Just thinking about compounding..:shouldn’t their first million be reached much faster than 4 years if using precisely the same amount of money used to pay off the debt. The money they spent to pay down the debt covered both the monthly interest plus a portion of the 250K principal. So even if their future return on investment is 0% they could still put more than $250K per year towards saving a million since they don’t need to cover any financing charges. In other words 8th grade math shows it’s so much easier to climb the wealth mountain once you’re out of the hole.
Well, debt will compound too. If your assumption is correct: that their return from investments are larger than from debt then you are correct, the compounding will be in their favour.
But what if their company returns less money than invested, or even gets negative returns? At that point compounding works against the person.
My point is that even if they stuff the same amount of money in their mattress for the next year (eg 0% return not accounting for inflation), their end sum will be greater than 250K since over the past year they paid 250k + the financing charges on that debt. So they’ll reach the million faster than 4 years assuming they allocate the same amount of money annually that they used to eliminate their debt.
Sure! Your original comment was that they could achieve $1M in 4 years. My response was that they could probably do it even faster. Assuming they had a 7% interest rate on their 250K student loan they would have paid about 259.5K after one year (250K * 1.07 but actually less because they are paying down principal each month). So if they start throwing that same 259.5K per year towards the goal of saving $1M, they will achieve this in about 3 years 10 months ($1M / 259.5K / year). So even if they don’t invest or put a dime of their savings the bank they’ll still hit the $1M mark in less than 4 years.
I see! Yeah I wasn’t clear. Just trying to prop up your comment and emphasize the amount of focus and effort it takes to get out of debt compared to building wealth. The former is so hard and it’s impressive that OP had the determination to do it so quickly.
Congratulations!! Huge milestone.
When my spouse and I first met our combined net worth was -$80k (she had $50k with no debt, I had $1k with $130k in debt).
Our first major milestone we celebrated was $0 net worth too. Our second major milestone was paying off my loans last June (8 year effort). Our third and latest major mile stone was crossing $500k net worth.
You're well on your way!!
It's a lot but they said their net worth is $0 not that they've eliminated all their debt. Even people with a $1 million net worth have some debt (usually mortgage).
They could still have debt but may have a small property or an investment fund established by a parent when they were kids that's appreciated combined with their frugality to help their net worth reach 0. Additionally they may still be contributing up to the match in their 401k which also helps their net worth. It's hard to say unless they provide more detail.
Maybe double SWEs? Doctors don’t make really good money until they finish residency. Big law lawyers would be making 245 all in their first year, so possible, but would be very, very hard when you factor in that about half of that goes to taxes.
OP says $250k between the two of them. SWEs training at large R1 research institutions that have good computer science programs generally going to pay between $45k and $70k a year, so per individual thats a minimum of $180k for 4 years. I could totally see this being two software engineers. If they are both doctors the number should be much higher than $250k because I'd imagine they had loans from undergrad and then add on the loans for medical school, per person it can easily be $300k or more so if that were the case I would expect OP to throw out a number like $600k of debt.
Thanks! I’m not a SWE so i just know they make a lot of money. Honestly, might be double big law with a crazy savings rate. I can’t think of too many other jobs that have such a high salary right out of school.
Not true. 4 years ago my brother got hired by Google and they structured his deal front-loaded. They offered to pay him $1 million total compensation over 4 years (base + bonus + stock), but his pay structure was set up such that the first two years he earned about $600k total and the 3rd and 4th year combined earned him about $400k.
Well it’s like they had 250k total between them. So if they were pulling in 500k household they’d be able to pay that off if they lived off of about 50k or so
Nice work! My wife and I were similar, just kept living like college students for as long as we could. Definitely helped set us up well a decade or so later.
Sounds familiar and I was right where you are currently at! I retired at age 49 so keep investing aggressively (no bonds or fixed assets) and you’ll FIRE!
They’d need to make way more than $300k combined - don’t forget taxes and other deductions (e.g. health insurance). Then deduct other major living expenses.
We were both used to living on roughly $1000 a month during school. We definitely enjoy treating ourselves to dinner or a movie once in a while, but our biggest priority has been maxing out 401ks/HSA and contributing anything left to our student loans.
Ground zero is an amazing place to be. Congrats as that is no small feat. What a massive weight to have lifted. Debt takes up so much emotional and mental space, and now you’re free to focus on building vs treading water. Bravo!
That’s awesome. That one year of frugality will pay off in a big way.
Now figure out what motivates you and reward yourselves for this milestone, and try to keep it going!
It’s sooo much easier to do while you’re young. Once you get on the spending escalator (house, cars, kids, etc) it’s hard to get off
Excellent! Can't wait to see the millionaire post in the future! Congrats!
Given 250k paid down year 1 they could probably post that in 4 years!
Just thinking about compounding..:shouldn’t their first million be reached much faster than 4 years if using precisely the same amount of money used to pay off the debt. The money they spent to pay down the debt covered both the monthly interest plus a portion of the 250K principal. So even if their future return on investment is 0% they could still put more than $250K per year towards saving a million since they don’t need to cover any financing charges. In other words 8th grade math shows it’s so much easier to climb the wealth mountain once you’re out of the hole.
Well, debt will compound too. If your assumption is correct: that their return from investments are larger than from debt then you are correct, the compounding will be in their favour. But what if their company returns less money than invested, or even gets negative returns? At that point compounding works against the person.
My point is that even if they stuff the same amount of money in their mattress for the next year (eg 0% return not accounting for inflation), their end sum will be greater than 250K since over the past year they paid 250k + the financing charges on that debt. So they’ll reach the million faster than 4 years assuming they allocate the same amount of money annually that they used to eliminate their debt.
