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A place for Get Rich Slowly readers to ask questions
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 Post subject: Life after debt...then what?
PostPosted: Fri Apr 13, 2007 8:00 am 

Joined: Wed Apr 04, 2007 8:45 pm
Posts: 18
I'm a big fan of the GRS site, and I've visited several of the sites of regular posters. Most are in a situation similar to JD...they're working on their debt, and winning the battle. While some are taking various paths to get there, everyone is on a course to be debt free...bravo.

My question is "what then?". Once you've paid off all debt (including mortgage), you've got a nice nest egg started for retirement...then what? I assume that laying on a deserted beach is out of the question due to cost, and just quitting your job and roaming the land "like Cain in Kung-fu" is off the plate, since ultimately, that'll eat into your retirement as well (and you may live for quite a while).

So I'm posing the question. Besides dancing around and celebrating, what are you planning to do once you're completely debt-free?


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PostPosted: Fri Apr 13, 2007 8:12 am 

Joined: Thu Apr 05, 2007 3:05 pm
Posts: 1328
That's a great question and I'm keen to see what others say.

I became 100% debt-free about four years ago, although that situation will change sometime in the next year as we're planning to buy a house. At that point I'll be saddled with by far the biggest debt I've ever had in my life! But at least it will be productive debt.

Nothing much changed for me after I got rid of my debt, except that my savings increased substantially...in fact that's why we will be able to afford to buy a house now. The thousands of dollars a year that I had been putting toward paying off my debt are now going into saving for a house and retirement. Plus, the hundreds of dollars a year that I used to pay in interest have now been transformed into hundreds of dollars a year that I receive in interest. I like that.

But apart from that, everything's pretty much the same...I'm just not in debt, and apart from the house I don't expect to ever be in debt again.

There's a big difference between "debt free" and "financially independent." For most of us, getting rid of our debt just means tossing off a stone that's been around our necks. But it doesn't mean we can quit working or anything like that.


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PostPosted: Fri Apr 13, 2007 8:55 am 

Joined: Thu Apr 05, 2007 8:01 am
Posts: 243
I like to take Warren Buffett as an extreme example to answer this question.

What changed in his lifestyle after Warren Buffett made his first million? Not much.
What changed in his lifestyle after Warren Buffett made his first hundred million? Not much.
What changed in his lifestyle after Warren Buffett made his first ten billion? Not much. (Except a personal Gulfstream jet.)

This might be heresy on this forum, but I believe being a wealth accumulator is not about specific goals and objectives. It's a lifestyle.

squished


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 Post subject: After The Debt Is Over...
PostPosted: Fri Apr 13, 2007 10:21 am 
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Joined: Thu Apr 05, 2007 3:45 am
Posts: 20
Location: St Petersburg, Florida
I think that for me, being debt free is about flicking the switch on what exactly I want to do with my money.
After paying off my mortgage, my credit cards and my car, which are things, I plan on then focusing on saving up and purchasing memories.
Travel, travel, travel.
I want to buy plane tickets rather than the latest DVD or CD.
I want to buy train tickets rather than a Nintendo Wii.

Memories, not things, is my new spending mantra.

- Bill

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PostPosted: Fri Apr 13, 2007 6:11 pm 
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Posts: 948
Location: Portland, Oregon
I like Bill's mantra.

Though I have a long way to go before becoming debt-free, I can see a future in which I've paid everything off. As I've said many times before, I hope to have all non-mortgage debt eliminated by March of 2008. Maybe even by December of 2007. After that, I need to beef up my emergency fund and fully fund my Roth IRA. But then what?

Then, I think, I'm going to pay off my mortgage. I know there are many arguments against it, but when I think about it, I realize that the payment really takes away a lot of freedom. If the house were paid off, I'd be able to choose whatever job I pleased regardless of income. The real question, of course, is how long would it take to pay off the house. ("A long time," is the right answer.) I'd like to try.

I'm fortunate to be making money from writing, which is a hobby I love. This is something that I can easily continue even after quitting a regular job, and it ought to continue to provide income.

I look forward to testing these premises!


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PostPosted: Fri Apr 13, 2007 9:11 pm 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
I just became debt-free, though more by chance than anything. We did very well on our first property and made enough to nicely furnish our new home and pay all non-mortgage debt (student loans, car loan, and line of credit). Right now my 1-2 year goal is to heavily contribute to my wife's RRSP (maximized by the end of two years). My wife and I will also be flipping properties for the next 3-4 years (on the order of one new house a year) which, with a little luck, will eliminate our mortgage debt. That's what I'm particularly excited about as I sit on the doorstep of being mortgage free by 32. With RRSPs maxed out and the mortgage gone, we'll be in excellent position to invest significant funds for the long-term and save for the creature comforts in the short-term.

