life without debt

A Life Without Debt: Why Meeting Your Obligations Isn’t Enough

June 23, 2009 By Sadie Morris 12 Comments

One of my friends became debt free about year ago. We were at lunch talking about how good it feels to be debt free, especially in the middle of a recession, when she uttered this gem: “It’s so great. I can pay all my bills and still have lots left over for fun stuff.”

I asked her how much she was allocating to savings and she said, “Nothing right now. We deprived ourselves so much to get the debt paid off that now we’re using the extra cash to treat ourselves to trips and things we missed out on. But don’t worry, we’re able to meet all of our obligations and still remain debt free.”

I asked her if part of the reason for getting out of debt wasn’t so she could save more.

“Sure. Someday. But being able to pay my bills is enough for now. I want to have fun.”

I sat there quietly choking on my sandwich while I pondered this mindset. Bear in mind that when my friend had debt, she lived by the mindset that if she could afford the minimum payment on something then she could really afford the item. We all know that this is the path to even more debt. When you only think in terms of meeting minimum payments, it’s hard to get ahead because you’re not making much progress on paying anything down. Buy enough things using this mindset and the minimums alone can put you far behind and heaven help you if the interest rates rise or the note is called in. Somehow my friend got far enough past this thinking to get out of debt, but now she’s willing to settle for thinking that just meeting her obligations is enough.

I tried to explain that she needs to be using at least some of her extra cash to save for the future, but she wouldn’t budge. She wants to make up for lost time in the fun department and, since she’s able to meet her obligations and have cash left over, she wants to spend the extra. Right up to the last penny. She kept telling me that she’ll save later, when she’s no longer young and carefree. Trying to explain that, “young” was the best time to start saving was like hitting my head against a wall. She wouldn’t listen and I got tired.

So let me explain here why being debt free should not be considered a license to spend all your newfound cash. When you first get out of debt, you’re likely to find that you have a lot more disposable income than you’re used to. With no credit card payments, car payments, or student loans, you’ve freed up possibly thousands of dollars every month. And it’s not surprising that you might want to spend some of that newfound wealth on something fun since you’ve probably lived very close to the bone while paying down the debt. So go ahead, splurge a little and then settle down.

One of the big reasons for becoming debt free is so you can aggressively build wealth. With no payments, much of your extra cash can be saved and invested in vehicles that yield solid returns.
It’s great that you can now meet your monthly obligations and have some left over, but the left over (at least a large portion of it) should be put aside for things like retirement, college savings, new cars, home repairs, emergencies, and other short and long terms goals that you set. The more you save, the faster you’ll accumulate the wealth that buys you true freedom to retire early, buy new cars with no payments, put your kids through school, give charitably, and do the things you really want to do. That’s the benefit of being debt free: Freedom. But you can only reach it with savings.

In the case of my friend, she’s debt free now, but what happens when her car dies? She’ll be right back in debt because she hasn’t saved anything to buy another. The same will happen when the heat pump needs replacing, or the first medical emergency happens. With nothing saved, she’ll have to rely on credit cards or loans to handle these problems. In her case, being debt free will be a temporary state of existence.

Simply meeting your monthly obligations and then spending the rest isn’t enough. It’s a great feeling to be able to pay all your bills, don’t get me wrong, but thinking this way ensures that your time as a debt free person will be short. To truly achieve a permanent debt free existence you have to save some of your extra cash so that you don’t have rely on credit to pull you though when things happen in life. Can you have some fun? Sure you can, within reason. There has to be a balance between having some fun now and creating a secure future for your family. This is the lesson I hope my friend learns before her time as a debt free person runs out.

A Life Without Debt: The Art of Appreciation

June 9, 2009 By Sadie Morris 11 Comments

Some would say that we live a life of deprivation. We don’t indulge ourselves very often and we rarely buy things without giving them careful consideration. This is a deliberate choice on our part, born not from a lack of money, but from a desire to retain our ability to appreciate everything.

