I officially became completely debt free on December 11th, 2014, just over a year ago. I paid off my student loans, my credit cards, the divorce settlement, and my house. I had no chains weighing me down.
I was completely free.
So how has life been since then? Has a debt-free life really been all that different than the one that had a student loan and mortgage payment? Let me tell you, it is worlds different.
Today, 371 days into my debt-free life, I sit here at my laptop with my thoughts swirling.
Various life events, personal finance epiphanies, and random recollections of the past … which stories should I share? What will help you on your road to the debt-free life? I’ve tried to organise my thoughts a bit, but if they still seem scrambled, I apologise.
Even after a year, I still get excited about debt freedom.
1. I still relate to no one … ever.
Just the other day, a conversation broke out at work:
'Today marks the day of having the most debt that I've ever had in my life.'
Mark just bought a house, so instead of being just $40,000 in debt from his student loans and his car note, he was now $250,000 in debt. He went on to say how much he was sweating the amount while signing the papers at closing.
His team members quickly chimed in though,
'Don't worry about it Mark, we've all got loads of debt, and probably will for life! That's just how life is today. Forget about the mortgage amount and just enjoy your house!'
As you may have guessed, I said nothing. I simply couldn't relate. My student loan debts were only $12,000 at their highest point, I never had a car payment, and my house was so basic that I was able to pay it off in one year! And of course, these are all paid off at this point.
I am constantly reminded how much I've gone against the norm in this life, but you know what? I wear a continuous smile because of it. The debt free life is a good one, and I wouldn't have it any other way.
2. Anyone can do this, and they absolutely should.
Why is it that so many people live a life of indebtedness? Are they just too poor to make ends meet, forced into a life of credit card debt and car loans? Based on my personal experience, this just isn't the case.
At the root of it all, they simply just don't understand that a debt free life is an option!
Their parents have debt, their friends have debt, heck, their grandparents might still have debt! To 99% of this world, debt is just a way of life and they never think twice about it.
So what puts them into debt? It's pretty simple really:
• their house is too big
• their car is too new and luxurious
• and their mouth eats more restaurant food than their wallet can really handle
I was talking to my friend Laura the other day. She and her husband are 30 years old. They live in a $500,000 house, and she drives and Audi to work. We were talking about her daughter and the fact that she was going to daycare, and Laura looked down at the floor … . 'I wish I could stay at home with her, but my husband says I need to go to work to pay the bills.'
She didn't understand that there was another way. If they would just move to a $150,000 house and downgrade her car to a Honda Civic, she probably could stay home!
Through my first year of my debt free life, I've learned that almost everyone could benefit from the options that being debt free provides. They have the option to live a debt free life, and in my mind, they absolutely should!
3. Cash builds insanely fast.
Liz and I live in a mediocre house with mediocre cars, but it enables us to have no debt … which obviously means no payments. Think about how much cash you could save each month if you had absolutely no payments:
• no house payment
• no car payments
• no student loan payments
• no boat payment
• no credit card payments
Take away all of these payments and you could have yourself about $3,000 extra each month! That means $36,000 a year of cash that's earmarked for nothing! Wouldn't that be crazy?
That's what happened to Liz and I. Without really tracking it, we were able to save up many tens of thousands of dollars - enough to buy an entire house with cash! And with the passive income from this future rental, we'll be able to save up cash even faster than we did before!
4. I've actually grown to like work more.
When my debt free life began, I had thoughts of quitting my day job and starting some sort of business on my own. It's not that I hated work -- I just thought I might like to do something else even better.
The strange thing is, once I realised that I didn't really need my paycheck all that much, I actually started to like my work. I was less fearful of losing my job, I was more eager to learn and cross-train myself into different areas of the organisation, and I ultimately became more valuable and better paid because of my additional knowledge and vigour. It's quite likely that I'll continue to grow in the company and be awarded a very respectable position there.
5. Multiple sources of income is key.
If you want to live a debt free life and you want to be secure in your position as such, then multiple sources of income is key. While I do enjoy my work and my income is much better than average, I am not willing to put 100% of my well-being in one stream of income -- especially one that could very well dry up tomorrow.
While work may seem secure, you must remember that the company could suddenly go belly-up or could ultimately decide that they no longer need your department. Be real -- your 'secure' income could end just as quickly as it started.
Instead of depending solely on your salaried income, why not look into other sources that could steady your income ship should Murphy ever visit your front door.
The income sources could be:
• a rental income
• dividend income
• website income
• mechanical labour income
• tutoring income
• contractor income
• music lesson income
The list could really go on and on. Right now, Liz and I each have our work income, I have this website income, and we we'll soon have rental income. If we both lost our jobs tomorrow, we could still live quite comfortably on our remaining two sources. It's an unlikely scenario, but it sure feels great to have that assurance!
6. I fell in love with the 'normal life.'
For many, living the 'normal life' is repulsive. They want to have luxurious cars, gargantuan houses, and sparkling jewellery. They want to live the good life, even if it means living paycheck to paycheck for it.
I, on the other hand, have fallen in love with the normal life. This sensible house and our mediocre cars are allowing us to live the life we always dreamed of. One of:
• carefree living
• multiple vacations
• relaxed budgeting
• and excessive giving
We are living the good life, all because we have a normal existence.
7. I get better tax breaks.
When I paid my house off, do you know how many times I heard, 'Derek, why on earth would you pay off your house? You're forgoing those wonderful tax breaks!' At least a hundred times … I still can't stand that question to this day. Please don't ask me … even as a joke. I just might go clinically insane.
When you have a mortgage payment, you pay interest to the bank within that payment. That interest payment is tax deductible -- meaning that you can deduct that amount from your total income and not pay tax on it. If you earn $50,000 a year and pay $5,000 in interest payments, then you'll only have to pay the IRS taxes on $45,000, not $50,000. So, by paying $5,000 to the bank, you're saving $1,250 in taxes to the government. In total, you're still net negative … by $3,750. Those numbers aren't too smart, so I just paid off my house to get rid of that interest payment.
Now that Liz and I are earning more money as business owners, we're earning even better tax breaks than that stupid mortgage interest deduction. By investing in our website and our rental house, we can deduct items like:
• gas mileage
• cell phones
• and most importantly, depreciation
By paying ourselves first and the government last, we ensure that we keep the majority of our money.
Are you working towards a debt-free life?
So what about you? Are you working to earn yourself a debt-free life? With a debt-free life, you could choose an occupation that interests you, instead of the one that simply pays the bills. You could begin giving money away rather than hoarding it at every moment. Or, you could invest heavily and build up a tremendous inheritance for your children and your children's children! The possibilities are endless when you choose a debt-free life.