NMHD Budget Clinic – Episode 3 – Loan Amortization Schedule (AKA Loan Prison Sentence)

In this episode, I show that Max can save a substantial amount of money by paying down his student loans early to avoid interest expenses. His $26k loan will ultimately cost him $35.9k if he makes the standard $300 monthly payments over the 10-year term of the loan because the interest at 6.8% comes to $9.9k.

My finance profs would kill me for saying this, but there’s really no need to understand the math behind this thanks to the internet. The interest component of each of Max’s monthly student loans can be determined by heading here to view his loan amortization schedule. A loan amortization schedule shows how much each of Max’s $300 monthly payment on his 10-year $26k @ 6.8% loan is comprised of interest versus principal.

I like to think of the loan amortization schedule as a sort of prison sentence. It explains exactly how much time Max is going to serve paying off the principal and interest components of his loan and how much extra he has to pay per month to get out of prison early for good behavior.

Principal is the amount Max borrowed when he went to school; it’s the $26k. This is the “meat” of his student loans. Paying down principal is good because it reduces his loan amount.

Interest is, simplistically, the profit the bank makes on Max’s loans. It’s the fat of the loan. Paying off interest occurs as a function of how long Max stretches out his loan payments. If he make the standard $3oo monthly payments versus making extra payments, he’s increasing the amount of interest he pays.

If Max makes the standard 12 monthly payments of $300 in Year 1, he’ll pay $3,600, but he’ll pay down only $1,880 of his $26k loan and he’ll pay a whopping $1,710 in interest. That’s a lot of fat! These figures are based based on the rate at which his loan amortizes, or is reduced. If, however, on Day 1 of Year 1 he pays $1,880, he will completely save the $1,710 interest expense. Because he attacked all of that meat on Day 1 instead of stretching it out over 365 days, he saves $1,710. So his $9.9k of interest due goes down by $1.7k to to ~$8.2k. In prison terms, he’s being rewarded and getting time off of his sentence for good behavior.

Some people are paying off their loans so slowly–even less than the standard payment rate, which in Max’s case is $300–that they’re paying only the interest portion of their loan or less. This is a bad situation because they’re not attacking their principal, the meat of their loan, which means they’ll never pay off their loan. They’ll continue to serve the prison sentence indefinitely because of “bad behavior.” The only way to pay off a loan is to pay off the principal.

When Max starts paying down his loans at the standard rate, almost half of his $300 monthly payment will go towards interest and the balance will go to principal. This explains why I still owed $91k of principal after I paid $20k of my $101k of student debt principal in two years at the standard repayment rate. It was only when I got serious about punching my debt in the face and made some extra payments that I paid it off early and saved $30k of interest.

At a standard payment rate, the bank is guaranteed to make all of their profit, via interest, before Max pays off the entire principal.

So, Max’s key to speeding up his debt pay-down timeline is to maximize principal payments and minimize interest payments. The only way to maximize principal payments is to make extra payments because extra payments go straight to principal. Tactically, this means Max would pay $300 when it’s due. Some will go to principal and some will go to interest. Anything else he pays along with the $300 will eliminate principal, thereby reducing the amount he’ll ultimately pay in interest.

There are lots of ways Max can make extra payments on his loans, and we’ll explore this in future episodes. In short, he can either cut back his spending in other areas of his life and put those savings towards the principal, or he can make more money and put that extra money towards his loans, or he can do what I did and do both for a combo knock-out move.

As we go through future episodes, we’ll keep tabs on Max’s prison sentence to understand how his extra payments are reducing his prison sentence.

If any of this is confusing to read, check out the vid–hopefully that helps. And if it doesn’t, feel free to ask questions in the comments section.

Reminder: For best results, view this clip in full screen and set the resolution to 1080p.

Episode 3 Materials


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NMHD Budget Clinic – Episode 2 – What ‘Living Beyond Your Means’ Looks Like on Paper

A heads up: I’m tossing out the syllabus I introduced in Episode 1–way too stuffy and formal for my tastes.

In Episode 2, I introduce (fictional) Max, a 22-year old recent college grad who has a great job in Austin. We’re going to look at his expenses line by line to understand what kind of a salary he has to have to maintain his lifestyle and pay down his student loans at the regular rate.

