[why not] hold off on savings?

[Why Not? is a new monthly series highlighting the decisions I’ve chosen not to make in my journey to student loan debt freedom. I will go over the pros and cons of the particular choice and I’ll also explain why I, personally, have chosen not to go this route.]

Currently, I’m saving almost 40% of my income for various financial goals. I’m maxing out my Roth IRA and I have separate savings accounts at ING Direct (not affiliated) for my various short-term savings goals: emergency fund, car fund, gifts fund, career fund, and a travel fund.

Now, if I really wanted to get rid of my student loan debt quickly, I could just allot all of my monthly savings to my loans. Let’s go over the pros and cons:

Pros:

+ Currently, I’m on track to pay off my loans by July 2015, according to unbury.me (I will do a review on this website soon). If I were to add the amount I’m saving to my current monthly debt avalanche payment of $550, I would have my loans paid off by July 2013 – about two and a half years after graduating and two years earlier than planned! New York 2013, anyone? :)

+ If I look at my loans as an investment in my personal education (which I do), skipping the savings accounts in favor of my loan repayments is a good investment strategy. Since my savings accounts are only earning 0.80% APR, throwing the money at my loans that range from 5%-6.8% would be a better use of my money.

Cons:

– My car purchase would definitely not happen this year (sad face).

– I would not be able to take the CPA exam. If you don’t know, it’s expensive to take this four part test ($100 initial registration, $743.20 total for all four parts of the test, and $3,245 for the review)! They are changing the requirements in California to sit for the exam in January 2014 (must have 150 units). I graduated a semester early with only 128 units, so I have until December 2013 to pass all four parts of the exam. So if I wait until July 2013 to start studying (since I can’t pay for the reviews until I’m done with paying my loans), I would have to be incredibly fast at passing all 4 parts of the exam – I’d have to finish in 5 months to be exact. In other words, I probably wouldn’t take the test at all.

– My retirement savings would starve and I would lose some benefits of compound interest. I could go on and on about how starting early on retirement savings is very beneficial, but here’s a great article from Get Rich Slowly that quickly highlights why compound interest favors the young.

My final decision was to keep saving.

Although some would argue that using all that money toward my loans would be better for me, I have short-term goals that I absolutely have to save for. Now that I’m living back home in Vallejo, I absolutely need a car to get around (no more MUNI for me). The CPA exam is something that needs to be finished by January 2014 or else I would no longer be qualified to sit for it. And retirement savings is a very high priority of mine.

I know my loans will be paid off by 2015, I’m still saving thousands in interest, and I have enough money for some short-term financial goals. I’ll stick to the plan

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