I will be debt-free by Christmas.
In just a few weeks, I will have repaid all my consumer debt. Only my mortgage will remain. It’s taken a lot of hard work and sacrifice, but the end is near. I’m wondering, though, if I’m ready for the transition.
For three years, I’ve focused on becoming debt-free. Many of you are making the same journey, and you’ve begun to e-mail me the same question: What’s it like living debt-free?
I assume that becoming and living debt-free require a similar skill set. Frugality is probably just as important to remaining debt-free as it is to reaching that goal in the first place. The concepts I learned while using the Debt Snowball can probably also be used to save for things like cars or new furniture. An abundant emergency fund seems natural, too, as do fully-funded retirement accounts.
But I worry about lifestyle inflation. I suppose it’s natural for a person to relax a bit once he’s paid off his debts, to allow himself a few more indulgences (though paid with cash rather than credit). How do you keep from reverting to old habits? How do you keep from spending too much?
How is living debt-free different than becoming debt-free?
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I’m a little ways from becoming debt free myself, but I suspect the way you stay that way is you get rid of all the influences that led you down the wrong path the last time.
For example, if credit cards were your problem before, you need to get rid of them entirely – points and rewards be damned. It’s far harder to spend on credit if getting credit is a pain in the first place! Simply engineer your life in such a way that falling back into bad habits is very difficult because the tools to do so are inconvenient.
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First of all, congratulations! You’ve nearly achieved a very big goal and created a great blog in the process.
You’re right, with your current frugal lifestyle you’re set up very well to do some real saving, but where’s the fun? My personal trick to beating lifestyle inflation is keep asking the same question: “Do I really need this?” but now, if the answer is no, ask “Do I really WANT this?” If the answer is yes, then by all means, buy it. Enjoy being able to afford it, enjoy the purchase. By now, you know the value of money and the real value of ‘stuff’ much better than most of us, so I doubt you’ll overspend.
Whenever I catch myself mindlessly eating the expensive cookies I bought, I think back of my college days. You have a written account of your poorer times – if anything, you can always reread your blog. I sure hope you keep writing!
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CONGRATS, J.D.! It’s a huge accomplishment, and one way too many people never even attempt, let alone achieve.
We did something similar a little while back and got rid of WAY TOO MUCH credit card debt my wife brought into our marriage. What was important to us was planning just as carefully, if not more so, for what to do once we were debt free as we did while we were paying it off.
It sounds simple and stupid to say, but we found it to be true — it’s in the plan. Be just as intentional about what you do with each dollar as when you were slaying the debt monster. Want to save for a new car? Fully fund retirement? Fund an annual vacation? Spend a little more every month on comics?
Go ahead — just plan for it. You talk a great deal about the importance of the psychology around personal finance, and I think that’s particuarly true here — the great news is you clearly have the discipline thing down, and by keeping it up you can accomplish some incredible things.
Since we killed everything but the mortgage, we’ve focused our efforts on expanding our house, which we’ll begin shortly. After we paid off our debt we did loosen up a little on expenses, but not much, and with the money we saved we’re in great shape to start the renovation.
Hope that small slice of experience helps. Congrats to you and your lovely bride again — and Thanks for such a great and helpful blog!
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As a person who has been debt-free for years (not even a mortgage payment), I’d say it’s essentially the same as working toward becoming debt-free. If you want to stay out of debt, you have to live within your means.
That said, one’s “means” become a little more generous, because you don’t have to fork up a chunk of your regular income to creditors. On the other hand, for middle-class Americans the cost of living expands to fill all earning power. Still, extra money that would enrich a credit-card corporation now goes into a savings account, which can be used to buy indulgences and pay the plumber or the veterinarian without affecting month-to-month cash flow; then income from my little side business can go into the Roth IRA.