This episode is a building block for future episodes as we work to bring Max’s spending under control and put him on the road to paying off his loans early.


Episode 2 Materials


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Removing Your Shackles: How Fast Is Too Fast?

Hi guys, SmarterBucks recently asked me for my thoughts on if I paid off my loans too quickly. Here’s my response:

On August 29th 2011, I embarked on a mission to pay off $90,000 of Harvard MBA student loans as quickly as possible. By zeroing out my savings, looking for ways to increase my income, and cutting back on expenses like flying home to see my family for Christmas, I was able to make my final loan payment seven months later on March 29th.

Was I too aggressive in paying off my loans? Should I have taken advantage of the full 15-year repayment period?

The typical analysis starts with the math. If the interest on my loans averages 5% and the S&P and DJI indices are low-volatility and experiencing consistent returns well above this, then someone with a pure profit motive and just a smidgeon of risk tolerance would favor a well-diversified equities investment strategy over making extra debt payments. That was the math and the macro environment during the seven months I was paying off my loans that might have convinced me to not pay them down so quickly.

Then there was the heart of the matter, the human side. And this is where the question becomes extremely personal.

I realized, just prior to kicking off my mission, that I had become a slave to consumption. I had a job I didn’t love to pay for my student loans, mortgage, two cars, motorcycle, and my monthly entertainment budget of roughly $1,400. I was working hard and playing harder, but that equation doesn’t typically balance out in the long run. I had some savings from my pre-MBA days and I was contributing 10% of my salary to my 401k, but I wasn’t building my savings outside of my retirement fund, so my options were limited. Start a business? Forget about it. Start a family? Not likely. Take a year off and travel? Impossible. Retire early? Heck no. Retire at 65? Probably not.

I wasn’t doing what I wanted to do be doing with my life. And that’s completely fine—many of us don’t start living our dream life immediately after we receive our diplomas. The problem was that I wasn’t even close to being remotely on-track to eventually live my dream life. I didn’t have a plan.

I didn’t have the fiscal discipline to look at things objectively and unemotionally and say, “My expenses are out of control. Rather than spend all of my money, I’m going to invest in some general market index funds and participate in this bull run we appear to be on. I’ll come out ahead if I invest in the market now rather than pay off my student debt right away.” I had enough self-awareness to know that I couldn’t switch off my spending like that. As such, my mentality was closer to: “Holy $#%@! These two years since graduation have been fun, but what’s the endgame here? Why am I spending all this money? I need to seek freedom and get rid of this debt burden immediately so I can plot a new course.”

Recognizing the problem and attempting to grab hold of the reins, I did what worked for me: I went cold turkey on spending, put all my savings towards the loans, leased my spare bedrooms to strangers from Craigslist, sold off my second car and motorcycle, and did what made financial advisors the world over shudder and bristle—I cashed out my IRA and completely zeroed out my 401k contribution, even the 4% that was matched by my employer. Every single spare penny I made went to my student loans because I knew I couldn’t trust myself with it.

I fully embraced a frugal lifestyle and I paid off my student loans. My newfound financial stability allowed me to take a risk and change employers and take a job in a field I had very little experience in. My job satisfaction went through the roof. I was on-track!

The experience of paying down my loans early was priceless because it taught me that it’s very possible to enjoy a frugal lifestyle. Spending money, I learned during those seven months, really doesn’t create happiness. So now I’m on a mission to pay off my house in the next two years, but I’m doing it in a much different way. Rather than make extra payments now with every spare penny I make, I have the discipline to set aside some of my savings into a small emergency fund and the rest of my savings I put into index funds to try to get a return that’s higher than the interest rate on my mortgage. And once I’ve saved the equivalent of my mortgage in these index funds, I’ll buy my house from the bank and own it outright.

When my house is paid off, I’ll have to gross only a quarter of what I make now to maintain the same sort of lifestyle I enjoy these days. There will be options galore.

It’s also worth noting that I’m not in such a rush to be debt-free that I’m completely neglecting the far future, as evidenced by the 15% salary contribution to my 401k.

My friend and former HBS classmate here in Austin has a wife, several kids, six figures of student debt, and a mortgage. However, he’s not letting any of that stop him from incubating a brilliant business plan, and by the end of this year he plans on walking away from his high-paying corporate job to launch his own business and live his dream life.

