In 2014, Kara Perez was feeling depressed about her student loan debt. But now she’s debt free and focused on investing. Here’s how she got there.

The summer of 2014 was the hardest period of my life. I was deep in student loan debt, earning less than $20,000 annually, and dealing with depression. I made some drastic changes in my life, and by June 2015 I was debt free and earning an additional $22,000 a year.

But paying off my loans and increasing my income only brought me to ground zero when it came to building my wealth. While I was glad my loans were paid off, I knew it was only a stepping stone on my path toward financial freedom.

I’ve spent the last two years intently focused on starting to invest my money and building my financial stability. As a result, I have significantly increased my savings account and I’m contributing to multiple retirement accounts.

Here’s how, in less than three years, I’ve gone from student loan debt to consistent investor.

Step One: Destroy That Debt

I had just over $25,000 in loans and an English degree to my name when I graduated college in 2011. Three years later, I still carried $18,000 in student loans, which was roughly the same amount of money I made per year as a caterer and part-time receptionist.

I felt trapped by my money. The fact that my loan balance and my income were the same number was embarrassing to me. So I set out to get my financial act together. My first step was honing in on eliminating my student loans.

I paid off my $18,000 balance in just ten months through a combination of focus, increasing my income, and strategic loan payoff moves.

Since I was low-income, I knew that I had to start bringing in more money. I had no luck landing a full-time job, so instead I cobbled together a lot of part-time jobs; five to be exact. It was exhausting, but it also meant that I received a paycheck once a week.

Getting paid so often allowed me to make more than just one monthly loan payment. I used the debt avalanche payoff method, which says to pay off your highest interest loan first. I made multiple payments each month toward my loan with the highest interest rate and made the minimum payments on the rest.

This focus changed the game for me. Since I was now earning more money, I could make bigger payments more often. And since I was focusing on just one loan, the money had more of an impact than if I spread it out. And finally, since I was following the avalanche method, I was paying less interest overall, which also saved me money.

Step Two: From Debt to Investing

After I made my final student loan payment in June 2015 I immediately switched my focus toward my next financial goal: investing. Read any personal finance article and it’ll probably mention the tax deferral wonders of an IRA (Individual Retirement Account).

Roth and Traditional IRA’s can be a good place for people to start saving for retirement or to supplement their current retirement savings. The maximum I could save (since I am under 50 years old) was $5,500 per year into the account. So that’s where I set the bar, and it was certainly a tall order. Sure, I had increased my income, but I was still only making about $32,000 per year. And I only had six months to reach my goal!

Since I had just been living in loan payoff mode, all it took for me was adjusting my sights toward investing. Instead of sending all my extra money to Sallie Mae, I started sending it to my IRA custodian. There are many options out there, but Vanguard made the most sense for me. You can open up an IRA online, which is what I did. Then, you can either sign up for automated contributions (that means money is automatically pulled from your account), or you can do it manually.

I opted for manual contributions, because my income fluctuated month to month. I saved all my extra money into a savings account labeled ‘retirement’, and when I hit $1,000 I transferred it to my Traditional IRA.

Saving money was easy because I’d already been doing it with my loans. All I did was change the venue that my money went to. Plus, I was no longer forking money over toward interest payments. By the end of December 2015, I had my first $5,500 invested.

Step Three: Keep Funding Those Retirement Accounts

For the last two years, it’s been rinse and repeat. I’ve now maxed out my IRA three times, for a total of $16,500 saved all on my own. Though the performance of my investments have fluctuated, I’ve even seen some growth over time.

I’ve since expanded my retirement account to include a Solo 401(k) and a Roth IRA, so now I have three different accounts geard toward retirement.

Since I’m a freelancer (I never did manage to land a full time job) I have no work-sponsored retirement account. That’s why I opened a Solo 401(k) in 2017, which is a type of retirement account meant specifically for self-employed individuals.

So now, in addition to maxing out my IRA contributions, I’ve set a goal to contribute the $18,000 maximum to my Solo 401(k) for 2018!

I’ve chosen to focus my savings to retirement accounts for two reasons. First, I’m committed to funding these accounts for my retirement goals, so over time I should be able to weather short term market volatility and experience long term growth.

Second, there can be tax benefits to retirement contributions. With accounts like my Traditional IRA and my Solo 401(k), I can take a ‘tax deduction’ for my contributions now, and defer paying taxes until I withdraw funds in retirment. With my Roth IRA, I contribute with after-tax monies, so technically I pay the taxes now, but can avoid paying taxes when I withdraw funds in retirement. The way I see it, this strategy will give me more options when I’m retired.

Growing my financial stability has been the goal all along. It began by eliminating my loan balances, and has continued as I increase my personal savings and my investment accounts grow. I know my path to financial freedom won’t be easy, but as long as I keep working toward my goals I hope I’ll never feel as hopeless as I did in 2014.

Kara Perez is a freelance personal finance writer living in Austin, Texas. She is passionate about helping people become financially literate and telling people’s money stories.

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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