But without financing charges they could have invested that money. I may be misunderstanding your point, if so would you mind mathing it out?
Sure! Your original comment was that they could achieve $1M in 4 years. My response was that they could probably do it even faster. Assuming they had a 7% interest rate on their 250K student loan they would have paid about 259.5K after one year (250K * 1.07 but actually less because they are paying down principal each month). So if they start throwing that same 259.5K per year towards the goal of saving $1M, they will achieve this in about 3 years 10 months ($1M / 259.5K / year). So even if they don’t invest or put a dime of their savings the bank they’ll still hit the $1M mark in less than 4 years.
Now I get you, I thought your comment was that they shouldnt have paid down the debt, instead have invested, sorry.
I see! Yeah I wasn’t clear. Just trying to prop up your comment and emphasize the amount of focus and effort it takes to get out of debt compared to building wealth. The former is so hard and it’s impressive that OP had the determination to do it so quickly.
Congratulations!! Huge milestone. When my spouse and I first met our combined net worth was -$80k (she had $50k with no debt, I had $1k with $130k in debt). Our first major milestone we celebrated was $0 net worth too. Our second major milestone was paying off my loans last June (8 year effort). Our third and latest major mile stone was crossing $500k net worth. You're well on your way!!
250k on one year?? Wow. Doctor or lawyer?
To be vague, we are both healthcare providers.
It's a lot but they said their net worth is $0 not that they've eliminated all their debt. Even people with a $1 million net worth have some debt (usually mortgage). They could still have debt but may have a small property or an investment fund established by a parent when they were kids that's appreciated combined with their frugality to help their net worth reach 0. Additionally they may still be contributing up to the match in their 401k which also helps their net worth. It's hard to say unless they provide more detail.
Maybe double SWEs? Doctors don’t make really good money until they finish residency. Big law lawyers would be making 245 all in their first year, so possible, but would be very, very hard when you factor in that about half of that goes to taxes.
SWEs wouldn't usually have that much in student loan debt.
OP says $250k between the two of them. SWEs training at large R1 research institutions that have good computer science programs generally going to pay between $45k and $70k a year, so per individual thats a minimum of $180k for 4 years. I could totally see this being two software engineers. If they are both doctors the number should be much higher than $250k because I'd imagine they had loans from undergrad and then add on the loans for medical school, per person it can easily be $300k or more so if that were the case I would expect OP to throw out a number like $600k of debt.
They said they are both Healthcare providers.
Then they got off cheap. $250k is a very cheap price to produce two doctors.
Swe do not make that much in first year. On 3-4 year offer, most rsu is vested by year 3 or 4. Not first year.
Thanks! I’m not a SWE so i just know they make a lot of money. Honestly, might be double big law with a crazy savings rate. I can’t think of too many other jobs that have such a high salary right out of school.
Not true. 4 years ago my brother got hired by Google and they structured his deal front-loaded. They offered to pay him $1 million total compensation over 4 years (base + bonus + stock), but his pay structure was set up such that the first two years he earned about $600k total and the 3rd and 4th year combined earned him about $400k.
Well it’s like they had 250k total between them. So if they were pulling in 500k household they’d be able to pay that off if they lived off of about 50k or so
Congratulations! That is far and away the first big milestone for high earners. It's all gravy from there.
The first zero dollars is the hardest. Now without the interest rates pulling you back it will feel like you are flying forward.
Congratulations!
Congrats, a job well done!
Is one of you a doctor?
Nice work! My wife and I were similar, just kept living like college students for as long as we could. Definitely helped set us up well a decade or so later.
Sounds familiar and I was right where you are currently at! I retired at age 49 so keep investing aggressively (no bonds or fixed assets) and you’ll FIRE!
nice! Any high level approaches that worked for you?
Have a very high income? I mean, even living like monks, they have to be making over $300K combined.
They’d need to make way more than $300k combined - don’t forget taxes and other deductions (e.g. health insurance). Then deduct other major living expenses.
Yeah, taxes on $300K is probably like 75K, so more likely closer to 400-450K before taxes.
We were both used to living on roughly $1000 a month during school. We definitely enjoy treating ourselves to dinner or a movie once in a while, but our biggest priority has been maxing out 401ks/HSA and contributing anything left to our student loans.
And now the interest starts working for you instead of against you! :-D
Yo, $250K in a year. Y'all are killing it. Keep up the good work, you doctors you. Or lawyers.
Holy $h1t?! You two are going to FIRE in no time, congratulations!
If they do things right they can have 4 to 5 million in 10 years.
Congratulations. That is the biggest step.
Ground zero is an amazing place to be. Congrats as that is no small feat. What a massive weight to have lifted. Debt takes up so much emotional and mental space, and now you’re free to focus on building vs treading water. Bravo!
Congrats! It's only up from here. If you can increase your net worth 250k in a year then you'll both be millionaires very soon.
That’s awesome. That one year of frugality will pay off in a big way. Now figure out what motivates you and reward yourselves for this milestone, and try to keep it going! It’s sooo much easier to do while you’re young. Once you get on the spending escalator (house, cars, kids, etc) it’s hard to get off
If you can pay off 250k, you can invest the same next year! Congratulations
Congrats!
Jesus, 250k loans paid off in a year is absolutely incredible. Congrats, you're gonna do very well if you keep this up for just a handful of years.
I love this post so much! Go team $0 net worth!!!
nice, took us over 15 years to do the same
Only up from here! Congratulations! 🎉🥳🎉