Category Archives: Debt-Free

The Wisdom of Becoming Debt-Free

By Claire Posted in Debt-Free, Personal Tagged , , , , ,

Every day around three o’clock, local young parents zip past my house on their way to pick up their kids at the nearby school. I am astonished at their vehicles, which are usually brand new SUV’s. These parents whizz by in their expensive transportation while chatting or texting on their not-inexpensive smartphones, as I mentally calculate how much they’re spending each month to live this lifestyle.

This is why I’m particularly proud of one of my younger kids and their spouse. They’ve chosen to become debt-free. They rent a nice duplex while all their friends are out buying houses. They share one old car while their friends drive around town in late-model SUV’s and pick-up trucks. One of their co-workers told them they spend $1000 per month on their new pick-up, including insurance. My kids were stunned to hear this. They had two older cars with car payments, but sold one to pay off its loan, and are about to pay off the car they’re currently using. They’re also working hard to pay off their credit card, the balance of which was greatly enlarged by medical bills that their lousy health insurance from work wouldn’t cover.

I know how hard this is for them because I’ve been there. It’s not easy to live modestly when almost everyone around you is living large. But those living large never stop to consider what will happen if they lose their job and don’t find another at the same income level right away. They won’t be able to make their car payments and their vehicles will be towed off, they’ll fall behind on their mortgage payments, and then they’ll lose their home to foreclosure. This happens every day all over this country, but most people, and especially young people, think it will never happen to them.

So I’m really proud of my kids, but there’s a little self-interest here, too. You see, if they become debt-free, it’s much more likely that I’ll never have to see them suffer the repossession of their vehicle or their home. And that would be just fine by me.

What Do You Spend Each Month?

By Claire Posted in Debt-Free, downsizing, Retirement, Simpler Living, Small-House Living Tagged , , , , , ,

You can’t determine what affordable housing means for you until you know how much money you have, and how much money you spend. We’ve previously looked at the first; now let’s figure out the second.

Whether you use an expenses app on your phone, or write down every dollar you spend in a small notebook, get in the habit of tracking your expenses. Do this for three months straight. This will give you a pretty good idea of what you spend, and where you spend it.

You’ll need to group your expenses into categories. I use my own categories when I do this (I’ve done it for almost my entire adult life). They include:

  • House payment or rent
  • Utilities
  • Property tax
  • Charity
  • Health-sharing ministry
  • Food
  • Car Insurance
  • Car expenses
  • Car gas
  • Medical/dental
  • Disability insurance
  • Life insurance
  • House insurance
  • Miscellaneous
  • Entertainment (includes dining out)
  • Gifts/cards
  • Yard/house
  • Clothes
  • Cell phone
  • His hobbies
  • Her hobbies

Many of these expenses are the same every month, so it’s not that hard to do this on a monthly basis. Just total these expenses, and any others you might have that I don’t have on this list; that total is an important number.

The big question is: how big is that number compared to your total monthly take-home pay? Do you spend more than you earn each month? If you do, something must be done. You need to be financially solvent going into your later years if you don’t want to end up living in your car someday.

If you’re spending more than you earn, I assume you have credit card debt. You’re going to need to get rid of that. If you have a spending addiction, you’re going to have to get help for that. If you live like someone who earns far more than you actually do, you need counseling to find out why you do that.

In addition to those issues, look at the individual categories to see where you can pare down. The largest categories are ripe for that, but the smaller categories add up, too. Be honest with yourself; where can you cut back so you can start spending less than you earn?

If you already spend less than you earn, congratulations! You’re one big step ahead of many people. Now you need to look at where you want to live before and in retirement, and whether you can afford it.

 

Figuring Out What Affordable Housing Means for You

By Claire Posted in Debt-Free, downsizing, Simpler Living Tagged , , ,

Last time I touched on how to figure out what affordable housing in your middle and old age will look like for you. The first step is determining what you have and what you spend.

So how much money do you have? If you don’t know, you should. Go through all your paperwork and make a list of your bank accounts and balances, PayPal accounts and balances, rental income (if you’re a landlord), current value of stocks and bonds you own, money in your IRA or other retirement accounts, cash in your wallet and cash stashed in your sock drawer.

That’s a start. Now let’s look at your net worth. If you own your house, add its value to the total from the previous paragraph. If you own your car(s), include their approximate values (Kelley Blue Book online is a good source for that). The same goes for campers, boats, motorcycles and ATVs.

Total those items, then subtract from them what you owe on them, if anything. Use your current mortgage balance, current car loan balance, etc.

So, are you still in the black, or does your calculator show a negative number?

If it’s negative, you need to become debt-free before you think about retiring. But if it’s positive, pat yourself on the back.

Now that you have a rough idea of what you’re worth, next time we’ll take a look at what you spend.

 

How to Avoid Living in Your Car

By Claire Posted in Debt-Free, downsizing, Simpler Living, Small-House Living Tagged , , , , ,

Over the past ten years or so, our country has seen an increase in homeless families. Some now live in their cars, even in traditionally affluent areas like Seattle. Avoiding this by being proactive is especially important if you’re not young anymore; younger people will (hopefully) have opportunities to bounce back in the future.

The only way to NOT end up living in your car (or worse, in a homeless shelter) is to secure affordable housing as soon as possible.

The first step is finding an affordable place to live (see last week’s post). There are many options for affordable housing. Renting may be OK if you can find a place where you’re pretty certain the rent won’t go up a lot. Living with someone else, like a friend or relative, with whom you can split costs is an excellent idea if you currently live alone.

The ideal is buying a small house with cash, something all on one level that can take you from your current age into old age without forcing you to move. Small houses have smaller-than-average utility bills, maintenance bills and property tax bills, so buying a small house is a good way to invest in your future retirement, helping you stay financially solvent even though you may not have a lot of retirement income coming in.

If you’re middle-age or approaching retirement age, dealing with long-term underemployment, or all of the above, you need to know how much money you have and how much money you spend each month so you can determine how much you can afford for housing. See the next post for details.