Living debt free

Hey all,

We are currently teaching a Dave Ramsey class which has my mind on this topic. Plus my husband wants to quit his job because he hates it. We have no consumer debt. We DO have a mortgage which is on a 15 year mortgage and will be paid off early. How early kind of depends on our dedication at this point.

I think living debt free is the solution to most problems. I enjoy the extra money having no payments has given us.

Just wondering who else out there is doing it and such. Seems like a real permie thing, no debt.

We originally had a 30 year mortgage on our house, which we refinanced as a 15 year mortgage at a lower interest rate and then we paid it off in seven years.  Now we are debt free.  Though we use credit cards, we pay them off each month.  I am highly debt-averse, so this is the only way I want to live!  We never had a steady income, being self-employed in an erratic industry, but when our income decreased or stopped we would go on what we called "The Poverty Plan" when we only bought necessities, ate very cheaply, etc.  When we had extra money we would use it to pay down the mortgage.

elle sagenev wrote:Hey all,

We are currently teaching a Dave Ramsey class which has my mind on this topic. Plus my husband wants to quit his job because he hates it. We have no consumer debt. We DO have a mortgage which is on a 15 year mortgage and will be paid off early. How early kind of depends on our dedication at this point.

I think living debt free is the solution to most problems. I enjoy the extra money having no payments has given us.

Just wondering who else out there is doing it and such. Seems like a real permie thing, no debt.

I have for several years now.

I retired from a very lucrative job building US Naval Destroyers at a shipyard, then before that, the Railroad, but really disliked the job. I was 42 years old at the time, which is a bit early to retire, but could do so. Today my retirement money sits in a fund and is drawing interest, but due to Union Pension Rules I cannot withdraw the money for another 11 years (at 55 years old).

The last two years have been tough, but only because of two reasons really. I had no way of knowing I would have cancer, then returning cancer, which has been tough to deal with health wise and financially. We have survived by selling equipment and livestock, but we are not in as great financial shape as we were when I retired.

The second issue I failed to really take into account was the high cost or property taxes. I have significant land and building resources (3 homes) so I pay some serious property taxes; $10,200 a year! Failing to take that into account means I had to sell some forest products to pay them. Sadly the logger stole that wood, $11,000 worth (75 tractor trailer loads removed off 70 acres of land). It is all within the overall farm plan as I wanted the forested acres to be converted into field so we can raise more sheep, but intended to use the money for my property taxes. The State of Maine Forest Service prosecuted the logger last month and he is court ordered to pay me $1800 a month in restitution per month until it is paid and full, and pay a $200/$2000 fine for the theft.

Using the resourses of the farm here, we are downsizing into a tiny house that we own, will rent our current house out, and have always rented our third home in New Hampshire out as well. We have enough things to shuffle around so we can make it through some tough financial times. Thankfully a lack of debt has really enabled us to live a pretty decent lifestyle.

Travis, I am very glad for you that you have the ability to be flexible and change plans based on circumstance.  I think that is one of the qualities which enable some of us to become debt-free.  Cancer is going to make that even more of a challenge, as it is one of the health conditions which regularly bankrupt families.  Another is Alzheimer's.  My family has both (plus mental illness), so it will be quite a challenge for me to manage our finances to avoid plummeting into debt, especially in these uncertain times (political)!

Other than some old IRS stuff that my ex left me with, I have no debt. I haven't had a credit card for 10-15 years. I buy all my cars for cash, old cars. I have a little flexibility with some family money, but I manage it well. I also avoid taxable income, so that helps.

I have been debt free for many years. No longer even have a credit card. Just a debit card and almost never use that. I learned at a young age that if you don't have the cash in your pocket you can't afford it. My college was paid for after a stint in the military. (a very high price to pay for that perk) I have taken out a car loan or two & a mortgage or two but always had the ability to repay immediately. Which I did once when the mortgage company jerked me around. I always repaid the other loans early. I was fortunate enough to usually have good paying jobs & always lived below my means. Was always frugal & didn't waste much.
Due to life circumstances I don't have much cash now but a banker told me fairly recently when I opened a new account that I could get pretty much any loan amount I wanted. NO THANKS!!! The main way I built a good credit rating was traveling for work & buying many expensive parts for myself & others. Then was reimbursed before the monthly bills arrived. That adds up very fast when you travel constantly & oversee large repair departments. Now I grow a lot of my own food & simply don't want or need many material things. Cows pay for the incidentals & property taxes now.

The experts generally agree that the single most profitable thing ever was the creation of the "easy" 3% minimum monthly payment. Easy for who???

Look up President Eisenhower's farewell speech. It's on YouTube. He was warning us all.

Peace.

I agree.  

I've been debt free since about a year after I was divorced in 2010 (the divorce itself put me in the hole).  I make a decent salary.  I have resisted the external pressures to buy a new car (but you NEED keyless entry and heated seats and your car is SO tiny and bad in the snow!), buy a house in a HCOL area (it's SO much cheaper to buy than rent... just look at the monthly payment!) and the daily coffee runs and takeout lunches (who has time to cook?!).  People ignore the tax/maintenance costs of housing and the fact that it is only snowy a few days a year here and takeout adds up quickly.  I do not.