The vet charged $400 to put down the cancer-ridden greyhound and biopsy a skin lump on the German shepherd. When I gasped, his staff helpfully proposed I put the bill on the cuff. If I didn’t have that savings account built from the few extra bucks a month left over from my paycheck (that did NOT have to go to a creditor!), I in fact would have had to go into debt to deal with this. As it is, the bill will absorb 1/3 of that savings account. But at least, thanks to being debt-free and remaining moderately frugal, I can pay it.
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Congrats J.D on reaching your goals. Ever since we became debt free a couple years ago, we really focused the extra money on investing.
So instead of thinking about what to do with the money, live the same lifestyle as if you’re still paying down your debt, but this time, put the money into investments.
FT
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Good work JD. I’m following close behind you, with a target debt free date of February.
I think living debt free will be easy for me. Thus far I have heeded the advice of Dave Ramsey and plan to continue. Fortunately I am blessed to have a frugal wife (more frugal than me, and my friends make fun of me for being cheap!). We’re going to do some home improvement work, buy a few toys that have been waiting 3 years, but the whole process will be done in a responsible manner.
Dave Ramsey is not just about getting out of debt. He offers a lot of advice in his radio show, books and the FPU lessons about negotiating, being aware of the extreme nature of our highly marketed-to society, having power over purchase, and most importantly, considering the opportunity cost of spending money.
The last part is the key to how I will live debt free. I typically research my major purchases for at least a month, if not 2-3 months, in advance. I know everything I can about the product I’m buying, and I know whether I will get my money’s worth before I purchase it. Understanding opportunity cost and having power over purchase is crucial to living debt free, because it removes the impulsiveness from your buying habits.
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I’m not completely debt free. I still have ~6K in student loans, and 1 car loan I’m paying off, along w/my mortgage. However, since the interest rates on those are lower than I get in my savings account, I’m in no hurry to pay them off.
You will probably have some life style inflation (I did). I also still use credit cards for just about everything, but I pay the bill off every month, and do it to get the cash back (in about a year I’ve gotten ~$800 back). But what I’ve done is to take the money I have extra, establish an emergency fund equivalent to 6 months worth of expenses. I also apply any extra (what’s left over from saving, investing, retirement, etc) into the mortgage to get it paid off even faster.
I think the key is to let yourself have a little bit of a lifestyle inflation. You’ve worked hard, and skimped to get out of debt. Reward yourself….just don’t go hog wild. Take some of that money that you were using to pay off debt, and save it…buy a nice TV or furniture or something. Indulge every once in a while. But I think the key is to take majority of the money you’ve been applying to debt and sock it away in investments (IRA, 401k, mutual funds, stocks, bonds…whatever). By doing that, you’ll be making even more money…but you’ll also be doing something thats worth more than money. You’ll be building security. Security for you, and your family. Money isn’t everything, but when you have enough that you don’t have to worry about how you’ll pay the bills if you loose your job, or someone gets seriously ill, you’ll have a great sense of security, and thus relaxation.
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For the months prior to my paying off my car and finally becoming debt-free, I thought that waking up on the day that I no longer owed a balance on anything was going to be this wonderful, fantastic experience. “I don’t owe nobody nothin’” was running through my head in the weeks leading up to sending in that last check. In reality, waking up that morning felt just like another Friday at work.
Looking back about a year later, I realized that this milestone — eliminating my consumer debt — was just another step along a much longer journey, one that I can’t quite clearly define just yet. My best guess is that my own path is a mixture of prudent saving/investing, conscious consumption, and constant reminders that, while money is important, it’s not everything.
As for your question about lifestyle inflation, I handle it two-fold: I aggressively track each and every purchase to help curb bad spending habits, and I allow myself a reasonably-sized “fun fund.” While I track the amount of this fund as aggressively as the others, spending it doesn’t count against my core financial records in a negative way. So if I spend it all on comics and CDs, or if I decide to save up for some really expensive equipment like a new musical instrument or a concert and blow it all in one big purchase, I do it guilt-free. This is all done, of course, after liberally paying myself into various savings/investment accounts, and is done with full knowledge of the clutter that new possessions always create.