I have another friend here in Austin who’s married with children and is over $1M in debt because of the mortgages he’s taken out on numerous residential and commercial properties around town. He’s investing in local real estate in hopes to cash in on the boom that Austin has been experiencing recently.

This juxtaposition of my friends’ situations and mine is intentional and serves to put the “personal” in personal finance. Never in my life could I imagine starting up my own thing or investing in properties while married with kids and paying down a mortgage and student loans, but the truth is that people do it every single day.

In my finance class at HBS, debt was a generally positive term and often referred to as “leverage” because companies can use it as a lever to potentially take their sales and income to new heights. By taking on debt, a company can fund activities like research and development that would otherwise be unaffordable if the company had paid for it using only their cash on-hand. The objective is to fund something like R&D that will hopefully lead to new products that will grow sales and earnings. This doesn’t always happen, of course, just like if (God forbid) my friend’s business doesn’t do very well or Austin’s real estate boom turns out to be more like a bubble.

One real-world example of leverage might apply to the typical recent grad who just received $500 from his friends and family when his parents threw him a graduation party. Student loans are leverage—college students take out student loans in the hopes that they can use their college education to secure a higher-paying job than they could get with only a high school diploma. So with the $500 cash, our grad has two options: Stay leveraged with the student debt and spend the $500 on something else, or use the $500 to reduce some of the leverage.

Let’s say our grad is unemployed and he doesn’t have a suit for his interviews. In this case, it actually makes sense to hold off on the early loan payments so he can buy the suit that will help him land a job that will allow him to make early loan payments so that he can de-leverage himself. In other words, it’s definitely more profitable to stay in debt for a little while longer to secure the tools necessary for getting and keeping a source of revenue than it is to deplete one’s savings to make early loan payments.

Paying off your student loans is not a prerequisite to living the life you want to live and nobody should ever tell you or make you feel like it is. By all means, look at the numbers. Consider the opportunity costs of paying off your debt versus doing something else with your money. Ask yourself if you have the discipline to do something more profitable with your money than using it to erase your debt early. Listen to your heart. Decide. Then give full measure.


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NMHD Budget Clinic – Episode 1 – Introduction


Episode 1 Materials


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Happy 1st Anniversary

Greetings from Austin!

It’s been exactly one year to the day since I paid off my $90k of student loans in seven months. While I’ve stopped making regular updates to this blog, I do plan on providing annual updates for the loyal readers and new visitors who might be interested in a more long-term view of all the goings-ons.

(If you’re brand new to this blog,  you can get a quick summary of what it’s all about here as well as two key posts to check out.)

When I paid off my debt and found myself with an extra $1,057 in my pocket every month, I wasn’t completely confident that I’d be able to fight consumerism due to my new-found purchasing power. However, I’m happy to report that I’ve continued to live well below my means and have grown my savings by several thousand percent over the past year. (Edit: To put that in perspective, I started with about $500 in savings after I paid off my student loans, so  going from $500 to $10,000 (for example) is a 1900% increase.) Instead of investing these and future savings in securities or buying stuff I don’t need, I’ve decided to enter a personal challenge to pay off my mortgage in three years and capture the guaranteed 5.25% return. But more important than the guaranteed return–which could very well be eclipsed by the bull run we’ve been on recently–this three-year journey will result in guaranteed freedom. (And unlike the time I paid off $90k in seven months, I’ll maintain  a 15% contribution to my 401k during this time.)

Most people who stop by this blog are typically on debt pay-down missions of their own, so my aim here is to inspire motivation to stay the course. To that end, let me take a brief moment to talk about the past 12 months of living without the student loan burden.

Life is not about finding happiness; it’s about experiencing richness. How do I define richness? Ever since I started living below my means and paid off my student loans, my life has been approaching the kind of richness that I’m thinking about.

Within the past year, I changed employers when I found a more interesting opportunity at a company that I truly believe in. The role I landed at this company was at a similar pay level to the one I had left (i.e., not a promotion), but the actual content of the job was something I had never done before, so failure was a definite possibility. However, I was living below my means and had paid off my student debt, so I was in a solid financial position to take a risk to try to improve my life. Fortunately, the change turned out to be a very positive one. If I hadn’t dedicated myself to cutting back and paying off my student loans, I’d probably still be at the old job with my blinders on, working for a paycheck to support my then-inflated lifestyle.