I frittered a lot of money away in my 20s on stupid crap and I look back sometimes and shake my head.  I learned a lot over the years and I'm grateful now those things hold no appeal.  I'm farther ahead than many my age.  I'm renting in a HCOL area and am squirreling away everything I can so I can put a very small house on my homestead in a few years (paying cash).  Lack of debt means more money in savings now and (barring unforeseen tragedy) retiring early should be a reality.

I listened to Dave Ramsey for a while back when I was working.  Two coworkers did his plan and both are in a much better place now then they were 5 years ago.  I was past his plan before I heard of it.  I had one young lady saving so much that when she went to a financial adviser he told her she was saving more than she needed to retire at 55.  She was concerned with what to do.  I said "You could always retire at 50 instead".  The look of dawning comprehension on her face was memorable.

I liked to tell the young engineers at work to:
Budget their money so they know where it's all going
Live well beneath their means
Invest and pay down debt

Especially in cases where they had a significant other with a similarly good job.  If you can't support a family with one engineering salary (in a mid sized city in the midwest), you're living too high on the hog.  

Another tip was to put aside money each month for your next car purchase.  If you're thinking it will cost ten grand, put aside $200 a month in the budget for the car.  In 4 years you'll have saved it up.  People at the time told me "Why? There's 0% financing!!".  Sure, today it's 0%.  You'll get a loan and by the time you pay it off you'll want a new car.  Then the rate will be 1%.  You won't have saved up so you'll agree to just a single percent.  6 years later you won't have saved up for the next car.  Then rates will be 5%.  Doh...

We were debt free for 10 years before buying where we now live.  We took a huge leap of faith to buy this place.

I really like Dave Ramsey.  His website offers several free tools:

https://www.daveramsey.com/get-started/debt

https://www.daveramsey.com/baby-steps/?snid=start.steps

https://www.daveramsey.com/get-started/budget/start.budgeting-a

Travis Johnson wrote:

I have for several years now.

I retired from a very lucrative job building US Naval Destroyers at a shipyard, then before that, the Railroad, but really disliked the job. I was 42 years old at the time, which is a bit early to retire, but could do so. Today my retirement money sits in a fund and is drawing interest, but due to Union Pension Rules I cannot withdraw the money for another 11 years (at 55 years old).

The last two years have been tough, but only because of two reasons really. I had no way of knowing I would have cancer, then returning cancer, which has been tough to deal with health wise and financially. We have survived by selling equipment and livestock, but we are not in as great financial shape as we were when I retired.

The second issue I failed to really take into account was the high cost or property taxes. I have significant land and building resources (3 homes) so I pay some serious property taxes; $10,200 a year! Failing to take that into account means I had to sell some forest products to pay them. Sadly the logger stole that wood, $11,000 worth (75 tractor trailer loads removed off 70 acres of land). It is all within the overall farm plan as I wanted the forested acres to be converted into field so we can raise more sheep, but intended to use the money for my property taxes. The State of Maine Forest Service prosecuted the logger last month and he is court ordered to pay me $1800 a month in restitution per month until it is paid and full, and pay a $200/$2000 fine for the theft.

Using the resourses of the farm here, we are downsizing into a tiny house that we own, will rent our current house out, and have always rented our third home in New Hampshire out as well. We have enough things to shuffle around so we can make it through some tough financial times. Thankfully a lack of debt has really enabled us to live a pretty decent lifestyle.

Ouch! And I get you on property taxes. Our county keeps voting additional taxes in. If they keep it up our tax bill will need a second page. Ridiculous!

As awful as it has all been, just imagine doing that with debt. Impossible!

Mike Barkley wrote:I have been debt free for many years. No longer even have a credit card. Just a debit card and almost never use that. I learned at a young age that if you don't have the cash in your pocket you can't afford it. My college was paid for after a stint in the military. (a very high price to pay for that perk) I have taken out a car loan or two & a mortgage or two but always had the ability to repay immediately. Which I did once when the mortgage company jerked me around. I always repaid the other loans early. I was fortunate enough to usually have good paying jobs & always lived below my means. Was always frugal & didn't waste much.
Due to life circumstances I don't have much cash now but a banker told me fairly recently when I opened a new account that I could get pretty much any loan amount I wanted. NO THANKS!!! The main way I built a good credit rating was traveling for work & buying many expensive parts for myself & others. Then was reimbursed before the monthly bills arrived. That adds up very fast when you travel constantly & oversee large repair departments. Now I grow a lot of my own food & simply don't want or need many material things. Cows pay for the incidentals & property taxes now.

The experts generally agree that the single most profitable thing ever was the creation of the "easy" 3% minimum monthly payment. Easy for who???

Look up President Eisenhower's farewell speech. It's on YouTube. He was warning us all.

Peace.

My husband paid the same price for his college. 4 years and enough PTSD to last a lifetime!

Mike Jay wrote:I listened to Dave Ramsey for a while back when I was working.  Two coworkers did his plan and both are in a much better place now then they were 5 years ago.  I was past his plan before I heard of it.  I had one young lady saving so much that when she went to a financial adviser he told her she was saving more than she needed to retire at 55.  She was concerned with what to do.  I said "You could always retire at 50 instead".  The look of dawning comprehension on her face was memorable.

I liked to tell the young engineers at work to:
Budget their money so they know where it's all going
Live well beneath their means
Invest and pay down debt

Especially in cases where they had a significant other with a similarly good job.  If you can't support a family with one engineering salary (in a mid sized city in the midwest), you're living too high on the hog.  

