A Life Without Debt: Why Meeting Your Obligations Isn’t Enough

One of my friends became debt free about year ago. We were at lunch talking about how good it feels to be debt free, especially in the middle of a recession, when she uttered this gem: “It’s so great. I can pay all my bills and still have lots left over for fun stuff.”

I asked her how much she was allocating to savings and she said, “Nothing right now. We deprived ourselves so much to get the debt paid off that now we’re using the extra cash to treat ourselves to trips and things we missed out on. But don’t worry, we’re able to meet all of our obligations and still remain debt free.”

I asked her if part of the reason for getting out of debt wasn’t so she could save more.

“Sure. Someday. But being able to pay my bills is enough for now. I want to have fun.”

I sat there quietly choking on my sandwich while I pondered this mindset. Bear in mind that when my friend had debt, she lived by the mindset that if she could afford the minimum payment on something then she could really afford the item. We all know that this is the path to even more debt. When you only think in terms of meeting minimum payments, it’s hard to get ahead because you’re not making much progress on paying anything down. Buy enough things using this mindset and the minimums alone can put you far behind and heaven help you if the interest rates rise or the note is called in. Somehow my friend got far enough past this thinking to get out of debt, but now she’s willing to settle for thinking that just meeting her obligations is enough.

I tried to explain that she needs to be using at least some of her extra cash to save for the future, but she wouldn’t budge. She wants to make up for lost time in the fun department and, since she’s able to meet her obligations and have cash left over, she wants to spend the extra. Right up to the last penny. She kept telling me that she’ll save later, when she’s no longer young and carefree. Trying to explain that, “young” was the best time to start saving was like hitting my head against a wall. She wouldn’t listen and I got tired.

So let me explain here why being debt free should not be considered a license to spend all your newfound cash. When you first get out of debt, you’re likely to find that you have a lot more disposable income than you’re used to. With no credit card payments, car payments, or student loans, you’ve freed up possibly thousands of dollars every month. And it’s not surprising that you might want to spend some of that newfound wealth on something fun since you’ve probably lived very close to the bone while paying down the debt. So go ahead, splurge a little and then settle down.

One of the big reasons for becoming debt free is so you can aggressively build wealth. With no payments, much of your extra cash can be saved and invested in vehicles that yield solid returns.
It’s great that you can now meet your monthly obligations and have some left over, but the left over (at least a large portion of it) should be put aside for things like retirement, college savings, new cars, home repairs, emergencies, and other short and long terms goals that you set. The more you save, the faster you’ll accumulate the wealth that buys you true freedom to retire early, buy new cars with no payments, put your kids through school, give charitably, and do the things you really want to do. That’s the benefit of being debt free: Freedom. But you can only reach it with savings.

In the case of my friend, she’s debt free now, but what happens when her car dies? She’ll be right back in debt because she hasn’t saved anything to buy another. The same will happen when the heat pump needs replacing, or the first medical emergency happens. With nothing saved, she’ll have to rely on credit cards or loans to handle these problems. In her case, being debt free will be a temporary state of existence.

Simply meeting your monthly obligations and then spending the rest isn’t enough. It’s a great feeling to be able to pay all your bills, don’t get me wrong, but thinking this way ensures that your time as a debt free person will be short. To truly achieve a permanent debt free existence you have to save some of your extra cash so that you don’t have rely on credit to pull you though when things happen in life. Can you have some fun? Sure you can, within reason. There has to be a balance between having some fun now and creating a secure future for your family. This is the lesson I hope my friend learns before her time as a debt free person runs out.

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12 Responses to A Life Without Debt: Why Meeting Your Obligations Isn’t Enough

  1. EEinNJ says:

    You seem more judgmental than supportive of your friend. You both seem to acknowledge that saving is important, but it is obviously much more of an imperative for you. Except it’s her money, not yours.

    For someone like her, being debt free is a big accomplishment, like someone who was chronically overweight slimming down to normal size. Now you’re telling her she should be lifting weights and running. Your concern is not unfounded, but you may end up alienating your friend instead of helping.

  2. A Marino says:

    At least your friend is paying with cash instead of a credit card. She has learned one lesson but hasn’t learned the rest.

    She could benefit from a budget that would give here a guide line about spending and saving.

    Unfortunately, she will learn as the emergencies that come up will put her right back into debt again.

  3. Stacy Adcock says:

    You are not at all judgemental; you’re exactly right! I also paid off debt a few months ago and began my savings account the very next month. Not saving money is a stupid decision – plain and simple! I hope she’ll get smart and see the light!

