People frequently ask me why I’m so committed to living without debt. Am I debt phobic? Afraid of bankruptcy? Am I afraid that I’ll get in over my head? Am I just out of touch with “the way people do things these days?” I always answer no to all of these questions. The reason I am committed to living a debt free life is because I know what the payoff looks and feels like and I am not willing to give that up.
So what is the big payoff? Peace of mind and an ability to ride out economic downturns without freaking out. Right now, while many of my friends and co-workers are losing their minds about the economic crisis, I’m just cruising along living life pretty much as normal. Does the recession affect me? Sure it does. My investments have tanked just like everyone else’s. My dollar doesn’t go as far as it did a year ago. Gas prices are higher, package sizes in the store smaller. I complain bitterly about government bailouts and wasted tax money.
The big difference between myself and my friends is that my debt free lifestyle has put me in a place where those things aren’t nearly as painful for me as they are for my friends who have a lot of debt. We have enough saved so that if we were to lose our jobs we could live comfortably for a year on just our savings, even if we had no income whatsoever coming in. If the pain went on beyond that, we could raid some of our investments and live for another two or three years in spite of the fees, taxes, and penalties that would come along with the early withdrawals. Everything we own is paid for so there is no concern about rising interest rates and no one can take away our cars, house, or furniture. It’s a good feeling.
Of course there was some sacrifice required to arrive at this place of serenity. People often tell me, “Well, it’s nice that you’re debt free, but think of all the things you missed out on by not spending.” It’s true that there were some very lean years. When we first got married, our apartment was a tiny one bedroom with no furniture except a bedroom group purchased at a yard sale. The cars were clunkers that ran but did nothing to improve the beauty of the neighborhood. We both worked and lived on only one salary. We banked all of the second salary. As time went on, we were able to buy some furniture, move up to a two bedroom apartment and upgrade our lives as our salaries increased. Still, we banked one whole salary. Before long we had enough to buy our house with fifty percent down. The rest was financed on a short term loan that was paid off well before the due date.
Because we aggressively saved and invested money in those early years and avoided any debt, we only “suffered” for about five years. After that, we were comfortable and were able to do some fun things like travel and buy better (but still used) cars with cash. Those five years gave us the start we needed to create a comfortable financial base. Because we’ve avoided debt and kept our lifestyle reasonable for our income, we’re still able to bank my salary and that is what has led to the large savings cushion that we now enjoy.
So, yes, we suffered some. We didn’t have everything we wanted. (Now that we’re comfortable, we still don’t have everything we want; we pick and choose.) But we had a plan and we knew that any suffering would only be temporary. We never felt like we missed out on anything because we knew that the places we wanted to go and the things we wanted to do would still be there once we were stable financially. The Grand Canyon and the Vatican weren’t going anywhere and there would always be TV’s, computers, game stations, and other fun gizmos to buy later. Instead we spent time together and enjoyed low cost meals and entertainment options. We never felt deprived because we knew that it was more important to build that cushion than to have expensive fun.
We’re now ten years beyond that “suffering” and we’ve been enjoying the big payoff ever since. We travel as frequently as our schedules allow. We own some fun gizmos and recently redecorated the house. Our cars, though still used, are nicer and more fun to drive. We go out to eat occasionally and enjoy some of the finer things in life. But the really big payoff is the peace of mind that we enjoy during economic down times. We’ve had layoffs and medical scares, just like anyone else. But we sleep at night, knowing that no one can take our home or cars. We know that, in the event of job loss, we’ll be okay. We’re still able to do the things we normally do without having to scale back our lifestyle significantly. These times certainly aren’t fun, but they are much easier to bear when you have no debt and you have a large savings cushion. That’s the long term payoff you should be aiming for, not the short term payoff of having and doing the things you want when you can’t really afford them.