I noticed a lot of people are very focused on getting out of debt. They are “gazelle” intense and snowball or snowflake their debt out of their lives. But what happens “after debt”?
When people become debt free does their lives change? Are they able to revert back to their free spending ways or has their habits changed? If their habits have changed and they have been used to budgeting, is it easy to flip into the mindset of saving?
Saving is a lot harder than paying off debt. It’s a slow continuous process of carefully balancing known current expenses with projected future expenses. I think, myself included it’s a struggle to judge what is a short term versus long term savings objective. And sticking to plan even harder. Why?
Because you’ve spent months or maybe even years living paycheck to paycheck paying off debt. You haven’t saved for known expenses like home repairs, car replacements, vacations, etc. Instead everything was focused on one thing, to be debt free.
Everytime something comes up you turn to your trusty little Emergency Fund. But after debt, it’s time to change. Suddenly instead of always turning to your EF, it’s time to start planning life unexpected emergencies.
But how to do it? It’s harder than it seems. This loss of focus and more detailed budget I think makes it easy for people to live debt free but falling behind. They know they have to save but aren’t sure how or what to save for.
But perhaps I’m wrong. I’ve found living without debt a lot harder than living with debt, where I had a concentrated goal. Pay off student loan!!!
How is life “after debt?”
25 responses so far ↓
1 Kristy // Sep 11, 2008 at 10:18 am
The only debt we have is our mortgage and student loan payment. Personally, I love being mostly debt free. DH and I are able to save the maximum in our retirement accounts and are able to save on top of that as well. We are able to contribute to our DD’s college fund too. This does not mean that we are wealthy and can buy whatever we want, because we can not. We still budget our money, just not as closely as we used to. But it will give us the financial freedom to retire early if we so choose or to change careers in the future.
2 Brandon // Sep 11, 2008 at 10:48 am
We are on the brink of becoming debt free except the house…we only have my car to pay off and that will be completed by the end of the year. I did a preliminary 2009 yearly budget and focused on bringing our emergency fund up to 10k, while slowly increasing my retirement savings from 10-15%. When the emergency fund has been completed, I’m throwing everything I can to a new car fund, and saving for a new house by paying down the current mortgage. We don’t plan on moving for 5 years but it will be nice to have a lot of equity built in when we decide to move.
3 LivingAlmostLarge // Sep 11, 2008 at 10:50 am
You’d be better off saving for a new home outside of paying off your mortgage. You never know what you will have to bring to the table and what repairs might be required before you buy your next home.
Tying up cash in an illiquid investment is not wise. I wouldn’t do it.
4 Brandon // Sep 11, 2008 at 11:02 am
All of my cash won’t be thrown into the house…I have an ING sub-account specifically to prepare for the cash I’ll need to bring towards settlement on the new house.
5 Llama Money // Sep 11, 2008 at 11:02 am
Well I haven’t been debt free since shortly after turning 18 (8 long years ago – yikes! ), but I can’t imagine debt-free life being harder. Instead of paying off the credit cards / cars / house / whatever, simply “create” monthly “bills” such as large 410(k) investments, index fund purchases, stock purchases, savings account contributions, etc etc. If you need a goal to keep motivated, stick a number out there. Save your butt off until you have, I don’t know, $20k in your savings account. Or whatever number makes sense to you.
I see being debt-free as freedom, and flexibility to do whatever in the heck you want. New job? Go for it! No debt hanging over your head.
6 Tim // Sep 11, 2008 at 1:16 pm
I agree LAL, sometimes living debt free is harder than trying to pay down debt. The fixation on debt reduction is really the key. You have a defined goal, paying off debt. post-debt is the same way, you need defined goals to divert your focus on. people tend to get into trouble, because they have all this cash laying around now, but haven’t defined their savings goals. i think it’s important that people actually integrate savings while they are paying off debt. although purely by numbers it is not optimal, you are setting the savings foundation into your budget for post debt.
7 LAL // Sep 11, 2008 at 1:58 pm
Exactly the point Tim and Kristy get it. It looks like you should be rolling in on the money that you used to focus on debt.
If you followed Dave Ramsey you CUT all your retirement savings. And suddenly you have to ramp it up to 15%? And then you did not repair your car or did a half-assed repair instead of really fixing the problem. You patched up crap on the house instead of addressing a real need.
Truth is that the money you should be rolling in, is all gone before you even have time to spend it, if you properly budget.
Brandon, sounds good if you want to save it in an ING subaccount but you did say pay off the mortgage.
Llama money, here’s the deal, and I’ll be honest, the cash savings is always earmarked. You will constantly have cash building and saving. You’ll have goals like $20k for 2 new cars, $20k for new roof on house, $5k/year for maintanence of house, $2k/year car repairs, $2k/year travel, $2k/year child college, etc
Plus life happens. You might have cut out your children’s activities but now debt free you feel it’s important to bring some back. You may allow them piano lessons, gymnastics, etc. Suddenly you are travelling to do these activites, the things you once avoided religiously are back with a vengence.
And is it wrong to do so? I don’t know, but I do think that it’s harder to focus on savings when everything you denied yourself is again up for negotiations.
8 Kristy // Sep 11, 2008 at 2:03 pm
I actually have a harder time spending money. There are certain things that I want to have, a new entertainment center for instance. We have the money but I hate spending it. I don’t want to save for it either, I just want to save in our taxable accounts becuase I like to see our money grow. Maybe I am weird, who knows.
