Why I ignore my student debt

Whilst our US buddies are straddled with high-interest student loans, Australia is mildly lucky that the government provides ‘interest-free’ loans for higher education (IT SHOULD BE FREE!).
Currently, government supplied student loans (‘HECS-HELP’) are indexed to inflation which at the time of writing was 1.5%. This is basically the cheapest loan you are ever likely to get, and the reason why I don’t make any more than the compulsory repayments which the government takes out of my pay. At the moment it will take me about 9 years to pay back my $35,000 HECS debt without a voluntary repayment

 

The two main reasons why it’s not worth paying down your student debt in Australia:

  1. You’re being charged 1.5% ‘interest’ on the loan which just keeps it on track with inflation – there is no economic sense to use your spare cash to pay more than compulsory repayments which are taken out through the income tax system because either a) you can earn 2.75% putting that money in a savings account (a gain of 1%), or b) you have debts with much higher interest rates.
  2. Either you earn over $54000 and you will be forced to pay down that debt as compulsory repayments are taken out of your pay anyway OR you don’t earn over $54000 and will never need to pay it back!

This situation may change in the future with regular government rumblings about policies to dig deeper into people’s pockets for something that should be free, but at the moment it’s just not worth worrying about your HECS – build your future instead through some savvy financial or personal investments.

The current compulsory repayment rates as a percentage of your income, from the ATO:

2016–17 repayment income thresholds and rates for HELP, SSL, ABSTUDY SSL and TSL
Repayment income (RI*) Repayment rate

Below $54,869

Nil

$54,869 – $61,119

4.0%

$61,120 – $67,368

4.5%

$67,369 – $70,909

5.0%

$70,910 – $76,222

5.5%

$76,223 – $82,550

6.0%

$82,551 – $86,894

6.5%

$86,895 – $95,626

7.0%

$95,627 – $101,899

7.5%

$101,900 and above

8.0%

Net Worth Update October 2016 – $64,280

It’s been 6 months since the last update and a busy time of saving, investing and working. I use an adjusted version of J. Money’s Early Retirement Spreadsheet to keep track of everything.

A few things changed – namely I stopped using Acorns (it’s a great app for people who are starting out investing small, regular amounts, but didn’t add much to my existing asset diversification)

At the end of October here is how it looked:

  • Cash Savings (High-Interest Account) $5710
  • International Index Fund $10350
  • Managed Funds – ASX $11170
  • Managed Funds – Bonds $5750
  • Superannuation $30800
  • Renewable Energy Coop – $500 (New! Putting some capital towards ethical ventures – solar panels on a brewery. This will hopefully return 5-6%, but I’m not staking my retirement on it!)
  • Acorns App $0
  • Credit Card $0

TOTAL Net Worth: $64280

With all my net worth calculations, there is ONE BIG CAVEAT – I don’t include my student loans (‘HECS’) which is about $34210. This is because (currently) in Australia, this loan is provided by the government and only required to be paid back if earning over $54,000 (2016), it is indexed to inflation which is currently around 1.5% which is less than the 2.75% on a high-interest savings account. Compulsory repayments are taken out of my pay pre-tax. At the current rate it should be paid back by 2025 without me worrying about it!

Financial Goals for November

Keep it steady for Christmas – I am aiming to reach $70,000 by the New Year and $100,000 NW by 30. This will mean keeping things in check over the Christmas break!

Calculate your way to financial freedom – 10 great tools for crunching the numbers

I love numbers! And I really love playing around with calculators and spreadsheets to help me plan and manage my money. Here are some of my go-to tools for planning:

Calculating Your Net Worth

Determining your net worth (total assets less total debts) is a really powerful way to get an overall sense of your financial position. You don’t need a calculator to do this – in fact write it down on a big piece of paper will make more of an impact (here is ASIC’s online one anyway. This number gives you a clear understanding of where you need to focus your money goals – debt reduction or wealth building. Armed with your net wealth, income and investment returns, you can use the tools below get a better sense of when you might reach the holy grail – financial independence (and early retirement)!

Budgets Are Sexy Spreadsheets

As my go to, big-picture financial tracker which helps to motivate me to save and invest to reach my early retirement goal, I use the BaS Early Retirement Spreadsheet (.xls download). There are a bunch of other spreadsheets compiled by this blogger which can be found here Best Budget Templates.

ASIC’s Money Smart

The ASIC Money Smart website has some excellent calculators which are handy to get a sense of how changing your spending/saving/investments/super will impact your wealth in the long term.

To check out the list of calculators and tools go here: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps

Some of the top picks are:

Other handy calculators:

I’d love to know if there are any great tools, apps or calculators you use to plan and manage your path to financial freedom.

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