:
I would continue to pay those tolls and gas into an account for your future house, maybe even a little bit for grad school. Although I do agree with Scott that you should throw enough money, as much money as you can at the 0% student loans right now and really crank those down.

Scott:
Well, I think she should find out the interest rate to the student loans and then make a decision based on her values and risk tolerance about whether it makes more sense to throw it all at that or to begin investing it, but I don’t think it makes sense to save for grad school in your situation with this. It can make perfect sense to pay off the debt. It can make perfect sense to invest, but I don’t think that … and this is not to say you shouldn’t have an emergency reserve. So, if you’re targeting a 15,000 emergency reserve, just put it in your emergency reserve and that also is a good use of the cash, but I don’t think specifically saving on the side for grad school is benefiting you right now would by my thoughts.
Let’s fast forward three years. So, where are we at in three years? You’ve probably … When do you start grad school? When is your target?

Robyn:
So, I can either start this fall, so this September-October or next September-October. The only reason why I would consider waiting was just to save more money.

Scott:
Yeah. My thoughts, if you agree with what we’re doing, and this is obviously something to think about and decide, but if you agree with what we’re discussing here, then I think if you’re going to go forward with the grad school choice, it would make sense to just do it as soon as possible with this and begin raising towards that next thing.
So, let’s say we’re in three years from now, and you’ve gone into grad school in September. You graduated and you’re a year out. You’re now earning $110,000 a year, between 100,000 and 110,000. You’re savings per month before paying any debts or anything like that, you’re now saving instead of 2,000 a month, you’re saving 4,000 a month with the extra income. You’ve got a debt load of let’s say you knocked that down, the debt load, let’s say you choose to pay off the debt and before you start grad school, you’ve probably paid off 7,000-8,000 before you start grad school and began accumulating the next debt there. I’m going on a lot of things here.
You probably graduate grad school with about $110,000 in debt, and that’s a two or three-year payback at the 4,000 a month savings, right? Is that in the ballpark? Maybe people would meet me up in the comments and tell me if I’m wrong on that, but is that a round where we like to be?

Robyn:
As far an income?

Scott:
Yeah.

Robyn:
Yes. With the master’s and putting out that good energy for a promotion, I can anticipate to make anywhere between 100 to 120.

Scott:
Great. So, let’s say we’re saving 40,000 a year then on that net. That can all go be applied to the debt. It can be partly applied to … You could probably max out contribute to a retirement account, play some tax advantage games, maybe something tax deferred or you can still max out a Roth at that level, and have plenty leftover for between two and five-year payback depending on how much you want to invest versus aggressively pay off your student loan debt.
So, you’ll be in a good situation because you’re fundamentals are strong. Your savings rate is so high, and you have such command over your budget it seems here, but that would be the basics there. Do you have any questions about the investing or the strategy from that point on?

Robyn:
Yeah. I think my big question is, obviously, with a little over 10,000 in my emergency savings, I just leave that as is, don’t put anything else into that, and then for the income that I do have that I’m able to put towards a savings, I could then turn around and just utilize that towards maybe splitting that in half between paying off student loan and then the other half investing in some way.

Scott:
Well, yeah, and that can-

Robyn:
Is that what I’m understanding?

Scott:
That’s right. Yeah. I think that you will have a debt load that will take you at least a couple of years to pay off after grad school is done, even if you’re pretty good about managing the costs there. So, the choice you’ll have to make at that point is, “Do I want to just pay this off and forego investing or do I want to do some hybrid approach?” which the hybrid approach will probably pencil out better depending on your student loan interest rate, but it will take you longer to knock out the debt.
For the hybrid approach, things to consider are things like the tax advantaged retirement accounts, “Hey, I’ve got a 401(k) match from my employer.” Great. That’s free money. Let’s take that instead of paying off the student loan debt. Okay. There’s a Roth. I can contribute to a Roth IRA and get the tax-free growth downstream. That might also be better than the student loan debt, but that’s only 6,500. So, maybe I’ve now contributed 9,000 to investments. Now, I’ve got another decision. Do I want to continue putting money into the 401(k) or pay off the student loan debt? Well, I’ve got 30,000 left. Maybe I put another 15,000, max out my 401(k) at 19,500 and take the tax advantaged. Great. Now, I’ve maxed out my retirement accounts and I still have 10,000-15,000 in savings leftover each year. Do I want to apply that to the student loan debts or do I want to continue making the minimum payments and apply the rest to after tax or not tax advantaged investments there?
So, that’s the art of the set of questions that you’ll have once you’ve graduated is, “What’s the right answer to that?” There’s no right answer. There’s just an answer depending on your preferences and what you want to do there. So, again, I’m just trying to download a framework here for making those decisions, but, again, this is all in the abstract for three years zoomed out.