9 My Daily Dollars // Sep 11, 2008 at 2:34 pm
It hasn’t even been a month yet since I paid off my credit cards. My husband and I still have a mortgage and my low-interest student loans, but we’re discussing how best to use the money that used to go to debt. I can tell that we’d better set a goal soon, or I will loose the motivation I had. Paying off the cards was such a clear mile-marker that it was easy to sprint to the goal. Now, the long-term healthy habits will take some getting used to!
10 Rachel // Sep 11, 2008 at 5:05 pm
I still budget, etc– but it’s like a fast and binge. We worked for so long with so little now we feel “entitled” to spend. I will say though that our debt was never credit cards, so it’s not like we had a spending problem- it was student loans and cars.
Since we don’t have debt we couldn’t qualify for housing grants, etc, which was a disappointing “reward”.
But I think you’re right- now our goal (savings) is never ending, so it seems.
11 Chris // Sep 11, 2008 at 9:22 pm
LAL, I think you’re correct. It is harder once you’re debt free. And for two reasons.
First, now that we’re consumer debt free we’ve started to sinking fund save for repairs and replacement where before we just found a credit mechanism to pay for it. Now we’re hell bent on filling the sinking fund pots.
Second, in this down market, we’ve seen a giant contraction on our savings and investments. I only check it once a month, but seeing those numbers since early this year have been a real bummer.
With paying off debt, no matter what you do unless you’re simply broke, you see progress with every payment. That is not always the case with savings and investments.
Finally, every program to get ahead features a huge amount of effort to get you motivated, the reasons for doing what you’re doing and the goal and success systems to chart and recognize progress. Once you’re past that, the infrastructure seems to disappear. It’s almost like being on a space walk and realizing that the cord you were once tethered to is no longer anchored.
12 LivingAlmostLarge // Sep 11, 2008 at 10:24 pm
I think that’s it. It’s hard to see no progress. Also it’s disheartening to see your investment shrink but what else can you do?
Versus you see immediate gratification with paying off debt.
13 frugal zeitgeist // Sep 11, 2008 at 10:26 pm
I paid off my mortgage in July, so I’ve been debt free for about six weeks. So far, my spending has taken a definite uptick. I joined a really nice gym, but that was a planned expense. I think think the rest is largely temporary: the things I’m spending money on (mostly workout clothes to replace my manky seven year old ones) are all all on sale, and there’s a limit to how much of that is reasonable for one person to have anyway.
I have very concrete goals for saving and investing, and I think that helps me feel a little less at sea than I might otherwise.
14 Tim // Sep 12, 2008 at 10:06 am
I hear you Kristy. I’m more reticent to spend money as well. i’m not hoarding money, but it takes a while before we make purchases.
finite goals are what counts, because those are easily achievable. instead of fixating on how much your savings is worth if in the market, focus on how much you are putting away every month because that is a finite goal. long term investments are just that, and if you continually check them every day you are only getting a snapshot of something you should be looking from a long term perspective.
15 Livingalmostlarge // Sep 12, 2008 at 11:10 am
I think what your missing is that suddenly moving from instant gratification of debt payoff to suddenly waiting and seeing the savings build is a huge let down for many people.
Even just reading blog you can feel the excitement emanating off the page. But then when it turns to building an EF, saving for retirement, etc there is no excitement.
Paying off the house like FZ, is exciting to people. Many people ask the question, even WideOpenWallet, what should she do?
She’s paying off her house a bit extra while still carrying car debt and other loans. It’s the anticipation and excitement of paying off debt, almost like a high I think versus the boring path of savings.
18 Karla (threadbndr) // Sep 25, 2008 at 12:43 pm
Yes, it’s harder in some ways. But what I did is set a series of small prioritized goals like:
Increase e fund to $5000
Partially (quarter) fund Roth
Start a ‘new to me car fund’ with 1/2 of old car payment
Increase e fund to 3 months
Increase Roth to 1/2 max allowed
Buy laddered CDs for ‘OMG, lost my job’ efund
etc, etc
ect.
I tracked all this in an excel spreadsheet, just like I used to track my debts. I’ve been debt free for four years now, and I’m getting toward the bottom of that list. Once I’m up to 15% of gross pay to retirement, I’ll set up a new spreadsheet with another batch of detailed investment type goals to work on.
I think that having a set “next goal” for savings just like you had for debt repayment is the key.
20 Until Debt Do US Part // Sep 30, 2008 at 9:10 am
Life after debt?
Well I got out of debt before and life was good. Unfortunately the new found sense of freedom caused my old habits to reappear so it wasn’t too long before I found myself in debt again.
I think the problem was that I looked on my debt management as a short term thing and not something that I would have to engage in long term but I have come to the understanding that ‘the price of debt freedom is eternal vigilance’
21 fwp // Oct 3, 2008 at 3:31 am
lal, this is a very interesting question.
struggling to pay off my debts for so long, i haven’t thought that i have the luxury of contemplating what i will do afterwards when they do get paid off. but i have been assuming that the money i used to pay for debt will just get rerouted in different ways to my various savings accounts. i guess the challenge i may encounter later then will be, how? and how much where?
reading your post makes me reevaluate my rather nonchalant attitude about how i will manage my finances later. i see no reason why i have to wait till after i’m debt-free to plot out my savings plans.
@until debt
you make an awesome and important point about the attitude of short vs. long term, and ‘vigilance’ lest old habits reappear.
22 LAL // Oct 3, 2008 at 10:32 am
That’s why we raised the question what happens after debt? To get people thinking.
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