Within the past year, I’ve joined a competitive rowing team and enjoy exhausting pre-dawn rows three to five days a week. I’ve met a lot of great people in the rowing community and hope to make many long-lasting friendships. It feels unbelievably good to be back in boat and competing again like I did in college.


Practice with the crew

The eight-person boats I rowed in at the Heart of Texas Regatta won two gold medals and a silver, and we’re headed to California in April to race at the San Diego Crew Classic. We’re considering racing at the Head of the Charles in Boston later this year. If I were still maniacally focused on my career to fuel my inflated lifestyle and pay my student loans at the regular rate, I don’t think I’d have the energy to wake up at 4 AM to go rowing around the lake or the time to take a couple days off of work to go paddle around the Pacific. These days, however, a 50-hour work week is a bad week and the norm is closer to 45. (I still eat home-packed lunches at my desk to maximize frugality and productivity.) 

Within the past year, I met a beautiful woman whose values align almost completely with my own. (If only she didn’t like country music so much…) She’s kind to a fault and enthusiastically committed to the Daymaker Movement. She places a great deal of value on her health like I do and works out every day to stay in shape. In college, she worked two and sometimes three jobs at a time in addition to playing softball on a scholarship to keep her student loans at an expensive private college to a minimum. She has a great job here in Austin, but she still shops at goodwill, has a roommate, and drives a car that’s even older than my own 13-year-old Honda. We do challenge each other on occasion, but we have the best of times together because we’re often on the same page. I don’t think she would have given me the time of day if I had been embracing a free-spending lifestyle when we met, and that would have been my sad loss.

Within the past year, I’ve been able to contribute to society by keeping this highly personal blog online while also self-publishing an inexpensive book about dealing with debt. Just last week, a commanding officer in the US Navy bought the book for all 350 sailors aboard his ship in an effort to educate them about money management. We need more leaders like him–people who care about their team’s well-being not only on the job, but in their personal lives, too. If I hadn’t paid off my student loans, that book wouldn’t exist right now.

There are those who might believe that once they pay off their debt, they’ll have extra money to burn and blow on all kinds of things that will make them happy. My experience was markedly different. We’re not here for happiness, we’re here for richness, and in my mind, a rich life is achieved by having purpose (my career), having passion (rowing), having someone to care for (my girlfriend), and giving back (my blog and book). It’s not about the money. In fact, it was only once I stopped spending money like a complete jackass and paid off my loans that doors started to open up for me. I have no doubt that paying off my house will open even more doors, and I’m excited about what the future holds. I hope you’re excited about what your future holds once you pay off your loans, too.

Other People’s Work
While I have your attention, here are a few of my favorite reads from the past year. They’re all all completely applicable to anybody who’s currently engaging their debt in a battle or considering taking on debt.The list is book-ended by a couple of solid, existential articles while the middle articles deal with the usual suspects: student loans, retirement, and the cost of living.

6 Harsh Truths That Will Make You a Better Person
#6 The world only cares about what it can get from you
#5 The hippies were wrong
#4 What you produce does not have to make money, but it does have to benefit people
#3 You hate yourself because you don’t do anything
#2 What you are inside only matters because of what it makes you do
#1 Everything inside you will fight improvement

NMHD: If you read only one article from this stack, let it be this one. Strong.

Colleges Lose Pricing Power
“We have a more informed class of college consumers,” said Bonnie Snyder, founder of Kerrigan College Planning in Lancaster, Pa. “Everyone today knows someone who went to college and ended up with a career that didn’t justify the cost. They see college as a more risky investment.”

NMHD: Helllllllllllllllllllllll yeah!!!!!!!!!!! Go high schoolers!!!

Millennials Are Paying Off Debt — but That’s Not Necessarily Good News
Last week, Pew Research released a new study showing adults younger than 35 reducing their debt levels faster than older generations. Millennials cut their overall levels of debt by 29% from 2007 to 2010 (from $21,912 to $15,473) while Americans 35 and older only cut theirs by 8% ($32,543 to $30,070). In fact, according to Pew, the share of younger households with debt of any kind fell to 78%, the lowest level since the federal government started collecting that data in 1983.

