This post has been updated
I became debt free in June of 2017. A little bit about my loan situation, I had no credit card debt, only student loan payments. I was able to pay off student loans once I started my full-time job as a physician. The key, I think, is to have a debt payoff plan, and stick to it.
That feeling of being done is so freeing. Being able to become debt free requires some level of frugality, saving, and sacrifice. However, once you’re done with debt, the savings and financial smarts doesn’t, and shouldn’t, stop. So, here’s how I’ve been spending with my “debt free” mindset and maybe it’ll give you some ideas too.
Savings and Investing
I’ve been saving a large portion of my paychecks. After paying off rent and bills, my account is debited weekly and money sent towards investments, including my Vanguard index funds and mutual funds and then my IRA. Of what’s left, I put some into high yield savings accounts in order to maintain my emergency fund of 6 months of expenses. If there’s anything left, I’ll usually decide to invest it as well. (Initially, I was saving up to buy a place, which I did! More on that later in the post).
Overall, on average month to month, I am saving and investing about half of my paycheck. I wasn’t been able to do this every month, but in the first year and a half since becoming debt free I managed to stockpile approximately 150k in savings and an additional $50k in investments/IRA (on top of what I already had in there). Since purchasing my home, my savings has been a bit slower due to new home costs, but I’ve still been able to invest regularly and maintain my emergency fund!
My post on Getting your Finances in Order goes into how I got started and also provides some resources in case you are looking for some.
My attending upgrade still involves travel, lots of it. Since this is what I spend most of my money on, though, I try to make what I spend truly worth it.
Initially, I was all gung-ho about flying in fancy business or first class. Then I talked to my Dad who helped me realize something: the cost of your ticket shouldn’t be more than you can afford.
Well. Duh. But what did he mean? Lets break it down.
Say you find a business class ticket from California to Europe for 4k. Your overall journey one way will be between 15-20 hours. That’s about 100 per hour (each way) you’re paying for that ticket to lay flat, wear fuzzy slippers and eat fancy food. Unless you make more than that per hour, that’s not a ticket you can afford.
So now when I go shopping for those tickets, I make sure that I can truly afford what I’m purchasing.
In addition, I’ve invested in a great travel credit card: American Express Platinum. There’s an annual fee of $550. However, I get $400 back in travel credit and uber credit per year. I get 5x points on all flights and on hotels that I book through their travel site. Plus, there’s all the lounge access at basically every airport in the world, which means I get free food and drinks. On top of that, you get memberships as Starwood Preferred Guest, Hilton Honors Gold status, and random other perks. In other words, for a net cost of $150, it’s amazing and I love it, and I think totally worth it for the amount I travel.
Shopping for needs versus wants
There are things you truly need in life (gas, groceries, rent etc) and things you “like to have” aka want. How you divide your spending here is really important, I think, because this is basically how you live your life every day. So if you can find the best, financially sound balance, for yourself, it goes a long way towards saving you dollars and maximizing that value of what you do spend.
Mortgage--I put over 20% down on my home and got a pretty low interest rate at 3.125%. My mortgage currently takes up 1/3 of my paycheck, which is slightly more than I had wanted, however, given the amount of house I have, the area I live in and the fact that its only 3 years old, I’ve categorized this as a long term investment.
Gas--can’t do anything about this unless you decide to get an electric car I guess
Groceries–I try to find the best deals on basic necessities & pre plan meals so that my grocery shopping is purposeful. I also use coupons when I get them (and remember I have them). Plus, I look for discount grocery stores near me and try to shop there as often as possible. It makes a huge difference.
TV/Internet–I canceled my cable and just pay for internet now; to keep myself entertained, I use Netflix, Amazon Prime and Hulu. The net benefit: I save $40 per month.
Homeowners insurance/car insurance–it’s bundled and I’m paying $150ish per month.
New clothes–I only buy on sale, and I only buy those items I think my closet needs. See my post on how I shop on a budget, here.
New shoes–still working on this one…
Stuff for the house–I initially did spend on basic furnishings for each room (need beds in the guest rooms!). But once those purchases were complete, I scaled back and now make sure I look for the best deals for the items I’m looking for.
For all online shopping I go through ebates.com. It’s an easy way to get cash back and actually works. I’ve received several checks in the mail since I started using it.
Eating out/going out around town–everyone needs a life, and I highly encourage that you don’t delay living it. For me, I spend a lot of my free time going out with friends, and hitting up a nice restaurant is a common meeting point. Needless to say, the majority of my money for “wants” goes here.
Large New Purchases
My new home
I mentioned above that I was planning to purchase a new home, and I finally did this past summer! It wasn’t exactly what I was planning to get when I started my search, but I truly think I got the best deal for the home I found.
Since I had the capital, and I wanted to make sure that my mortgage payments were as low as possible, I put down a little more than 20%. I also did the 5/5 ARM loan in order to get a lower interest rate of 3.125%. I consciously made this decision after doing a bunch of calculations and making sure that, worst case scenario if my interest goes up the maximum amount in 5 years, that I’ll still be able to comfortably make the payment. This loan is definitely not for everyone, so do your research before you decide and sign!
More about what went into my decision is in my post, here.
The biggest piece of advice I have with this kind of purchase is to make sure you do your research, make a list of your must haves, and then try to take the emotion out of it. Often times we “fall” for something that feels right, but upon inspection has a ton of problems. Stay detached and walk away from anything that will cost you a lot of money or create future problems. Being debt free makes it easier to do more with your money and definitely gives you flexibility to fix issues that may arise, but you don’t want to get caught in a money pit.
The car I had was a 2003 Infiniti G35 coupe; granted it had less than 100,000 miles on it, so I figured I could get another couple of years on it. By chance, or fate, my brother ended up getting a new job in a city where he didn’t need HIS car. He drove a 2014 Honda Accord. Since he didn’t need it, he decided to give it to me. So I basically got a free car and was saved the cost of purchasing a new one (I was eye-balling the new Audi Q5).
I think the point I’m making here is, when planning for a new car, I fully intended to pay cash because I wanted to maintain my debt-free status. While my brother’s car wasn’t what I wanted, it serves my needs and saved me a ton of cash. I think at the end of the day if you are able to do this: fulfill your needs at low or no cost, then you should. It’s a smart decision, and I don’t think you’ll ever regret saving a large amount of money.
You’re never going to keep up with the Jones’. Theres always going to be someone out there who makes more, or spends more than you. I feel like the decision to purchase expensive things that you may otherwise NOT need is an emotional decision. And it’s a never-ending one. So watch out for those emotions and when they come up ask yourself “do I really need this” or ask “why do I think I need this”.
Ask these questions and then don’t make a decision until you’ve shopped around looking for better deals. Granted, I’m not a huge label person, so maybe that makes it easier for me to walk away. If you are someone that appreciates the finer things, then maybe make sure it’s something you’ll really use/wear for a long time before handing over your credit card. In other words, make sure that, however you decide to spend, that you provide yourself with the most value for your money.
Are you on your way to being debt free? How do you plan to adjust your spending afterwards? Do you agree or disagree with my approach? Comment below!