Will You Be Debt Free or Wealthy?

by Derek

Foreclosures, bankruptcies, and negative bank accounts seem to be the norm these days. After all, that’s all we see on the news. There are quite a few people out there that just wish they were back to zero. Is this your goal – to be debt free?

Question of money

If you are currently working your butt off to get rid of your student loans, your car loans, or maybe your credit cards, I would hope that you have a budget. If you want to have money left over at the end of the month to put toward these debts, you’ve learned that you need to allocate your funds appropriately. If you do not keep a record, then it’s quite common to be left with absolutely nothing at the end of the month.

So, over the course of the past few months, you have learned to budget and you may even be paying down your debt faster than you initially planned (if so, good for you!), but what is your ultimate goal? Do you plan on just getting debt free and that’s it? Or, do you have plans beyond debt freedom?

My wife and I began to pay down our debt in January, 2010 and by March, 2011, we were completely debt free! It was a wonderful feeling, but you might ask us what our goals have been since that debt-freedom date. Well, I’m not sure I could tell you, and that’s exactly the response that I hope you don’t have after reading this post.

Our Debt Freedom Day

My wife and I paid off the last of our debts with a $4,800 check and we were ecstatic! It was such a great feeling to know that we didn’t owe anyone in the world a single penny. No longer did we have to worry about our next payment – we could finally just live with ease and tranquility.

This warm and fuzzy feeling lasted a while, but now that we’re in the summer of 2012, it’s really quite faded. Since our debt-freedom date, we purchased a house (and technically brought debt on ourselves again, but a home mortgage is more acceptable than consumer debt I suppose…) and have built up approximately $30,000 in equity already, but I still don’t feel like we have accomplished much since that wonderful date just over a year ago.

So What Happened?

It’s been over a year, and yes, our net worth is much higher, but our bank account has not grown all that much and our assets are still not making money for us (like they do for the wealthy). So, what has been our problem for the last 14 months?

When I look back, the answer is simple. We stopped budgeting. Our food budget used to be $400 a month, but now we spend close to $700. We used to only allow ourselves to spend $25/month on gifts for ourselves, but now we freely purchase items as long as we can “justify” them through some twisted, one-sided reasoning. Our overall spending has probably increased by $600 each month, all because we no longer tell our money where to go.

Pay Attention and Budget

If I were you (meaning, if I could go back in time again…), I would be sure to have my sights set on that next thing after cleaning your slate of debts. Have an investment goal, or decide to save up a huge emergency fund, or perhaps you’d like to start a business. Whatever the case, never stop budgeting! If you’re not telling your money where to go each month, then you may as well just throw it in the trash, because it’s not going to invest itself. Make a plan and stick to it for life.

Do you have a plan for life? Will you be wealthy, or will you simply be debt free?

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Money Beagle May 23, 2012 at 6:41 am

To me, going debt free and keeping your expenses in line go hand in hand. I think it’s important to do both and keep a good balance.

Derek May 23, 2012 at 4:23 pm

Very true. Sometimes it’s easier said than done though!

Kathleen @ Frugal Portland May 23, 2012 at 7:42 am

Wow this read like a personal email — like you were talking directly to me! I think you’re probably better off than you feel — like you’ve probably maxed out IRAs and whatnot. You bought a house! That’s awesome. I have a feeling I am going to be in your shoes soon. Ideally I’ll keep “paying” the same amount I’m paying now, I’ll just be paying myself.

Derek May 23, 2012 at 4:26 pm

Once the debt is gone, it’s so tough to stick to the same budget. Hopefully we’ll get back there soon.

krantcents May 23, 2012 at 7:55 am

I think everyone tends to increase spending to fill the space. I always took the opposite approach, I increased my automatic savings when I reduced an expense, so I could not spend the money.

Derek May 23, 2012 at 4:29 pm

Yep, increasing the automatic savings would be a great solution! Thanks for the comment!

PPI Protection May 23, 2012 at 9:05 am

I can understand. Most of all do not feel the urgency of budgeting unless we have been thrust into a situation where in we really need to. Otherwise, we just keep thinking of budgeting but not really actively do something about it. The way I see it, budgeting should be consciously practiced daily even if there is no dire need for it so eventually it will become second nature.

Corey @ Passive Income to Retire May 23, 2012 at 11:21 am

Our food budget increased as well over the past few months…. and I was trying to avoid lifestyle inflation. 😉

Derek May 23, 2012 at 4:30 pm

Yep. I definitely feel your pain…

Lance@MoneyLife&More May 23, 2012 at 3:50 pm

Reducing your debt increases your net worth, but once your debt is gone unless you start investing that money or saving it in some fashion your net worth will begin to stagnate. After you pay off your debt I definitely agree you should have some fun money. Just don’t allow your lifestyle to inflate like crazy and not invest at all.

Derek May 23, 2012 at 4:33 pm

It’s pretty tough to keep the spending under control after the debt is gone. You quickly get used to ratings out, getting a health club membership, and just going out and doing stuff with friends! We definitely need to get back to the basics of budgeting again though.

Crystal @ Prairie Ecothrifter May 23, 2012 at 6:43 pm

I feel your pain. Mr. BFS and I were letting ourselves slip big time. For us, the looming 20% downpayment coming up in September on the house we are having built has pushed us back to our budget in a BIG way. Every expense is analyzed beforehand now. It sort of feels nice, lol. I like feeling in control again.

[email protected] May 25, 2012 at 5:23 am

I am still living the frugal lifestyle – consumer debt free but throwing every spare penny at the mortgage to get it paid down asap.

So I switched from paying debt to overpaying mortgage – and the budget is getting squeaky because prices are going up but my budget hasn’t so having to get more and more creative.

But every week a little more of my home is MINE!!!

Little House May 25, 2012 at 7:04 am

Sounds like lifestyle inflation or creep. I know this feeling. A couple of years ago we were making much more money than we are now. We paid off our credit card debts, which was great, but really didn’t save as much money as we could have. Looking back, it’s because we justified that we were making more and could “afford” it. I now have a new perspective on this.

Nicole@Moneyadvance May 30, 2012 at 2:02 am

Thanks for sharing your experience!I am sure that lots of people have faced a problem like this one.I think it’s human nature, we like spend money.Most us think ” Then why do I earn money if I can not spend it?” and overspend or make debts.It’s hard to find a right balance.But I think it’s worth to work over yourself, I like to spend money and sometimes have problmes with it, but I try to teach myself to value money that I earn.When you decide to get rid of the debts it’s important to have a strict plan and to follow it step by step.I try to understand what kind of things are really necessary for me to buy, what can make me happy, and what kind of expenses I should avoid.Saving money is rather an attitude than an art.Only if you will learn yourself, your situation, your expenses, you will be able to find a right way to save money.I believe that it’s very personal for every one and every particular situation has it’s own solution.

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