debt free

10 Ways Life Gets Better When You Get Out of Debt

July 2, 2013 By Danielle Warchol 13 Comments

Have you ever had to cut back on your expenses or choose between paying the water bill or the electricity bill? When you’re drowning in debt, it might seem as though you’ll never break free. It seems that there is always something that needs to be paid, yet not enough money to pay all of the bills that have come in. While it might seem at that time that debt will consume your life, there’s light at the end of the tunnel. Your life might seem stressful right now, but it will become remarkably better once you’re free of debt. Not only will you have freedom over your finances, but you’ll find your life has a lot less stress in it. Here are a few ways life improves when you get out of debt and why all your hard work getting out of debt is well worth the effort:

Freedom

One of the best feelings you’ll have once you’re out of debt is the overwhelming sense of freedom. No longer will you be chained to loan payments or credit card payments each month. You’ll have the freedom to choose what you want with your money.

Less Stress

Of course, you won’t be nearly as stressed out about money after you get out of debt. While you may still have money issues or concerns, they won’t be nearly as gigantic as they were when you were swimming in debt. As soon as you get out of debt, you can kiss a lot of your money related stress goodbye.

More Flexibility

You’ll also have a lot of flexibility now that you’re out of debt. When you’re in debt you often have to pick and choose what to spend your money on or perhaps even what bills to pay first. Once your debt is cleared away, you don’t have to bend your finances to pick away at bringing your debt down.

Financial Independence

Financial independence is possibly one of the best ways your life will get better after you get out of debt. When you have financial independence not only is your life less stressful, but you have more avenues open to you. You won’t have as much trouble getting another loan or putting a down payment on a big ticket item. Not to mention, you’ll feel better about yourself now that you’re not chained to your debt.

Control Over Your Money

Getting out of debt also means that you once more have control of your money. Sometimes being in debt feels as if you have no control over your money and that your money belongs more to debt collectors and loan companies than it does to you. Getting out of debt now means that aside from normal monthly expenses, you have control over your finances. You can choose what to buy, what to invest in, or how much you want to save.

Ability to Save

Getting out of debt now also means that you can set more money aside in your savings. Many people don’t save money while they’re in debt because they’re too focused on paying down their debt. While this is understandable, it also means that by the time they get out of debt they may have no savings. Once you get out of debt, you’re free to start saving money again.

Building an Emergency Fund

Additionally, getting out of debt also means that you can start building an emergency fund. Having a savings account for vacations or big ticket items is all well and good, but having an emergency fund for emergencies is an even better idea.

Knowledge of How to Prevent Debt

You might be so excited that you’re out of debt that you start spending money without a second thought. But don’t let your spending habits lead you back into debt. Use the knowledge you gained from being in debt and getting out of debt to prevent debt from occurring again. You don’t want to fall into debt again, do you?

Staying Ahead of Your Expenses

After getting out of debt, you also have the benefit of staying ahead of your finances. While this might not seem like the most exciting financial decision you can make, it’s probably the smartest. For instance, you know when your monthly bills arrive, you know how much you’ll generally have to pay, and you know when they’re due. Now that you don’t have to worry about paying down debt, you can stay ahead of you expenses by setting aside the money each month or even prepaying for a couple of months.

More Purchase Choices

One of the best things about getting out of debt means that you have more power over your purchases. When you were in debt did you often choose to buy one item instead of two? Maybe you needed a new oven and a new set of tires for your car. While you might not want to go out and spend all your money at once, being out of debt means that you won’t have as much difficulty making the decision whether to buy a new oven or new tires.

(Photo courtesy of he Eyes Of New York)

Early Retirement Without a Huge Nest Egg

May 7, 2013 By Jennifer Derrick 5 Comments

Many people dream of retiring while they’re still young enough to have some fun. Then they look at their bank balance, sigh, and decide that they will have to work until they’re eighty. This might not be true, however. Lots of people retire early without a fortune in the bank or a large inheritance on the way. To do so, however, requires a lot of thought and planning and a willingness to live a bit differently from the herd, both now and once you do retire. Here are some thoughts if you want to retire early.

It has to be a priority

This is probably the single biggest factor that separates those who actually retire early from those who talk about it. If you want to retire early, it has to be a priority and you and your partner (if you have one) have to be onboard together. You are going to have to save, save, and save some more and this is going to mean some sacrifices, both before and after you retire. You’re also going to have to want a different type of retirement than the golf-course-resort-living style of retirement that so many people desire. If you can’t commit to making saving and doing things differently a priority, or your partner isn’t willing, early retirement likely isn’t going to be possible for you. You have to want it more than you want almost anything else.