A big fat gratz, by the way, to almost making it to this milestone yourself. Be sure to make another post on “the day” and let us know what you experience.
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J.D.,
Congratulations! This must feel absolutely wonderful to overcome such a monumental challenge.
The question I have is this:
Is the concept of living debt free lost on those who have never been in debt? Or, put another way, is living debt free more meaningful to those who have overcome debt?
Currently I have only a mortgage and a monthly car payment (ends in March 08). But other than that, I’ve never had any consumer debt. I’ve always paid off my credit cards, never taken out HELOCs or the like. And though I have a car payment, I don’t consider myself “in debt”. It’s just another monthly payment to me, like the electric or phone bills, except it will be ending in a few months.
To me, living debt free means really, actually being debt free. That every cent in my paycheck after taxes is *mine*, not someone elses. No car payments, no mortgage, no loans.
I can’t ever imagine being in debt like J.D. was, and having to climb out from under such a huge burden, so I can’t really fully appreciate the elation he (or anyone else) must feel after overcoming something like debt. Perhaps in another 26 years or so I’ll feel that thrill
For the time being, I guess I’ll have to live vicariously through J.D.
Seeya,
Paul
P.S. J.D. To celebrate, on the day you finally shed the debt-shackles, I recommend putting on Bad, from the Live Aid show and “throw this lifeless lifeline to the wind”
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I think part of becoming debt free (and we should be debt free, except for mortgage, by the end of 2007) should mean that you get to be a bit more flexible with money and spending. We’ve been pinching pennies all year to pay off our unsecured debt and we are looking forward to not having to pay so much attention to spending and budgeting once we are done. On the other hand, we will have a year’s worth of spending data that will help us set a good realistic budget for next year. We will work on baby step #3, fully funding our emergency fund and we will also save for a baby. We also will work on saving up for some large purchases, a nused car, new furniture, some house projects, etc. We’ll also be investing, fully maxing out our 401ks and IRA’s for each of us and doing some other investing as well.
Most importantly, when we pay off our debt, we will do a happy dance, pop a bottle of bubbly and tell everyone (those that already knew about our 2007 goal).
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J.D. — you can have those lifestyle indulgences that you mention — simply earn a high enough income so that you can “blow” lots of your income if you want, yet still have plenty of money for your other goals like building your emergency fund, paying off your house early, fully funding your Roth IRA’s, etc. Don’t forget that Dave Ramsey drives a Lexus and a Jaguar and has a sprawling vacation home on a lake. Yes, index funds are great, but don’t forget that the investment that people have built their greatest wealth from was their own small business. You’ve already launched your own enterprise, this magnificent business called GRS. Point is, I don’t see any reason why you can’t eventually be on the same level as Dave Ramsey or whoever. I mean, you have talent to burn, sir. So just stay focused on building GRS. There is nothing more important you can do than to build and build and build this site.
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Congratulations!
I realize how hard it is to sacrifice to pay down a debt snowball and that you likely have other financial goals that you want to reach quickly, but…what’s the problem with loosening up a little bit?
As long as you continue telling your money what to do beforehand and making it work for you, there’s no reason you can’t loosen up your budget a little. Have a little more fun money, since you also now have more money to plow into savings and investing.
Personal finance is personal…so you might as well do something that works for you and will keep you on track instead of what you “should” do if it will cause you to lose momentum/interest.
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My wife and I are debt free with only a standard home mortgage and have been living this way for the past 5 years.
With an annual (takehome) income somewhere close to $60k we’re able to live pretty decently but certainly not extravagantly. We make sure to treat ourselves to little things that we like (Warcraft, Netflix, occasional dining outs, etc…) as that’s kind of the point of living life day to day you know. (Not meaning that Warcraft is the point of life
Just the whole “A man can do nothing better than to eat and drink and find satisfaction in his work.”)