Another tip was to put aside money each month for your next car purchase.  If you're thinking it will cost ten grand, put aside $200 a month in the budget for the car.  In 4 years you'll have saved it up.  People at the time told me "Why? There's 0% financing!!".  Sure, today it's 0%.  You'll get a loan and by the time you pay it off you'll want a new car.  Then the rate will be 1%.  You won't have saved up so you'll agree to just a single percent.  6 years later you won't have saved up for the next car.  Then rates will be 5%.  Doh...

Sometimes I look at everyone around me and wonder how everyone is living so very very well. Then I remember they're all so deep in the hole they'll never climb out.

Recently my husband started saving up for a TV. He went around polling everyone on what size TV they have. His plan is to save up and pay cash for the biggest TV in the family and then watch the chaos as they all get debt to out do us. Evil, but somewhat amusing.

Tyler Ludens wrote:We originally had a 30 year mortgage on our house, which we refinanced as a 15 year mortgage at a lower interest rate and then we paid it off in seven years.  Now we are debt free.  Though we use credit cards, we pay them off each month.  I am highly debt-averse, so this is the only way I want to live!  We never had a steady income, being self-employed in an erratic industry, but when our income decreased or stopped we would go on what we called "The Poverty Plan" when we only bought necessities, ate very cheaply, etc.  When we had extra money we would use it to pay down the mortgage.

We are on a 7 year plan with how much we regularly pay extra but my husband keeps saying we can do it in 2. Of course if they drill and start paying us our mineral rights portion we could easily do it in 1. Discipline is hard for me though. I keep thinking about all the trees I really should plant NOW!

I only owed money for about a week or two 20+ years back, when a company I worked for had cash flow trouble and I didn't get paid, had to borrow from a friend. I'm very lucky to be able to live debt free since. That said, I was lucky that my circumstances enabled me to do that and I'm not sure everyone can.

I don't have a mortgage because here in Europe it's crazy - you can't walk away. If you can't pay, they will first sell your house and if that's not enough to pay the debt, you will still be paying even you though you don't have a house. So it's a gamble. Plus, houses deteriorate pretty fast, so once your debt free, you probably have your first renovation waiting for you. Appartments are more economical in that regard. Renting is far more flexible. Yes, there is stress in renting, too, but risk is lower.

As for the car, I never really cared about what I'm driving with, but where I'm driving to (and possibly how safely). Everything else is marketing.

Then besides food I don't buy much. I do spend some money on experience, like vaccations and such, but nothing huge.

I'll be a bit of a contrarian.

I use my credit card for everything—groceries, anything we buy off of Amazon, gas for the car, eating out . . . everything.  We earn enough airline miles every year to take a free trip or two.  Last fall, my wife and I flew to Vermont to enjoy the changing colors of the leaves.  As far as security goes, using a credit card is so much safer than a debit card.  If there is ever fraud, a credit card offers protection, whereas you are screwed if someone empties your bank account.

In 27 years of marriage, we've never paid a cent in interest on a credit card, and I've never once paid a fee either.  If you are paying a fee for the privilege of using a credit card, find a better one.  

Having a credit card doesn't make me want to spend a penny more.  I know that I'll have to pay it all off at the end of the month.  But that's the way I'm hooked up.  If that would be a temptation to someone else, then by all means, cut it up and cancel the account.

We could pay our mortgage off sooner, but with a 2.75 interest rate, it makes far more sense to invest that money.  Even modestly returning dividend stocks pay better than 2.75%, and that's before any appreciation.  My house will appreciate in value whether or not I pay it off, so I'd rather use that money in other investments.  We've got a little under 10 years left on our mortgage and that doesn't bother me a bit.  I'd rather see my stock portfolio growing every month.  The house will be paid off soon enough.

Frankly, owing a couple of hundred-thousand on a mortgage doesn't feel like debt to me at all.  After being in this home for so long, what we pay monthly is a fraction of what people pay to rent and they aren't building any equity.  All they are doing is making someone else wealthy.  For us, it's about cash flow and long term equity.  Our cash flow is way more than we need for expenses.  When we're ready to retire, perhaps we'll pay the mortgage off, but even then, it doesn't make much fiscal sense to do so.

Folks, we are wise to take the long view.  Not all debt is bad debt.  Vanity debt is bad debt (fancy cars, etc.).  Insecurity driven debt (to look prosperous in the eyes of others) is bad debt.  But debt to buy an appreciating asset when you could be losing all those years paying rent seems to be penny wise but pound foolish, particularly when interest rates are so low right now.  Money will not always be this cheap, but while it is, it makes a lot of fiscal sense to use someone else's money to make yourself wealthy.

elle sagenev wrote:

Travis Johnson wrote:

I have for several years now.

I retired from a very lucrative job building US Naval Destroyers at a shipyard, then before that, the Railroad, but really disliked the job. I was 42 years old at the time, which is a bit early to retire, but could do so. Today my retirement money sits in a fund and is drawing interest, but due to Union Pension Rules I cannot withdraw the money for another 11 years (at 55 years old).

The last two years have been tough, but only because of two reasons really. I had no way of knowing I would have cancer, then returning cancer, which has been tough to deal with health wise and financially. We have survived by selling equipment and livestock, but we are not in as great financial shape as we were when I retired.

