Debt-Free! Now What? (Part 1)
Posted by Gail | Filed under Debt Traps
I’m happy to report that I’ve been getting quite the barrage of email telling me that y’all are debt free! Hurrah! You should give yourself a huge hug for accomplishing such a great milestone. Always these emails end with an implied or explicit “Now what?” That was reinforced when I asked what you’d like to see me cover over the next few months.
Getting back into the black has taken a supreme effort and having passed the finish line you can be left feeling a little lost as to what to do next. Before I get to that though – See Part 2 tomorrow – I want to talk about how not to slip and fall back into debt.
Having exerted so much time and energy and time into paying off debt, you’re likely experiencing a sense of elation, a sense of freedom, even a sense of invincibility. Careful. If we let our expectations about debt-free living get too big, we’ll take our eye off the ball.
Being debt-free doesn’t mean you’ll never again have to say “no.” With all the money you were spending on debt repayment back in your cash flow, it’s easy to feel like you’ve got more than enough money to have whatever you want whenever you want it. I remember when I was first working as a secretary making about $10K a year. I believed that if I could just make $30K, I’d have more money than I could ever spend. I was wrong. Expenses have a way of creeping up if you’re not paying close attention. Once the harness of debt comes off, the freedom can be intoxicating. Resist the urge to go galloping across the field and over the precipice.
Debt-free doesn’t mean budget-free. If you’ve been living on a budget solely to get to debt-free, and haven’t embraced how empowering a budget can be, you’ll see this as your opportunity to dump your budget. This is particularly true if you’ve been living with your belt so tightly drawn in you could barely breath. But the reality is once you become debt-free you’ll need to make some conscious decisions about what to do with your money. And more money to manage means a budget is just as important than it was before.
Debt-free may mean less stress, but it doesn’t mean No Stress. While I’ve encouraged you not to be a one trick pony focusing solely on debt repayment, with more money in your budget you now have some decisions to make about how to best solidify your financial foundation and build for the future. Hey, that comes with it’s own stress. Will you increase you insurance coverage? Your retirement savings? Your kids’ savings? Will you take an annual holiday? Upgrade your home? Buy a new car? See what I mean? When you’re debt-free, you have more financial decisions to make than when you were mired in debt and had a single focus.
Debt-free means no more fights. While you may have thought you’ve been fighting about debt, what you’ve been tussling over is the fact that you’re both not on the same page financially. So if you haven’t figure out how to work together, your different styles and priorities will no doubt continue to bring conflict. If you want to stop fighting about money, you’ve got to figure out what it is you both want individually and as a family, and set some guidelines as to how you’ll deal with the differences. If your debt united you because you were both walking the line to fight the Evil Debt, you’ll have to find new goals to which you want to work together on. If you don’t, one or the other of you will go spiraling off and you’ll soon be dropping your gloves and going at it.
Tomorrow: Debt-Free! Now What? (Part 2)
July 7, 2010 at 7:49 am
I look forward to having these decisions to make! Did a check-in on my student loans yesterday and they are down to a level that with a bit of nipping and tucking I will be able to pay off within 18 months, while still saving for retirement and having enough of a life to keep me sort of sane. When those are gone I plan to celebrate by taking the equivalent of 2 months’ payments and going on a wicked trip to Italy, which I have always wanted to see. Then I build up a solid emergency fund, put a bit of slack into my budget, save more for retirement and look at saving a downpayment for a house. Am looking forward to getting there!!
July 7, 2010 at 7:51 am
Great Post, Gail! These are all of the things I have been wrestling with lately and (as usual) you articulated them perfectly.
It is easy to backslide when I start to consider vacations, new cars, etc… and I am trying very hard to keep goals, and allocate a fund for planned spending for these items.
Big ticket items (even if they are paid for) can add up quicky! For now, I am focusing on stoking the emergency fund. Especially now that my blinders are off, I find it harder to spend than ever before!
Eg: I have been eyeing a Kitchenaid stand mixer for $299 which I always said was too expensive. Now, I could afford it but I keep resisting:(
Thanks for the food for thought,
Karen
July 7, 2010 at 8:03 am
Loved reading this, It is very important not to slip back into old ways. Really trying to set financial goals now to keep us on track.
