Back on February 2010, I became totally debt free, but now what?
I thought that there would be a period where I would break even for a while, and then start to plow about $1,000 extra each month into investments! So now that it’s seven months later and how much extra did I save or invest? Not a single cent!
So what’s the problem? Why haven’t I been able to catch up?
Well it’s been a matter of bad luck with equipment breaking down and needing replaced and spending too much for our past vacation to Hilton Head Island!
But it’s also been a subtle form of LifeStyle Inflation! Thinking back now, I realize that when wants would arise, I would just go ahead and buy it. Yeah, I thought about it a bit, but I knew that I had the cash. Then when our car and lawn mower broke down, I had the cash too…
So now will I begin my saving and investment regiment? I certain hope so!
The only think that I’m worried about is the fact that my house is over 10 years old now, and it seems like things are starting to look a little run down! I expect things to start breaking soon or later!
I decided to lower my expectations to only save and invest $500 a month. Hopefully, I’ll be able to build back up to $1,000 though! I plan on paying myself first this time. That way I won’t have to feel guilty about missing my goal!
We’ll see if i can get my lifestyle expenses under control so I can accomplish my new goal!
-Don
Update 11/05/2012
Okay, the tide has definitely turned since I initially wrote about being debt-free now! The excess in the amount of money I was saving dramatically increased after 10 months after becoming debt-free! So I increased my 401k contribution up to 17% of my income, and still had a lot of money coming in. So I also joined my employer’s ESPP to fund my Roth IRA. Using my employer’s ESPP has been one of the best money moves I’ve made to-date! Especially since I’m using my ESPP to save the money for contributing to my Roth, and since I’m using my Roth IRA as a Tax Shield, there is a nest of benefits that makes this an awesome wealth accumulation strategy. Being debt-free now has enabled me to speed up wealth accumulation by at least doubt the rate that I was saving before I became debt-free!
Other Projects and Experiments:
Pingback: Tweets that mention Debt Free, Now What? | Money Reasons -- Topsy.com
Paying yourself first should make a huge difference. When I get paid, I do savings, then investing, then everything else.
This is what I will have to do! I’ve never had to do it before, but being in debt put an urgency to save on the radar back then.
Thanks for the tip and personal perspective on it 🙂
I think this is a real issue. Obviously, you are paying cash, so that means you are doing a crapload better than people constantly adding to their mess. On the other hand, you don’t want to look up after 10 years and have nothing extra (beyond what you are already investing) for all your efforts. Your modified approach seems reasonable.
Thanks Roshawn!
I have to admit, I was surprised that I haven’t saved more. I’m usually spot on with finances, but perhaps I’m beating myself up to much 🙂
oops! At least your lunch money fund is going strong.
Are there targeted places left for you to invest? That might help with meeting goals.
Alternatively, could you auto transfer your desired amount to another account so it isn’t so available?
If you’re done with retirement savings, maybe you could start on 529s. (If you keep wealth building, your kids will probably not be given much need-based aid…) We put in $500/month to my son’s automagically and don’t miss it at all.
Though it does sound like it’s time to bulk up the house emergency fund. Gremlins love 10 year old houses…
Yep, I love my lunch experiment, since it didn’t really cost me anything! I just got my frugal on!
The 529s I have for my kids are doing fabulously ($73,000 in total). I might increase the amount I contribute though…
I think I’ll contribute $1,000 each year to the house fund, and then focus the rest of the money on dividend yielding funds (my favorite types)!
So many options, but so little money…
Picking one and putting it somewhere is better than not doing anything with it. So no pressure on which specific option to choose. You can always change things later and you’ll still be better off.
MR- it might be good to start a separate ‘home improvement’ fund with some of your extra cash so you have it on hand if problems arise.
Ten years really isn’t that old in the grand scheme of things. I think most major things have a lifespan of much greater than that, with the exception of the hot water heater perhaps. However, if you even put a couple hundred extra away, you will have the money saved for a new roof or whatever unexpected event happens and it won’t have a major impact on your finances.
My house is 27 years old and I always seem to need to spend on something. Driveway is my number one problem now, and that is expensive.
Great idea! While I currently don’t have one, once I start saving the $500 a month, that will be my top goal (I figure once it hits $1,000 each year, that should be enough).
Thanks for the suggestion 🙂
By the way, I meant put a couple hundred extra away a MONTH. I need to read before I hit submit!
I love my Smarty Pig sub-accounts. I have one for taxes, one for vacation, and one for camps.