You may have to have some form of income

To protect whatever principal you have saved, you may need some form of income that can bridge the gap until you can collect Social Security or a pension, or until you can tap plans like IRA’s and 401k’s. This doesn’t have to mean another full time job. You may have rental properties or some sort of hobby you can monetize. If travel is in your plans, there are campgrounds and resort properties that hire seasonal workers and include lodging and utilities in the payment package which will greatly reduce your spending in lieu of income. Maybe you take a part-time or temp job that just sounds like fun. You can work at something fun for a change instead of the daily 9 – 5 grind.

You have to have a plan for health insurance

Heath insurance is the one thing you cannot be without. Without good insurance, a relatively simple illness can wipe you out, never mind a catastrophic accident or illness. When you leave the work world, you’ll probably lose your insurance. Fortunately, there are plenty of private plans you can buy and some are reasonable if you’re already in good health. Shop around to find one that meets your needs. Don’t just think you’re young enough to go without.

You have to slash expenses

Retiring without a huge nest egg means that your daily expenses have to go way down. You need to start now so that you can amass enough money to even think about retiring, and to get used to living on less. You will typically find that many people who retire in their thirties, forties, and fifties do it by eschewing a typical consumer lifestyle. They go without cable, they don’t eat out, they live in small, affordable housing, and they don’t drive expensive cars. They buy the bare minimum needed to live, preferring to sock upwards of 80% of their income into savings. And they keep that low cost of living into their retirement. If living such a “reduced” lifestyle isn’t for you, then you either need a very high income to retire early, or you have to give up the dream.

You have to educate yourself about finance

If you’re going to retire early, you need to know about investments. Sure, you can hire a planner to help you, but that expense is going to eat into your funds. And you still need to know if you can believe what the advisor is telling you. So you have to make it a priority to learn all you can about the different types of investments and how to withdraw from them without putting your plans at risk. You’ll also need a good understanding of taxes and how they affect your plans.

You cannot have debt

You cannot retire early if you’re still making hefty mortgage, car, credit card, or student loan payments. Those things typically take a full income to deal with and if you’re retired, you’re likely not bringing in enough to support debt. You also cannot carry much debt, if any, while you’re saving and preparing to retire. Every dollar you have to make in payments is one less that you can sock away for your nest egg.

You have to be willing to do things differently

You’ll find that most people who retire early don’t live a conventional lifestyle. Some are nomadic, staying with friends or family or in cheap hostels while they travel. Some live in tiny apartments or alternative housing. Some don’t have cars, preferring to keep costs down by relying on public transportation or their own two feet. Some are “back to the landers” who become almost entirely self-sufficient. Some live in campgrounds part of the year while they work there and see the surrounding area. Some even move to foreign countries where the cost of living is much lower. In order to keep that small nest egg from giving out, you have to be willing to look at life a little differently and try some unconventional alternatives.

You’ll need nontraditional retirement accounts

Your investments need to be primarily in accounts that you can tap prior to traditional retirement age. You can’t tuck all of your money into traditional IRA’s and 401k’s because these carry penalties if you withdraw from them too early. You need to look at Roth IRA’s which allow you to withdraw your contributions (but not your gains) at any time without penalty, and consider other forms of investment that you can access early.

You need to have an end of life plan

Once you’ve covered your immediate health care by getting health insurance, you need to know how you will pay for the end of your life. The end of life can get very expensive if you have to go into a nursing home. Medicaid will take care of you if you have no assets, but you’re not going to like where they put you. Have good long-term care insurance, give power of attorney to someone you trust, and have a living will that dictates how you want to be cared for, if at all, if you cannot make your own decisions. You want to have fun when you’re retired, but the end will come eventually and you have to know how you’ll pay for that.

Understand how children will impact the picture

Many people who retire early don’t have kids. If they do have kids, chances are they had them very early in life, only had one or two, kept the expenses way down, and pushed them out of the house by the time the parents are in their forties. That gives the adults some good earning years to really pad that retirement account. You’ll probably also find that any children are expected to pay their own way through school because the parents prioritized early retirement over paying for college. You can argue about whether that’s right or wrong, cruel or unfair, but it’s a fact that kids do impact the financial picture. You have to ask yourself which is more important: Having several kids and giving them every advantage, or your own early retirement.