Anyway, I’ll tell you the odd thing that is hardest on us about living debt free. And that thing is saving. We’ve got no issue with going into regular “consumer” debt on things like clothes, gadgets, etc… But it’s mighty darn difficult to allocate enough money towards the various goals that we want to save for so that we may continue to live debt free. For instance, we want to save towards the following goals: Roth account, vacation account, college savings account for kids, 2 car replacements, and a future house downpayment.
When you’ve got around $800 left over at the end of a month, that $800 doesn’t go too far into growing those various savings goals.
But hey, it’s a better situation than being in debt and so I’m thankful to be in it. But don’t be surprised that once you’re out of debt you find yourself facing a new (but better) problem.
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When I became debt-free I still lived as if I was paying off my debts, but instead put that money toward saving for specific goals. Over time, living within my means became a habit. By saving up for things instead of caving in to instant gratification that leads to spending more than I can afford, I can now indulge myself without going into debt. I use my credit card all the time, but I never charge more than I know I’ll be able to pay off in full when I get the bill. And because I’m still saving for various goals, I still hear the voice in my head that says, “would you rather buy this fancy new toy that you don’t really need or would you rather take a vacation in Orkney next year?”
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Hmm.. figure out what it is that you really want, but weren’t able to do (or have) when you were in debt. Start saving for it.
For me it is travel. I am not in debt so about half of the money I save goes to my emergency fund and half to my “travel fund”. I am still a student but I’ve managed one or two weeks travel every year, for the past couple of years now. “Do I want a latte or do I want to go to Berlin?” works for me
Congrats on paying off your debt!
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I see people ask this question alot of PF blogs, and it always perplexes me. Do you really not know the answer? It seems rather straightforward to me. You have done alot of work to get where you are. To review, if you are debt free you likely have:
1.) an adequate emergency fund
2.) a plan for retirement
3.) life goals (or at least a goal oriented mindset)
4.) your cash snowball every month.
The answer to me seems obvious:
Step 1: Fill any immediate needs with #4, address emergencies with #1, make sure #2 is on track and bolster if necessary. Use credit wisely, perhaps for rewards or similar.
Step 2: spend the rest of your debt free life contemplating and fulfilling #3, keeping mindful of where you came from and where you want to go.
Maintaining your debt free lifestyle should be child’s play for you at this point.
Also, a hearty congratulations!
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To celebrate, on the day you finally shed the debt-shackles, I recommend putting on Bad, from the Live Aid show and “throw this lifeless lifeline to the wind”
Somebody has been reading deep into the archives at my pesonal site!
(The Live Aid version of “Bad” by U2 is my all-time favorite song.)
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Congratulations J.D.! As some others have noted, you aren’t truly debt-free until the mortgage is gone, but you’ve definitely taken some huge steps by getting rid of all the other debts!
I’ve been debt-free (other than the mortgage) for a few years now, and honestly things don’t change that much, except my savings rate has increased as less money is going toward paying down debts. Other than that, it’s business as usual.
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And icup, I like your “cash snowball” concept. Good name for it.
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I read blogs like this one to get me to focus on saving, even though I have no debt. reading about others’ debt is a great way to keep from taking on any debt of your own!
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What I meant to say was, go out and buy a Hummer H3 and a vacation in Tahoe paid for with all the credit you’ve freed up! You’ve earned it!
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I find the hardest part of being debt free is the propensity to always try to save more.
You’d think at first this wouldn’t be a bad thing, but when you shift from removing debt to building wealth, you don’t want to shoot too conservative. In doing so, you start to limit the speed at which you can grow wealth and become overpowered by fear of losing what you have.
Sometimes you have to take some gambles so that you appreciate what you have more as well as break free from fear, and every so often, hit it big.
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Hi J.D.!
Congratulations to you and your wife for getting this far!
I’m newly “in the black.” I’m staying there because I still have a bunch of financial goals I need to achieve. I can’t achieve those goals if I fall into debt again. I’m just as focused about saving for those things as I am about paying off debt so the inflation in lifestyle hasn’t had a chance to occur.
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Way to go, JD!