NMHD: If you read it, this turns out to be a real fear-mongering article, but let’s focus on the positive: Millenials are seeking FREEDOM!

Workers Saving Too Little to Retire
[Joe LaCascia, a 75-year-old retired insurance broker in Polk City, Fla,]  estimates he only has enough to last until [his wife and he] are 85. He said he is more concerned about what the future holds for his children, a 51-year-old art director-turned-roadie and a 49-year-old third-grade teacher. “They’re never going to be able to create wealth, other than what our generation leaves them and what they do with it,” he said. “They have more uncertainty than we have.”

Your Credentials Are Holding You Back
We make career moves based on ever-increasing sunk costs. As any microeconomist will tell you, there is no surer path to bad outcomes than incorporating retrospective expenses that cannot be recovered into your decision making. But as the cost of accreditation rises, the temptation to “use” our degrees and certificates to land high-paying (but ultimately dissatisfying) jobs has never been greater.

NMHD: At the end of the day, this is probably a better articulated reason for why I chose to get rid of my debt so quickly. The author is simply using a lot of big words to eloquently describe the pursuit of one thing: freedom.

A Minimum Wage Job in Austin Gets You a Two-Bedroom Apt. – And a 111-Hour Work Week
Austin has the highest average rent in the state of Texas. And Austinites trying to afford housing on minimum wage need to work close to three full-time jobs.

NMHD: If you still have student loans, find roommates!

10 Things Your Commencement Speaker Won’t Tell You

  1. Your time in fraternity basements was well spent.
  2. Some of your worst days lie ahead.
  3. Don’t make the world worse.
  4. Marry someone smarter than you are.
  5. Help stop the Little League arms race.
  6. Read obituaries.
  7. Your parents don’t want what is best for you.
  8. Don’t model your life after a circus animal.
  9. It’s all borrowed time.
  10. Don’t try to be great.


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I’ve enjoyed our time together! I love you and I thank you!

Roughly six months have passed since I paid off $90k of student debt in seven months and almost 13 months have passed since I launched No More Harvard Debt. I think we can all agree that it’s been one hell of a ride! (I literally had a grin on my face as I typed that last sentence.)

I sat down at my computer on August 29th, 2011 to introduce a story to friends and family about how I was going to try to pay off my $90k of student debt in ten months with a 12-month after-tax salary of around $74k. I picked up quite a few readers along the way, and the audience became far greater than I ever anticipated it would. What started as a simple story to my friends and family turned into a personal growth-and-development adventure for myself and an inspiration for strangers. My blogroll includes a few examples of those who have been inspired, and I encourage you to check them out.

Using the written word to inspire complete strangers to take steps to improve their lives is incredibly special, and I’m so glad that this odyssey evolved into the opportunity to help others. When I take stock of my life 50+ years from now and try to measure it, this experience will definitely be a significant part of the highlight reel. I’m forever indebted to the readers and media who helped spread the word and inspiration.

This will be my last post for the foreseeable future. It’s taken me several hours to write this short article as I search for the right words because this is not a decision I make lightly. I love to write and I’m more passionate about personal finance than I ever thought I could be. Unfortunately, once I paid off my student debt, this blog lost direction. That’s tough for me to openly admit because I’ve been in denial mode for so long, but that denial has become harder and harder to sustain during the past few weeks. If I were to write about trying to pay off my mortgage in two years, selling everything and sailing around the world, or signing up for Peace Corps and trading in my corporate badge ID for a shovel, then I think that this blog would deserve a new lease on life. However, the truth is that my current financial rule is to to save 50% of my income as I continue to develop my career. While this 50% rule isn’t widely followed by most, it’s not especially inspirational, either, and it certainly isn’t blog-worthy.

I’ll continue to carefully monitor my spending, live below my means, and build up my savings because it feels good. I’m going to take the next year to focus on my career and live my life. After that, all bets are off, and we might even meet again.

If you’re new to this blog and want to be inspired, don’t despair! The silver lining in all of this is that I’ll keep the blog online to serve as a beacon of hope for those who are buried in student debt or are considering taking on loans to fund their education. The About page is a good place for new readers to start.

