Finally, YOU DID IT!

You worked hard, you sacrificed, you made extra payments, and now, you are, officially, 100%, DEBT FREE!

Excited, you do a little dance, complete with running-man style knee lifts and a little old school moon-walking.

Life is good.  No.  Life is GREAT!

For the next few weeks, you feel like a King.  Who’s the man?  You’re the man!  Who’s debt free?  You’re debt free!  Who rocks?  You rock?

Then…

You realize that you have a NEW goal - an even BIGGER goal.

You want to remain debt free.

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On February 26, 2006, I made my final debt reduction payment.  I was, for the first time in my adult life, free from the burden of debt.

Debt free, I celebrated with my friends, my family and my blog readers.  Life was good.  No.  Life was great!

A few weeks later, after the euphoria subsided (it never quite goes away…), I realized the need to develop some strategies that would help me remain debt free.

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Developing Strategies To Remain Debt Free

Strategy 1 - Finding The Balance Between Investing For The Future and Saving For The Present

If you want to remain debt free, you need cash.  But, if you want to plan for your retirement, you need contributions.  I have worked hard to find the right balance between investing (for retirement and kids’ college) and saving (for future purchases like newer cars, new furniture, and other major items).  Income is limited, and must be allocated wisely.

At every turn, there are decisions to make.  If I contribute to my 403(b) (a pre-tax retirement account), my income taxes are reduced.  But, I won’t have access to that money (without penalties) until I’m ready to retire.  If I put more money into my savings account, I’ll have easy access, but I’ll pay income tax (and tax on any earned interest).

If I maximize my Roth IRA (an after-tax retirement account) contributions, I’ll be setting the groundwork for a great retirement.  But, there are some restrictions associated with accessing the money in my Roth, should I need it.  Conversely, if I keep the money in a checking account, and don’t make my Roth contributions, I lose a year’s worth of retirement funding.

I created a life priorities list, to help me decide which accounts get funded first, second, third, and so forth.

1.  I want minimize my taxes.

2.  I want a nice retirement.

3.  I want to pay cash for major purchases.

4.  I want a really nice retirement.

5.  I want to help my kids pay for college.

6.  I want to pay cash for a home.

Using this priorities list, I’ve then created my prioritized funding list.

1.  Each year, I will fully-fund my 403(b) (and other pre-tax retirement plans).

2.  I will maintain (or build) and emergency fund (in my savings account) equal to 12 months worth of household expenses.

3.  I will save - in my savings account - for future car, furniture, and appliance purchases.

4.  I will fully-fund my Roth IRA.

5.  I will fully-fund Education Savings Accounts for each of my kids.

6.  I will save - in my savings account - for a future home purchase.

As you can see, I’ve tried to find balance between the future and the present.  There are some expenses, like newer automobiles or newer appliances, that are inevitable, even if I don’t know precisely when they will be incurred.  As a person living debt free, I need to plan for those expenses now, instead of waiting to worry about them when the engine blows or the dryer dies.  But, if I focus too much on the ‘what ifs’ associated with current needs, I’ll fail to adequately fund my retirement accounts.

Finding balance can be difficult.  It requires asking, and answering, some challenging questions.

Am I willing to be as intense about saving money as I was about reducing my debt?

Am I willing to give up some retirement contribution opportunities, so that I can maintain adequate (as defined by me) cash reserves?

Am I willing to pay higher taxes, this year, so that I can have access to my money?

What percentage of my money should be dedicated to savings?

What percentage should be dedicated to investing?

Over the next few weeks, I’ll explore these questions, and many more.  I hope you’ll stay tuned, and I really value your feedback.  (When leaving a comment, please be patient.  For some reason, comments take a few minutes to show up.  It’s a problem I’m aware of, and I’m working to correct it.)

If you are interested in keeping up with this series, consider subscribing to No Credit Needed.  This series is very important to me and I’ll be taking the time to adequately prepare for and develop each post.

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Side note:  For those looking forward to the next installment in the Bills-In-A-Box series, stay tuned.  It will be up Thursday!  (Hint: I have a new video camera.)

