How one mom paid off $23k in debt on a tight income

Key Concepts

• Zero-Based Budgeting: A budgeting method where every dollar of income is assigned a specific purpose (spending, saving, debt repayment).
• Generational Wealth: Wealth that is passed down from one generation to the next.
• Poco a Poco: A Spanish phrase meaning "little by little" or "step by step," emphasizing patience and persistence in financial goals.
• Roth IRA: An individual retirement account that allows after-tax contributions, with qualified withdrawals in retirement being tax-free.
• Price Out Your Peace: An activity to identify self-care activities at various cost tiers (free, low, mid, high) to ensure sustainable well-being.
• First-Generation Wealth Builder: An individual who is the first in their family to actively build wealth.
• K-Shaped Economy: An economic model where different segments of the population experience vastly different outcomes, with a small percentage thriving and a large percentage struggling.

Summary

This episode of "Living Not So Fabulously" features Rita Soladad Fernandez Pino, a first-generation American, former public school math teacher, personal finance educator, and financial healer, who shares her journey of paying off significant student loan debt and building wealth. The conversation highlights the importance of community, a patient approach to financial goals, and the empowerment that comes from financial security.

Rita Soladad's Debt Payoff Journey

Rita began her financial transformation with approximately $23,000 in student loan debt, which she committed to paying off within one year, even while on disability income. This decision was driven by increased financial literacy and the realization that carrying debt and not saving or investing was hindering her progress. At 32 years old, with two children and living in Los Angeles, she was determined to change her family's financial trajectory.

Key Points:

• Motivation: To start investing and achieve financial security before turning 33.
• Debt Amount: Approximately $23,000 in student loans after 10 years of payments.
• Income Situation: Disability income, with her husband seeking employment.
• Mindset Shift: Increased financial literacy revealed the limitations of carrying debt.

Rita acknowledges a recent trend in personal finance that advocates for a less urgent approach to debt payoff. However, for her, the urgency stemmed from a desire to begin investing. She notes that while her student loan interest rate was around 4%, she would now prioritize maxing out a Roth IRA if the debt wasn't high-interest (above 9-10%). Her initial approach was influenced by "no debt" philosophies, coupled with shame about her financial situation.

Zero-Based Budgeting and Spending Awareness

To achieve her debt-free goal, Rita employed zero-based budgeting, a method where every dollar is allocated. This involved meticulous planning for all expenses, including a modest $20 weekly allowance for eating out. She emphasizes the importance of adjusting the budget with compassion and flexibility, especially when unexpected needs arise, such as family members requiring financial assistance.

Key Points:

• Methodology: Zero-based budgeting, allocating every dollar.
• Example: A $20 weekly budget for eating out.
• Sustainability: Adjusting the budget with compassion and flexibility.

A significant part of her journey involved gaining awareness of her spending habits. She discovered she was spending up to $100 a month on parking fees in Los Angeles, a cost she immediately eliminated by opting for free parking and walking further. While cutting back on non-essential expenses like parking, she allowed for some continued spending on things like eating out and a monthly manicure, recognizing the need for occasional splurges to maintain sustainability.

Key Points:

• Spending Revelation: Realizing $100/month spent on parking fees.
• Eliminated Expenses: Parking fees.
• Continued Expenses: Eating out, monthly manicure.

The realization of where money was going was a shock. Rita recalls being bothered by the daily interest charges on her student loans, which amounted to about $27 per day. This amount, she realized, could be spent on enjoyable activities or, more importantly, could eventually be redirected towards investments like Roth IRAs, 401(k)s, and taxable brokerage accounts. This insight fueled her desire to accelerate debt repayment.

Key Points:

• Daily Interest Shock: $27/day on student loans.
• Opportunity Cost: Realizing that money spent on interest could be invested.

Investing and Early Retirement

Rita had been contributing to a 403(b) plan since she was 23, unaware that she was investing in the stock market. Upon realizing this, she began exploring options to max out these accounts and gain more control over her assets. This led her to consider the possibility of early retirement.

Key Points:

• Early Investing: Contributed to a 403(b) from age 23 without full awareness.
• Discovery: Realized she was invested in the stock market.
• Goal Shift: Began exploring maxing out accounts and early retirement.

The "Poco a Poco" Philosophy

Rita frequently uses the phrase "poco a poco" (little by little) to describe her approach to wealth building. This philosophy is crucial for individuals who feel behind or hopeless about achieving financial security. "Poco a poco" fosters patience and persistence, especially when facing budgeting challenges, unmet savings goals, or disappointing investment returns.