The second issue I failed to really take into account was the high cost or property taxes. I have significant land and building resources (3 homes) so I pay some serious property taxes; $10,200 a year! Failing to take that into account means I had to sell some forest products to pay them. Sadly the logger stole that wood, $11,000 worth (75 tractor trailer loads removed off 70 acres of land). It is all within the overall farm plan as I wanted the forested acres to be converted into field so we can raise more sheep, but intended to use the money for my property taxes. The State of Maine Forest Service prosecuted the logger last month and he is court ordered to pay me $1800 a month in restitution per month until it is paid and full, and pay a $200/$2000 fine for the theft.

Using the resourses of the farm here, we are downsizing into a tiny house that we own, will rent our current house out, and have always rented our third home in New Hampshire out as well. We have enough things to shuffle around so we can make it through some tough financial times. Thankfully a lack of debt has really enabled us to live a pretty decent lifestyle.

Ouch! And I get you on property taxes. Our county keeps voting additional taxes in. If they keep it up our tax bill will need a second page. Ridiculous!

As awful as it has all been, just imagine doing that with debt. Impossible!

The last two years have really been tough, but it really was worse than what I stated because I left a lot out. For instance I mentioned cancer coming back, but I did not mention that the day after I got that news, we found out my wife miscarried an unborn child.

I am working on a book about the last two years of my now though because of the various losses, how we dealt with it, and how content we have remained despite it all. It is more so that others can have hope in trying times an stay out of debt, and be flexible with spending.

Marco Banks wrote:I use my credit card for everything

I disagree wholeheartedly, as another has said, if a person does not have cash, they cannot afford it, but what was not said is cash is king. That is very much the truth. From chainsaws to stoves, when retailers know I have cold hard cash in my pocket, I have gotten some amazing deals. Sometimes it is because they do not have to pay the credit card transaction fee, but mostly it is because they too like cash. For example, I once bought an old antique stove for 50% off because I paid in cash, on the spot. It was a $1400 stove, so I saved $700.

But that is hardly a one time thing; I can be driving along the side of the road and see something for sale and buy it, negotiating the price. For instance, a new skidder cable is $150 here, but I was driving by a yard sale and found a longer length of cable for $25. You cannot do that with a credit card because yardsalers do not take credit cards. I have boughten everything from bulldozers to cars that way, and every gas station here takes a nickel off a gallon of gasoline if you pay in cash. It all adds up!

Granted this sort of lifestyle is not for everyone, and even fewer that try can ever do so, but taking for example the free trip every year: that is honestly a misnomer. Part of your travel might be "free", but honestly if you never took the trip at all you would save even more money!! That is how people without debt think, and thus why we can retire at age 42 instead of later.

How imprtant is that?

Me and my wife attended a harvest lunch with my daughter in Kindergarden the other day? I am renovating a home with my father who has alheimers to which what he can do today is not something he can do tomorrow. My Mom is dying of congestive heart failure, yet I see her daily. I am LIVING! But the shipyard where I used to work; they said the average payout of retirement benefits is only 18 months, in other words, most people die 18 months after retiring. Not me...

But having cash also allows a person to save. Sure my retirement is building interest every day, BUT with cash I can also save. Here we have a jar, and in it we place all our 5 dollar bills. We never seem to miss the money, yet those $5 bills really add up, typically between $45-50 a month. Perhaps we could save more if we put in $10 bills, or the occassional $50 bill we get...it all depends on what people want to do, but the idea is, saving is so much easier with cash then the temptation with credit cards.

This is that stove we bought. The saleswoman had just said she wanted to get out of antigue gas stoves "and would sell them for 50% off if she had to." I had $3500 in my pocket, and said I'd give her $700 cash on the spot, and so she took it.

Everyone has giving very good advice so I can see we have a lot of folks who know how to control spending and use forethought before making purchases.

A strategy that I recently read about is to put high ticket items on a credit card so that the consumer gets points or air miles.  Of course the strategy only works if you have the cash to pay the credit card off at the end of the month when the statement comes in.

The strategy I read about was in reference to medical costs associated with having a baby though this could be done when buying a new car.

The problem I see is that someone has an emergency and then can't pay the credit card off.  It is a gamble that some are willing to take.

Recently my husband started saving up for a TV. He went around polling everyone on what size TV they have. His plan is to save up and pay cash for the biggest TV in the family and then watch the chaos as they all get debt to out do us. Evil, but somewhat amusing.

Elle, that is strangely evil & hilarious at the same time. It also points out a major flaw in modern day thinking ... the idea of keeping up with the Jones. That would be acceptable to me if the Jones were doing it right. But they're not. At least not in my opinion. Being a slave to debt just doesn't make sense to my brain or my soul.

Some excellent points have been made by others since my last post. I too accumulated additional frequent flier miles by using a credit card. I usually vacationed at home or camping because I was always burned out from traveling for work. Been there, done that. I gave many of those trips away as gifts. Kaching, that was like free money. It also helped a few good people do & experience things they never would have been able to do otherwise. Kaching, some extra points in my good karma account. I did fly to Hawaii free many times first class because it's an awesome place, I had family that lived there, & the windsurfing is unsurpassed. Will have to dig up the pix of the time a large group of humongous sea turtles suddenly appeared to lounge around a while. I just stopped surfing & floated in the waves because I didn't want to hurt any of them & it was so cool just to hang out with them.