It's hard to say where things will end up. At this point, a lot depends on our mortgage situation. If the market cools, I'll shift gears and probably both inrease my bi-weekly payments and make a lump sum payment every year. I think we'll continue flipping for a bit since it's relatively easy money.

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PostPosted: Sun Apr 15, 2007 6:23 am 
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Joined: Thu Apr 12, 2007 8:10 pm
Posts: 109
Location: pa
i was debt free for about 2 months, then finally bought a house and moved out of my moms... it was a great 2 months

i don't forsee getting debt free anytime soon, ive only been paying on my mortgage for 15 months so far, but i only plan on living here another year and selling it. similar places in my neighborhood have already increased in price by 25%, ill make enough profit to move into a bigger place w/ more of the stuff i want in it and still have the same monthly payment - thats the goal anyway

if you have totally rid yourself of all debt, its time to sit down w/ a finanical advisor that you trust and look towards making some short and long term goals. depending on your age, making 1-4 year very aggressive short term goals can yield great results while the other 65% of your money starts to go towards longer term things.

don't forget to have fun too! go on vacation, take a cruise, do some things that you will enjoy

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 Post subject: Debt-free
PostPosted: Sun Apr 15, 2007 2:59 pm 

Joined: Wed Apr 04, 2007 9:50 pm
Posts: 752
Location: Vancouver, Canada
I don't plan on ever being debt-free, at least not before I'm 70. The only debt we have right now is for our mortgage. But we live in Vancouver, where, when we move to a house, it's going to cost at least $900k for a fixer-upper. We had set out with the goal of eventually being mortgage-free and we decided to buy a lower cost home while our children are under 5. But then houses in a decent school area went from being $400k to $900k+. So much for trying to live on a modest budget. Now we're going to have to fork out an extra $2k a month, instead of the $800 we'd hope to postpone.

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 Post subject: Re: Debt-free
PostPosted: Sun Apr 15, 2007 3:43 pm 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
consultantjournal wrote:
I don't plan on ever being debt-free, at least not before I'm 70. The only debt we have right now is for our mortgage. But we live in Vancouver, where, when we move to a house, it's going to cost at least $900k for a fixer-upper. We had set out with the goal of eventually being mortgage-free and we decided to buy a lower cost home while our children are under 5. But then houses in a decent school area went from being $400k to $900k+. So much for trying to live on a modest budget. Now we're going to have to fork out an extra $2k a month, instead of the $800 we'd hope to postpone.


I don't suppose relocating is an option? What about going with a longer amortization, investing the difference and (assuming the investments appreciate faster than the mortgage interest accrues) pay off the mortgage that way?

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PostPosted: Mon Apr 16, 2007 9:16 am 

Joined: Thu Apr 05, 2007 8:43 am
Posts: 14
Location: Portland, OR
I think this is an excellent question. I sometimes refer a post that J.D. placed on GRS some time ago regarding short, medium, and long term goals. Being debt-free is a medium term goal in my mind. Hopefully, its successful completion will lead you to be in a position to achieve your associated long-term goal. If your ultimate goal is to be debt-free, then you may be in trouble. It is not, in and of itself, a satisfactory achievement for a good life. It gets you in position, but that is about all.

I don't know this for a fact (maybe others can assist), but I think I read somewhere that debt for the masses is a fairly recent phenomenon. My opinion is that debt is a negative, kind of like being over-weight. We look at getting out of debt as a big achievement. But really we should have not gotten ourselves there in the first place. It is like getting back to square one.


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PostPosted: Mon Apr 16, 2007 10:46 am 
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Location: England
I'm not sure that debt is a recent phenomenon. I believe that one of the reasons that the co-operative shops were founded was to stop people being tied into one expensive grocer's because they were reliant on their credit.

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PostPosted: Mon Apr 16, 2007 1:43 pm 

Joined: Wed Apr 04, 2007 8:45 pm
Posts: 18
DC Portland hit the nail on the head. I think we can all agree that there are inifite paths to decrease debt, but the real question is, what then? Many have answered that they will continue to save and invest...that's great, but what do you plan to do with all that money? Swim in it, like Uncle Scrooge (from the cartoon series "Duck Tales")?

I liked hearing about JD's writing plans...he's a good writer, and I can see that working out. As for the rest of us, I feel like it's important to have an end goal beyond just being debt-free. I'm at that crossroad now, and while it's a good place to be, I'm relatively clueless about what to do next. A good problem, but a problem none-the-less.

