I normally like to think of myself as above average in financial intelligence. For the last several years I’ve read dozens of books on personal finance. I’m an avid reader of financial blogs and subscribe to the Wall Street Journal and several finance magazines.
But it has occurred to me lately that I know much less about the larger world of personal finance than I thought I did. At times I feel like a complete novice. I used to think the only thing holding me back was debt. “If I ever reached debt freedom I would become a millionaire in ten years,” I thought.
If only I were debt free. I’d throw caution to the wind; start my own business; invest in hot stocks that I missed out on while paying down debt. The truth is that paying off debt changed very little.
The anxiety I used to feel from the debt cloud hanging over me has been replaced by the anxiety I feel trying to preserve, and grow, what little bit of savings I have managed to pile up since then.
I worry about losing money. I worry about not earning enough money. I worry about losing my job, or getting sick, or being able to provide for my family in an emergency. Sure, those worries are not as intense thanks to debt freedom and an emergency fund, but they are still there.
It’s actually a little depressing. It reminds me of the feeling you had on Christmas morning, when after ripping open the large, red box in the corner, you realize that Santa Claus brought you that toy you have been wanting all year long. It’s euphoric…for a few hours.
By that afternoon you were tired of that new toy, and sad because it would be 364 days until Christmas came around again.
I don’t mean to discourage anyone from paying off debt. I think short of building a basic emergency fund, paying down debt is one of the smartest moves anyone could make right now, given continued economic and job market instability.
However, I also wanted to paint for you a very real picture of what life after debt freedom looks like. It’s not an absence of money worries. The worries just change. In fact, I would argue that certain worries intensify, because you no longer have debt as an excuse to get busy on your goals. I used to say things like,
- “We’ll start saving for retirement after we get out of debt.”
- “It would be nice to contribute to the kids’ 529 college savings plans, but we can’t while we are paying off credit cards.”
- “We will pay cash for our next car, but for now we’ll have to borrow because I can’t save up that much cash AND pay down debt.”
It is almost as if debt became an excuse to acquire more debt, or not save and invest. Once the debt is cleared, you have to purge that thinking from your mindset. And that is hard.
It’s also hard to continue living on a slimmed-down “debt” budget when you no longer have payments. The increase in disposable income forces you to make decisions and engage willpower that wasn’t really required when sending most of your paycheck to banks and credit cards companies (assuming you were faithfully doing this for some time to get out of debt).
I know what you’re thinking. Increased disposable income, yeah, nice problem to have. And it is. But it also tests your willpower in ways it hasn’t been tested in some time. Actually, if you were like me, and in credit card debt as soon as you were old enough to sign up for one, your financial willpower may never have been tested at all.
Maybe this is why some people who pay it off go right back into debt. Or why lottery winners are bankrupt in only a few short years. Or why dieters who lose 100 pounds gain back 110 pounds. It’s because our behaviors never changed. Once the euphoria of reaching our milestone wears off, life begins to happen again. You are tested.
Preparing for Life After Debt
If I had known this ahead of time, I probably would have left some of the same tools in place that I used to keep myself in check while in debt. Instead, we took off all the restraints, and in a couple months found ourselves spending way too much on our credit card (we paid it off every month, but thanks to overspending it caused us to stretch and even dip into savings on one or two occasions). I wasn’t happy, and immediately worried we had returned to our old ways.
Fortunately, we were aware of what was happening and managed to keep the train on the track. These days, we are again focusing our attention on what we spend and trying to reduce that amount each month. We aren’t quite as strict about things as we were when we were in debt, but we make the effort to spend more intentionally.
My anxiety over investments and college savings and emergency planning, etc, etc. has subsided some as well. We’re saving for retirement, adding some to the kids’ college plans, and fortunately, have time to let all the dips and dives in the market work themselves out over the long haul.
We invest conservatively for our age, but it helps me sleep at night – a sacrifice I’ll gladly give up for a couple percentage points in returns.
If you are currently in debt, I hope you are working to pay it off and enjoy a debt-free life. As you move closer to your goal, begin to think about how your life will look once you are back to even.
Create a debt free “dream” budget to imagine how your expenses would look without any payments. Start researching various investment opportunities that might interest you when you have the money to invest in them.
Think back to all the things you wanted to do while still in debt and make plans for those things, too (take vacations, look for a more fulfilling job, donate to a charity that you feel passionate about, or maybe help a friend or family member).
Above all, remember it’s OK to loosen the reigns a bit, just be sure not to completely let them go.