Image by JollyUK
I wrote a lot about debt-free living over a year and a half ago, when I first started this blog. But I haven’t talked about it in awhile. I want to tell you this: we’re almost debt-free. We do still have a mortgage (and a plan to pay it off in about 5 years), and we’ll be paying the last of the one remaining student loan next month. We have no other debt. That wasn’t always the case, and this journey hasn’t been easy, but it’s worth it.
Why would you want to choose debt-free living? It’s just another way that is counter-cultural. Most people these days enjoy the “freedom” that credit cards, home loans, car loans, and so on give them. But really…is it freedom? And what are you teaching your children about the value of money when you spend what you haven’t earned and don’t actually have?
Debt-Free Living
Real freedom lies in being debt-free. When you have debt, you do not actually own any items on which you carry debt. Unexpected circumstances (like a job loss) could destroy you financially, because anything on which you carry debt could be taken from you. It is not yours. You are riding on the hopes that nothing bad will happen.
In contrast, when you don’t use debt to puchase items, you do not have to worry. We saved up cash and bought our van (a 2003 model purchased in 2009), and our new furnace. Even if something happened, we’d still own that car, because it is ours. We don’t owe anyone.
Debt-free living also means that you are spending money you have earned. It is important to our family to work hard to earn money, and then to spend that money carefully. We are teaching our children the same. We do not believe that people are simply entitled to have things that they have not earned, and we don’t ask for things that we haven’t earned. We choose to live a much more modest lifestyle than those around us…despite that we likely make a lot more money. (That was not always the case…and it was tough to live on the $35K per year or so that Ben earned right out of college…but we did, and we paid down debt too.)
It also allows you to save up extra money for emergencies, so that when things do crop up, you don’t have to scramble or rely on credit to save you. We’ve had an emergency fund of at least $1000 for almost four years now (it may be several hundred more now; I don’t know as I don’t handle it and we haven’t had to dip into it). On the rare occasion that something did come up (once, just a couple months after we originally set it aside), we did not have to worry at all. It was simply taken care of.
Debt-free means freedom!
How to Be Debt-Free
Deciding you want to be debt-free requires a total shift in thinking and a lot of discipline. Instead of thinking, “Well, I can afford the payments,” you need to think, “I can save up the money and then buy.” Payments on most things (like cars) are, frankly, dumb. Especially with the way most loans are structured, you may end up paying twice what the item was originally worth by the end of the loan! Certainly you’ll pay a lot more.
Instead of buying everything new, buy used. Instead of buying whatever you “want,” think about what you really need. “Do I need that new shirt? Could I get one like it at Good Will?” “Do we need a new TV, or could we wait?” “Do we need new storage items, or could something we already have work?”
It is possible to save quite a lot of money by cutting out things that just aren’t needs, but are commonly thought of as needs in our society. These include:
- Restaurant meals
- Gourmet food (there are lots of healthy, nourishing foods you can prepare without gourmet items)
- Entertainment (movies, golfing, etc.)
- New cars (used works just as well)
- Large, fancy houses (smaller and less-fancy are fine)
- Electronics (no, you don’t need an iPad)
- New clothes (hit the thrift stores)
- Cable/TV packages
- Internet
- Cell phones (you can use a trac phone for emergencies if you need to)
- iPhones with fancy data plans (do I even need to explain why?)
- Air conditioning (I lived without for FOUR years, including during two pregnancies)
- Vacations (a luxury; not a necessity)
There are a lot of things you can cut from your budget! Sell your car and buy a $1000 clunker for a few years. Get rid of your cable, internet, and cell phones (especially if they have expensive data plans). Stop going out to eat. Reduce your food budget (see some of my recent posts to learn more). Buy a smaller house. Turn down the heat and turn off the a/c; open a window instead (box fans in a window provide a pretty nice breeze). Buy any clothes that you really need at thrift stores, but evaluate before you buy if you really do need them.
We do most of these things even now…and we are basically out of debt!
It’s amazing how much you can squeeze out of a tight budget when you take a hard look at it. I’ll admit that I really hated (and sometimes still hate) doing budgets, because I don’t like having to say, “We can’t afford that.” But I do not want to get sucked in to the ‘entitlement’ mentality. When we are completely out of debt and have begun saving more for our retirement, children’s college, and a larger emergency fund, then I will feel free to enjoy the money we’ve earned.
We’re not there yet.