One final note:  For the purpose of this series, debt free means debt free including OR excluding a first-mortgage.  I live in a house provided by my employer as part of my compensation.  So, I’m saving for a future home purchase.  Should I need to move, I would face another decision - to rent or to buy (with a mortgage).  At some point in the future, I’ll write a bit more about this topic.  Suffice to say, buying a home with cash is a big time goal - and one for which I’m shooting!

• 12 Comments

1.  It just feels good to be debt free.  I’ve been debt free for more than than two years.  I cannot express, in words, how awesome it feels to live without payments.

2.  Every dollar that I bring home belongs to me.  I can choose to spend my money, save my money, give my money, invest my money, or waste my money.  Those choices are my choices to make.

3.  My kids will grow up in a home that is credit-related stress-free.  This should be a huge motivator for all parents.  Imagine if your kids NEVER had to hear you and your spouse argue about money.

4.  EVERY conversation that I have with my wife about money is POSITIVE, ENCOURAGING, and UPLIFTING.  Instead of talking about how we are going to pay for the mistakes in our past, we talk about our plans for an awesome future.  ALL of the stress is gone.

5.  I never have to worry about late payment fees, interest rate hikes, minimum monthly payments, or annual credit card costs.  Never.

6.  If the market goes up, I’m cool  If the market goes down, I’m coo.  I have time on my side.  Living without payments allows me to take a long-term view of the market.  In other words, I don’t have to hit it big in hopes of bailing myself out of past mistakes.

7.  I can fully-fund my retirement accounts, my wife’s retirement accounts, several education savings accounts, and still save for future major purchases.

8.  When I choose to conserve and save money, I do so for a particular purpose.  Instead of saving and scrimping because I owe some creditor, I can save and scrimp because I want to buy something cool or go somewhere fun.  My sacrifices benefit me, not some credit card company executive.

9.  I can give to worthy people and worthy causes.  It’s SO much fun to be able to help others - and not worry about missing a payment or slowing my debt reduction.

10.  I sleep soundly.  If something were to happen to me, my wife and kids would be just fine.  Instead of worrying about how to deal with a mountain of debt, they could care for each other.  As a father, it feels good to be able to provide my family with this added measure of security.

When I started this blog, my primary goal was to get of of debt.  It was only after achieving my goal that I realized all of its benefits.  I strongly encourage you to get serious about your debt reduction.  Why?  Because, being debt free rocks!

For more on this topic, consider reading Get Ready For Some Serious Debt Reduction.

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Our youngest daughter is in the hospital.  She’s been there, with my wife, since Sunday morning.  She has a stomach virus and the doctors are waiting for her body to regain its strength before they dismiss her.  Hopefully, she’ll be able to coming home soon.

Driving back-and-forth between the hospital, I’ve had a lot of time to think.  (I’m watching the other kids while Mommy spends the night with baby girl.)  Three years ago, we went through a similar experience with my son.  But, unlike baby girl, who is only three months old, he was fourteen months old.

When our son got sick, No Credit Needed was a relatively new site, and we had just begun to pay off our debts.  Now, three years later, we are debt free and we are in substantially better financial shape.

Of course, no matter our financial situation, I’m still worried about our little girl.  But, because we live on a budget, maintain an emergency fund, and have health insurance, I’m able to focus my attention and help my wife, care for my kids, and love on the baby.  Instead of wringing our hands, thinking about how we are going to pay for gasoline to drive back and forth, medicine for when the baby gets home, babysitters to watch the kids, or our portion of the hospital bills, we can actually think about what’s really important - helping baby girl get better.

Money may not be able to buy happiness, but it can provide peace of mind.  If you are thinking about getting out of debt, I hope that this article will serve as a little added motivation.  I cannot tell you how good it feels to be debt free - but I’ll try!  It feels awesome.  I feel in control.  I feel empowered.  Instead of worrying about creditors and payments, I can focus on the future!