The story of Gert makes a lot of sense. A lot. I consider it required reading.

the new empire of debt I read this book a few years ago. Boring (I'm just not into that sort of book) but also very enlightening. It is about our national debt not personal debt but it was eye opening to say the least. My main take away was ... it took the Roman Empire 1000 years to collapse from debt. We're doing it ten times faster & worse. Enough said?

I taught my daughter & two other very important young people in my life that the only things to consider going into debt for are housing, education, & extreme medical or emergency situations. Perhaps in very rare circumstances to start a business. Two of the three followed the advice & are now doing very well for themselves. The third will likely be in debt until death. Which just might come early because of the extra work & stress involved with being in debt.

The book Hitchiker's Guide to the Galaxy has a few comments which are appropriate here. My copy is packed away right now so I'll paraphrase. It says something about how humans waste most of their time & effort in life trying to accumulate little green pieces of paper. Life is short, LIVE it. Don't forget your towel!

Mike - While I generally agree with you, consumer debt is only stressful if you let it be. Most of the time, the only consequence of not repaying credit card or other unsecured debt is a lower credit score. If you don't care about that, why worry? One of the things that I find so freeing about not having debt and not using credit, is that I don't have to care about my credit score. So if I feel like a bill is unreasonable, and I don't need to continue doing business with a certain company, I just don't pay it. It's such a relief. I never understand people who feel like paying an unreasonable bill is a moral duty, so bizarre.

As far as education, I encourage young people to look around. If you are open to different options, you can often get through college, undergraduate and graduate, without going into debt, and without joining the military. I think a lifetime of PTSD is a very high price to pay for a college education. There are better ways.

Stacy Witscher wrote:Mike - While I generally agree with you, consumer debt is only stressful if you let it be. Most of the time, the only consequence of not repaying credit card or other unsecured debt is a lower credit score. If you don't care about that, why worry? One of the things that I find so freeing about not having debt and not using credit, is that I don't have to care about my credit score. So if I feel like a bill is unreasonable, and I don't need to continue doing business with a certain company, I just don't pay it. It's such a relief. I never understand people who feel like paying an unreasonable bill is a moral duty, so bizarre.

As far as education, I encourage young people to look around. If you are open to different options, you can often get through college, undergraduate and graduate, without going into debt, and without joining the military. I think a lifetime of PTSD is a very high price to pay for a college education. There are better ways.

Just think about something really quick. Look at the bank/credit card buildings, then look at your house. Who is winning with your debt there?

elle - I'm not sure what your response is referring to. I have neither credit card debt or a mortgage.

Travis Johnson wrote:

Marco Banks wrote:I use my credit card for everything

I disagree wholeheartedly, as another has said, if a person does not have cash, they cannot afford it, but what was not said is cash is king. That is very much the truth. From chainsaws to stoves, when retailers know I have cold hard cash in my pocket, I have gotten some amazing deals. Sometimes it is because they do not have to pay the credit card transaction fee, but mostly it is because they too like cash. For example, I once bought an old antique stove for 50% off because I paid in cash, on the spot. It was a $1400 stove, so I saved $700.

I dicker with sales people all the time.  Sometimes I'll need to go to the ATM and make a withdrawal in order to get the "cash price" but most other times they let me put down plastic and I not only get the cash price but the free miles.  As with you, I like to go antiquing.  I've never paid the full asking price for anything, yet I almost always pay with my credit card.  So that is a false assumption: that you can't dicker and get a better deal by playing with credit.  Can you pay cash and get a discount on Amazon?  If so, I'd love to learn that strategy.  Like you, if I'm working with a local contractor, then those guys usually want to be paid with cash.  Not a problem.  I do that regularly and get the cash discount accordingly.

But my concern is with folks who think that a mortgage is somehow evil debt.  That (in my tremendously humble opinion) is so short sighted.  Why SHORT sighted?  Because when you are renting, you are not only paying with money, but also with years.  Every year you rent, you will never get back.  You only get 75 or 80 years, and every year you waste, you miss the opportunity to build wealth.

Our mortgage principle drops by about $1800 a month.  That's money into my pocket.  While you speak of putting $5 bills in a jar, I know that our equity is appreciating about $60 a day just from that payment.  If the greater housing market goes up by even 1% a year, my home appreciates by $10,000 or more.  So with just a 1% market increase, that's another $28 bucks a day into my pocket.  Last year, homes in Los Angeles county appreciated by about 7%.  You do the math --- that's about $190 a day, without lifting a finger.  That appreciation would happen if I owed 100% on the home, or only owe 22% (which is where we are at now).  

So, putting $5 or $10 a day into a jar is good.  I'm not pissing on that at all.  But silently putting $250 a day into my long-term capital wealth is a whole lot better.  Paying for your kids' college tuition with a credit card and getting a half-dozen free trips out of it over the years?  That's pretty cool as well.  (Few colleges let you do that anymore, but our kids' schools did.)

If I were renting, my out of pocket monthly expense would be at least 50% higher for the home we live in, and none of that equity would be mine -- not a single penny.  Assuming debt to purchase land isn't risk free, but for the vast majority of people who pay a reasonable price and have a clear strategy how they'll pay it off over the next 30 years, it's an almost fool-proof means of accumulating wealth.  

If you've never read Rich Dad/Poor Dad, you may wish to pick up a copy.  You'll find used copies at Goodwill for a buck or two.  Pay cash for it, if you so desire, or better yet, check it out from the library.  