When you are overloaded with stuff or experiences, nothing is special anymore. Have you ever watched someone who gets everything they want? They get the item that they wanted, or maybe two or three things that they wanted, all at the same time. Bonanza! They are enthralled with the new thing for a short time but the high wears off pretty quickly. Then, within minutes, hours, or days they are planning and anticipating the next new thing. When it comes, the cycle repeats. They end up with a house full of stuff, experiences they can’t remember, and likely a load of debt, but they appreciate nothing. Everything just becomes one more item on a long list of items. Nothing stands out, nothing is special, nothing is savored.

On the other hand there are people like us. We are debt free, so it’s likely that we could have and do a lot more things than we currently do. But we consciously choose to limit our possessions and experiences. This self imposed limitation not only keeps us out of debt (there’s no overspending when you’re limiting yourself), but it ensures that we appreciate what we do have. For example, when we go out to eat, it’s special to us (even if it’s just a casual restaurant like Chili’s) because we don’t do it very often. I relish having someone else do the cooking and the cleaning up because it’s a treat for me. I enjoy the food a lot more because it hasn’t become common to me. I savor that outing to the restaurant because it’s a special treat. On the other hand, I see many people in restaurants not enjoying the food or the service because they’ve gotten tired of eating out. They’ve eaten everything on the menu and it’s boring to them.

Some more examples: When we give gifts, we try to give one large, meaningful gift (it doesn’t have to be expensive to be meaningful, either) rather than a lot of small pieces of junk that just end up tossed aside after a few days. It’s quality, not quantity that matters. When we go on an outing to the park or the museum or the movies, it’s a special day because we don’t do it often. If we saw movies every week, it would become boring and expensive. When we take vacations, it’s an experience to remember because we know that this is what we’ve chosen to do with our money above most other things that we could have chosen. We could have done other things, but we remind ourselves that this is what we most wanted and it makes it much more special that just cramming a vacation in amongst all the other reckless spending. It’s special because it’s a priority that we sacrificed other things to enjoy. When we go shopping, it’s an event because shopping is not recreation to us. We rarely go, so a chance to go to the mall is a big deal. We take the time to window shop in all the stores we rarely get to and we enjoy the day. It’s not a chore like it is for some people who shop every weekend. Even an Icee sipped slowly in Target is an event to be savored because we only get maybe one Icee per year.

As a result of this intentional deprivation, little things that others take for granted remain special to us. Our senses are not so overloaded that we require bigger and more expensive thrills to gain our attention and appreciation. Little things still amuse and entertain us. We appreciate everything that we do and have because it has all been consciously chosen and it is valued by us. There is little that comes into our lives that we later wonder, “What was I thinking? I don’t even like that,” or, “I don’t even remember buying (or doing) that.” Some people shop to fill a void in their life when I think the void could be better filled by not shopping and instead working to appreciate what is already owned.

Appreciation is not a hallmark of a debt free life. I suppose you could have mountains of debt and still manage to appreciate the small things. But if most of that debt was accrued by shopping on a quest to keep up with the Joneses, you’ve probably reached the point where small is now boring and only ever bigger and flashier items will keep your attention for long. It’s sad when that happens because there is so much more to life than a bigger TV, owning a nicer car or bigger house than what you already have, and having a closet full of clothes with the tags still on. If you reach the point where you can no longer enjoy a simple outing to a restaurant, it’s time to step back and reassess. Being debt free and wishing to remain that way means that we have to choose our pleasures carefully. But that careful choice means that we are able to appreciate and savor so much more of life.

A Life Without Debt: Whatever Will I Do In My Old Age?

May 19, 2009 By Sadie Morris 29 Comments

A couple of weeks ago I wrote about our decision to remain child-free and how that decision (while not based on money) has made it easier for us to remain out of debt. Several respondents wondered who would take care of me in my old age if I didn’t have kids. Wasn’t I giving up security in my old age by choosing not to have kids who could look after me?

