The Institute (協会)

If you want help, Dave Ramsey's The Total Money Makeover book is very helpful in coming up with a plan that you can stick to. Getting aggressive about getting out of debt is definitely the way to go. His free podcast on iTunes is a good "coach" to have pumping through your iPod to keep you on track as well.

Wow, pretty scary (and gutsy to post for everyone to see).

I saw a black preacher on BET this morning who had his congregation chanting, "I'm Cush not Cursed." I don't know if that would help...

Seriously, consolidating those loans and locking in a low fixed rate will make a difference. Also generating a second income for the sole purpose of paying down the debt is another option. You seem to get around a lot and speak to many different groups. Could you generate additional income via speaking fees/honorariums to pay down the debt?

I've thought about having you speak at my church and in my community. Send me a PM and we can talk.

There was another guy that needed to repay some debts and had a very creative way to go about doing that. Maybe you could do the same. His name...

Deuce Bigalow: Male Gigolo

Seriously, I too have a mountain of school debt and feel your pain. Thanks for posting your situation, it's good to know I'm not alone and it also motivates me to stay on track.

I am really glad you posted the topic of your financial situation. I think being responsible with our finances is very difficult because discussing finances is taboo in our society. People also struggle with material possessions and the stupid "keeping up with the Jones mentality". Lets start talking about it!!!!

....And if Bill Clinton can pull in millions of dollars a year in speaker fees, surely you can too!!!! And I bet you can do more push ups than him!!!!

I second the recommendation of Dave Ramsey's work, and I've also been blessed by the work of the (late?) Ron Blue. Those steps to financial freedom really do work.

And I'm one who is about ready to think that the degrees required to do a job are really an effort to take one's best work, while the mind is young and fresh, and reward it with either grad student pay, or no pay at all. Isaac Newton was a professor and led the Royal Society with a bachelor's degree, after all, and until 50 years ago, professors generally had a master's degree. Do the math.

for goodness' sake, marry a sugar momma. then your jewels will actually have a positive net worth.

Matthew, thanks for the book recommendation!!

Thanks, Dave, yeah I'll hit yeah up for sure!!

Yeah, Frese you're soooooooo right. This is the one area most guys will not talk about. And Yeah, we do need to start talking about it. A lot. For those of us in our 20s and 30s we maybe setting ourselves up for a difficult future if we don't get rid of a lot of debt fast! We gotta talk about this more. . .

Maybe one day I'll get Clinton's speaking fees. That's why I keep the blog going (haha)!

It isn't surprising the America's recent fetish with the college degree is having an ugly financial impact. The entire cycle is getting really out of hand. It's getting to where high schools want Master's Degrees. Any type of college prof needs a Doctorate. Those requirements drive up the cost of education because having a prof with a Doctorate teach freshman/sophomore level classes gets expensive. And the more expensive it gets, the more federal loans increase. And the more loans increase, the more universities can charge. It will interesting to see how long it takes for the entire cycle to implode. Then high school diplomas will be worth something, and college degrees, respectively, will be worth more than they are now. Again.

And people wouldn't be forced into jobs they hate just to pay off their student loans...

I think I'm net $130K in the hole right now, and I haven't even graduated yet. Phew.

Here's a neat trick, though, that I learned when paying off undergraduate loans. Pay twice a month. Seriously. Pay half your monthly payment at the beginning of the month and halfway through the month, and you'll reduce your overall interest costs by a third over the life of the loan without increasing your monthly contribution.

What it does is reduce the time that interest has to compound already-compounded interest. Instead of paying off a month's interest + whatever principal your payment covers, you are paying off 2 weeks' interest and whatever principal the remaining value covers. It's great.

Come on -- you're in one of the richest countries in the world at its richest time, you're sitting at your computer, inside, in safety, worried about things like authenticity and your next lecture and letting people know about your graduate schooling and degrees and dissertation and research and "think tank" work .... Tough. If you want to see 'strapped,' check out Sudan or Yemen or Myanmar where they are outside in the rain worried about getting the cross-fire of rival warring parties. America's 20 and 30 year olds ALREADY have it made -- but because they only look at each other and post to each others' blogs, they think they are strapped. This book is a waste of time; a pity party of people feeling sorry for themselves in-between brags about their education or research or lectures or 'insights' into liberation or authenticity and compound interest and "net worth." Totally surreal post ... gross.