You have to make a plan and stick to it

You can’t just talk about wanting to retire early. When you first get the idea that this is something you want to do, you have to sit down, do some math, do some research, and then create a plan. You have to know how you will save, where you will save, what your insurance options will look like, what you’ll do about housing and transportation and other expenses, what other sources of income you might have available and when, and how much you’ll need to make your plans work. It’s not enough to say, “I want to retire at fifty.” You have to make a plan, work that plan, and adjust that plan as you go along. This is where many people fail. It’s easy to talk about retiring early, but it is hard work to make it happen.

Early retirement isn’t just a fantasy. Many people manage it. If you value your time more than money, retiring early can give you that time you want to do the things that matter to you. You can’t do it on a whim and it isn’t easy, though. Even if you’re in your forties now, it’s possible (with a lot of discipline) to get where you want to go by the time you’re in your fifties. And that’s still ten to twenty years sooner than when many of your peers will retire.

(Photo courtesy of Tobyotter)

Bliss vs. Suffering: A Life Without Debt

May 25, 2010 By Sadie Morris 9 Comments

I’m a big fan of the yoga program “Inhale” on the Oxygen network. The host, Steve Ross, likes to say (when talking about mental health) that, “Psychology is based on suffering. Yoga is based on bliss.” What he means is that psychology generally assumes some misery is present and tries to rectify it. You’re depressed, anxious, having social problems, or anger issues and you turn to psychology to fix the problem. Psychology forces you to drag all the misery out into the open and wallow in it. Yoga, on the other hand, is focused on bringing and maintaining a feeling of bliss in your life. Even if you have misery in your life, yoga focuses on the good feelings and works to intensify those feelings rather than dwelling on the bad. You still deal with your misery with yoga, just from a more positive place than you do with psychology.

The other day, while hanging out in the downward dog pose, I thought that the same could be said for a debt free life. “A debt laden life is based on suffering. A debt free life is based on bliss.” Many people think that incurring debt is the road to happiness. They think that if they just have the right house, the right car, the right things, or the right clothes, they will achieve happiness. To that end, they spend vast sums of money and go deeply into debt. And it may work, for a while. They may feel great once they have all the right stuff. Yet even if they achieve happiness, that happiness is fleeting. It only lasts until the bills come due, the job is lost, the credit runs out, or the stuff is no longer the greatest. When it comes time to pay up, the suffering begins. Anxiety, depression, fear, and anger all appear. The suffering is usually much longer lasting than the happiness ever was. It’s also psychologically damaging and painful.

A debt free life, however, is based on bliss. When you’re debt free you avoid all of the suffering that comes with a large debt load. You don’t have to worry about repossession, and a job loss is much less threatening. You’re life is likely simpler and calmer. You sleep better knowing you’re creating a secure future. You get to focus on the good feelings in your life. You’re not magically protected from anything bad happening, but when problems arise you don’t have to add financial issues on top of them. You can deal with the bad things from a more positive place when you don’t have to worry about money, too. You also get to chase your own personal bliss. Maybe you want to travel or start your own business. Maybe you want to retire early or take up a special hobby. You’re much freer to pursue whatever it is that makes you happy. When you live debt free you get to enjoy the good things and feelings in your life, rather than having to wallow in self-inflicted misery as you clean up your financial mess.

Given my choices I’ll always choose a blissful life over one filled with suffering. No matter how happy you think you are with a pile of debt looming overhead, there will come a day when that happiness will turn to misery. When you’re debt free you get to live with freedom, security, and the passions and pursuits that make you truly happy. That’s bliss.

Finding Motivation: A Life Without Debt

May 18, 2010 By Sadie Morris 8 Comments

I’m frequently asked how I stay motivated to remain out of debt. After all, there are so many temptations and so many fun things that I could blow my money on. People assume that it is hard for me to remain motivated and disciplined. Sometimes it is. Like anyone else, I have days when I just want something and I want it now. I just want to go blow money and forget the consequences. To remain debt free, though, I have to check the worst of those impulses.

When you’re trying to get out of debt you can see the end goal and that provides motivation. You know that when you’ve paid off $X amount of money you will be debt free. You keep going to reach that number. You’re fired up and motivated to make the necessary sacrifices. But when you’re debt free, you don’t have that magic number to shoot for. When there’s no concrete number staring you in the face it’s easier to lose motivation. Sure, you want to save but for what and how much? You want to have money to spend but do you really have to watch every penny anymore? It’s easy to just drift, spending and saving aimlessly or, worse, spending with so much enthusiasm that you land back in debt. It’s like losing a lot of weight. You’re motivated to get it off in the short term, but once you’re there the enthusiasm drops off and it’s easy to fall back into bad habits.