It’s OK to allow yourself a few little indulgences once you’ve paid off your debt. The key, I think, is to focus that extra spending on the things that matter to you as a person – a hobby, creature comfort, whatever – while sticking to a frugal lifestyle in the other areas of your life. If you’re worried about spending too much money on those indulgences, you can always set a cap that you can review from time to time.
You can also set specific financial goals like you did with your debt repayment (“I want to have x dollars in my retirement account by Christmas next year”) to keep that extra money from burning a hole in your pocket.
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Find cheap/free ways to keep yourself entertained – I spend when I’m bored. If you must buy new toys (gadgets are my weakness) buy them second hand, the difference in cost between a brand new lump of technology and a 12 month old lump of technology is usually huge.
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JD,
WAY TO GO! I got there myself just last year. I have to admit the first couple of days it felt great. Then I did some thinking of what I really wanted in life. I came to the conclusion that I would like to retire early, VERY early. So that is how my goal to retire at 45 got started.
So now I’m still living mostly the same way as before, but the goal just shifted. So I still face the same problems as everyone else “Do I really need this? Or how bad do I really want it?”
Perhaps in your case your next goal will be to save enough money to afford to shift over to full time blogging.
Enjoy the freedom. You can now chose what you want in life, rather than having your debt chose for you.
Tim
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Congrats!! I am totally jealous and wish that I could be saying we would be debt free at the same time you are. How exciting!
I think that you have had a lot of good advice. But really, what’s wrong with loosening up a bit as long as you pay in cash? I see nothing wrong with living a little as long as you can pay cash for it.
Our future budget (after debt is paid) is 10% savings, 10% spending for fun stuff, and 80% for living expenses (which can be broken down even more if you want).
I’m sure that it will be an adjustment, but what a wonderful problem to have!
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Paul –
I was struggling with this post until I read your message;
“Is the concept of living debt free lost on those who have never been in debt? Or, put another way, is living debt free more meaningful to those who have overcome debt?”
I know that it is a little lost on me. I’m 29 and have never had a credit card or student loan, paid for my cars in cash and have rented apartments rather than take the risks associated with buying a house. It sounds exciting to not have to pay a portion of your income to someone else, but I can’t really wrap my head around how excited some people are. It reminds me of people who tell me “I’ve never been to jail” as though I should praise them. Last I checked your not supposed to go to jail and debt to me is just financial jail.
So to answer your questions. I don’t get the joy of “getting out of debt” but neither did I get the joy of “getting into debt” by buying more than I can afford.
- Joshua
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Congratulations! I will say that the period right after I became debt free was psychologically more difficult than anticipated. I had no debt and yet it seemed as if I had no money either even though I was no longer paying anything down. There were a couple of surprise car repairs right at that period. Also there was a temptation to celebrate by spending money – money that somehow didn’t seem to be there.
It was great to pay the repairs straight off instead of putting it on a card, though. And by about 6 months of putting $ into savings I really started to see the difference. This started a virtuous circle of motivating me even more to save more. First thing I used the savings for was to fund a Roth. Then I took up skiing and saved ahead for trips and equipment. Then for house downpayment. Now it is for long term taxable savings with sub-accounts for a new car down the road and for mad money.
So the early months where it seemed nothing was happening was just a period of building momentum. Go forth and be in the black!
I cut up my credit cards and used debit only for about 5 years while building the savings habit and confidence in myself.
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Congratulations, JD! That’s such a fantastic accomplishment.
I say first, treat yourself a bit. When I paid off college, some friends and I went out for dinner at a fancy-schmancy Italian restaurant. It was the best pear/romano ravioli I’ve ever had, and not just because it was well-made. I figure I put two years of savings into that pasta, making it all the better.
After that, I say keep up with what you’ve been doing. Record expenditures, save for the future, etc. But yeah – definitely don’t forget to reward yourself. Way to go!
P.S. Have you seen Rattle and Hum? The “Bad” version on that made me a U2 fan for life. He breaks into “Ruby Tuesday” at the end. Sublime.