July 7, 2010 at 8:25 am
There will always be ‘wants’ and of course ‘needs’. I think the important thing to consider – once you’ve paid off your debts – is to get clear on what are your wants/needs and tracking your expenses to keep control of your financial situation.
We’ll be in debt until we retire (in about 8 yrs – which includes our mortgage). At that point we could sell the house, scale down & then have lots of funds to ‘play’ (travel, pour ourselves into our hobbies, etc.). But for now reality has a way of keeping us with our nose to the grindstones – with of course, well planned breaks/treats and affordable rewards to keep us on the course of becoming debt free.
July 7, 2010 at 8:31 am
@Karen: If you can afford it, and you enjoy baking, get the Kitchen Aid! I have one (which I bought BG -before Gail- in my student loan days, so I felt ‘rich’) and I LOVE it! But I also really like baking.
I too am looking forward to being debt free! Just paid off the last loan…now I’m working at student loan, which, although I know it’s debt, is kind of different…I don’t feel so guilty about it, like I did with the other ones. But I still want it out of the way!
Once that’s gone, a couple of things will happen: a little more wiggle room in the variable expenses department (clothes, food, medical, gifts, entertainment) and building up that emergency fund. Once THAT is where I’d like it to be (which is somewhat higher than the usual recommendations, due to personal circumstances), maybe I can start looking at bigger purchases…nice furniture or something. But till then, I’m soooo glad I’ve got my debts (ok ok, apart from student loan) paid off!!
July 7, 2010 at 8:41 am
Great timing Gail, we are debt free as of yesterday!!! Looking forward to tomorrow’s post
July 7, 2010 at 8:50 am
Karen, the Kitchen Aid is well worth the investment. If you have a Costco membership, they have the one I recommend on for $299. The bowl raises up to the beaters – much better than the lifting head. I’ve used both and wish I had bought the other model.
If you bake a lot, you will get your money’s worth out of it.
July 7, 2010 at 9:28 am
Although my wife and I have been debt-free (excluding mortgage) since I was 30 (5 years now) we still struggle a bit with keeping funds in the emergency fund and trying to live within our budget, even more so since we’ve paid so much for daycare the last 3 years. So most of our arguments tend to go along the line of trying to save while living for today at the same time. Also a bit of stickyness sometimes as she isn’t such a big beleiver in money you can’t see (ie Investments) and I think they’re important so we argue a bit over that, as I tend to undervalue ‘things’ – even if they’re useful. So being debt-free definately doesn’t mean being argument-free!
July 7, 2010 at 9:31 am
In 2009, before I saw the “gail light”, I was earning more than twice what I made 5 years ago. And yet…. I was still renting an apartment. Had a few more nice clothes (and a few with price tags still), ate out more frequently, bought more crafty items (don’t ask! LOL) — but my true standard of living did not change. I was wasting, wasting, wasting money!
Right now I have $5 in my purse. I want to go to the bank, and get more cash just to have for those just in case moments. But I know if I do, then next week, I will be hitting the bank again, because that $ will be gone, and probably without the need for a just in case moment, but for a well, I have some $ in my purse, forgot my lunch, don’t feel like the can of soup that I always keep at work (just in case LOL).
I am actually not looking forward to being debt free. I am concerned that there will be slippage. Always has in the past. I know i’m different, and older and *want* to save more. But still… kind of ambivilant. That’s why I make alot into a game…
The $5 in my purse? Trying to see how long I can hold out without going to the bank. I also find new ways of explaining things to the bf/hubby so that we don’t spend as much.
Like asking why we need to buy submarine buns when we have two loaves of bread in the freezer?
Like asking why we need to go out and buy more perogies, when we still have two packages in the freezer?
Like him asking me, when am I going to eat _______________ ? (I’m a bad one for buying food, and then not wanting to eat it).
When I’m debt free — will I care as much? Dunno! Hopefully.
July 7, 2010 at 9:31 am
I’ve been struggling with the realization that it will NEVER end (ie: expenses), and it can be really discouraging…Eveytime I finally see that light at the end of the tunnel, something always comes up, and I know that will continue even as we are “debt-free”.