Mindy:
I want to know a little bit more about the second job that you have that’s giving you $700 to $800 a month in side income. What is it? Can you talk about it? Is there any opportunity for either growing that income or farming it out to somebody else so you’re expelling no energy on it but it’s still producing some income?

Robyn:
It’s retail. So, if I wanted to make more money, I’d get more hours. Yeah. So, it’s just currently what I’m doing at the moment. Yeah.

Mindy:
Okay. Then if it’s retail, I’m sure there are ways to maybe you leave that one to go to work at Starbucks or Pete’s or wherever you can find the tuition reimbursement. Scott, doesn’t Home Depot have some tuition reimbursement?

Scott:
Oh, I’m not sure about that, but I know many corporations do have that. It’s something to research there.

Mindy:
Oh, oh, oh, oh, I’m going to put a note in the show notes to go post when this releases to post in the Facebook group, “Do you know of any company that has a tuition reimbursement plan? Please share this with us in the Facebook group.” So, I will be sure to tag you, Robyn, in that post so you can keep track of it as well. Yeah. If you know of a company that has a great or even decent, maybe even sort of commission reimbursement program, that would be really awesome for a part-time employee. It’s great when it’s a full-time employee, but Robyn already has a full-time job that has its own form of reimbursement in the subsidy for the housing.
Okay. Well, it sounds like we’ve given you a lot of things to consider. Do you have any additional questions that you want us to give you more things to consider about? Have we answered all of your questions?

Robyn:
Yeah. I definitely think … I have the right questions. I think you guys really proposed scenarios and like Scott said, just specifically frameworks that really force me to like, “Okay. Let’s look at this more holistically,” right? It’s not just a quick fix. It’s really what are the ramifications of this particular decision so far was to go this way, what would happen, right? So, I feel like I really have the questions that I never thought about asking myself when it comes to going down path A, path B, path C. So, that was super helpful.
I think I have a better idea of … because I feel like I do have this disposable cash that I need to figure out where to put in a way that’s going to be most sustainable, but also beneficial in the long run. I think the only thing that I need to do now is figure out, and I know that my boyfriend is really trying to educate himself in all these different, “Do I want to be an aggressive investor? Do I want to be more cautious?” I personally don’t know about things like Roth IRAs and index funds and whatever other funds are out there. So, I think a lot of it is just trying to figure out what the differences are and what is most beneficial to me now and in the future. So, I think that’s the homework part of this for me, I think.

Scott:
Yeah. So, it sounds like you’ve got a lot of … A lot of these things are still new and you’re still learning about all the frameworks that is this ridiculously and unreasonably complex world of personal finance with this. So, while you’re thinking about these things, I wouldn’t do anything like extreme or whatever until you’ve got the frameworks really figured out. I think also just continuing to absorb content like the Bigger Pockets Money Podcast or a couple of books on personal finance that you like. You could ask the Money Group for a set of recommendations there, and just maybe absorbing a few hours a week or over the course of the spring and summer here. That might greatly help you with getting familiar with some of these things that are another language right now, like Roth versus 401(k) versus Roth 401(k) versus index fund and all that kind of stuff.
Those terms after a while will become, “Oh, yeah. I get what’s going on there,” but they’re completely overwhelming in the first couple of stages here with some of those things. I think that’s where it’s just like how do you absorb that content in a sustainable way that’s reasonable fun as you go forward here.

Robyn:
Yeah. My boyfriend is actually a huge fan of your guys’ podcast. I think he listen to every single one of your episodes in a week’s time, I think. So, that’s how I … He recommended me to email in because he had heard Mindy asking for more female guests.

Scott:
Yeah. Well, thank you again for coming on the show and we’re very grateful to him for referring you here. Yeah. I think that something that’s sustainable and on a commute, can you put on three days a week a podcast? It’s not to be ours, although you’re welcome to listen to ours, but on these things or an audiobook or something. I think that will make a worldly difference and make a lot of these things a lot more clear and less overwhelming because they are. Otherwise, at some point, you have to just go through a couple of dozen hours of learning about all this stuff, but it makes a huge difference, I think, in your life in how comfortable you are with these financial decisions over time.