The suggestion that not paying back loans "only affects your credit score" is not entirely true- employers can look at your credit score/report as a potential issue and you could not get hired as a result. My current employer considers it a security risk if you have bad credit, to be more open to bribes or something. So it can affect you beyond just getting more credit.

I recall getting a packet of data from Dave Ramsey around 1996 or so, and used the "take 10% of your take home and start paying down bills" method to pay off my student loans, car, and credit card right after college. I decided to put off socializing for about 4-6 months and was working a 40 hour/week day job, 20 hour/week evening job, and 16 hour/week night shift job on the weekends. It sucked, but I paid off all my debts and had a little saved up for a minimum house down payment. I was also putting 10% into a 401k and budgeted everything down to haircuts, which let me buy my first house making I think $10.25 an hour. I then made sure to save up several months of expenses, and kept putting money into retirement accounts.

I kept that mentality of not buying things unless I could pay in full, but I do use credit cards for regular purchases with autopay set to pay off in full, and if the car dealer was offering 0% for X months I would take that and keep the car balance in a savings account for a few extra bucks of interest. It's an additional account paid off in full with 100% on-time payments, which helps that credit rating. It's nice having a score over 800 in case you ever need it.

But I would rather pay in cash to small stores or individuals and get the big banks out of the middle skimming their fees. These days my spending is much lower than income, with about 30% of my pay going to retirement accounts, both mandatory and optional, and still having a good chunk of spending money that usually sits. In a few years when I retire some of that savings will go towards a truck, perhaps a tractor, and building materials for building the cabin and getting gravel on my portion of the road. Once that dust settles I anticipate being in the same boat, spending a lot less than my retirement income but then having the time to bounce around attending events and visiting new places near and far!

I'll chime in too as being debt free for a long time.  I think it was 2006 when I finished paying off my home and student loans.  Only once in my life did I take out a loan to buy a car.  That loan was for two years while the car only lasted a year.  I decided to never do that again!  I'll only buy cars with cash now.  Though I must note that to really help pile up the cash savings I've been working to all but eliminate my car use, switching to a bicycle instead.

For me the inspiring book was "Your Money or Your Life" by Joe Dominguez and Vicky Robin.  If you don't know it I highly recommend it!  I understand there is a new updated version out for 2018.  I haven't read that one yet but feel sure it will be great based on the older versions.  One key to the book is that it's not just about saving money.  It's really more about maximizing fulfillment of life.

Marco Banks wrote:
We could pay our mortgage off sooner, but with a 2.75 interest rate, it makes far more sense to invest that money.  Even modestly returning dividend stocks pay better than 2.75%, and that's before any appreciation.  My house will appreciate in value whether or not I pay it off, so I'd rather use that money in other investments.  We've got a little under 10 years left on our mortgage and that doesn't bother me a bit.  I'd rather see my stock portfolio growing every month.  The house will be paid off soon enough.

Frankly, owing a couple of hundred-thousand on a mortgage doesn't feel like debt to me at all.  After being in this home for so long, what we pay monthly is a fraction of what people pay to rent and they aren't building any equity.  All they are doing is making someone else wealthy.  For us, it's about cash flow and long term equity.  Our cash flow is way more than we need for expenses.  When we're ready to retire, perhaps we'll pay the mortgage off, but even then, it doesn't make much fiscal sense to do so.

Folks, we are wise to take the long view.  Not all debt is bad debt.  Vanity debt is bad debt (fancy cars, etc.).  Insecurity driven debt (to look prosperous in the eyes of others) is bad debt.  But debt to buy an appreciating asset when you could be losing all those years paying rent seems to be penny wise but pound foolish, particularly when interest rates are so low right now.  Money will not always be this cheap, but while it is, it makes a lot of fiscal sense to use someone else's money to make yourself wealthy.

I'm currently working to pay off my mortgage early, and while I agree with everything you've said Marco, the reason I'm paying off my mortgage early is that I view it as a sort of diversified investment that is highly personal.  You never know what might happen in the markets, but your home is something precious, especially to a permie.  We put so much long term investment into our edible landscapes that protecting these investments by being debt free seems like a wise idea to me.  Lately the markets have come back relatively quickly from crashes, but that is in no way guaranteed.  Current policies are fairly unprecedented, for example, so one shouldn't be surprised if potential fall out is extreme.  A decade or more of a down market is more than possible.

Mark - I get what you are saying. I forget about these things because I, long ago, decided to not get any job that required a credit check, a background check or a drug test. Not everyone can do this, but I could and I feel very strongly about this for myself. To my mind, this is part of the problem, credit information is not well controlled, and easily exploited.

elle sagenev wrote:

Stacy Witscher wrote:Mike - While I generally agree with you, consumer debt is only stressful if you let it be. Most of the time, the only consequence of not repaying credit card or other unsecured debt is a lower credit score. If you don't care about that, why worry? One of the things that I find so freeing about not having debt and not using credit, is that I don't have to care about my credit score. So if I feel like a bill is unreasonable, and I don't need to continue doing business with a certain company, I just don't pay it. It's such a relief. I never understand people who feel like paying an unreasonable bill is a moral duty, so bizarre.

As far as education, I encourage young people to look around. If you are open to different options, you can often get through college, undergraduate and graduate, without going into debt, and without joining the military. I think a lifetime of PTSD is a very high price to pay for a college education. There are better ways.

Just think about something really quick. Look at the bank/credit card buildings, then look at your house. Who is winning with your debt there?

