I read a post last night shared by a couple of behavioral finance guys. It pissed me off. I get annoyed when people who seem like industry experts share something that makes absolutely no sense whatsoever when you give it more than a moment’s thought. Want to read the post, it’s right here: How one man is paying off over 100K in student loan debt.
Here’s a couple of zingers for you:
I graduated with $104,000 in student debt, consisting of 16 different loans from four servicers. I currently have about $80,000 left and my goal is to pay it off by the end of this year.
How he plans to pay it off?
I cut unnecessary expenses — including cable, a car, and a gym membership — and eventually moved from New York City to Texas, which has a lower cost of living.
He goes on to say:
The most important thing I did was focus on increasing my income over this time period by working more hours, freelancing, and even listing my apartment on Airbnb.
So why am I mad? Well, for one I’m just a belligerent old bastard. But really, what I see here is a guy who has no clue about money, he found out his loans were delinquent when his parents told him. He then goes on to think he can clear debt by cutting cable and gym memberships.. and really, who the heck has a car in NYC?
The income? Who knows what the dude makes, it doesn’t show here. The point is that if you have enough income to clear $80K of debt in a year, you have a shit ton of money coming in. Why would moving from NY to Texas factor into this? Let’s say you’re renting your own place in NYC, we’re talking $2000 per month on the low end. If you share, maybe $600. What is the rent level in Texas, $1000? Who knows.. but the point being if you add up all that junk, the cutting of the rent, the cable, the gym, all that wrapped up, you are looking at what, $10K? How much does it cost to move? At least 1, maybe $2K. So let’s say you made a net of $8K per year savings by upending your life.
You’re trying to tell me in this post that the dude can clear $72K, after tax, and after living expenses from freelancing and renting out his cheaper, inferior priced (for subletting) Texas pad on Airbnb? Meaning he’d be out of debt in 13 months if he kept on doing what he was doing? But he has to ‘turn his life around’ in order to do it in 12 months?
What the heck people!
Why am I mad, really?
Because this is the farce that is portrayed by finance folk and the frugal. They think that if you cut out silly shit you’ll be able to make sweeping lifestyle changes. What they are really doing though, is hiding from the stark reality that they got in debt by burn rates way higher than the rent spread between two cities, and way more than what it costs to have cable vs netflix. This post screams a lack of financial education, followed by further poor choices.
Everything has a price
If you are in serious debt, of course there is some upside from being a bit frugal. But what really matters is restructuring your debt in order to reduce interest payments, and even more importantly than this, boosting your earn rate upwards. If you decide to cut off all your expenses you also cut of earn potential. Simply put, in this case, moving to a cheaper town can reduce your earning capabilities, and you’ll find that you’ve amassed huge debt and have cut off options to get that sorted.
The punishment must fit the crime. If you need to go on an outflow diet, it has to be relative to your actual needs. Cutting cable and moving to the woods and thinking you’re on the fast track to FIRE is a recipe for disaster.