So lets see Carson to talk about ones financial position is a waste of time because people in Sudan, Yemen or any other of the country with 2 billion people making a dollar a day are less strapped then you, Anthony, or I? So because one is in a rich country the anxiety, pain and fear one feels is somehow less real? Give me a break, wanting to get out of debt and have a positive net worth is a good thing(Now if every christian did it we may have a problem with our money supply system, but that is another story). So yes Net Worth is important to talk about just as important as liberation and authenticity, what did Christ talk about more then most? It was money that Jesus talked about. The thing that we are so afraid to talk about.

By the way my background is finance/IT and when I finish school I will be working in financial services industry so for some reason I believe talking about money is important.

Wow my brother. We'll try to hook up some speaking gigs locally to help out and get your name out there.
What your post makes me reflect though, is how different the situation is for us who have the chance to go to school in Latin America. I guess that the fact that student loans don't exist, and that a college degree (which by the way is also a proffessional and not only academic undergrad degree) is many times less expensive than college in the US.
Also the fact that we don't leave home until we get married I guess saves us a lot of money in the process.
So much for the glamour of American education (as a system) I guess...(I have an MBA from Regent University that I got a full ride (THANK YOU JESUS!!!) for).

...if HE brings you to it.. HE will bring you through it!

Anthony,

I also have graduate degrees and school debt. The good news for both of us is that the debt is largely student loans, am I right? If so, then I think it's less problematic for you since the interest rates are so low, comparatively.

When thinking about your past decisions, we need to always remind ourselves that the only relevant question you should be asking is whether you made the right decision at the time with all the information you had at that time. It sounds like, to me, you were in a different place theologically that made working within your tradition very difficult. You were Reformed, and so went to a Reformed seminary. What else could you have done back then, given the person you were then with the information you had then? Do you really think you could have been convinced to go to a traditionally Black seminary, or whatever the alternative is that you're talking about?

Also, my own two cents. I think you are right to be thinking about net work. Say that you have $100 in assets, though, and $200 in liabilities, giving you a -$100 in net worth. Now assume I give you $100. Should you put it towards your assets or your liabilities? If you put it towards your assets, your assets now equal $200 and your net worth is $0. If you put it towards reducing your liabilities, you now have $100 in liabilities, and $0 in net worth. If your goal is to maximize your net worth, which I think is the correct goal generally, then a dollar on either side of the ledger has the same effect. Now the point of accruing interest is different. A $100 in a stereo is going to have a different impact on your net worth than a $100 in paying off your debt since the former will not appreciate in value (actually, it'll depreciate) whereas your debt is appreciating.

So then, where should you put the $100 if you want to maximize your net worth? The answer is not to put it towards paying off your debt, necessarily. The answer is you should always chase the highest interest rate, whether that is on the asset side of the ledger, or whether that is on the liability side of the ledger, because dollars put towards those higher interest rates will have the biggest effect, via compounding interest, on maximizing your net worth over time.

You should ask around, but I am not a big fan of Dave Ramsey for that reason. He seems biased against one side of the ledger. Given that his audience are people trapped in debt and having problems with self-control, I think that is fine and appropriate, but as a general rule, I don't think he's right. I prefer Burton Malkiel's book A Random Walk Down Wall Street, and specifically, if you are interested in a longrun investment strategy as opposed to getting rich quick, it seems like to me you should first investigate what the longrun implications are of paying the absolute minimum on your student loans each month, and investing the remainder in an index fund. Index funds, like those run by Vanguard, have the lowest fees and the highest average returns over time (if you believe in the efficient market hypothesis - for guys like us, I think it's probably safe to accept the EMH as basically correct). If your student loans are accruing at 7-8%, but index funds are earning more than that on average, historically, then your dollars should go towards the index funds, not hte student loan. Work it out for yourself in Excel and you'll see what I mean.

This is at least my own plan. Take it for what it is worth, which may not be much if it doesn't feel like it fits your own situation. There is risk to it, but if you're aiming for a longrun investment strategy, I think the risks are actually quite small (there's volatility in the shortrun with any investment, but less so in the longrun). I just don't think that if you really are focused on net work that it makes any sense to be myopic about one side of the ledger. Net worth is a linear combination of assets and liabilities, after all, so the former is equally important. You may be able to make a much bigger dent in your net worth by paying the minimum on your student debt each month, and investing all your surplus in index funds.

Scott, not quite sure what you're getting at here. Ramsey's first step is not paying off debt, but rather a $1000 emergency fund. Step 2 or 3 is a 3-6 month fund after credit card debts are eliminated; is this just concentrating on one side of the ledger? Evidence does not support this claim!