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Congrats, J.D.! That is truly fantastic. I have a ways left to go, myself, but I’m getting there. I hope to join you soon.
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I have been debt-free (other than mortgage) for about two or three years. To be honest, living this way is tremendously easier than living with debt. My car payment used to be $330 per month, and a condition of the loan was having (expensive) comprehensive insurance. No car loan plus less insurance gives me a bit over $400 in additional disposable income every month, without working more hours or sacrificing any comforts or luxuries. When I was snowballing my way through credit card debt, every penny of income above what was needed for food and shelter was going into paying the debt.
Now, on a moderate middle-class income, I have a lot of breathing room. I can save for a new car, or buy a new dining room table, or travel, or do nothing. It is my choice, and that breathing room in the budget makes it possible. I really should be emphasizing savings more than I am, but to be honest, I have such a palpable sense of relaxation, after the years of stress and worry of getting here, that I am not very inclined to make any big changes at the moment. Right now, as long as every month I have added to savings, and not spent more than I can afford, I’m happy with that. Down the road, I think building savings will be a fun and challenging goal, but for now I’m comfortable with incremental progress.
But the question of how to stay debt-free is really important, because it is really easy to drift back into spending too much — I have watched many friends do exactly that, repeatedly (more or less the financial equivalent of yo-yo dieting). I do it by keeping my aspirations in line with my resources. It’s fun to look at the photos in those house-porn magazines like Dwell, but realistically a hillside mansion (and all the beautiful furnishings to go with it) in LA is simply outside of what I can afford. Instead, I aspire to a new couch from Ikea, or repainting the living room. If that is the sacrifice I have to make to stay debt-free, I’ll happily do it.
So as you go forward, and transition to debtlessness in the next few months, I think that keeping your aspirations (material and lifestyle) in line with your income really matters. If you can find happiness in that balance, you are totally set. However, I think a lot of people get out of debt by making big sacrifices, and deferring a lot of gratification, and living in ways that for them are very unnatural and unsustainable. Pay off the debt, relax the vigilance, and they start looking for that deferred gratification.
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I have been able to stay just as focused on savings goals as debt reduction goals and from the sounds for your change in lifestyle, you will be too. I like the concept of a “cash or savings snowball” listed above. I’m now just as obsessively focused on my next savings goals as I was about reducing debt. Set some similar-sized goals as your debts were and tackled them piece by piece. Early retirement is our goal so I sometimes I think about about ours savings goals as one year early at a time.
Also, your goal to work full-time writing will provide another aim. How much do you want in savings before you comfortable jumping forth with that career? That’s a good tangible somewhat short-term goal.
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Congrats! I remember that feeling of paying everything off and being in the black. Now comes the fun part- emergency fund. I’m close to 10K and have opened an IRA. Once I hit the big 10, I’ll fully fund the IRA. I am stumbling through learning how to invest in stocks at the moment. Once the emergency & Roth accounts are fat, it’s investing time. You will not go nuts and get yourself back in debt. You just worked too hard to get out of the hole and you will never want to go back willingly. I really enjoy charting my money market account on the fridge. It is a great motivator. I’m single, making about 37K net and putting about $600-$700 a month to savings (renter, 1994 car). I have a great social life, even with the 600 a month gone, and once your money starts compounding, you feel great. Keep it up!
I have two credit cards. I have used each once since Feb. Both balances paid off in full right away. This was just to keep the FICO score climbing. Enjoy your victory. One other tip- make a list of things you really need, or really want. Knock one off your list every month or two. You will budget for these items and feel no guilt rewarding yourself for these purchases.
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Congratulations!!!
I’ve been out of debt for one year now, and though I’ve also had a bit of yoyo-ing in my past, this time I feel much more informed about how to prevent ever backsliding again.
