Life Lessons I Learned from Debt Freedom

This post is dedicated to Mutant Supermodel, who reached out to me and  told me my posts were missed.  Thank you for the inspiration to put pen to paper again.

So a lot has happened since my last post a few months ago. Babci was in the hospital a couple of times (she is fine now, but it was scary), and my family bought and 2 family house so that we can all live together by the end of 2013.  The house was built in 1825 and it needs everything, from roof to foundation, but we’ll get to that in another post.  The hospitalizations and Babci approaching 80 did play a major role in our decision to buy this home when we did.  I wasn’t in a super rush before now, but it seemed more urgent to have a home where we could all live if things took a turn for the worse.

Our House with Basement Wall and Porch Missing

Today I wanted to talk to you about my ups and downs with trying to get out of debt completely and what I learned from the whole process.  Back in 2008, I was pregnant with my 2nd child, I had 2 mortgages, soon to have 2 daycare bills, 2 houses torn apart and layoffs were looming. My family was lucky. We were not impacted, but I swore that every paycheck after that would be used wisely.  I became addicted to PF blogs. I started all kinds of spreadsheets. I kept track of my craigslist earnings. I made all kinds of draconian efforts to maximize my extra payments towards my mortgages. I thought debt freedom was the answer to my happiness and I thrived on watching my balances go down. I was making progress, real progress and it was energizing. We had a good head start already. We didn’t have any non-mortgage debt and from the time I bought our home, I wanted to pay it off early, so many of my windfalls would go to extra payments.  Paying off our mortgage was within reach and we did pay finish paying it off about 2 years later (11 years after we bought our house).   I expected to feel happier, but I didn’t. I thought it was because I still had a second mortgage to pay off, so those efforts were diverted to that for a while.  Then almost suddenly, my family was 100% debt free.

What did I do first?  Well, I put off buying clothes and utilitarian household stuff for so long that I seemed to need everything. I shopped for a lot of things. I remember my measuring cup’s handle broke off and was using the broken one for like 2 years. When I finally went to buy another one and found out it was $3, I was like..why the hell did I not do this sooner?  I bought clothes. I replaced my long overstretched out underthings.  I bought new dress clothes for work.  Then I kicked myself for not spending sooner. All the things I needed equated to under $1000 and I had been going without them for 2 + years.   In the grand scheme of things, I really should have replaced some of those small ticket items sooner. If it were up to me, I wouldn’t have replaced our TV when it broke but it was football season and there are some compromises one must make for the sake of marriage.

The Funk

After the honeymoon phase wore off, I got into a funk. Monitoring debt reduction is very fulfilling. It’s easy to track and every month you’ve accomplished something.  It’s not like investments where one month you’re up and another you’re down even though you’re contributing from every paycheck.  I became lost and I didn’t get the same thrill from investing as I got from tracking debt. Investing was too complicated with too many variables that were outside of my control.  I suddenly lacked purpose in this aspect of my life.  I didn’t know what to do, so I did nothing. My spending habits did not change much, so cash started accumulating without any plan for it. I was lost, but I didn’t care. I allowed myself a break from personal finances for a while.  After such an intense go at debt reduction, I was burnt out. I really was.

Implementing the F-You test

Then something interesting happened. I realized that with debt freedom, I didn’t have to work the job I had anymore.  Working became a choice, not a necessity.  This single realization changed my whole perception of working and life.   When having a particularly hard day or week at work, I’d often ask myself, “are things so bad, that it’s worth quitting over and losing my salary and benefits?”  You know what, the answer was always, “no, things aren’t that bad, this is just a blip that will pass”.   When I was in debt and had a bad day or week,  I felt enslaved by my job and even though it is an excellent job, I was kind of blinded by the fact that I “needed” to work and therefore I was trapped.  It affected my outlook and attitude. Now I count my blessings a lot more than I used to and I think I’m generally more content with my job even though the job itself hasn’t changed.

The biggest gift I received from this whole exercise was getting back that feeling of having choices in life.  The world is my oyster again, even though it was there all along.  The multiple expenses clouded my vision.   The reality is that even with debt, I still have choices and lots of them.  Everyone has options. I just felt like I didn’t have as many when I was in debt.

Debt Tolerance Factors

So, here I am today and I saddled myself with double the debt that I had at the start of all this. It’s the most debt I’ve ever had.  Luckily, it’s temporary and once we sell our other two homes, we will have a healthy buffer between income and expenses again.  The other thing I learned is that my debt tolerance increases as my job security and job satisfaction increases. If I’m feeling fulfilled at work and I don’t feel like I’ll be laid off anytime soon, I don’t mind the debt as much.

Where Does Happiness Come From?

The most surprising learning of all, was that Happiness is Independent of Debt Freedom. I always thought there would be a linear relationship between debt reduction and happiness, and there was not.  Yes, there is a level of unhappiness that can and will occur if you’re drowning in debt and can’t afford the lifestyle you’re leading. But if you’re living within your means, happiness is mostly dictated by your attitude and outlook on life which is controlled almost 100% by you and you alone.

Happiness comes from hope.  Hope that if you are in a tough situation financially or personally, you have the knowledge that things will get better over time.   Happiness comes from knowing you have other options when life deals you a blow.  Debt freedom does indeed give you more choices.

Advice for those on the same journey

Now, you may think I’m a crappy role model because I went crazy to get out of debt just to get back into it again a year later. However, I’m actually pretty psyched that we could make this move for our family. Debt freedom allowed us time to build up a hefty down payment and comfortably afford a place in a good school district with a nice sized apartment for my mom and big yard for the garden and chickens.  I couldn’t afford this option 7 years ago when my mom first moved to the area to be closer us..it was the peak of the market, but I can afford it now and that’s 100% because we had equity to make the move.  Would my mom’s house be underwater if I paid the minimums on it and not paid it off?  Yes. But since it’s paid, we can take a loss on it and not be trapped there indefinitely. That freedom feels darn good and even with taking a loss, it’s still cheaper than renting an apartment for 7.5 years.

Anyway, I digress.  Here is the advice I have to offer for what it’s worth:

1. Don’t put your life on hold while waiting to reach certain milestones.
2. Do understand your spending
3. GO ALL IN at the outset.  Sometimes just knowing it’s possible to get down to a certain spending level helps motivate us to believe that debt reduction is possible, even if the actions aren’t sustainable long term.  Do a few spending challenges..they’re fun.
4. Do plan on setbacks.  (I had my TV, Washer, Dryer and Video Camera all die during my debt reduction blitzkrieg)
5. Don’t think it’s hopeless.
6. Don’t limit the categories you’re willing to cut.  The smaller the gap between income and expenses, the wider the net you should cast on categories to save.
7. Do embrace craigslist and ebay for both buying and selling stuff.
8. Don’t think you’re somehow depriving your children or yourself.

I go back and forth on the money/happiness thing. On the one hand I just told you that more money doesn’t automatically buy more happiness. But on the other hand, I absolutely see money as a key to happiness. When it gets right down to it, it’s not the absolute amount of money you have that’s important, but that gap between income and expenses. As long as there is a healthy buffer, it doesn’t matter if you make $20K a year or $200K, that feeling of security will always be with you.  Having that slush fund there for when your car breaks down takes away so much stress and heartache. I highly recommend it.  Good Luck and feel free to ask questions if you have them. I promise I’ll respond.