Key Points:

• Meaning: "Little by little," "step by step."
• Purpose: Nurturing patience and persistence.
• Application: Used during budgeting struggles, savings goal misses, and investment setbacks.

She emphasizes that money should be a tool to support wellness and joy, not a source of deprivation. Sustainable financial practices require being in a state of resilience, feeling calm, happy, and creative, which leads to better decision-making compared to high-stress environments. This contrasts with the "get rich quick" mentality often associated with the stock market.

Key Points:

• Money as a Tool: For wellness and joy.
• Sustainability: Achieved through resilience, not sacrifice or deprivation.
• Decision Making: Better when calm and happy, not stressed.

Rita refers to moments of self-doubt and pressure as "trickster trader trash thoughts" and chooses to approach money with a playful, pleasant mindset. This approach benefits her marriage, parenting, and overall well-being, preventing resentment and judgment.

Key Points:

• Mindset: Playful and pleasant, not driven by shame or pressure.
• Benefits: Improved relationships, personal well-being.

Impact on Children and Community Support

Rita's children have learned the value of financial planning and a healthy perspective on money. Her daughter's comment, "Yeah, it's only a matter of time before money comes my way. I'll be able to save again," exemplifies this positive outlook, where money is seen as flowing rather than something to be hoarded.

Key Points:

• Children's Learning: Value of financial planning, healthy money mindset.
• Example: Daughter's perspective on money flow.

For individuals struggling financially, especially those in a K-shaped economy, Rita stresses the importance of community. She highlights that her own journey began by anonymously sharing her struggles on Instagram, leading her to create a community for support. She believes that having people who can "breathe life into you" is essential for regulating the nervous system and maintaining hope.

Key Points:

• Biggest Asset: Community.
• Actionable Tip: Create or find a supportive community.
• Benefit: Nervous system regulation, maintaining hope.

She also points out that as a first-generation wealth builder, one is often one emergency away from financial insecurity. Her own experience of being on medical leave was mitigated by subsidized rent from a loved one and receiving a personal finance book. This underscores the need for collective support and awareness of systemic issues and voting for policies that create safety nets.

Key Points:

• Vulnerability: First-gen wealth builders are susceptible to emergencies.
• Support Systems: Rent subsidy, receiving financial literature.
• Broader Impact: Collective support, systemic change, voting.

Generational Wealth and Empowerment

Building generational wealth is deeply important to Rita because of the financial flexibility it provides in the present. This flexibility allows her to access therapy, create enjoyable experiences for her children, and donate to causes she supports. This empowerment comes from having choice.

Key Points:

• Importance: Financial flexibility in the present.
• Benefits: Access to therapy, children's experiences, charitable giving.
• Outcome: Empowerment through choice.

She reframes generational wealth not as a future handout, but as something that provides immediate freedom and access, while also being something that can be passed down.

The Roth IRA as a Wealth-Building Tool

Rita strongly advocates for the Roth IRA as a valuable wealth-building tool. Her initial lack of financial literacy meant she didn't even realize she was investing. The process of opening a Roth IRA, which involves four steps (choose a brokerage, choose an account, make a contribution, choose assets), demystified investing and made it repeatable for other accounts like taxable brokerage accounts, 529 plans, and solo 401(k)s.

Key Points:

• Roth IRA Benefits: Contributions can be withdrawn anytime penalty-free; qualified withdrawals in retirement are tax-free.
• Demystifying Investing: The four steps of opening a Roth IRA are transferable.
• Not the Only Tool: Acknowledges other investment vehicles.

Actionable Tips for Financial Well-being

Rita's clients have found success with the "Price Out Your Peace" activity. This involves listing self-care activities across different cost tiers (free, low, mid, high). Having this list prepared helps individuals maintain their well-being during budget adherence, debt repayment, or savings goals, ensuring that self-care is sustainable across different life seasons.

Key Points:

• Activity: "Price Out Your Peace."
• Process: Listing self-care activities by cost tier.
• Benefit: Sustainable self-care, budget adherence, cash flow management.

Conclusion and Takeaways

The core takeaway is to remember the four steps of investing: select a broker, select an account, make a contribution, and invest your money. This repeatable process is the foundation for building generational wealth. The conversation also emphasizes that building generational wealth provides immediate empowerment and flexibility for the builder, not just future generations. The importance of community, patience ("poco a poco"), and a healthy mindset are crucial for navigating the path to financial success.

Key Takeaways:

• Four Steps of Investing: Broker, account, contribution, invest.
• Immediate Benefits of Generational Wealth: Empowerment, flexibility.
• Essential Elements: Community, patience, healthy mindset.