  4. Johnny says:

    I wish I had a good friend to tell me these things and be concerned about my future. I’m 41 and having to discover so many things like this on my own. I am so thankful for sites like yours that I can borrow wisdom from. I know one thing, sitting on my hands and thinking happy thoughts sure doesn’t work for very long!

  5. Myrna Garren says:

    Your friend sounds like she is tired of having to pay bills and seems it’s time to play and spend all of her money now and start saving when she is older. It just dosent’t work well that way. The bottom line is or seems to be either you learn how to handle your money (which includes saving it) or the lack of it will control you. Your friend might have to learn that on her own.

  6. You are 100% right. It is imperative to live within your income; however, one should also include an allowance for saving or conservative investing.
    Today we live in a cashless society so it is difficult to keep track of our spending including money for fun. To do so, I recommend the free program at http://www.mint.com.

  7. Gail says:

    I can understand her wanting to have fun, unfortunately being young and carefree can end in minutes with a life changing illness or accident. With her bills paid off, your friend could be setting aside some FUN money every month and should be saving the rest. You are right to be concerned that she will only be back in debt again if her car breaks down or whatever. What happens if she gets ill and suddenly can no longer work? I know, it happened to me. At least I had had a mindset that I wasn’t spending everything I had prior to the illness, but it is still very rough financially. Your friend should be glad that she has a concerned friend. Perhaps you could encourage her to start a couple savings account towards emergencies, a new car and a vacation. Pick a great vacation and put equal amounts in each savings account and by the time she is ready to go on vacation, she should also have a hefty emergency and car accounts and may be seeing the benefit of savings.

  8. Diane says:

    I can understand this for a month or 2 maybe, just to overcome the feeling of being deprived, especially if she’s really young.

    But there’s no reason why you can’t save money and have fun once your debt is paid off. I wish now I’d done a better job at that myself, although I never really had much extra money.

    Fun is fun, but having an emergency fund will keep you from slipping back into debt without a moment’s notice.

    I’ve just had a couple of great examples of this in my life – sudden car repairs costing $660, plus an increase in homeowners insurance of $800 per year. Thankfully I have money to cover these, but it sure hurts to have to spend it…

  9. Tei says:

    I agree with Diane – cut loose for a little bit. Everything in moderation. It seems some people cannot visualize themselves down on their luck until they experience it. Then maybe they’ll look back in regret – I wish I didn’t go on vacation back then when I can’t pay rent or buy food right now. That’s what I experienced back in the early 2000 recession (except I never went on vacation – I went from newly graduated starving student to starving worker for the next 2.5 years).

    Thanks to that lesson, I can now survive without a job for 5 years thanks to my savings (and that’s not counting unemployment). And only recently when I got laid off, did I allow myself a one month overseas trip (it IS nice to take advantage of some deals).

    If there are mutual friends experiencing bad luck (beyond their control) you can use their experience to talk about your point, if she’s sympathetic. Some people just want to be the grasshopper though, but others understand the ant.

  10. sean says:

    You sound like you are being honest with your friend. I find that most of us don’t want to hear the truth and will turn a deaf ear in order to avoid confrontation with the truth.

    Your friends reaction is symptomatic of this boom to bust mentality that we are accustomed to in our country. Highs and lows, the tortoise and the hare, whatever analogy the lessons are there for us to learn…we simply choose not to learn them and apply them to our lives.

    You do not specifically state this in your blog, but if your friend has not even established an emergency fund then my opinion is that she is not debt free (assume you mean credit card debt free?)and it is only a matter of time before the credit cards are pulled out to meet obligations.

  11. Slinky says:

    Your friend is learning and becoming better with her money, but people don’t change over night, and they don’t change until THEY want to. Instead of lecturing her, why don’t you try some leading questions. “What would you do if you lost your job? What happens if you’re car gets totaled? Don’t you want to go overseas for a month next summer?”

    And I wouldn’t try to convince her to save for everything all at once. Just get her saving for a vacation or something and then go from there. Once she saves for that, maybe she’ll want to save for a house. And somewhere along the way something will happen and maybe she’ll decide that an emergency fund would be a good idea. Don’t talk about how she “has to” start saving. Talk about all the things she might want to do later that would need to be saved for. Paint her a picture of a life she wants, and then show her that saving is the best way to get there. Basically, don’t try to change her, give her a reason to change herself.

  12. dave says:

    paying off the mortgage can certainly lighten the monthly expense burden, if you are able to do this, it can be a wise move.

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