Am I debt free yet?

My debt free journey is nearly over.

In an unexpected move, my debt free journey is ending without paying off my car.

Here’s why.


In 2016, I assessed my financial situation and realized that I was making it by…but not really.

I own a three bedroom with an actual yard in a strong school district. I’ve got a Hound dog and a spouse. We have 401k’s, enjoyed multiple vacations per year, and I was whipping around town in a two year old car. To add to the “responsible” touch, my husband’s car was an older luxury car that we didn’t spend $40,000 on… we spent $11,000. That made it a mature decision, obviously.

By conventional standards, things were fine, yes?

Not really. I was busy chasing an image. I wanted to be taken seriously as an adult in the middle class. I wanted to prove to myself that I was doing fine.

I was trying to keep up with the Jones’, but never realized that they were broke.

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2015

At the bottom of my metaphoric hill, I was 24 years old and owed over $180,000 in debt, which was well over double my household’s annual income.

We were deep in credit card debt, student loans, personal loans, and things were only getting worse. The scariest part was that we were still considering selling our home to buy an even larger and more expensive house.

Why? I’m not sure. I told myself it was because two married men with zero kids were outgrowing a three bedroom house, but I suppose the truth was actually because I thought we deserved it…even though we hadn’t put in the work to earn it.

That’s right. Somewhere in my brain, I justified going tens-of-thousands of dollars deeper into debt and moving into a house I could never logically pay off because I wanted another garage and a larger kitchen…and I wanted to show everyone, including myself, that I could get it.

2016

The best decision I have ever made in my life was stopping the mentality that I “deserved” anything that I wasn’t able to pay for…in full.

Lenders aren’t my friend; they’re businesses that make profits off of people in debt. I know this better than most, because both of us Hall boys have built our career in finance.

We’ve seen people drowning in debt, both in person…and on their credit reports. Jay and I have seen people who earn $200,000+ a year but have credit scores in the low 600’s because they are paying all of their bills late. I’ve watched people put $100 into a savings account, only to withdraw it ten days later. I’ve seen people getting loans against the house to pay off thousands of dollars in credit card debt to retail stores and even Walt Disney World.

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Your financial future if you think “monthly payment” means “I can afford it”

These aren’t even “rare” sights… it’s things we see every single day in the industry.

Chances are… the people you think have “made it” in life would collapse if somebody reduced their income for 90 days, or stopped extending them lines of credit.

I changed the way I thought about money and debt from the ground up… and strategized on how I planned to get ahead for good.

There was just no way that I was going to be a slave to a salary for the rest of my life.

2017

My financial plan and hard work enabled us to pay off almost $20,000 of debt that included (in full) my student loans, a personal loan, the “modest” luxury auto loan I mentioned, and all of our credit card debt. We have a well-funded savings account, and own my husband’s car outright (title in hand). We also have over $30,000 of equity in our house and an affordable mortgage with 14 scheduled years of payments left.

The end of the year came with the realization that if I lost my job or was unable to work (reducing our household’s income by over half), my husband’s salary and our savings account could sustain our life exactly as it is, without any cutbacks, for 12 full months.

Considering, one year prior, we didn’t have enough money put aside to weather two weeks of missing pay… this is definitely the largest victory of them all.

2018

This year, we will not be racing to pay off my car (balance owed: about $12,000). Instead, we will be using a fancy “Wall Street” word to increase our financial position.

the_word_is_leverage_1

Leverage

  1. Use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable.
  2. Use (something) to maximum advantage.

Here’s how leveraging works.

For example: My auto loan rate is 2.24%. At this very second, I have money invested in a credit union that is earning a fixed monthly rate of 5.12%. For this example, I could take the interest I’m EARNING on my investment, pay the interest I’m PAYING on my car loan, and still be ahead 2.88% at the end of the day.

Rather than dumping all $12,000 onto paying off my auto, I can make the typical monthly payment for the car, invest the $12,000…and come out almost 3% ($360 per year) ahead.

Pretty simple, yes?

To be transparent, this tactic takes some advanced financial discipline.

  • You must be sure that you will NOT spend the money that is supposed to be invested.
  • You must be sure that you are always bringing IN more interest dividends than you’re paying OUT to the loan.
  • You must kill the idea that you should borrow money.

One size doesn’t fit all.

Let’s touch on that last point.

Conventional wisdom says that you shouldn’t borrow money to invest. Not because the math doesn’t make sense, but investment rates could drop and you could find yourself over-leveraged and stuck servicing debt without a matching dividend income coming in.one_size_cartoon

That’s conventional wisdom, and this is highly intelligent advice that should not be underestimated or undervalued. This a fantastic guide to follow.

However, there is no “one size fits all” approach to personal finance. What works for one person may not work for the next. For me, I am not “borrowing money to invest”, because I didn’t borrow this $12,000 to invest it… I borrowed it three years ago to buy a car.

Short of collectors’ items, all cars are depreciating asset, but I spent the money in exchange for transportation. It was never an investment tool or an asset, it’s a method of transportation.

With my position, we don’t have to worry about our family suddenly expanding due to an unplanned child. My car is low mileage and in great repair. If something happened, we have tons of equity in it, enough money sell it, and buy a replacement car in cash. Also, my husband’s ability to sustain our lives for one year on his salary is with the full assumption that we are still making full payments on this car.

When the car is paid off next year, that will be extra money in our hands and another vehicle title for our safe deposit box.

Since we spent 2017 putting all of our effort into becoming debt free, the auto loan is the only debt we have other than our house (also at a 3% rate on a 15 year term). I’ve got other plans for the house that will be announced in the future, but in my current financial portfolio, the car loan is one of the least burdensome expenses we have, which means….

#BBHMM

Starting in February, we will be saving over $1,000 per month in a mix of accounts and investments ranging from leisure (my first trip home to Malaysia in 16 years), to a maxed-out retirement fund, and a fully funded emergency savings account to cover 3-6 months of our expenses in the event that we both lost our jobs at the same time.

I am technically not debt free, but at this point in my financial freedom journey, the path to building wealth can be jump-started and exceeded by using a little debt that I already have.

This means leveraging my skill, ability, salary, assets, and resources to achieve my goal. I live by emotion, and make financial decisions based on math and calculated risk. Leveraging my (already financed) car makes sense for us. Your results may vary.

There is a priceless valuation on being financially stress-free, and that’s the life I am striving for. I want to focus on living my life and enjoying age 27 and every year that I am alive with my family and friends, not simultaneously counting the days until payday and the weekend at a job I hate because I need the paycheck to stay alive.

There’s no place for uncertainty or struggle in my life, and  un-leveragable liabilities are nothing but financial uncertainty.

Peace of mind is dealing with unforeseen expensive in cash rather than with pulled-out hair. The ability to sleep at night knowing we’re protected, the knowledge during the day that we can handle whatever Murphy’s Law throws at us, and every hour in between with the realization that my money is earning money to help us achieve our goals.

In 2018, I am going to stop paying out interest…and start earning it. Credit card rewards. Investments. Dividends. Returns. It’s time to enter the next stage of my debt free journey… wealth building.

To quote the ancient poet Rihanna Fenty, “Bitch better have my money.”

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Oh, I also left out another financial plan I’ve got brewing this year, but that one isn’t ready for public declaration yet. More on that part, later. 🙂

Happy 2018, everyone!

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