The answer to that question is this: I will take care of myself in my old age and that is, at least partly, why remaining debt free is so important to me. It allows me to save large amounts of money to put toward my future care. Since I know that I will “have no one to look after me,” I have to make certain that I have adequate funds, insurance contracts, and legal protection in place to ensure that I am cared for in a manner that suits me, in the event that I am unable to do so myself. All of that requires large amounts of cash that would be eaten up if I had to make debt repayments.

Of course, even if I had kids I would not expect them to take care of me. Things happen in life. A kid might get a job offer in a far away state or even another country. Kids grow up and have families of their own that take precedence over caring for an aging parent. I would not expect or want a child to give up his or her dreams in order to take care of me. There is also the possibility that a child may not want to take care of an aging parent. Whether because the relationship is strained or the child simply isn’t responsible enough to shoulder the burden, I certainly would never count on a child to be my security net. I’ve seen too many people who thought their kids would be there for them, only to find out that life got in the way and the kids either had other responsibilities or zero interest in helping out. Having kids is no security net to make certain you are cared for in your old age. Even with kids, the only one who can be sure you’ll be cared for in your old age is you. It’s great if the kids want to help out, but to plan using that assumption is risky.

So how exactly does a child free person go about making sure they are cared for later? As I said, remaining debt free is critical. Because we have no debt we’ve managed to amass a nest egg of over a million dollars already. Since we live very low to the ground and spend only on thing that we really value, we have a lot of extra cash to work with. We save most of our raises and “bonus” income.

We stash the maximum allowable into 401K’s and IRA’s in order to take advantage of the tax breaks. We have several other investment accounts that are for mid-range and longer term goals. We’re putting money away in a separate, low risk account that is designated for health needs in our retirement. Yes, our 401K’s will cover some of those expenses, but the way medical costs are rising and Social Security and Medicare are declining, I’m planning as though I will need to buy my medical insurance myself, or pay for everything out of pocket. It’s a scary thought because I know how expensive that will be. But I’d rather be over-prepared than unable to meet my basic health needs.

I also make certain I have up to date wills, trusts, insurance policies, and other legal documents that clearly spell out my wishes as to how I want to be cared for and how I want any remaining assets to be distributed upon my death. These documents ensure that I receive the care I want, from the organizations and individuals that I trust, not just from whomever the state decides to send me to. If I can’t make any decisions for myself, it is all clearly spelled out in my legal documents. Since I have no kids to speak for me, I have to speak for myself and it has meant spending a decent sum of money on lawyers. I don’t like it, but even if I had kids it would still be something that I would have to do. I wouldn’t be able to trust that my kids would be available to speak for me, or that they would “get it right.” Emotions are funny things and I wouldn’t want a kid to have to decide whether or not to pull the plug. Even if you have kids you need to make certain that your wishes are clearly spelled out in legal documents.

We don’t save only for our old age; there are some things that we spend on now and that we save for in the near future. However, about fifty-percent of our money goes to preparing for our old age. The truth is that most people my age aren’t saving nearly enough, hoping instead that the government or their own kids will save them. So instead of preparing for old age, they’re buying bigger cars and houses and nice clothes instead of stashing that money. I’m planning to take care of myself, completely on my own. It will be nice if I get money from Medicare or Social security. Then I can use some of my money for fun stuff. But I can’t bet on it. I don’t feel like I can afford to direct any of my money to debt payments because I know I will need it later. And a lot of it. And if I end up over-prepared and die with a fortune left over? Then some charities are going to have a very nice windfall coming their way.

Kids are not an insurance policy. Even if I had them I would be taking the exact same steps to deal with my care. Remaining debt free and saving the resulting cash, whether with or without kids, is one of the most powerful wealth building tools available to see you through your old age.

A Life Without Debt: Is Money Too Important?

May 5, 2009 By Sadie Morris 24 Comments

I was accused the other day on another financial site that I frequent of caring only about money. I was responding to a poster who was asking about the benefits of being debt free, because the person couldn’t see that so much could be gained by not owing anyone anything. So I listed some of the benefits you’ve seen me post here and talked a bit about how much I enjoy being debt free and about the freedom it gives me. I also mentioned that there were some sacrifices (e.g., I can’t have everything I want when I want it), but that those were well worth the peace of mind.