Haha sorry quoted the wrong person.

elle - okay, good to know. I was very confused.

In addition to using a mortgage to buy a home, there is an interesting thing called a "reverse equity load", when I first heard about these I thought it was a scam.  They typically have incredibly high interest.  However, since you generally never pay back the loan, the interest rate doesn't matter.  Normally the bank gets your house when you die,  but my mom got one that includes term life insurance (paid for out of the equity loan) that will pay off the entire loan when she dies, so us kids still get the farm (term used loosely, it's only 20 acres).

So even though she didn't have any retirement savings, she is living comfortably off the equity of her home.

Four years ago I had over $100k in debt, I also had a 6 figure career...for years I spent what I made and then some. And then I started downsizing my living situation and moved to places with lower cost of living. I paid off almost all of that debt and 2 vehicles in 2 years and left my corporate job 2 years ago suddenly, the timing of everything worked out even though I didn't necessarily plan it all out that way. Lowering my monthly expenses = freedom. I'm working to lower them even more, in process of finally buying some land and will get started on a mostly off-grid tiny house build this coming spring and then will have little to no regular expenses going forward.

Interesting stories. We're  living debt free for the past 15 years, but prior to that we were immersed in the modern debt lifestyle way up to our necks, and were sometimes well over our heads. Mortgage, multiple credit card debts, multiple vehicle loans, student loans. Outside of the value of our half paid for house, we basically didn't have anything to show for it after 30 years of living. Material goods and cars don't last, and the memories of the fun vacations fade away. And we gave so much of our money away to others in the form of interest and fees. But of course we felt it was the thing to do, keeping up with the Joneses. We weren't financially savvy, so we didn't make wise investments or handle our money very well. As long as we met the monthly payments we thought we were doing great. But ya know, we weren't. No savings. In debt up to our ears. We realized we were just treading water.

After 9/11 happened, we decided to change. We changed our lives completely. By 2005 we were debt free. Now I refuse to get into debt again. I'd rather do without than go into debt. Just a mindset thing I suppose, but I'm far less stressed out. Yes, we're living what some may call a backward lifestyle, but it's comfortable. We have no desire to buy anything that we can't pay off in 30 days.

Yes, we fell for all those TV commercials and magazine ads. We fell for the hype. We were suckers for a salesman's pitch. We even had salesmen go find us loans so we could buy their stuff! But nobody was there to advise us, so we went down the road to debt. I feel sad for the young people today who are falling into the same trap, because once you're in that debt cycle, it's difficult to break out of it.

We are 3 yrs into our 5-yr debt free plan, and I have to say sometimes its tough. But the rewards are great! We refi'd a few yrs ago to a 15-yr loan for our house, and now we are paying almost double payments, we're set to be debt-free in 22 more payments. Our hope is for me to join my husband in retirement, I won't be able to collect anything for quite a few years; but for us it's worth it if we have the time together. I've watched too many family members work themselves till retirement, and then pass-on within months after they finally retired. We don't want to lose those years by spending all our time doing jobs that we don't really love. Our method is simple, pay off everything, have enough accounts/retirement pay to sustain us, and live well within our means. Right now, we are basically putting my entire salary into our house payment, and have been doing so for several years. That is what makes it tough sometimes, my account gains every month and then is purposely depleted. We deal with that self-inflicted, paycheck-to-paycheck by little indulgences, which don't break the bank. Our vacation and "fun stuff" is actually mostly free, we like to wander local game lands and forage, kayak a nearby river, or vacation at our camp. I'm thrilled to think that we will have saved many thousands off our mortgage by paying it off early, and we will have all our property (vehicles/camp/home) paid off and ours soon. Our family thinks we are nuts, and will be destitute in our old age, but we've been careful about the math and feel secure.

Peter VanDerWal wrote:In addition to using a mortgage to buy a home, there is an interesting thing called a "reverse equity load", when I first heard about these I thought it was a scam.  They typically have incredibly high interest.  However, since you generally never pay back the loan, the interest rate doesn't matter.  Normally the bank gets your house when you die,  but my mom got one that includes term life insurance (paid for out of the equity loan) that will pay off the entire loan when she dies, so us kids still get the farm (term used loosely, it's only 20 acres).

So even though she didn't have any retirement savings, she is living comfortably off the equity of her home.

Sounds like she may have gotten a deal.  I hope so.

The devil is often in the details.  Apparently some people have issues with reverse mortgages with banks taking the house if the person with the reverse mortgage goes into the hospital for more than a certain number of days, or checks into a nursing home.  Sometimes hospitalizations or extra care need to happen for older people for more than a few days without it being the end.  An illness or surgery, for instance.  It would be a bad time to lose what might be your main financial asset.  It would be a very bad time not have a home to go back to.

Marco Banks wrote:But my concern is with folks who think that a mortgage is somehow evil debt.  That (in my tremendously humble opinion) is so short sighted.  Why SHORT sighted?  Because when you are renting, you are not only paying with money, but also with years.  Every year you rent, you will never get back.  You only get 75 or 80 years, and every year you waste, you miss the opportunity to build wealth.

I think this is where people go really wrong because they feel the only alternative to rent, is a mortgage! That is not the case. There are alternatives, and the truly wise people explore those many, many options.

The secret in my opinion, is to use equity. It takes awhile, but that is just the compound effect in action. What I am talking about here is sweat equity turned into compound interest, and the two can be assigned a value.