The best thing about Gail’s advice, is to always save, even as you’re trying to pay off debt– for us that philosophy is what is helping us stay on track, and will continue to help us as our debts are paid off, because I don’t think we would necessarily increase our savings; we’re saving 10% right now, plus 5% into our kids’ RESP’s, and we both have pension plans through our jobs, so our RRSPs will actually become maxed out within the next 5-10 years, and all debts paid off in 3! But, even then, it won’t all be fun and games as we put on a much needed addition/garage, INSTALL AIR CONDITIONING (IF we can hold out that long LOL), buy that extra car for the kids, and continue the never-ending money pit of landscaping…
I am glad, Gail, for this post, because my friends think that ‘debt-free’ will free us of responsibilities, etc… this is a good reminder to everyone that it still doesn’t mean unlimited wealth
July 7, 2010 at 9:32 am
@Monica CONGRATULATIONS!
July 7, 2010 at 11:07 am
Monica: awesome! Good for you!
July 7, 2010 at 11:58 am
We have only our mortgage left but I constantly worry that I’m not making the best choices about where to direct the excess money I skim off the account at the end of every week.
I alternate between RRSPs, TFSAs, extra mortgage payments, education savings, and occasionally I don’t do any of these for a few weeks and instead we take a trip or replace a failed appliance or some other big ticket item. In my own scattered way I’m covering all the bases, but I don’t feel like I have a coordinated plan of attack. I’m much better executing a plan than coming up with the plan. I like to know that each year I need to contribute the following amounts in the following sequence to the following savings buckets. I guess I really should get some professional advice. It may only confirm that I’m accidentally doing everything right, but it might be a real eye opener and that would be good.
When we were paying off our credit cards and line of credit we had only two places to send the money so it was easy to decide on a plan of attack and once I have a plan I can stick to it like glue. Now that I have money to save and invest or just play with, I feel like I have no clear focus.
July 7, 2010 at 12:12 pm
Kat, one suggestion that might work for you once you are debt free is to “automate” the savings of the extra funds. ie: Rather than having $x go to pay off your debt each month, you can have it go directly into a TFSA / extra mortgage payments or whatever. Just be sure that its not something that you can see.
I think I’m a little bit like you describe. If I don’t have a goal, it can be harder for me to make those tough choices (holding off shopping or buying those extra groceries). Having a fair bit of money in my “regular” account that I can see makes it much easier for me to justify spending. When I found a way to “make less” (aka, having money go directly from my pay cheque into somewhere I couldn’t see it), then I found I spent less.
Ahh – the tricks we play on ourselves…
July 7, 2010 at 12:12 pm
@ Jenn – I don’t think there is a ‘right’ way to do it, it really depends on your life and your needs. I’m sure Gail has some general guidelines on the site, like 3-6 months living expenses in your Emergency Fund – but even this can vary depending on if you’re self employed or other such variables. I find it hard to decide too, and I don’t always have a solid plan so I know how you feel, but I think it’s really what you feel is right for your situation. So good luck deciding your plan, it sounds like you will have no trouble sticking to it once it’s in place!
July 7, 2010 at 12:41 pm
Our Gail Club in my area seems to have dried up. Anyone interested in corresponding/mentoring please contact me at soccer_mom_20@hotmail.com
July 7, 2010 at 12:47 pm
I am really looking forward to tomorrow’s post. We have been debt free (thanks to Gail) for one whole year and it is a great feeling! I have been automating savings for RRSP, TFSA, RESP, as well as vacation and new car fund. But it’s interesting that after we became debt free, I started paying less attention to the budget, and not worrying about each of the categories as much.
I have managed to get back into reading all the personal finance articles out there that I can, and I’m back to being enthused about continuing to save for our future.
I really want Gail to cover an article about which she prefers to do with extra cash dollars – prepay the mortgage or invest?
July 7, 2010 at 12:51 pm
I have to admit that my big goal was paying off my mortgage and now I have been drifting. I hope to sit down with a financial planner this summer; money is taken off my paycheque for RRSPs, but I picked the funds a few years ago and maybe they’re not currently the best choice. Haven’t done any investing of TFSA funds either, but just opened an ING account.
July 7, 2010 at 1:38 pm
I have to copy my post from June 26th on staying motivated!
“I ‘like’ my current budget. There are few things that I would like to do that are not free. There is no room for that.
After I finished paying the student loan and the car, I became more agressive with RSP contributions, future-home saving, and setting up a car maintenance account. It is a bit depressing that I do not feel ‘richer’ (although I am financially) but I do feel the freedom of being debt-free and less worried about making payments in case something bad happens.