Yes, he hates debt, but when we're (as a nation) paying $1Trillion annually in interest or so, don't you think he has a point?

Plus, that 7-8% interest on the student loan is about the same or greater than average stock market returns, which are 2-4% over the past 120 years after inflation is accounted for. Paying off debt is simply a surer way of getting that gain.

Robert - I know he says to get the emergency funds first. But Ramsey's suggestions are towards debt reduction, not necessarily towards wealth maximization. They aren't the same thing - they are sometimes the same thing, but they aren't the same thing always and everywhere.

I'm not talking about investing in stocks - in fact, everything I've read is to not try that. The efficient market hypothesis basically leads you to the conclusion that you can't beat the market, because stock prices already encompass all available information. So unless you have private information, which you probably don't, there's no way you can consistently beat the market. Economists usually recommend, then, to invest in some index that is matched to the market overall - something like the S&P 500 Index, for instance, which basically moves with the S&P 500 because a diverse portfolio of stocks representative of those 500 firms in the S&P 500 is in the fund. Unless I'm misreading this I mean. Since it's inception in 1972, the fund has averaged over 12%, right? So in principle, your longrun net worth is maximized by investing the minimum in paying off student loans and putting as much of your surplus as you can into an index fund.

Regarding your point about the trillion dollars the nation is accruing. I won't comment on the aggregate statistics, as that is beyond my comprehension at this moment. Like I said, Ramsey's probably right when advising people with relaly high credit card debt, which has very high interest rates. But my point is that wealth is maximized by chasing the highest interest rate, whether that is on the asset side or liability side.

Scott, that 12% return on an S&P index is actually pretty close to historic student loan percentages, and moreover is inflated somewhat by the influx of 401K and Roth IRA numbers by baby boomers worried about Socialist Insecurity.

Put simply, even index funds are historically just a match for paying off loans, and the boomers are starting to retire. My hunch is that paying off student loans will be a better (and sure) investment than index funds for the next decade or so.

I have learned a lot on this thread fellas, keep talking. Lots of us are listening.

Robert - That S&P index is its average return since 1972, not just recently, when boomers are retiring. That index is representative of the growth of the S&P 500 - the 500 firms in Standard & Poor. That's the growth of the market, not just some fund. Are we talking about the same thing? I don't see how the influx of 401k and Roth IRA is going to be causing growth in the 500 firms on the S&P.

Student loans are another matter. Anthony hasn't shared his interest rates. But 12%, today, seems high. I have two student loans - a fixed rate at under 7%, and a variable rate at 7-8%. So with those numbers, you are throwing away wealth by trying to draw your debt down, and my original point remains.

Robert - Sorry that last post was so convoluted. We're in a hurry to get out of town for the holidays, and I've become interested in this thread in the middle of it, so I keep running around packing, taking a minute to post, running around, etc. Anyway, what I meant to say was that my understanding of the S&P500 Index fund is that it is a fund consisting of stocks randomly chosen from the S&P 500. Thus, it basically moves with the S&P 500 plus or minus a little. Why does influx of money into 401k and Roth IRA funds cause the 500 firms on the S&P to increase in revenue and dividends paid to shareholders? Also, that 12% is the average annual return that that fund has paid out since 1972 - over a 30-year-period, that's the average. It has done well because the American economy has done well. Insofar as the American economy continues to do well, then the S&P 500 (or replace that with whatever list of firms) will continue to do well. Again, we're talking about the longrun performance of the firms on that list; there's volatility in the shortrun, but in the longrun, the American economy has proven to be an incredibly robust engine of growth, and I don't see that changing, even with baby boomers retiring.

Secondly, the interest rate on student loans. As I said, I have loans that are below 12%, and I suspect so does Anthony since he and I were probably drawing from the same federal loans. As such - and I may very well be absolutely wrong, but I'm just speaking from how I understand the issues - it's wasteful to spend down the debt if your goal is to maximize net worth in the longrun. Since Anthony's post was all about getting his net worth higher, I don't think focusing on aggressively getting his debt down is better than investing in a conservative, longrun fund like an index fund.

Net worth....an interesting concept, isn't it...I mean...in a very hollistic sense...this whole notion of "net worth" is quite superficial...we don't "measure" ourselves like that here in Guatemala...I wonder what our standard is or why we don't consider this standard of measurement.
Should Christians think about "net worth" as a measure of our value as individuals? In a very practical sense I guess I understand the concept of having more in terms of cash and assets than what you owe...but again...is the "worth" idea being reduced to the purely material?

