His blog is nomoreharvarddebt.com, and includes a detailed breakdown of his spending habits. I always see posts about bootstrapping on here, and as intrigued as I am, they often lack specifics, so this was incredibly helpful to an aspiring 18 year old entrepreneur entering college.
P.S. If anyone knows of a series of blog posts or even a book that breaks down the expenses (business and personal) of bootstrapping I startup, I'd definitely be interested!
Mihalic said he spent months taking a flask of liquor to bars so he could continue to go out drinking with friends without running up a tab.
Even better for the wallet, the liver, and the streets...you could be a designated driver for your friends and have them pitch in for gas and parking, and some bars will even comp your nonalcoholic drinks.
Unless he had crazy high rates on those loans even the most conservative investments would have put him in a better position over time. There is no real reason to be frantic about paying debts, especially if you have a Harvard degree and a six figure job.
Also, I doubt this article is going to help anyone. The majority of people stressing about their 6 figure loans are not in his situation.
I'm pretty sure this was an emotional decision. I'm sure he had the tools to figure out that he coud cut back a little and save it over time, but he wanted nothing to do with it – what's wrong with being debt free anyways?
There's nothing wrong with wanting to be debt free and he's in a great position now. I just think that it's possible that he left some money on the table to do this quickly.
Mathematically yes, but there's no guarantee that he could have done it over a longer period of time if he was exhausted mentally.
This is the same logic behind Dave Ramsey's debt snowball where you pay your smallest amount off first. It's terrible mathematical advice, but it's a psychological trick that helps you focus on small wins after each other and build rewarding habits
By crazy high rates do you mean the 6.8% that federal stafford loans were when he was in school? Or the 8.5% that Graduate plus loans were during that period? If not, what conservative investments to you have?
Those rates are on the high side but not too crazy. About half of my loans were direct loans with a variable rate which was about 1.9% at the time although they could have changed. Without knowing his exact situation I can't really make a judgement.
With possible consolidation and accelerated payment plans there are even more options. Looking long term you want to get as much money as possible into retirement accounts and iras while you are young. I think the article even mentioned that he took a tax hit to deplete a retirement account and he also didn't contribute to a matching 401k. That's essentially just burning money...
I agree with you on the 401k business, that was silly. As for consolidation, just for your information, consolidating federal loans changed in 2006 when federal loans went to all fixed rates. It used to be, with variable rate student loans you could consolidate at a lower interest rate if rates changed. Since 2006 all Federal loans are a fixed rate and all consolidations will just set your consolidation rate at the weighted average of the smaller loans. Thus most students who plan to pay more than the minimum payments are better off not consolidating and paying off higher interest loans first.
But that guy did make some poor financial decisions.
Exactly. Being frugal is can be great, but I think it's important to remember that it can sometimes cost more to be frugal. For example, walking for his trip to Michigan—if he had spent $100 on a bus, he could've shortened his trip by hours, during which he could've made money by working. I'm not saying it was a bad choice—maybe he wasn't going to be working during that time anyway. But there's always an opportunity cost, and it isn't all about getting the lowest price tag. It's better to aim for efficiency rather than frugality.
I find it interesting that people are willing to take a mortgage out on a house (he did this as everyone does) and fully understand that it is totally reasonable to have to take 30 years to pay that off, or pay for a car over 3 to 5 years, but for some reason of all things, a Harvard education which they owe $90,000 on, is a burden that needs to be retired as quickly as possible.
There is nothing inherently wrong about paying over time for something you will use over time.
Added: Save the obvious publicity bonus (noted by the WSJ and in the WSJ of all places) he could have done this more easily over the course of 2 to 5 years with normal cutbacks even assuming no salary increases.
Agreed. And worse, the article states he saved $40K by paying in one year vs 15 years, which implies that his interest rate was around 3%. That's inflation! He could have effectively had the same savings by just waiting.
Essentially, a Harvard professional degree gets you to the top of the resume pile. Is that worth $800/mo for 25 years?
How about a non-Ivy professional degree that costs the same?
Psychologically I reckon it is more pleasing to just be rid of the payment, even if financially you are losing by paying it off so quickly. Good for him. Now if all kids with $90,000+ student debts could find 6 figure jobs we'd be on the right track!
Why do you think mortgages are reasonable? With a little luck, you give half your life's earnings to a bank. Much better to rent, save up cash, and buy property outright when you can.
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[ 2.8 ms ] story [ 50.4 ms ] threadP.S. If anyone knows of a series of blog posts or even a book that breaks down the expenses (business and personal) of bootstrapping I startup, I'd definitely be interested!
Even better for the wallet, the liver, and the streets...you could be a designated driver for your friends and have them pitch in for gas and parking, and some bars will even comp your nonalcoholic drinks.
Also, I doubt this article is going to help anyone. The majority of people stressing about their 6 figure loans are not in his situation.
Mathematically yes, but there's no guarantee that he could have done it over a longer period of time if he was exhausted mentally.
This is the same logic behind Dave Ramsey's debt snowball where you pay your smallest amount off first. It's terrible mathematical advice, but it's a psychological trick that helps you focus on small wins after each other and build rewarding habits
With possible consolidation and accelerated payment plans there are even more options. Looking long term you want to get as much money as possible into retirement accounts and iras while you are young. I think the article even mentioned that he took a tax hit to deplete a retirement account and he also didn't contribute to a matching 401k. That's essentially just burning money...
But that guy did make some poor financial decisions.
There is nothing inherently wrong about paying over time for something you will use over time.
Added: Save the obvious publicity bonus (noted by the WSJ and in the WSJ of all places) he could have done this more easily over the course of 2 to 5 years with normal cutbacks even assuming no salary increases.
Essentially, a Harvard professional degree gets you to the top of the resume pile. Is that worth $800/mo for 25 years?
How about a non-Ivy professional degree that costs the same?
Psychologically I reckon it is more pleasing to just be rid of the payment, even if financially you are losing by paying it off so quickly. Good for him. Now if all kids with $90,000+ student debts could find 6 figure jobs we'd be on the right track!
Edit: Also, cost of living differences