I’ll close by saying thank you. Thank you for following my story and thank you for adding your positive commentary and encouragement along the way.  I want to give a special thanks to Sweta, iowenomore, ryanfield1, rosiedancer, MJ, and JaneMD for their meaningful contributions.

I truly value what we’ve built here together. I’ll miss you all.

To freedom!

Joe Mihalic


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Saving Money with My Time Machine

I’m pumped! I just saved 70 bucks on a pair of running shoes by “settling” for a slightly older generation and an odd color combo.

I ran my first (and so far, only) marathon back in February 2011. The day before the race, I decided I needed a new pair of shoes, so I hit up the nearest RunTex, a running store that’s known for their knowledgeable staff. I used to have fairly bad knee pain due to my flat arches until I told my doctor about it several years ago, and he told me to start using a high-cushion running shoe. Ever since then, the knee pain has stayed away. I told the salesman at RunTex about my condition and he equipped me with a pair of Asics Gel Nimbus shoes. Trusting his expertise, I bought them on the spot. I can’t recall how much I paid for them, but I think it was around $130 or $140.

The next day, with only three or four training runs under my belt (but lots of cycling), I ran the marathon in 3:38.  The shoes were awesome! I didn’t experience any blistering or knee pain, and that’s held true for the past year and a half. Recently, however, it’s become clear that the my (sometimes-overly) frugal self has used the shoes well past their useful lives (well over the recommended 300-500-mile maximum), and my left knee is beginning to give me some pain as the cushioning in the shoes starts to break down, a red alert that it’s time to replace them.

Today, without really giving it a lot of thought, I drove to RunTex and told the salesman, Jonny, that I wanted to trade in my Asics for another pair of Gel Nimbus. I know that $130 is a lot for a pair of running shoes, but I’m not going to be cheap and settle for a pair of shoes that won’t support me as well as the Asics and will only lead to increased knee pain and potential long-term damage. (Remember the difference between being frugal and being cheap!) Jonny told me that he was sorry, but he didn’t have the Asics in stock and was expecting a delivery in a couple of weeks.

I was frustrated because I wouldn’t be able to run until I replaced the shoes, but on my drive home, it dawned on me that I could just buy the shoes online and they’d definitely arrive sooner than two weeks. I called Run Tex and asked for the price: $152 after tax. I hit up Google Shopping with this ceiling price in mind and searched for Asics Gel Nimbus Men’s. The search results brought up Asics Gel Nimbus 14, Asics Gel Nimbus 13, and Asics Gel Nimbus 12 and 11. I assumed the suffixes stood for shoe sizes,  but after clicking around, I realized that each suffix came in various shoe sizes. I was confused, so I decided to actually read up on the shoe and found out that the 11, 12, 13, and 14 indicated the generation of the shoe. I looked at my shoe and saw Gel Nimbus 12 embossed on the side. RunTex was selling the Gel Nimbus 14, a shoe that was two generations newer than mine and boasted better technology, according to the marketing material.

The 14 was going for $140 before tax, and the 12 and 13 were going for much less. I thought about it for a minute and decided that since the 12 had been a solid pair of shoes for a year and half, then a new 12 would be a solid pair of shoes, too, so I decided to buy the cheapest pair of Gel Nimbus that I could find, regardless of generation. After about 30 minutes of clicking around, I found a 13–only one generation older–for $80. Shipping was free and the store didn’t charge tax, so I saved $72!

They might not be as awesome as the neon green/yellow 14 that I could have bought online for $140+tax/shipping, but the black/neon green combo isn’t terrible, either.

$80 Asics Gel Nimbus 13
$152 Asics Gel Nimbus 14

Looking back, I’m thanking my lucky stars RunTex didn’t have the Gel Nimbus in stock. Today, I received yet another lesson in frugality, but thankfully, I didn’t have to learn this one the hard way. The 14 supposedly has better technology, but if the 12 kept the knee pain away for a year and a half, which is above and beyond the call of duty for any shoe, then isn’t that good enough? By “settling” for a shoe that had served me well in the past instead of getting the latest and greatest, I saved over $70.

Sometimes, or oftentimes, it doesn’t make sense to buy the latest and greatest. I need to start thinking about that concept a little more now that I have the discretionary budget to buy things beyond just the bare essentials.


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