Well, another poster came on and said that, “If you’re debt free, all you care about is money. Real, normal people who live their lives to the fullest have debt. Only misers and miserable people don’t have debt. You have to have debt in order to have any fun in life. I feel sorry for you because you’re putting money ahead of everything else in life and you’re missing out on all the good that life has to offer.”

Wow. I thought this person was kidding (troll, anyone?), but as the thread played out, it was clear that this person was serious. I took issue with his stance and got flamed a lot in the process. Well, since I’m an open minded person, I thought about what this person said. Does being debt free (and unafraid to admit it) mean that money consumes me? Is money the most important thing in my life? After some thought, the answer was no to all of the above.

There’s no denying that money is important and worth caring about. In some ways, money is as or more important than other things. We need money (at least some of it) to buy the necessities of life such as food, clothes, and medical care. Money may not be able to buy you love or happiness, but it can keep you clothed, fed, and in some degree of comfort. So it is in your interest to care about money, at least up to the point that your basic needs are met. If you care nothing for money, you’re going to have a hard time getting the things you need and life is going to be painful. Saying that you don’t care about money is a lie, because we all have to care up to a point. Beyond your basic needs it becomes a balancing act to ensure that you continue to care for and manage your money wisely without going overboard in either spending or saving.

Sadly, some people never master this balancing act. Some care about money to the exclusion of everything else. Even when they have plenty, these people are loathe to part with any of it and refuse to buy anything, even things they need. These are the misers of the world. However, there is a big difference between caring about money to the point where it rules your life and being debt free. Others, like my accuser, choose to forget about basic math and just spend and have fun without giving money a second thought. That is the path to crushing debt.

Being debt free means that I have to worry about money, more so than someone who chooses to live life blindly racking up debt as my accuser apparently does. That’s a given. In order to remain debt free I have to weigh my purchases against my savings and always know where I stand. I can’t let myself have too many periods of wild spending or I’ll end up in debt. That means, of course, that I do miss out on some fun in life. I can’t do everything I want to do because I don’t have unlimited funds. (However, I bet my accuser can’t do everything he wants, either, because of things called “credit limits.” Eventually, he will run out of credit and be denied some of this fun he thinks he’s having for free.)

However, while I do think about money, it certainly does not rule my life to the exclusion of all else. I live life to the fullest extent that I can afford. I go places, take part in activities, and purchase things I find valuable (even if they aren’t necessary), but I keep it within the bounds of what I can afford and still remain debt free and keep saving for my future. I enjoy my family and the non-material blessings I have around me every day. That’s living life and having fun, even if it doesn’t involve a 72-inch plasma TV.

As for “real, normal people who live their lives” all having debt, I think my accuser is wrong on this point, too. I know plenty of debt free people and many of them (including myself) are having a lot more fun in life than people who are shackled by debt. Why? Because we don’t have to worry about the bill coming due and, no matter how much my accuser wishes to deny it isn’t so, that bill will come due soon enough. My accuser may be having the time of his life right now, not worrying about money and spending lavishly, but one day he will run out of credit, or grow old and want to stop working. At that point the spending will have to stop and the pain will set in. He will have a lifetime of fun to look back on, but there will be no fun in the future. Whereas I will be looking forward to years of fun because of the money I’ve saved and I’ll be looking back on all the fun I’ve already had in life. I’ll have it both ways; he’ll only have the past.

Being debt free doesn’t mean that I think of money and nothing else; neither do most of the other people I know who are debt free. We simply think of money differently than others and we are more careful about balancing our present lives with our futures. There is certainly no need to feel sorry for us, as my accuser suggested. I doubt that if you asked went up to a debt free person and said, “Do you feel like you’re missing out on all the fun life has to offer because you’ve chosen to remain out of debt,” that the answer would be yes. They might admit to wanting to do some things they haven’t done, but they’d probably also say that they look forward to doing them at some point because they are saving for them. Whereas, if you were to walk up to my accuser in ten years and say, “Do you wish you’d saved more money and financed less fun in your youth so that you’d be able to live well now,” I doubt that the answer would be no.