So how do I find the motivation to remain debt free when there are so many options for my money? How do I keep my bad habits and ugly urges in check? Here’s how:

Set goals

Just because I’m debt free doesn’t mean that I don’t have financial goals. I want to buy a new(er) car someday. I want to retire comfortably. I want to be able to give to charities that I value. I want to travel. I want a new computer. All of these things take money. I write down the things I want to accomplish and assign dollar values to each. Then I track my savings progress toward each goal. Seeing those numbers add up and those goals reach fruition provides me with the motivation to remain out of debt.

Keep one big goal in mind

In addition to the smaller goals, I always keep one big goal in mind. At one time it was a home. Once I got that, I changed it to having a comfortable retirement. Now that that goal is well on track, my current big goal is financial independence. I want my investments and activities to provide enough passive income that I don’t have to work for an income, unless I want to. The big goal is not something that is easily attainable, but it is possible. It’s something that will keep you motivated and working toward it for several years. Even if you’ve managed to mark off all your other goals, the big goal will still be there. As long as it is, you’ll keep striving for it.

Remind yourself about the benefits of being debt free

Whenever I want to blow an unreasonable amount of money (as I did recently when some terrific travel offers came across my desk, plus some property that I’d been looking at came on the market), I remind myself what I love about being debt free. My love of security and freedom go a long way toward keeping me on track. I don’t want to end up in a position where someone else dictates where my money goes, or where someone else controls my decisions because I owe them money.

Know what matters to you

When you’re debt free, you get to know what really matters to you and it usually isn’t stuff. Maybe it’s your ability to be home with the kids, security in the event of a job loss, the freedom to choose work you love, the ability to give money away, travel, a special hobby, or cultural experiences. Would you be able to do, have, or enjoy those things as much (or at all) if you went into debt? Probably not because your time and money would then be spent servicing the debt. When I’m tempted to spend too much, I remind myself of the things that would have to go by the wayside if I had debt. I’m not willing to give them up, so I remain motivated to keep the things that really matter to me.

Staying motivated to remain out of debt is different from the motivation necessary to get out of debt. Getting out of debt takes (usually) a relatively short period of time. The flame of anger and frustration can burn long enough for you to accomplish that goal. Staying out of debt is a long term adventure and something that you’ll (hopefully) have to work at the rest of your life. No short term fire will last long enough to keep you on the right path. You have to seek other forms of motivation. This is what works for me; what works for you might be different. Experiment until you find the right combination of motivational tactics.

Learning to Love What You Have: A Life Without Debt

May 11, 2010 By Sadie Morris 2 Comments

One of the best ways to become and remain debt free is to simply learn to love what you already have. It’s human nature to be swayed by the glitter and gloss of new items. You drive past a new car lot and think, “Wow, those cars are so great.” Or you walk into Target and you see the big new TV with a great picture or the linen set that perfectly matches your bedroom. It’s easy to think that these things are much better than what you already have or that they will somehow fill a need you think you have. But what about your old stuff? Is it really that bad or are you just falling in lust with the glitzy new thing?

I drive a 1993 car with 140,000 miles on it. Could I justify a newer car? Sure. But my car still runs reliably, gets good gas mileage, and is fully paid for. Beyond that, I love it. The color is unique, the design suits me, and I have a lot of memories attached to that car. It was my first new car and I paid cash. I negotiated the deal and did well. I’ve driven just about everywhere in that car. I’ve had good moments and bad in that car. The idea of parting with it just because it’s old makes me ill. I’ll only get rid of it when it dies and it’s beyond a reasonable cost of repair. Sure, newer cars are shiny and smell good, but my car has a lot to love, too.

I think of my relationship with my stuff as kind of like a marriage. Sometimes during my married life I’m going to meet someone who is very good looking, funny, kind, and seems like a wonderful person. It happens to all of us; it’s a big world. For an instant I may think, “Wow, this guy has so much that my husband doesn’t,” (particularly if I’m having a bad day or we’ve had a fight). But deep down I know that my husband is better than this new guy, no matter how great he may seem. My husband and I have a history and a bond that goes way beyond a superficial glance at another person. I wouldn’t just trade him in because someone “shinier” appeared. I’d only move on if I had a great reason and it would have to involve my husband’s death or if he did something horrible and unforgivable to me. I love what I already have.

