I went back and forth as to whether I should even write this article or not. With so many people struggling financially, I did not want to come across as a person that was boasting and bragging about their recent success. You see, just two weeks ago I achieved one of the most important goals I had ever set for myself. I had become debt free. In the end I decided that if my story could help or inspire just a few people that it was worth sharing.
Before I start, it is important for you to know that I have been very blessed. I come from a loving family that has always been financially disciplined. Because of this, my parents were able to pay my tuition to a public university here in Iowa. With their help and me working summer jobs all through high school and college, I was able to officially start off adulthood with a bachelor’s degree in Economics without one cent of student loan debt.
That being said, since 2005, I have paid off in excess of $ 60,000 of debt. A vast majority of that was a fixed rate home mortgage, but more on that later. While I never had a clear plan or a formal monthly budget, I did have an ultimate goal. That goal was to be debt free in a sensible timeframe (5 or 6 years was the number floating in my head). Basically, become debt free through thoughtful spending and living a balanced life. Looking back at the past 6 years, here are what I consider to be my most important money moves for becoming debt free:
- I have lived on my 2005 income for the past 6 years. After college, my first real adult job paid me $ 30,000 per year. Not a huge sum, but enough to afford me nice little luxuries like cable TV, in-home internet and a vacation every year. Fortunately for me, 6 years and 2 jobs later, my income has continued to rise; both in base salary and in annual bonuses. But rather than spend this additional income on things I really don’t need or value; I have continued to live on $ 30,000 per year and used the additional income to pay off debt.
- I have used credit cards responsibly. I am not going to lie; I have had and used credit cards for years, but with one important caveat. I pay off the entire balance every month; whether the balance was $ 200 or $ 2,000. Because of that, I have never paid the credit card companies a single penny in interest payments.
- I quickly learned a want from a need and instant gratification from long term success. A funny thing happens when you set a goal like becoming debt free. You start to think long and hard about most purchases. Take the Iphone for instance. When that first came out, I thought that it was the coolest electronic device ever invented. But rather than rush to the Apple store to buy one, I thought about the ramifications. Would I rather have a $ 400 phone and month after month of voice and data charges or would I rather pay off my mortgage 3 months sooner. For a person with a goal of becoming debt free, it becomes a pretty easy choice.
- I’ve avoided new cars like the plague. When I graduated from college in 2005, the first major purchase I made was a 1997 Ford Explorer. Over 6 year and 100,000 miles later, that Explorer still is the only automobile I have owned over that time span. By not keeping up with my friends and all of their new cars, I have avoiding having to make expensive monthly car loan payments.
- I didn’t buy more house than I could afford. My first house, subsequently the house I am still currently living in, cost me $ 96,000 when I purchased it in 2007. While I was qualified to buy larger and more expensive homes; I didn’t feel comfortable taking on the higher payments or risk. So while others were scrambling to buy as much house as they could afford; I made a 25% down payment on a smaller house that I knew I could afford. Having a reasonable loan amount allowed me to keep my monthly mortgage payment under $ 600. Because of this, I was able to pay down additional principal every month.
So now that I am debt free, let me tell you, it feels amazing. Knowing that you do not own anyone a single dime brings me peace of mind like nothing else. As for the future, I will continue to live a balanced life; with the appropriate mix of spending, saving, investing and giving. The only difference being, I will have a lot more cash to do all four!