Juan - Who said net worth is a measure of our value as individuals? I hope you're not getting that from me, as I didn't say nor do I believe it.

Most Guatemalans do not think much about net worth because the per capita incomes in Guatemala is still relatively low by modern standards. I look forward to the day when Guatemalans are prosperous, and many have been lifted out of their poverty, so that they can begin to think about ways to manage their surplus so as to make their future selves better off.

Scott, IRAs & 401Ks have greatly increased the pool of people investing, directly or indirectly, in stocks. That means higher demand and higher prices than they otherwise would be. A symptom of this is the historically high (at least since 1929) P/E ratios that you see for stocks. Yes, privately held IRAs do increase demand for, and price of, stocks. It's Econ 101, friend.

And yes, 12% seems high today for a student loan. It wasn't so low just a decade ago, and in the Carter years, 15% and up was common for mortgages and student loans. Moreover, look at the S&P 500 since 1995--sorry, but in the time frame we're looking at, it ain't returning 12%. It's actually losing money since 2000!

(the S&P is slave to corporate welfare and the Fed...and the Fed's been very active in causing economic cycles lately)

Scott, I completely understand you. I'm just questioning the whole idea of "net worth" as a standard of measurement. In the end, because it is a very objective standard, it can easily become THE standard if we're not careful.

Robert - what time frame are we looking at? Did Anthony say that his goal was to have a higher net worth by year 5? If so, why is that the goal? Is there some target in 5 years?

I'll just repeat my points and stop. First, student loan debt, using the rates Anthony most likely has (6-7%), is not very high. The 12% you're pulling out is irrelevant, unless you have private information from Andy. Second, net worth has a linear combination of assets and liabilities, and so he can increase his net worth either by spending down his debt, or having assets that are increasing in value. Each is equivalent - neither one is "better" in any sense. Third, if he wants to increase his net worth for a longrun goal, say by retirement 2040, then he'd do better today by investing all that he can in index funds, and spending the minimum on his student loans each month. The dollars spent on his student loans have an opportunity cost - the foregone interest in some other investment. Fourth, I never said that index funds weren't volatile in the shortrun - I never said, for instance, that every year they earn 12%. I said that the S&P500 index fund has earned, on average, 12% a year since its inception of 1972. That mean return is over a 35 year period, and thus incorporates all the twists and turns in the stock market since then. The movement of the American economy is a rising tide. It may ebb and flow, but it grows. ANd so to track with that growth is a good strategy, and can itself lift Anthony's ship over time.

Juan - I agree completely. The love of money is the root of all evil. But, keep in mind that we save for tomorrow because tomorrow is uncertain. Trying to maximize one's net worth is itself a strategy for making a better life for our future selves. In the United States, with average life expectancy being fairly high, but retirement being relatively early in comparison, and with rising healthcare costs, reitrmeent is a very real issue that all of us here have to deal with. But it's not vain or greediness to talk about it. It's also not to diminish the struggles of the working poor or the impoverished in developing countries.

The problem, again, Scott, is that you're mixing timeframes. If you want to point out that 6-7% interest on a student loan isn't that bad, you've got to consider that in the same time frame (say since 1995 or 2000), the S&P 500 isn't doing nearly as well as that.

It doesn't matter what happened back in the 1970s when Nixon/Ford/Carter were presiding over double digit inflation. Reality here is that the S&P hasn't been doing very well for a decade.

Or, to put it in your favored theory; if the markets are truly rational, then the returns on loans will be very similar to the returns on stocks and so on. Otherwise, you'd never get anyone to loan out money, and you know that's obviously false.

Robert - sorry, I"ve been travelling and so only just saw this. By now, this thread is probably dead.

At this point, I'm repeating myself. A diversified index funds have an annual rate of return that exceeds the interest rate on Anthony's interest rates. If they are fixed rates, then he can stand to increase his overall net worth by investing in index funds that in the longrun will beat his debt. I still don't see your point. This is a longrun strategy, so why are you insisting I use a short timeframe? The long timeframe is the only relevant one. Interest rates were at double digits in the 1970s because of high inflation. Why would that return? There's no reason to think that the Federal Reserve is anything but hawkish on inflation, since Volcker it's been consistently in the low single digits. So as far as I can tell, you've not showed me anything that rejects my main points.

To your last paragraph. The student loans are artificially kept low because they are government sponsored, subsidized loans.