We have paid off over $100,000 in debt over the last four years. And a large chunk of it was paid when we did earn only around $35,000 per year!
It is important to note when I am speaking about the entitlement mentality and I say things like “we don’t owe anyone,” I am speaking about money, finances, and “stuff.” I am not speaking from a Christian perspective on things like treating people gently, helping those truly in need, etc. That is not entitlement; that is our calling to love one another. We must understand these are very different areas of life. We truly are not owed any particular standard of living or any certain stuff; we should, however, bless those around us and hopefully receive blessings as well if we are in need.
It is possible, it isn’t easy, and it is worth it. In the coming weeks I’ll be talking a bit more specifically about the “how to” and sharing other bits of our story.
Are you debt-free, or do you want to be?
This year we started focusing on paying down debts (especially with the baby coming!)- a lot of people in our church did dave ramsey's 'financial peace university' and we listened to their comments and took some hints from there.. we payed off smallest debts first, doubled my car payment, anything we paid off we took the money we were paying on payments towards that and applied to other areas. since last summer we have paid off a dental bill, credit card, and my car. although we heard we will be getting charged 150 bucks for early payoff of my car (terrible)- my husband's car was a lease and we did a buy out option (since he has a ridiculous amount of miles) -we were approved at 2.5% interest rate and still owe 11k on it but we reduced our payments by close to 100. That combined with not having my car payment helps a lot. i do find it disheartening to know that all that money + the 100 bucks we have been saving each week in order for me to take maternity leave will all go to childcare costs. It is not feasible for me to not work because then we would not be able to pay bills so we have to go to daycare. i do not have family that lives close enough to watch the baby and therefore we will end up spending $760 a month in childcare costs. That is $760 that could be going to debt but we decided to have a child so this is what i have to deal with. We still plan on paying off things as we are able and paying more than minimums, paying off the small debts (we have a few small loans from school that are 1000 each i think we could pay off easily) but it will just be slower. I also have close to 90 k in school debt (probably 110k with both of our school loan debt) and that really depresses me to think about – but i did not have any financial assistance from family and i did not want to give up going to college or waiting and risk not going back. Yes I did have grants and scholarships but obviously not enough.I also have my masters degree but in Social Work so It is not like i am earning BOKU bucks.. Could I have done things differently? probably- but this is the bed i made so now i have to lie in it. I am just focusing on paying what we can and praying God will encourage us and help us find more ways to save and put away. but it does get hard at times and i think 'there's no way we are going to be able to afford another child' or 'how will we ever get out of debt' but i am trying to focus on the small accomplishments (like the small 1000dollar loans we can be paying off) if i focus on all the other things i will get too discouraged.
so i guess the moral of the story is – do what you can, celebrate small victories and don't give up! there's light at the end of the tunnel! and be grateful for all the blessings you do have!
We are debt free too and will never have debt (with the possible exception of a mortgage) again. We are big fans of Dave Ramsey and used his plan to get debt-free. We made our last payment in May 2006. It is amazing the freedom we have when we aren't tied to debt. In my mind, it's just one more way we are living simpler, more peaceful lives. Kudos to your family for your huge commitment – keep up the good work!
http://chaospatrol.blogspot.com
I would appreciate hearing more of your personal story about debt. As a young couple who both have graduate level degrees, we have about $150,000 in school debt. We want to be debt free, but we also don't regret our choices that got us here. We would not have been able to pay for my husband's education any other way until he was 30 – and to be honest, during the wait he wouldn't have made enough money to pay for it! As a physical therapist, school is just ridiculously expensive. So for us, the journey now is…how to get rid of this debt! We do live in an expensive area (Alaska) where food, fuel, etc. is much more expensive so that does make a difference. But we're trying! We're waiting to have kids at this point, so I'd like to get this debt paid off as quickly as possible…or at least to a more manageable, sustainable amount. We don't own a home, so this is the debt…school. So anyway, I'd love to hear your story because it sounds inspiring!
Alaina-
I am glad I am not the only one! What i get really tired of is all the people who chastise you for having so much school debt. or they till you that you should have waited or just 'worked' to pay it off. Well i worked in school but it was just enough to pay my living costs.. I like the info i hear from Dave Ramsey but as i understand it he thinks people who have school debt 'aren't trying hard enough' it makes me mad because i worked so hard to get where i am and NO ONE helped me. If i were to not have gone to school or just gone to a community college i would probably still be in school and probably not have the same job that i have now which I love. it is hard to get by without having an education these days and unfortunately it is so out of reach for so many people….