Concern and care for money is part of the debt free life. But showing concern and care for money is not the same thing as valuing it more than anything else. Respecting money and what it can buy, both now and in the future is part of responsibility. Responsibility means that sometimes you don’t get to have everything you want when you want it, but it doesn’t make you miserable or a miser. It simply means that you know how to balance your needs with your wants so that you can live a comfortable life with some fun and good times thrown in. And that’s a lesson that my accuser needs to learn for himself.

A Life Without Debt: Where to Cut When You

April 14, 2009 By Sadie Morris 7 Comments

I’ve mentioned before that I really like saving money. To me it’s like a game to find new ways to reduce my spending. Constantly finding new ways to lower spending keeps me on my toes and protects me from slipping into careless patterns that could lead to debt. It also frees up more cash that I can stash away for emergencies or my old age, making it more likely that I will remain debt free throughout my life.

The problem is that every year it gets more and more difficult to find new ways to reduce spending. Once the obvious biggies are gone like unnecessary cell phones, cable, expensive clothes, and meals out, while employing the usual savings strategies like using coupons, planning meals, and shopping sales. Once this is done, where does someone like me look to cut spending?

The answer lies in frugality. Some might even say extreme frugality. To cut more from an already lean budget requires looking into the areas of the budget I take for granted. For example, I have a budget category for cleaning supplies. But do I have to buy every cleaning supply? Can I make my own for less? I’ve discovered that I can and it saves me a significant chunk of money every year. I’ve experimented with washing plastic bags and reusing aluminum foil. I make my own laundry detergent. I keep a lot of things like jars, spare parts, and fabric to use for money saving projects. I have a budget for utilities, but I try to never spend the maximum that I budget. I’m always experimenting with my utility use and settings to cut a little more from the bill (or at least stay even with the price increases). I repair rather than replace most things. I learn to DIY as much as I can, even if it’s something I’d rather not do. Heck, I’ve even tried making my own envelopes.

Some things that I try are worth it and work out very well. Others result in discomfort or inconvenience that cancels out any savings I might gain. But I never give up. I’m always trying new things and looking for new ideas. Even in an already lean budget I’ve learned that there are still ways to cut down the spending, if I’m willing to move out of the mainstream and try some strange ideas. I enjoy using my creativity and abilities to save a little bit of money. It requires thinking differently from most people. Most people just accept that there’s no way around buying certain items. I’m always questioning my needs, wants, and use patterns.

If you’re interested in learning how to cut more from an already lean budget (or if you want to slash and burn an overburdened budget) I recommend two books. First, The Complete Tightwad Gazette by Amy Dacyczyn is full of frugal tips that range from everyday common sense to things some people might consider extreme. I read it once a year and I’m always amazed that I can find just one more thing to do to reduce my spending.

The other book is Choosing Simplicity by Linda Breen Pierce. Not so much a how to or tip guide, this book examines the lives of real people who chose to reduce their spending and simplify their lives. It’s great motivator and a book that reminds me of the benefits of living simply and remaining free from consumer pressures.

Do I have to constantly look for ways to reduce my spending in order to remain out of debt? At this point, no. We make enough money to allow for buying plenty of cleaning supplies, foil, and other everyday items. But I like the challenge and I like the freedom that cutting spending gives me. Every “small” amount I save provides me with more money for the larger things I enjoy like travel, and for the things I will need in the future like home improvements and retirement.

I have a mindset that I simply do not like spending money that I do not need to, or that does not bring me great joy. And I hate waste in all forms, whether it’s monetary waste or physical trash. I’m willing to go out of my way to find ways to avoid spending money on items that don’t bring me joy and to cut down on waste. I think that’s a large part of what has kept us debt free.