I’ve heard that about Smarty Pig! I would considering them just for those their sub account idea!
I think the “Pay yourself first” method is a good one to begin with, that way you can make sure you set aside at least your $500 you plan to invest. I’m just beginning to make this strategy work for me. As for your house, I think Everyday Tips has a good tip; put aside a certain amount in a “house repair fund” so when something does go wrong, you’ll have the cash already allocated to those repairs. Life style inflation is really life style “creep”, it just creeps up on you!
Yeah, it’s a hidden expense that I forgot about, but Kris is right! I need to account for that future expense…
Hehe, I actually prefer Lifestyle Creep (it’s a real phrase) vs Lifestyle inflation.
I actually blogged about the differences here!
We would totally fall into lifestyle inflation if I didn’t hide our money right off the bat, lol. At the beginning of every period, I first pay all of our credit cards balances, then our goals, and then we split whatever’s left between savings and fun accounts. That means we never have any extra that reminds us we could spend it, lol. 🙂
Very nice system!
I think being in debt (mortgage and cars) just shocked me into a frugal state. Now with those states going, I’ll have to go and create funds and have money go to those areas.
It’s funny, in some ways it’s more difficult managing money now that we are debt-free than when we still had debt… Go figure 🙂
I really like the pay yourself first approach. Take care of your retirement needs first, and spend on other things later. Out of the rest of the income, perhaps you can set aside a house repair fund, based on a percentage of home value. Perhaps 1% per year?
Thanks!
I really like dividend funds, but I don’t think I’ll be able to save up enough to generate a few thousand dollars for such repairs, so I’m going to go with Kris’s idea 🙂
I’ve heard that after a house becomes 10 years old, they have issues with:
water tank
air conditioner/furnace
roofing tiles
Then I also have some older appliances that will need replaced:
washer / dryer
dishwasher
refigerator
TV (this I need to replace now actually)
1% sounds good (athough it would be double what I was thinking about saving).
Let me start with, THAT IS FREAKING AWESOME!! Congrats on the getting debt free.
I don’t think looking back over the past 10 months are you being still debt free is a terrible thing. I mean, you could not be debt free. No mater how much you save each month, you can actually save each month.
It is good to set a goal, but if you only save $394 bucks, then don’t cry about it. Just rejoice in the fact that you just saved $394 bucks and try and do more next month.
Congrats again!
Thanks Freddie!
You are correct, any savings is good savings!
Thanks for stopping by!
Oh wow… you didn’t save a SINGLE cent??? That’s nuts!
The dangers of lifestyle inflation indeed. It’s tough. Yeah, start lower and see wassup!
Yeah, We went a bit overboard on vacation, then we had car problems, lawn mower problems, etc…
I just finally broke even in my checking account to where I was at the beginning of the year…
Without the mortgage payment, I should be able to save around $1,200 to $1,300 extra each month!!!
What I do is that I set up an automatic savings plan on my ING Direct account to take out $50 from my checking account 2 days after I get my paycheck.
I do this because:
1. I don’t ever get to see the money, so if I believe it’s not there, I don’t budget the money to spend.
2. Saving for your retirement or your kids education should be the #1 priority before you spend the money on anything else
Hi David,
I have #2 well funded, I planned ahead a long time ago on this one 🙂
For #1, what you describe is pretty much what I may have to do!
MR,
can’t you open one of those automated deduction accounts, that take (savings) money away from you before you even see it?
That’s true, I would like to develop an investing strategy though…
You know, when I paid off my first mortgage (1 down, 1 to go), I had a few months of spending and no saving. What happened with me is that as I got close, I got uber motivated to pay everything off as fast as possible and held off on a lot of purchases. Once it was paid, I finally went and bought those things I’d been waiting all year for.
So, rewarding yourself temporarily is okay and a few months won’t make a difference in the grand scheme of things.
I’m very curious to where you’re going to put the money next..what type of fund, etc. I feel like I already have too much tied up in stocks.
Perhaps you need a defined goal that replaces your house payoff goal. What’s next? Kid’s education?
I think I’m going to focus on building Dividend Funds. It just sounds appealing to me at this point in time 🙂
I must admit, you do have a problem that many people wish they had. That being said, it would be very disappointing for you to look back and wonder where your money went.
I agree that paying yourself first is the easiest way to avoid this. It is much harder to spend money that never reaches your hands!
It was a harder journey than I make it sound! But we did it!
Pingback: The War On Debt …- 7million7years
Pingback: Family is the most important aspect of my life | Money Reasons