Mindy:
Yeah, and I’m going to give you a couple of episodes to listen to. Number 35 is Craig Curelop and it’s him telling his story of having the $80,000 in debt and choosing to make the minimum payments while starting to house hack, and then just what was it? Three years later, he just threw a huge pile of money down on the is student loan, and paid it off.
Episode 41 with Kyle Mast talks about financial planners. Maybe that’s a little … Push that off for a little bit, but episode 35 is going to be really great. Another piece of homework that I wanted to give you and anybody listening who has not already done so is to get a copy of your benefits and options for retirement packages from your HR department and read through them. If you come across something that you don’t understand, ask the HR department or throw it up in the Facebook Money group, the Bigger Pockets Money Facebook group and ask people for translations because some of this stuff that’s pretty complicated, but people in that group are really helpful at explaining.
I’ve started to ask everybody, “Explain it like I’m five. What does this mean?” So, there’s a lot of people in the group that can help break down those concepts. There are a lot of people, I mean, let’s be honest, nobody ever reads those except nerds like Scott and I. Nobody ever goes through all those things and sees all the options, and really knows what they’re looking at. They either decide to contribute to their 401(k) or they don’t, and that’s it, but as a public employee, you may have access to a 457 plan. Anybody listening to me talking about the 457 plan is going to be like, “Oh, she always talks about this.”
I love the 457 plan because it is a bonus 401(k) or 403(b) where you get to contribute money to 19,500 is the limit this year just like with the 401(k) and the 403(b) plans, but when you separate service with that company, you can have access to that money you pay taxes on accessing the money, but you don’t pay any fees. So, you are getting the tax advantage of reducing your taxable income if that’s something that is important to you by contributing to the 457, although somebody else had told me that there’s a 457 Roth option. So, I know I’m throwing so much at you.
Look and see if a 457 option is available, and then I’m going to post a link to the Millionaire Educators article on the 457 plan and how he thinks it’s the best thing in the world. If that’s an option for you, you can read through that. I’ll post a link to that in the show notes for this episode, which can be found at biggerpockets.com/moneyshow188.
Okay. Scott, it seems like we’ve given Robyn a lot to think about. Robyn, I would love to check back in with you after you start school and see if you found a place to work that has tuition reimbursement, see what grants or scholarships you were able to come across, and just see what’s going on with you. I would love to check back in.
So, please, I’m going to make on my calendar a note to go in and check back in with you in September and see if you started school and then, again, the following September if you didn’t and just see what’s going on because I am excited about your path.

Robyn:
Awesome. Thank you guys for all the information. You should see my little notepad right now. It’s just a hot mess.

Mindy:
Yay!

Robyn:
So, I appreciate you guys taking time for me this morning and giving me some really valuable things to think about. Yeah. It’s a whole new world that just opened up to me. I was not raised to think about money in this way, right? We spent money very frivolously. So, I know that I’m a late bloomer in this, but it’s never too late to start, right? So, I’m really excited for this new journey.

Scott:
Awesome. I just want to compliment you on the fact that you’re savings rate is so strong. That fundamental, the fact that you’re able to save 2,100 a month, that is what’s going to help you win on this journey really working out this of how you decide. It’s just everything else is a matter of degree, but that fundamental being so strong is very impressive and, obviously, the outcome of a lot of great choices that you’ve made. So, I look forward to seeing what you accomplish.

Robyn:
Yeah. Thank you. Thank you so much, you guys.

Mindy:
Yes. Thank you for your time today. This is a lot of fun. I know you’re going to kill it. You’re going to absolutely crush it in life. Okay. That was Robyn talking about a lot of different things, grad school, student loans, saving for retirement. Scott, what did you think about Robyn’s story?

Scott:
I thought it was great. I think it’s awesome that Robyn came on the show because she’s still learning about some of these concepts and I think there’s so much going right for her in the sense that she’s spending much less than she earns. She’s got a great housing situation. She’s clearly making a lot of decisions. She’s clearly very, very smart and intuitively grasps a lot of these financial frameworks. I’m just excited to see how things evolve for her as she gets more of the actual language and frameworks for investing down. I think that’s just a little bit of an educational process with it, and I think she’s going to be off to the races if she reads a couple of books and listens to a couple of podcasts on this and just fully flushes out her approach to money. So, I think it’s awesome, and I hope this was helpful for her.

Mindy:
I love her determination and her willingness to couple together a bunch of different options rather than, “Oh, I’m going to go to school and that’s the only thing that I can do, and I am going to get student loans and that’s the only thing I can do.” She’s looking for different ways to pay for those so she doesn’t have to get so much in student loans. She’s continuing to work while she’s going to school, which is huge in many different ways. She’ll be able to continue to save. Shell be able to get that huge subsidy for her housing, and I love her flexibility in her approach to this. I think that is going to take her far down the road to financial independence once she graduates from grad school. She’s just going to crush it.

Scott:
She’s obviously got a great boyfriend, who’s a BP Money fans. So, shout out to Robyn’s boyfriend.

Mindy:
Who should probably apply to be on the show to tell his story as well. We’ll just encourage him that way. Okay. Listeners, Scott and I love this new addition to the show lineup. We really, really enjoy talking to people about their finances and we want to hear from you. We, in the beginning of the show, we say that we are wanting to introduce you to every money story. So, if you have a story that you haven’t heard on the show before, we would love to talk to you. Please apply to have your finances reviewed at www.biggerpockets.com/financereview or to be a guest on the Monday episode to tell us your journey to financial independence, Robyn’s boyfriend, please fill out the form at biggerpockets.com/guest.
Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 188 of the Bigger Pockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying we’ll see you at the restaurant at the end of the universe.

 

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