Today’s post is a lead-in for a guest post I did on Vicki’s excellent site, Make Smarter Decisions. I discussed a recent decision my fiancée and I arrived at when we asked ourselves, “Should we pay down student loan debt or save for a home?”
Here’s a link for the full article.
I’m a large proponent of maximizing all pre-tax accounts prior to accelerating any student loan payments. This post details the next step, because 2017 marks the first year we will have additional cash after maxing out our pre-tax accounts.
Thanks to the decision making framework shared by Vicki in the past, it is now clear what we should do with our extra cash.
Here’s an exert from the post:
The first step [in the decision matrix] is defining the question. In my case, it is relatively straight forward, “Should we use our extra monthly cash flows to save for a down payment on a home or to accelerate our student loan repayments?”
Second step is to define our goal. Our end goal, and I often use “our” because I refer to the collective me-and-my-fiancée, is reaching financial independence in our 30’s.
Now, that’s a big goal that might be 10+ years out relative to where we are today, at the age of 26 and 27. So, we’ve developed smaller milestone along the way to reaching the large goal down the road. Before I dive into these, I want to shed light on a fundamental belief I have and that is:
It is much more critical to focus on our alignment towards our goals than to focus on our goals.
What I mean is, we need to make sure we take the right actions today, and not get distracted by what lies too far ahead. As anyone who’s ever climbed a ladder will tell you — focus on the one rung ahead of you at a time.
Another way to view this belief is the phrase, “our actions speak louder than our words.” If we’re taking all these different steps that are just not putting us closer towards our goals, then we are clearly out of alignment. If this is the case, then I typically spend some time trying to understand why I’m out of alignment in the first place. Then I either change my approach or change my goal.
Especially with long-term goals, life has a funny way of throwing curve balls. In 3 years you might realize that your 5 year plan no longer makes sense. This isn’t a bad thing, it just means you’re growing as person and your circumstances and/or priorities have changed.
From this perspective, our short term goal is to build the right habits today that will reinforce our ability to reach financial independence in our 30’s. This is more of a “means” goal, so I’ll come back to this in step 4.
Am I making the right decision? Head on over and let me know what you think!