In my case, I started building my house when I was 18, a tiny house before it was even vogue to do so. Over 26 years it has progressed to the point where it is worth $200,000; a decent price for a home where I live. Granted that figures out to only $21 a day, but that is not realy the case. It has meant I have been rent and mortgage free for years, saving me incredible money, and being able to check off that tiny box on a loan application that says "own your home", and then not list a mortgage lender, means any loan I applied for I got...why? Because they know I have $200,000 of intermediate capital I am sitting on. A credit card though, even though a person might have a $25,000 limit and it has a $0 balance (which banks do not like by the way), is still a liability because a person could go out and rack up $25,000 in a hurry. Many a jilted wife or husband in a separation has done just that!

But sweat equity does not always take time. Recently I decided to increase income as we are moving from our current house, to a 1100 square foot tiny home, and rent our current home out because it will generate more money. We also want to give a life-lesson to our daughters about materialism, but that is another whole topic. Still, that tiny house was worth $40,000 when we started working on it 4 weeks ago. We invested $1500 and redid the wiring, insulation, drywall, layout, framing, and siding and figure those improvements have increased its overall value to at least $60,000.

How?

We used our sawmill.

Because I am retired and have time, I can use that time to convert our forest products into usable building materials, like clapboards. To purchase them would have ben $1.79 a linear foot, or $3500 for the 2000 feet I needed. Instead I spent $10 on gasoline and produced 2000 linear feet of my own clapboards; stump to siding in 7 days of working time. Now a home appraiser does not care if the clapboards are homemade or are bought, they only care that they are in good shape. The same for other building materials.

But that is how appraisals work. A person can buy new kitchen cabinets at $10,000 and increase the homes value by $20,000, but for my wife and I, we use our own forest products, sawmills, and woodworking tools so that we can spend $2000, and get an increase in our homes value by $20,000. By the time we are done renovating the entire house, it will be a $150,000 home. So the math on that is incredible: from $40,000 to $150,000 in a years time means an over all increase of $110,000, and done in a years time, divided by 365 days yields an average $300. Even that is not accurate though, because I do not work on the house every day for a year, but even if I did, its still doing what I want to do. A vacation? I am on vacation everyday as I can do whatever I want, when I want. I have nothing to take a vacation from.

Still, with three homes...well you can see what our net worth is like. Over 26 years a hard work ethic, combined with investing money in the right things to give me the most return on investment (chainsaws, sawmills, land, etc) has really generated some value.

BUT...this is all me, and how I used what resourses I had to provide for my family. What about other people, because it is one thing to say I have this, that, and the other, but it does not matter if I cannot make a post and help others get to where I am at.

Well some have done it by living in box trucks and using facilities at their employer's complex, while others have just bought land and began to build. And how to buy land without money? Pound the countryside every possible moment and inquire about abandoned houses, or land for sale. For instance we had offered that tiny home to a dozen homeless people who refused it because they could not initially see past the cutter, though now they call it "cute" because we spent a $1500 on it. They could not look past the rot, the cobwebs and the junk stored inside. Sure it will take a lot of asking, and a lot of no's from owners, but sooner or later, someone will say yes to energetic people, and then the effects of compounded sweat equity take over. All I can tell people is, start sooner rather than later because while it is never too late to start, a later start means less can be gained.

...

As for the kids college fund. All four of our young daughters have theirs sitting in a college fund, but I do not recommend that strategy. In fact neither does Suzy Orman, instead suggesting parents secure their own future and let their kids fund their own way through college.

Travis - got to say, around here 1100 sq. ft. home is not considered a tiny home, a starter home maybe, but pretty common. My 1600 sq. ft. home is considered large for our neighborhood, where all of the original floor plans were about 1000 sq. ft. Ours increased with additions and is now a 4 bedroom, 2 bath house with a family room. It really is too large. I've noticed with larger homes that they are just very inefficient with their use of space.

Stacy Witscher wrote:Travis - got to say, around here 1100 sq. ft. home is not considered a tiny home...

I hear you, but then again you are not trying to cram all the stuff from a 3000 square foot home into a 1100 square foot Tiny House either. :-)

The funny thing is, at age 44 for me, and 39 for my wife, we have decided it is time to downsize, or as someone once said, "Before you turn 40, you spend all your efforts getting stuff, and then after 40 you spend all your time trying to get rid of it." It is interesting though, that the couple that is moving into our new home, are in their 20's.

It feels good to purge I can tell you that. It is going to be a challenge though. Our current kitchen is 24 x 24, and our Tiny House kitchen: a mere 12 x 18! Yikes.

Another thing I remembered on this subject regarding bank loans & mortgages. Not sure if it directly applies to credit cards but the same concept could be applied indirectly but perhaps without quite the same impact. Instead of paying monthly pay every 4 weeks. That equates to paying 13 months worth each year. Write in the note section of the 13th check "paid toward principle only". If memory serves that knocks a 30 year loan down to 23 years. You can also do the same thing any month you happen to have some spare cash. Just write a separate check for that. Beware there are some loans that specifically do not allow this but those are generally from the super greedy loansharks rather than quality places to obtain a loan.

Mike Barkley wrote:Write in the note section of the 13th check "paid toward principle only".

 This is critical when paying extra!  Otherwise they'll happily just apply it to the interest, which is in their best interest  When doing this online, there should be a check box or something to ensure extra payments are going towards principle.