Many of the regulars to GRS are extremely goal-oriented folks. One of our primary goals is debt reduction. What happens when all financial goals are accomplished? Do you plan to switch careers for something new and exciting? Rest and relax, perhaps working part-time? If you plan to continue saving to your current extent, to what end?


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PostPosted: Mon Apr 16, 2007 2:10 pm 

Joined: Thu Apr 05, 2007 3:05 pm
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I think what you do (and indeed what you CAN do) after becoming debt-free depends crucially on many other factors, such as how much you've saved, the kind of lifestyle you want to live, etc., so there's not going to be one answer.

Many people have an end goal of financial independence, saving up enough money to be able to work part-time or not at all if they choose to. Getting out of debt is the first step toward that goal, because you can't be financially independent if you have debt. But the next step toward financial independence is to invest enough money (and reduce your cost of living) so that you can live mostly or entirely off your investments. That can take decades unless you're lucky or you started really young.

Personally I'm not working toward total financial independence, but I do want to get to the point where I can cut back and work part-time if I want to. For me that means buying a house and paying it off as quickly as I can, within 10 years or less if possible. So once my debt was eliminated I shifted my attention to saving up enough for a significant downpayment (more than 25 percent) on our first home. Then once we have our home and I pay off the mortgage quickly (assuming I can maintain my current income level), I'll be free to quit my current job and do something else, or downsize my current job to a part-time gig.

On the other hand, another goal that has been growing increasingly important to me is philanthropy. It's important enough that I'm diverting 10 percent of my income to it this year, which will slow my progress toward owning my own home significantly. But I've always felt like a donation means more when it involves some sacrifice, and the projects and people that I'm supporting are becoming more important to me than any selfish plans I might have for my money.


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 Post subject: Re: Debt-free
PostPosted: Mon Apr 16, 2007 3:52 pm 

Joined: Wed Apr 04, 2007 9:50 pm
Posts: 752
Location: Vancouver, Canada
quadraphonic wrote:
consultantjournal wrote:
I don't plan on ever being debt-free, at least not before I'm 70. The only debt we have right now is for our mortgage. But we live in Vancouver, where, when we move to a house, it's going to cost at least $900k for a fixer-upper. We had set out with the goal of eventually being mortgage-free and we decided to buy a lower cost home while our children are under 5. But then houses in a decent school area went from being $400k to $900k+. So much for trying to live on a modest budget. Now we're going to have to fork out an extra $2k a month, instead of the $800 we'd hope to postpone.


I don't suppose relocating is an option? What about going with a longer amortization, investing the difference and (assuming the investments appreciate faster than the mortgage interest accrues) pay off the mortgage that way?


Relocating isn't an option, as it would put us even further away from family than we are now. My husband is in software and any place with good jobs would entail an expensive home.

I'm not sure what you mean by a longer amortization. If we go with the longest available amortization (35yrs), we'll still be 70.

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 Post subject: Re: Debt-free
PostPosted: Mon Apr 16, 2007 6:52 pm 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
consultantjournal wrote:
quadraphonic wrote:
consultantjournal wrote:
I don't plan on ever being debt-free, at least not before I'm 70. The only debt we have right now is for our mortgage. But we live in Vancouver, where, when we move to a house, it's going to cost at least $900k for a fixer-upper. We had set out with the goal of eventually being mortgage-free and we decided to buy a lower cost home while our children are under 5. But then houses in a decent school area went from being $400k to $900k+. So much for trying to live on a modest budget. Now we're going to have to fork out an extra $2k a month, instead of the $800 we'd hope to postpone.


I don't suppose relocating is an option? What about going with a longer amortization, investing the difference and (assuming the investments appreciate faster than the mortgage interest accrues) pay off the mortgage that way?


Relocating isn't an option, as it would put us even further away from family than we are now. My husband is in software and any place with good jobs would entail an expensive home.

I'm not sure what you mean by a longer amortization. If we go with the longest available amortization (35yrs), we'll still be 70.


I don't mean taking the full ammortizsation to pay off your mortgage, just using the longer term to reduce your mnthly costs freeing up more for investing. I'm making the assumption that the inv estments will grow faster than the interest on your mortgage increases which means that by investing the difference, you'll ideally be able to pay off your mortgage faster than by putting all your money into it at the onset.

What about flipping properties? By purchasing new homes and locking in the price, you'll appreciate on two properties at once while only having to make mortgage payments on one at a time. My wife and I are doing that now to pay off our mortgage (mind you, we live in Sherwood Park, just outside Edmonton and are certainly benefitting from the hot market right now). Regardless, in any market that property value is increasing, it's a good way to make money for nothing since you'd be paying a mortgage anyway and, provided each home is a principal residence (I believe for at least 6 months, though I might be mistaken), you won't have to pay capital gains on the profits.

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