Maybe one day I can allocate more money to fun things do… but having the miscellaneous repair /pre-planned-and-mostly-unwanted-expenses accounts seem to kill the fun. The financial peace is there, the consumer spending is controlled.”
I will confirm that without a budget I would not have money put aside for ‘when baaaaad things happen’ or ‘when the car is toooo old’. By having the accounts separate, I can see each goal getting closer. There is a goal! You need one to know when to celebrate. Other wise, the money would get spent on stuff.
The goals are important. They remind you of why you go to work on the days you would rather stay in bed! You do you put up with work? For me, it’s for the fun days (the days when you education pays off intellectually), for shelter and food, and then for fun outside work hours. I want more fun outside work hours…
July 7, 2010 at 3:07 pm
But I never let myself get INTO debt (except a small mortgage)…. Also not easy. It has been a constant WAR with the people pressuring to buy-now or trying to say I can afford it or I deserve it. Even family seems against the debt-free path! I feel like a jerk saying “no” so much, but I think they have finally figured out why when I’m sitting pretty debt-free and they are panicking about interest rates and credit limit claw-backs.
For those coming out the other side of debt, I say CONGRATS! Sleep comes much easier when you aren’t paying anyone interest on anything.
July 7, 2010 at 3:31 pm
When you retire your debt, put most of the money you were putting towards debt into savings for retirement, and then add a couple hundred bucks to your budget. You will have extra spending money so it won’t seem like you are on as much of a budget, and you might even be able to retire at 50 if you put away enough!
retire-at-50.blogspot.com
July 7, 2010 at 4:17 pm
@Melanie If you pay off your mortgage, you have a guaranteed rate of return (which is the interest rate). What you invest in, may not have the same rate. If it were me, I would probably (after having a good emergency fund, and maxed out my RSP contribution) pay my money on the mortgage.
@Jen Yes, I will probably end up doing that. But I would never set-it up to the maximum that I could because of the “just in case” issue. Still leaves little ol’ Kat with some play money. I’m sure I’ll be good ;-D
July 7, 2010 at 5:34 pm
I too am looking forward to tomorrow’s post. Gail has brought enormous information to all of us, and I can’t thank here enough. Way to go Gail!
I was lucky enough my parents taught me growing up alot about living within my means and the importance of a rainy day fund. So my debts were limited to car loans, student loans and mortgage.
I’ve always been of the believe that yes a emergency fund is important, but my number one priority is attacking the mortgage. I live in Calgary and housing is very pricey! Looking at an amortization schedule if your amount owing is over 100,000 you can save some HUGE money by making extra payments. Meaning if you put $100 dollars a month down as a lump sum against the principal balance, you will save an immediate $100 in interest costs over the life of the mortgage. Needless to say an immediate return of 100% is tough to beat with any investment!
So the attack on my mortgage continues….
July 7, 2010 at 5:50 pm
i am working on getting to debt free & am much inspired by gail’s blog & the responding posts. i don’t carry extra cash now, and the debit card stays home. i am very meticulous about writing down what i spend, where, and why if it’s an unusual expense. my jars are sitting right by the front door, so i know exactly how much i have as i leave to do my shopping.
i would have to say, at this point, yes, my budget is tight. it’s my budget, and it’s working for me. that’s all i ask at this point; a path to follow and a lantern for the dark moments. happily i do not have much debt to pay so i’ve been considering what to do when my debt is gone. this blog was helpful in preparing me for what i will face…really looking forward to tomorrow’s blog. thanks gail, for your help!
*****forever oranje*****
July 7, 2010 at 8:00 pm
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July 7, 2010 at 8:22 pm
Looking forward to printing off what Gail has to say tomorrow.
As I sit now, I don’t think I’ll have trouble backsliding into debt but who knows? I have my blinders off and my eyes wide open so am hoping I am wiser.
@Karen~if you can budget for it – get the KitchenAid. I absolutely love mine. Would rather not have the one that lifts, but, I wouldn’t be without the dough hook. All those years kneading. Course, it took out any frustrations whacking the dough around LOL.
I made buns today and another batch on the go for tomorrow.
@congratulations Monica! Way to go! You must be so relieved.
July 7, 2010 at 9:56 pm
Thanks everyone for the feedback on the Kitchenaid! It means a lot coming from this group of readers!