We worked so hard to get out of debt (minus our mortgage)…it has been one of the best decisions we've made in our marriage. Hopefully we can teach our children how to live debt free … I love not 'going with the flow' when it comes to our finances. There really is freedom in it!
I blogged about our journey to debt freedom if you're interested
http://beinggentlyled.blogspot.com/p/debt-story.html
Great post! If we as Americans tried to live debt free as much as possible, maybe our government could get the hint as well. It isn't easy, as you said, but in the end there is so much more peace.
After reading Dave Ramsey's book, we decided to pay off all our debt…even before the date required to start paying off student loans. As a result, we had paid off all my hubby's student loans BEFORE he graduated from college! It's a great feeling to have a 2004 Honda Civic (owned outright), no student loans, and no other debt. We even have an 8-month-emergency fund "just in case." It's a wonderful way to live! Thanks for this post. Good luck on your debt-free journey, Kate.
I think it can be difficult to judge whether something is worth draining your savings for if it can be reasonably financed. We have no credit card debt, but we do have a student loan and a car loan even though we have enough money in savings to pay them off. We prefer to have a large emergency fund and work payments into our monthly budget. In some situations, debt isn't horrible as long as you do have the money to pay it off in the event of an emergency. The nice part about paying in installments is that, say an emergency comes up–you wouldn't be able to sell your depreciated car to come up with cash and you can hardly "return" your education, but if you have cash to cover the emergency, you can cut back in other areas to make payments on your loans, or defer them if absolutely necessary. Everyone needs to do what is best for their own family, but I would personally not be comfortable having $1000 in an emergency fund, since there are not many emergencies that can be resolved for $1000.
Nicole,
$1000 is a minimum, "starter" emergency fund. We will soon (later this year) have 6 months of living expenses saved up. I can't personally imagine a situation in which I'd want to have debt, money in the bank or not. Savings are meant to be used for emergencies, then replenished when the emergency is over. Major issues (like medical expenses) are what insurance is for. We have health, life, auto, home, etc., just in case.
My husband and I just finished paying off all the car loans and credit cards we had! It is such a good feeling. Even though it took sticking closely to our budget these past couple of years and not always having a lot of cash on hand, we managed it fine and the freedom is so worth it. Now we are working on increasing our savings from that emergency fund to a more sizable savings account (with several months of expenses on hand) while paying down our second mortgage.
I envy you. We have a strong desire to live debt-free, but it just doesn't seem possible. We have two student loans and a mortgage, and it seems so impossible to get ahead on either. We are paying almost $200 a week for gas (we live very far from work, which is the only way we could afford to live at all) and that drains all our cash. Soon this will be cut down, because I'll stop working (my paycheck is less than what we pay for gas now that we've moved so far out), but it will still be a lot. I sure hope gas prices come down a bit soon; we did not expect them to skyrocket as soon as we purchased our home.
On the one hand, we'd really like to buy a car with better gas mileage, so we aren't lugging the gas-guzzling van an hour to work and back. On the other hand, we OWN the van, and we'd have to borrow to afford a better car. There's no way we're saving up enough for a better car while we're spending every spare cent on gas. And yet, I would HATE taking out another loan. Our priority should be building our emergency fund back up, but we don't have the money for that either.
>sigh< I just want to get out of debt, but when expenses that have already been pared down to a minimum just barely come under income … then what?
We have never carried cc debt, but in the past, we have taken car loans and we own 2 homes. Well, let me clarify that….we own one home outright, after accelerating the mtg. balance for 3.5 yrs., and are almost-quadrupaling-our-remaining mortgage payment on the other home. We will be completely debt free within 24 months, and own our 2nd home outright also. We are late 40's, our kids are raised and on their own, and we have 3 young g'kids.
We want to retire in the next 10 yrs., in our late 50's, live a simple life and spend our time doing what we'd like to do. Our second property has 3 acres, that for the last 2 yrs. we have put a 2 acre garden in and canned and subsidized our pantry with. Things like potatoes, onions, tomato sauce, tomatoes in season, lettuce, cantelope, carrots, green beans that we can for the year, asparagus, pumpkins…….and the list goes on. Next year we're planting several different fruit trees as well.
We've also learned to bake a variety of breads, pies, and sweets.
Life has never been better….