Officially Debt Free

Have you paid off your debt? Managed to save for your dream home? Had an awesome investment pan out? Share your personal finance success stories here.

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RICKLEE
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Officially Debt Free

Postby RICKLEE » Fri Oct 12, 2012 4:09 am

It began with an argument with my wife. Driving to Buffalo, New York, with my niece and daughter in the back. She started it, bursting my peacefulness with tension.

My wife said, "what are you going to do, about your Debt?"

I said, "WE have debt because we are invested in a stock portfolio. It earns dividends and earnings at a rate of return greater than we are paying interest on our lines of credit."

She complained, "But it's so high, you're almost ninety thousand dollars in debt."

I expanded, "Actually, it's higher than that. The ninety thousand is with the first bank, RBC. Add in our 2nd and 3rd debts, with TD and PC financial, our total debt is one hundred and eight thousand dollars."
I added my usual ending "don't worry. We're fine. Over time, the excess income will grow as the economy expands, and as our businesses that underlie the stocks grow their earnings, and as they increase their dividends, and as we reinvest the dividends. During that time, interest rates should stay low for the foreseeable future."

That was a LOT to digest. She was silenced by that.

Now I was a pleasant place, in recall mode. A light rain began. We paid off our mortgage in ten years. After the stock market crash in 2008, I fired my wife's investment advisor with Wood Gundy, and selected stocks for our family during 2009 and the following years. Our dividend income was double our interest payments, so the cash flow was positive. The problem was I was not employed but she was and was paid well, but she felt the pressure of being the sole income earner - from a JOB perspective. Our portfolio income and occasional capital gains realized from stock decisions - which was my responsibility - was not in her calculations.

She broke the silence "I want you to get rid of all your debt. Immediately."

The light rain began to pour. I protested "But it's not economic to do so."

She added "I don't care. Get rid of it".

I got silent again. An angry silence. After I calmed down, approaching the Burlington Skyway, I thought: I have to liquidate our TFSAs, our Trading Accounts, leaving our RRSPs alone. I sighed at the selling of those great companies, stopping the flow of dividends, crystallizing capital gains which should be higher if we just held on until the market reached their intrinsic values.

I said in surrender "Okay. I know how we can do it. Give me a few days to sell all the stocks. The debt will be paid next month."

She was quiet, and happy. I however, was miserable. All my research, decision making, and disciplined investing learned through hundreds of hours of reading, watching, and talking to others, brought to an abrupt halt.

It took about 21 days for the trades to settle and the cash balances and cheques to arrive and get deposited and cleared to the Lines of Credit.

At the end of September 2012, we were Officially Debt Free.


RICKLEE

p.s.
I am still getting used to the feeling of debt-free living. It's a lightness, but it's not an exhilarating change. We eat the same food. Drink the same wine. Listen to the same music. Wear the same clothes. Have the same friends.

I have tracked what would have been our stocks values - after I sold them. In the first 30 days after our debt-freedom, we would have been at least five thousand dollars better off if we didn't sell out. The opportunity cost of a happy wife is an investment in its own right.
RICKLEE

VinTek
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Re: Officially Debt Free

Postby VinTek » Fri Oct 12, 2012 8:48 am

RICKLEE wrote:I have tracked what would have been our stocks values - after I sold them. In the first 30 days after our debt-freedom, we would have been at least five thousand dollars better off if we didn't sell out. The opportunity cost of a happy wife is an investment in its own right.

Is that $5K net? Did you take into account the taxes you would have paid on dividends or the interest you would have paid on the loans? If not, you're being yourself over the head with phantom numbers.

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RICKLEE
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Re: Officially Debt Free

Postby RICKLEE » Fri Oct 12, 2012 6:18 pm

VinTek wrote:
RICKLEE wrote:I have tracked what would have been our stocks values - after I sold them. In the first 30 days after our debt-freedom, we would have been at least five thousand dollars better off if we didn't sell out. The opportunity cost of a happy wife is an investment in its own right.

Is that $5K net? Did you take into account the taxes you would have paid on dividends or the interest you would have paid on the loans? If not, you're being yourself over the head with phantom numbers.

It was net number for incremental capital gains, without tax cost, given capital loss carryforwards for any holdings outside the TFSAs. The interest cost was less than the dividends already.
RICKLEE

partgypsy1
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Re: Officially Debt Free

Postby partgypsy1 » Wed Oct 31, 2012 7:45 am

You know what? I side with your wife. I am a naturally conservative person, and any stock monies, etc, are unrealized until the stocks are sold (setting aside dividends). Aside from a mortgage I would not be comfortable with 100K in debt, even if we had an equal value in stocks. I am glad that you took your wife's feelings into account in your decision. And any money you invest from now on, will be free and clear of any debt. Now THAT's a great feeling!

Congratulations :clap:


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