Stuff is a lot like that. You are tempted by the newer, shinier stuff and it’s possible that you lose your head for a minute and think, “Hey, I’ll just toss my perfectly good toaster for this cuter model.” But unless your toaster has done something horrible to you (shocked you, burned your toast too many times) or outright died, why not keep the one you have? If the older model still works well and is reliable, why not keep it? Look for the value in what you have and rediscover the love for that item. Maybe you’ve always appreciated how evenly that toaster toasts your bread. Maybe it’s the perfect size for your counter. Maybe you can remember making toast for your kids every morning with that toaster. Maybe it’s as simple as you already know how it works.

Admittedly a toaster is a simple and silly example, but the point is valid. When you’re temped by the newer models, you need to remember why what you already have is still good. Find the value in the stuff you already have. It’s probably there, you just have to look for it and get away from the siren song of the new model. When you can learn to love what you have you’ll cut your spending dramatically. It’s much easier to become and stay debt free when you aren’t constantly giving in to “new stuff lust.”

What Counts as Being Debt Free? – A Life Without Debt

April 20, 2010 By Sadie Morris 21 Comments

In writing this column, one of the things that I see frequently in the comment trail is an argument about what counts as being debt free. Some people argue that debt free means freedom from consumer debt such as credit cards and car loans. Keeping a mortgage, whether for a personal home or a rental property is okay. Others argue that debt free means that you have absolutely no debt, including mortgages. Is one viewpoint more valid than the other?

Part of what feeds this argument is that even the “experts” have differing definitions of being debt free. Dave Ramsey will let people call into his show and scream about being debt free even if they still have a mortgage. Yes, he wants you to get that paid off, too, but he considers you debt free once your consumer debt is gone. Suze Orman also generally allows callers to consider themselves debt free as long as the only debt is a mortgage. The idea is that a mortgage is both good debt (debt on a generally appreciating asset) and so large that many people will take most of their working lives to get rid of it. These experts seem to look at it more like an unavoidable monthly expense like the power bill rather than debt. After all, if you rent you’ll have to pay something monthly so why not just treat the mortgage like rent? Others argue that debt is debt and you cannot truly be debt free until you owe nothing. They make no distinction between “good” debt and “bad” debt. Some people go even further and argue that using credit cards, even if you pay them off in full each month, means that you have debt because you are technically borrowing money.

I can see both sides of the argument. Personally, I don’t owe anything to anyone. I have no consumer debt, no mortgage, no secured loans and no student loans. I am truly debt free by any definition of the phrase. I believe that being completely debt free is a great goal and one that people should shoot for. It just makes life so much easier. However, I don’t get upset when someone who still has a mortgage or uses credit cards but pays them off each month declares themselves debt free. Consumer debt is so destructive that to be free of that type of debt is already to live a markedly better life than someone who is mired in it. If
someone can make it to that point, I say, “Hooray!”

I can also see the point that to live anywhere you have to pay something each month unless and until you can own a home free and clear forever. If you choose to rent your whole life, you’ll always have a monthly payment, even if you’re not technically “in debt.” Why treat someone with a mortgage differently than the lifetime renter? If the person with the mortgage can comfortably afford the payment while achieving other savings goals, is working on paying off the mortgage and plans to own that home free and clear at some point, I have no problem with them screaming about being debt free.

When I had my small mortgage for five years, I still considered myself debt free because it was the only thing I owed and it was a lot less than I had (or would have still) been paying in rent. I was aggressively paying it off and I could easily afford all my other savings goals, so it wasn’t hurting me. Now that it’s gone I can definitely save a lot more, but the time I had it didn’t derail me any more than paying rent did.

I think insisting that someone be rid of their mortgage before declaring themselves debt free is off-putting to many. Mortgages can be so large and intimidating to pay off early that many people just figure they’ll never get there. They may adopt the mindset that, since they can never be truly debt free, it’s not worth the effort to shed other debt. However, if they can get excited about being debt free, even if they still have the mortgage, it can motivate them to get rid of all the bad debt. Maybe then, buoyed by their success, they’ll attack that mortgage.

What do you think? Do you think you’re only debt free once your mortgage is gone, or do you consider yourself debt free if your only debt is a mortgage? Does “borrowing” money on a credit card that you pay off every month count as debt? Does it upset you when people declare themselves to be debt free yet still carry a mortgage, or do you cheer them on? Why do you feel this way?