Yo everyone! Today I'm doing something a little different and bringing back an old-school article from the archives. This is one of the first posts that I ever wrote after paying off my $40,000 of student loan debt in 18 months (on a teaching salary). I grinded so hard to pay off my loans that by the time I got done it was like…what the heck do I do now?
I know a lot of you have either been through the same thing, will soon, or are going to be there before you know it. So…I hope this helps. Also, I'm not going to lie – I love going back and looking at old posts like this to see where my mind was back then! It's crazy how much things change in just a few years, right? Anyway, hope you enjoy! ~M$M
I've watched my peers buy nice cars and houses.
I've lived like I make 1/5th of my salary.
I've said no to the things that I want so badly.
I've paid my debt in full.
No one ever said that delayed gratification would be fun. In fact, when I started my journey to paying off my student loans, I was told it would be REALLY hard to watch everyone around me increase their “quality of life” with new cars, houses, and clothes while I dug myself out of a hole I had put myself in.
To achieve life after debt, I had to become extremely good at suppressing thoughts about what I wasn’t buying and put them in the back corner of my brain. How much compartmentalizing can you do before you need therapy? At least I can pay those bills in cash.
As I was getting closer and closer to my goal of living debt free, paying off my student loans became my sole focus. It was literally all that mattered to me (except for my wife, she reads this stuff). I'll admit it, I was obsessed with paying off my student loans… it's just how my mind works for better or for worse. Hyperfocusing on life after the debt was all I did.
At the same time, I realized that my friends who were passing me up had taken on crippling debt to “afford” what they thought they were supposed to have, and I didn't want to live my life that way.
The key is that I knew I was doing the right things financially, so everything seemed easy, or at least worthwhile.
When I finally hit the milestone of life after debt, I had to figure out what I was going to do with my money. I mean, I knew what I should do with it… I wanted to build wealth. I wanted security. I wanted my wife to only work if she wanted to. I wanted us to live how we wanted, for the rest of our lives.
When you finish any major debt payoff, it’s like you sort of get this immediate pay raise, but the first few days/months/years of life after debt won’t immediately lead to the things I’m seeking. There’s a lot of space between debt and financial independence. And, financial independence means different things to different people.
Now that I've started to build wealth instead of pay down debt, I am facing different challenges that are proving to be way more complicated and have bigger implications for the rest of my life than what I was doing with my student loans just three years ago. I'm trying to figure out the BEST way to invest and grow the cash that I've put away, and I'm realizing that there isn't a clear answer or path to success. In short, I don't want to screw it up– that's not how I roll.
Before I go on, if you are reading this and thinking: “Oh great, some entitled kid complaining about having too much money.” – The back button is at the top left corner of your screen. I'm trying to have a conversation with the people who want to do what I'm doing.
Honestly, this is in no way a rant about how hard it is to have money. I just want to be honest about how you go from debt to life after debt– how you set goals, make your money work for you, and maintain what you’ve worked so hard to achieve.
As I've started a new path towards building wealth, I've realized that there are four important things to consider as you start life after debt:
1. How wealthy do you want to be?
This is HUGE. It's pretty tough to hit a target that you can't see. You need to decide what level of wealth you want to achieve and why you want to achieve that goal. I've seen a lot of bloggers and people on Twitter who want to retire early. That's cool. I'm a freak who actually likes working, and I think I would be bored if I wasn't creating something, helping people, learning, etc.
Early retirement is not one of my goals.
I know I'm the one that is afflicted, so if you want to retire early… you're probably the normal one and should feel good about it. Just keep in mind that it takes a certain amount of money to retire early, and determining that amount isn’t just multiplying your cost of living by the number of years you are expecting to live. I’ll talk more about this in a minute.
Even just being financially comfortable will take setting a goal that’s slightly more complicated than a dollar amount.
My financial goals are geared more towards items that I want, like boats, houses and cars rather than financial freedom.
Some people would say that I'm shallow for thinking that way, but I don't care too much. My dreams for life after debt are my dreams, not anyone else's. Even more important is that what you want won’t even matter unless you make it a goal.
Once you decide what you want in your life, you will take more action towards making it happen.
Come up with a number that you'd like to see as your net worth. My number is so ridiculous that I don't even bring it up anymore. Everyone just tells me that it will never happen, so I tend to keep it to myself. All I know is that someday I'll invite the naysayers to watch me wave at them as I pull my yacht out of the harbor.
2. Is your money in accounts that don't produce a great return?
Okay, when you do have a number in mind, you have to remember one thing… inflation. With a 3% inflation rate, $1,000,000 today will only be worth something like $300,000. Here’s an inflation calculator to see how it works.
I was THE guiltiest of anyone about this one, so let me take you back to a few years ago.
My wife and I had been putting away cash for a while and had it earmarked for certain things, like our wedding, honeymoon, real estate investments, a house, etc. And, I had an amount in mind for what I wanted my networth to be.
Then, as I was figuring out my net worth, I realized how dumb I was (it was like a lightbulb moment, but a dim one because I had been clueless for so long). The majority of that money was in freaking savings accounts producing 0.000348% interest instead of a brokerage account or equities that would make our money work harder for us. And yes, that interest number is wrong, but I'll spend more in internet data costs trying to figure out the actual number than I will from the account itself.
The only way to meet that goal was to make my money work for me.
Needless to say, I moved my cash into something that makes more money than nothing. I started by investing my tax return and transferring my cash reserves into a Schwab brokerage account. I left our emergency fund in the savings account for quick access– that money is not to be invested. Period.
I know I missed out on some potential gains by making that “mistake,” but I'm already making up for it by being extremely aggressive with my future investments.
3. Choose a path towards building wealth and stick to it.
This one is tough. When you get to life after debt, there a ton of options when it comes to investing and building your wealth, and it can be daunting for young people like me. If you are still paying off debt, you will see what I'm talking about in the coming years/months.
I'm diversifying a little bit for now, but at the end of the day, I need to pick an investment strategy and become really good at it. I'll diversify in 20 years when I start working towards the next financial goal– protecting my assets from the government.
My goal for now is NOT to be safe or conservative. I don't have kids or debt, so I need to take risks now. I would be doing my future family a disservice if I didn't put everything on the line financially at this point in my life. At least… that's how I choose to look at it.
I have a sense of urgency to get to where I want to be, and it fuels my actions every day. I think you should do the same.
4. Maintaining life after debt.
This one is huge. If you’re like most millennials, then adding debt is easy. There are student loans, mortgages, consumer debt, etc. To actually maintain your financial life after debt, then you will need to be proactive when it comes to how you handle your money.
This isn’t just investing… it’s living on less than you make. You’ll never get ahead and stay ahead if you one day decide to start blowing your paychecks on the crap you avoided while you were paying off your debt.
I could afford new cars for my wife and I, but we drive used ones. We could buy a second house, but we’re happy in the one we recently built. Life after debt is a long game, and you have to be smart and continue to choose living debt free if you want to build the kind of wealth that leads to a financially comfortable lifestyle.