I want to echo what Perries said — for me it took almost the full year to start to feel like I had some extra spending money. I work freelance, and the first 6 months of being debt free were a dry time and I wasn’t making much at all. Being really disciplined kept me out of debt, but I had nothing to spare. Suddenly I got a couple of good jobs in a row, and now I have some savings and am about to start a Roth IRA for the first time. Anyway, it was not an overnight dramatic change, but finally I’m feeling so much better and have started to buy some new clothes here and there, and go out to dinner occasionally without feeling so guilty (while continuing to be cautious, in case of future “dry spells”.
I guess I’m saying definitely do enjoy it, but in case the rewards seem to come a bit slowly, don’t get discouraged. It can be a gradual process…
Do go out to a nice restaurant or something to celebrate!
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well done mate, but you’re not debt free until you pay off your mortgage. the bank owns your house, not you. if i were you i’d get rid of that last debt and then really have some fun. love the website.
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What I do, and what has worked quite well for me, is to put up barriers between you and your money. My paycheck is directly deposited to my ING Direct account, so that it earns interest from day one. Then, once a month I transfer money to my local credit union to pay bills and for spending money. If a purchase presents itself that doesn’t fit into my spending plan, it will take at least 2-3 days for the money to transfer. It’s a built-in cooling off period and has kept me from making frivolous purchases on many occasions.
Of course, this also means that I don’t have my plasma television…
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Can you smell what Marvel and DC are cooking?
It’s the smell of new comics!
Paid for with cash!
Without going into any debt!
Yeah, it’s evil, but hey – you have earned a new X-Men comic
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I agree with MDJ. Now that you’re going to be out of debt, I’d turn my eye toward the future. The more you save and invest the sooner you’ll attain financial independence (if that is your next goal!)
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I think it best to take things out of the realm of “what do I think” or even “do I need this” questions and, instead, use something more solid and substantial like numbers.
I make X.
a% goes to takes
b% goes to housing
c% goes to healthcare
d% goes to …
etc.
Your income/expenses expressed in a pie chart. Then, instead of going by how you feel or what level of frugal v. relaxed you are, when you do address a question like “can I afford it” or “do I really need (or want) this” you have a real basis from which to know the answer.
It whole picture becomes clearer pretty quickly. If you breakdown starts out like this:
20% taxes
15% retirement
20% housing
10% church/charity
…
Then you see that 65% is already accounted for and you still need health-care, education, transportation, food, clothing, etc., etc. It makes the whole process of spending, for entertainment, luxury, vacations, etc. academic.
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[...] is justified, since debt is paying others for their money and therefore a loss. However, as J.D. pointed out at Get Rich Slowly, many don’t know what it’s like to be debt-free. Here are a few of [...]
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I guess by your definition I am not debt free because we still have my student loans on top of the mortgage (that we put 20% down when we purchased).
When we paid the car off recently, we didn’t really notice a change because I kept moving the money over to a high yield savings account for the next vehicle. I would recommend you do that, so you can build up your emergency fund or save for a goal you and your wife have.
I am attempting to slowly build us up to the $4k that can be put in annually into a Roth. We already max out our company’s matching with the 401k’s. I do this annually when we get our raises. I also adjust our flexible spending. Although inflation happens every year it is my way of keeping us from not adjusting the lifestyle to gain crap we don’t need.
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CONGRATS MAN. There’s no better feeling than a long term goal being set.
That being said, being debt free is wonderful. I have been debt free for over two years, and it’s given me more freedom to invest in other things, such as my 401k, my roth IRA, and my emergency fund. I am continuing to see my net worth grow, and it’s a wonderful feeling.
I have been able to budget and do a little traveling with my extra cash.. and enjoy some new toys.. like my new hdtv and ps3.
But at the same time, nothing changes when you are debt free. You still need the discipline to stick to your goals, because you can easily get off track. There are always temptations. I want to buy a new car, although I know it’s really not necessary at the moment. I want to do more traveling. I want to quit my job. Etc.. All these things are tempting, but I know I must stay consistent and stick to the script. Plus, you never know when an emergency may hit.
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We became debt free in July. After nearly 4 years, 2 months, and $85,000. Our last debt in the snowball was Sallie Mae….
