When I began my debt-free journey my debt load was roughly 50% of my annual take-home. It felt overwhelming but worse, it impacted how I moved through the world. I made choices based on a lack of finances. Sometimes I felt embarrassed. One time while buying cheese, crackers, and beer, my debit card was declined.
We equate financial stability with social worth. We admire people we believe are financially well off. Even if they are financed up to their eyeballs. People who are deep in debt don’t tell you. They allow you to imagine that they make a lot of money and that they have a deep well of resources. They want you to think that saving money or budgeting isn’t something they would ever have to worry about. There is shame associated with not having enough.
Are you keeping up (with the Joneses)?
For some keeping up with the Joneses is a natural part of life. I had a conversation with a friend who recently bought a floating home at the top of the market. She said she had never been out of debt since she was eighteen years old. My friend has two college-age children and is well into her fifties. No doubt her dual-income family make it work for her, but she admitted she had concerns over her finances and said she didn’t have a plan for retirement. I don’t believe that retirement is for everyone, I have the feeling she thought retirement was something she would do one day. I feel sorry for her. It’s too much stress to live like that.
Here’s a dose of reality. Almost none of us will ever be the next Beyoncé or Oprah. That level of wealth isn’t a realistic goal. For the rest of us, it would be beneficial if we were honest about our finances. False advertising serves no one. Parading around acting like you have unlimited resources, will catch up to you. Eventually you will be “found out”. It’s stressful to consider the social impact of not being able to afford the lifestyle all your friends have.
Be honest about who you are and what’s important to you
I know. I “kept up” for ages. But eventually, the toll was too high. Now I’m forthright about how I want to spend money, and it’s not on impressing others. I prefer to engage with people I love. I like to get out for a long walk or hike. I will splurge on international travel. I’m more interesting to chat with and be around because I have a wealth of experience I can share with others, versus a pocket book depleted of wealth because I want to impress my neighbors.
Here are the steps I took ~ it’s a road map for you to modify as needed
· Take an honest look at your finances. Make a list of all your debt ~ including car loans, credit cards, mortgages, and personal loans.
· Identify the loan with the highest interest rate. Pay this off first.
· Pay all other loans on a timely basis; pay the minimum plus a little extra, for example, $50.00 each month while you are paying down your highest interest rate loan.
· Buy nothing that isn’t absolutely necessary until you are out of debt. Be hard on yourself. You’ll learn financial discipline and it will stick with you for the rest of your life.
· Once your highest interest rate loan is paid off, take all the money you used to pay off that loan and apply it to the next highest interest rate loan, plus the minimum you were paying and the added amount ($50.00 example). Keep following this process until all your debt is paid off with the exception of your mortgage if you have one, that will take longer to pay off but is well worth looking into paying off early. I realize you get a right off on your taxes, but you have to assess if the write-off is better than a retirement account. Everyone’s finances are personal so you’ll have to do the work to understand what you need.
· Create a spreadsheet to track your success. When you look back on your hard work it will be motivating.
· Find ways to entertain yourself that are free, like going for a walk, visiting with favorite people in person or over video calls, or playing cards. Join a Meetup group with similar interests. Learn to use your local library, and then read a book.
· Learn how to cook.
· Only buy items you absolutely need.
· Celebrate success with a nice walk and a pretty view versus “treating yourself”.
· If you have a windfall like a bonus or tax refund, use it to pay off debt.
· Find areas to save money and apply that amount to pay off debt. For example, are you paying for cable programming, gambling, going for drinks every week, or eating at restaurants on a regular basis? Stop.
· Stop using retail therapy to make you feel good. Find hobbies or tasks that help you feel accomplished. Take up jogging or yoga. Meditate. Take up journaling.
· Don’t establish an emergency fund until you have your debt paid off.
Here’s my road map
I paid only the minimum plus $50.00 on both my car loan and my student loan and put the rest of my income after rent, utilities, insurance, gas, and food towards my highest interest rate credit card.
If I had any windfall it went towards my credit card. By windfall, I mean that when I got a bonus or when I got a tax refund it went to my credit card. After twenty months of diligence, I eliminated approximately $14,000.00 in credit card debt . It was a big relief to be able to move forward with focusing on paying off my student loan after that, I was able to pay that off in just nine months and finally, I was able to pay off my car loan in just five months. I paid off all my debt in thirty-four months. That was in 2011 and I have not had debt since.
The concrete value of having no debt is seen in my life example. I quit my job at 50 years old and traveled the world. Because I have no debt. I’ve visited over 20 countries. Having no debt means that I can work at a regular job as needed, but pursue my passion for writing when I feel inspired. Having no debt means I don’t worry about how to pay my bills because I have few. Eliminating the worry over debt and finances allows for personal freedom and allows for choice.
No debt allows me more choices
Here is an example of choice and what financial freedom can buy. On the first international trip I took with my spouse we visited Turkey in 2013. We conduct all travel as independent tourists. We rarely book tours. In Turkey we were lost looking for the bus station. We were eventually able to get help, but it was difficult since we don’t speak Turkish. Having funds to catch a cab, book a hotel, or pay for assistance helped me feel highly confident. I was lost in Turkey, and it was a non-issue. Being lost enhanced our experience. We were assisted by extremely kind Turkish people. Our experience created a fantastic memory that I hold close to my heart. I had cash to solve my problems. Had I been broke, that experience would have been less pleasant and more concerning. I have financial freedom because I’m not bogged down in debt.
Emergency fund?
I did not create an emergency fund until I had all my debt paid off. Savings accounts pay very low interest, and in no way offset the massive interest you pay on loans or credit cards. Even if your emergency fund is in an investment account, you’ll not be able to earn as much as you pay in interest, especially if you have credit card debt. Once I had no debt I established an emergency fund and investment funds.
I conducted an exercise to understand the maximum I could contribute to a retirement fund that would keep my take-home pay close to the same amount I was accustomed to. It was a challenge, but I was able to figure it out to an amount I will call “close enough”.
This method of focusing on one problem account with a very high-interest rate, and paying it off first worked well for me, not everyone will have the same result. If you are in a relationship, paying off debt may be more challenging. Your partner may have different ideas about debt. That was not my experience so I can’t speak to how to overcome that challenge.
The caveat is that I’m not a finance pro, health pro, or other “pro”, I’m a writer, and all the advice I give is based on my personal experience.
If you want to learn more about my journey and my ideas about paying off a debt you can pre-order my book “Never Worry About Money Again: Gain Financial Freedom by Becoming Better at Managing the Money You Have” due out in print and eBook in February 2023. If you aren’t ready to commit to reading my book keep learning more about my experience, and how you can become a ‘frugalite’. You can subscribe to my blog below.
If you would like to know more about my thoughts on working after the traditional retirement age, you can buy my book “Your Golden Ticket Years: Find Your Passion on a Post Career Entrepreneurial Ride” on Amazon.