I strongly encourage you to get out of debt and live on a budget.  If you need a little help getting started, may I suggest the following -

33 Days And 33 Ways To Save Money And Reduce Debt

Free Online Debt Reduction Guide And Free Debt Reduction eBook

For those who are new to the site, you might be interested in my debt reduction journey.  Click here and you can read follow milestone posts, from the first post to the day I declared my freedom -

How I Got Out Of Debt: Follow The Posts

• 26 Comments

My wife is an educator, so she’ll be headed back to the classroom in a few weeks.  We have been so busy this summer - and our financial records reflect a slight lack of discipline.  We haven’t overspent, but we haven’t saved us much as I would have liked, either.  But, frankly, with all that we’ve had going on, I’m amazed that we’ve done as well as we have.

Now that summer is drawing to a close, we’ll have a chance to resume our normal schedule.  I don’t know about you, but the recent spike in gasoline prices have made staying on budget more challenging than ever.  Our gasoline category keeps increasing, month after month.  And, using my grocery store price book, I’ve noticed that food prices have gone up, rather dramatically, over the last year.  Our entertainment category keeps shrinking and is almost down to the levels we had it at when we were aggressively paying off debt.

Changing the subject, those of you visiting the site will notice (yet another) site redesign.  I won’t go into the details of the changes, but I will say - I missed the RED!  Hopefully, you’ll dig the new look and feel.  I know I like it much more than the laid back green-and-brown.

I’m headed to the bank.  I’ve been so busy the past two weeks, I haven’t had a chance to deposit my paycheck.  It feels weird, even after years of living on a budget, to be free of the paycheck-to-paycheck cycle.  I can remember the days of rushing to the back, worried that a check would bounce, knowing that every dollar I was about to deposit had already been spent.  Man, I wouldn’t go back to those days for all the credit card reward points in the world. 

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As I mentioned in my recent post about what to do after getting out of debt, I like the idea of having an emergency fund.  After  a series of super-secret mathematical calculations - I pulled a number from a hat - and decided that $16,000 would be a good amount to have in ours.

Where do I keep our emergency fund?

Online Savings Account - $14,000

Online Interest Bearing Checking Account - $1,500

Cash In My Pocket - $500

I like the idea of having some cash on me, at all times.  I also like to keep some money in a checking account, readily accessible for unexpected expenses.  The bulk of the money, in my online savings account, is for major, unforeseen life-events.  Should I need to withdraw the money, a transfer takes about two days.

(As a side note - I also have just about $2,000 in a brokerage account, invested in an index fund.  The money has been sitting in the account for more than two years and I never really do anything with it.  Eventually, after I fully-fund my ‘emergency fund’ and all retirement accounts, I’ll turn my attention to this brokerage account.  For now, I don’t include this amount in any of my calculations - and I consider it my super-secret, things-have-fallen-apart, emergency stash.)

Observant readers will remember that I’m not afraid to dip into my emergency fund.  In fact, if you are going to live ‘no credit needed’ (without borrowing money), then you’ll need an above-average cash reserve.  And, when it’s time to buy big-ticket items, you’ll have to use the money that you have ‘on hand’.

Last year, the transmission in our van almost died - and the cost to replace it would have been more than the entire value of the van, itself.  So, we traded the van and purchased a newer one, with cash from our ‘emergency fund’.  I also dipped into my emergency fund so that I could fully-fund a Roth IRA for my wife (before the April 15th deadline).

Sticklers, no doubt, will question whether or not these ‘dips’ in the ‘emergency fund’ were, in fact,  emergencies.  I’ve debated these moves myself.  But, instead of debating ’shoulda/coulda’ - I’m simply working hard to rebuild the fund.

By the way, you can click here to see how I’m doing as I rebuild my ‘emergency fund’ (non-retirement savings) - and here to see a chart of my progress, over at my other site, the No Credit Needed Network.

I would be interested to hear whether or not you have / want an ‘emergency fund’.  How much are you planing to save?  Is it invested in mutual funds / stocks or is it just sitting in an online account?

• 25 Comments