In June, I started to realize the same thing you are realizing. For me it was, this goal that had been on the horizon, out of reach for 4 years, was suddenly here. Let me tell you, it was almost a little depressing writing that check (not too depressing, though;o), because I realized that I had finally reached the top of the mountain in terms of paying off my debt. The journey was the hard part and what I will remember, not the view from above. It is almost like, “well, now what?”.
For us, we are keeping inline with the baby steps. We have about $3000 in the EF now and are going to pump it up to about $6-7K, which should be reached by the end of the year. After that, it will be on to funding retirement, kids college, etc.
In the months since becoming DF, we have finally upgraded our digital camera, thrown a nice 1st birthday party for our son, and done a couple other small things that we didn’t do while paying off our debt.
In regards to your question: We won’t go back to our old habits, because of the struggle it took to reverse the damage. Period. Now, we don’t care what kind of car we drive. I drive a 1996 Explorer & the wife has a 2003 Taurus. Both paid for of course. We don’t have to have an iPhone to get by. Nor do we have to have cable. We are going to get raises in Blow Money, Clothing Money, Gift Money, and charitable giving, but other than that, once our EF is done, we will continue on our path of being wise with our spending decisions. That is how we will keep from spending too much. If there is something we want, we pay cash or save up to pay for it. The same as trying to become debt free, only the goals change. We will determine our goals & an action plan, then work towards them. Best of luck & congrats on this milestone in your life…
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Great job, J.D.!
The only debt in our family right now is our mortgage, and my wife and I are both pretty frugal. I think the hardest part of living debt free for us is setting a spending limit on something we know we need. If you can afford high quality, why not buy it?
Example: our new house doesn’t have enough kitchen cabinet space. We looked into adding a matching full-height pantry cabinet and were quoted over $4000. We looked at some other non-matching options, but it was tough because we knew we could buy the matching cabinet if we really wanted it (with money from savings). In the end, we decided we really wanted the matching pantry, but my awesomely diligent wife was able to find it for just over $2000.
It just means being careful when spending and being willing to put in the extra effort.
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I liked what Katie said: I have been able to stay just as focused on savings goals as debt reduction goals and from the sounds for your change in lifestyle, you will be too.
It’s true. Think of what your financial goals are and be just as aggressive towards them as you are towards the earlier debt-free goals. It really helps you cut back the unnecessary spending, too. When it comes to making purchases, stop and think: Which is more important to me? Spending money on this or reaching my financial goal?
While you shouldn’t live in a way that impedes your happiness, it’s even easier to live below your means when you think of why you’re doing it. Owning 100% of your own house, buying your next car in cash, not feeling dependent upon a paycheck, retirement, etc.
I listen to some well-paid coworkers talk about how they are living paycheck to paycheck and realize that my life is very stress-free because I don’t need my job next month or even all of next year to survive.
Enjoy living debt-free and definitely start hacking away at that mortgage (or balancing it out with investments)! Congratulations, you deserve to celebrate. Go ahead and post about it every day if you wish, I wouldn’t mind.
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oh yeah.. and enjoy yourself and buy some new comics bro! you deserve it!
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A book I read on the subject says that you could apply the extra money towards paying down a mortgage or building up savings and investments.
My suggestion would be to sock away at least 50% of what you were paying to credit cards in order to build wealth. That way, maybe you can retire some day before your eligible retirement accounts become available for use (if that is your desire). I think then you could start funding some ‘dream accounts’ such as big ticket purchases, fancy vacations, etc. You’ve earned those indulgences.
That said, I am just starting the journey down the debt elimination road…
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This reminded of Shawshank Redemption with regards to inmates not knowing how to live their lives after being institutionalized for so long. We, too, will have our debt paid off soon after a long, focused effort and I’m looking forward to seeing that “asset” column in the net worth spreadsheet start climbing. Congrats and I enjoy the blog!
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One way to not be tempted to inflate your lifestyle after emerging from debt is to have new goals. Saving for retirement and paying your mortgage off early are worth pursuing.
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