I mentioned my blog a few posts ago (ediblehours.blogspot.com) and all the Gail fans are reading like crazy! I’m working on pulling a post together for everyone trying to stay within Gail’s $100 – $150 per week for food to help get everyone DFF sooner!
I love that people mention the games that we play on ourselves (ie: put the money where you can’t touch it, or how long can I make my $5 in my wallet last!) Back of the freezer food – I call it a “four corners” meal – back of the freezer, back of the fridge, back of the pantry, back of the spice cupboard!
Some of our best meals have been on those days and they sure do help the budget!
I’m really looking forward to tomorrow’s post.
Karen
July 7, 2010 at 10:42 pm
Well today the caacaa hit the fan as Gail says. We’re debt-free, including no mortgage anymore. We’ve been putting aside about the equivalent of 2/3 of the mortgage into a home repair/property tax fund, and I put the remaining 1/3 equivalent along with what I had been paying on debt repayment into various funds – vacation, emergency, retirement, fun etc.
This year, exterior housework was on the work plan – new eavestrough, replace rotting wood frames, soffit, fascia etc for the roof, cut down dying tree, stump removal – all saved for in the home repair/property tax fund – about $9k of work to do.
And then, hottest week of the year and the central air goes – really goes. So gone that it’s cheaper to get a new system than do the repairs. Another $3,500. Unplanned.
5 years ago, we would have had it all done on credit and probably at some ridiculous interest rate. But, as much as it pains me to do it, I have to dip into the emergency fund to pay for the a/c.
No loan. A hit to the emergency fund (very sad as it was so wonderful to see it grow, and grow). But all doable.
Did I ever get a lesson in how important it was to build an emergency fund.
Resist the urge to spend it all when you’ve gotten yourself out of debt. While I’m angry I have to dip into the emergency fund, at least it covers the costs.
July 7, 2010 at 10:51 pm
Today’s post just brings home how much FARTHER in debt I will be by the time I get back to work from my broken ankle. Turns out that because a manager did not do the paperwork properly, it took 3 1/2 weeks for my ROE to be filed. Now, EI tells me that they have 4 – 6 weeks to process my application, by which time I should hopefully be back to work already!! So, my mom suggested calling Social Services, and after 30 minutes on hold, and a lengthy application process where I had to hobble to the basement to bring up my online banking records, I don’t qualify because I earned income for two weeks in June which is more than I would be entitled to on SS!! So, all of you out there depending on EI to help the shortfall of your Emergency Fund – make sure that your EF covers at least two months of Expenses. Looks like that is how long it could take to get the ball rolling. By the time I am back to work/collecting my 55% EI, all my utilities will be 3 months behind. And the doctor’s order to stay off my feet for four weeks? Nope, didn’t happen because of all the running around collecting paperwork, applications and notes and delivering them where they belong. I wonder how much a person could charge for just such a service? Could be a business venture idea?? Not feeling sorry for myself – I refuse to. Just pointing out some reality…
July 8, 2010 at 12:30 am
Suzanne:
I can’t believe your lack of luck! I send you good vibes. Do you have a union that can help? Do you have ANYTHING you can sell to pay for utilities? Hang in there!
July 8, 2010 at 2:15 am
Thanks Marie. I have been trying to sell my horse since April, when I realized that after breaking my rib I shouldn’t ride. Believe it or not, co-workers in another facility are on strike and OUR union decided it would be ‘nice’ if we each “Donated” $25/paycheque to their strike fund!! Since I am not getting paid, I am exempt, for now. So, no, I don’t think my union will/can do anything for me. EI actually sided with management’s delay of my ROE “because they are picking up the slack during the strike!!! I am doing a lot of sewing of dog crate/bed liners, which seem to be quite popular in my circle, so that will help. I will pull through, it will just take me till Christmas time to catch up, forget about getting ahead (for now). I had been doing so well, being on time with bill payments, etc. that now this will really wreck things again. I refuse to let it get me down tho, I have been here before, and with the help of all the posters here and Gail’s advice, I know how to turn things around – once the money starts coming in again. My 75 year old mother has offered to help me out; she says she knows where I live!!
July 17, 2010 at 10:01 am
[...] Debt-Free! Now What? [...]
October 17, 2010 at 2:54 am
I’m happy to report that I’ve been getting quite the barrage of email telling me that y’all are debt free!!!Really i like your informative blog…….
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jenny
National Debt Line