Updated: Aug 22, 2019
I’ve decided to start writing more about debt and finances. Why? Because I see too many people enslaved to their debt, enslaved to jobs they hate, and enslaved to their spending when there is a much better way to live: a life of financial freedom. Financial freedom does not mean you are a billionaire who never needs to worry about money; rather, financial freedom is not being enslaved to your money and making your money work for you to achieve your goals. I truly believe that everyone can achieve financial freedom, but it often requires discipline, detachment, common sense, and temperance, which are uncommon virtues this day in age. Once you achieve financial freedom, you are no longer enslaved to money, but can use money as a tool to achieve your goals and grow in virtue! I’m going to share what has worked for my family, and hopefully others can learn from it.
I’ll start with a little history. When I was in high school, I wrote down my life goals (other than to get to Heaven). They included (in chronological order):
Get married and raise a family
Own a farm
I then figured out what I needed to do to achieve each of these goals. First, I knew that I had to get a decent job in order to support a family, buy land, and save for retirement. Therefore, I chose an extremely difficult educational path in order to get a PhD and land a well-paying job. During six years of graduate school (which follows 4 years of undergraduate studies), I was a full-time student, but was given a small stipend to cover the cost of living. I could have easily rented a one bedroom apartment in a newer complex, but I wouldn’t have had anything left over to save. So I made a conscious decision to live simply in a small, older apartment with a fellow graduate student.
Also, because I knew that bad debt could derail your whole life, I was mindful to stay out of credit card debt.
Money was tight, so I slashed expenses as much as possible. While everyone bought the newest smartphone, I kept using my old flip phone. While the other graduate students went out to eat every day for lunch, I packed a lunch of PB&J or pasta. Instead of subscribing to Netflix or cable, I took up running to stay healthy (after all, I was eating a lot of cheap pasta). I drank water almost exclusively, making only a few exceptions to buy the cheapest draft beer when I’d go out with friends on Friday nights. I also avoided coffee or other caffeinated beverages. Although several of my acquaintances "vaped" or smoked, I was never tempted, because I knew it was an expensive addiction.
Now, let’s calculate how much I saved over 10 years of college and graduate school by making the life choices listed above. First, I saved money by not buying a new smartphone. I probably would have had to replace it at least once during the ten years, so I saved $1000 minimum by sticking with my flip phone. I also avoided the high cost of a smartphone plan, which is about $40/month more than my flip phone plan. After 10 years, that comes out to spending an extra $4,800. By not eating out for lunch each workday, I saved a minimum of $5 per day, or a total of $12,500 over 10 years. I saved the same amount by forgoing a morning Starbucks coffee. I saved a total of $6000 by not paying for cable or streaming services, and a minimum of $10,000 by not vaping or smoking.
Overall, I essentially avoided a staggering $46,800 in credit card debt by making smart choices and living frugally for 10 years. After spending 10 years getting my degree working minimum wage jobs, I found myself with only $16,000 in student loan debt and a job with the potential to earn a six-figure annual salary after a couple years of experience (Not to toot my own horn, but that’s a perfect example of good debt). Not only was I in good shape financially, but by largely avoiding sugary drinks and fast food, and substituting watching television with exercise and participating in the parish’s young adult group, I lost 30 pounds during graduate school, was a successful triathlete (I regularly won first place in my age group in local races), and met my wife (which would not have been possible if I spent my evenings watching television).
Live like a poor college student when you're in school, so that you won’t have to live like one the rest of your life.
In my last year of graduate school, my wife and I got married and had our first child nine months later. When the baby was born, my wife stopped working. Our monthly income dropped to $2500 per month as I frantically worked to graduate and start a better paying job. Thankfully my wife didn’t have much student loan debt remaining when we got married, so our combined student loan balance was only $18,000. Also, we had buffered our emergency fund ahead of time so that we could handle the dip in income for a couple months. Our planning worked, and we made it through without taking on debt.
When we first got married, my wife and I brainstormed our shared goals, prioritized them, listed the cost to accomplish them, and identified a target date. Our goal list looked like this:
Pay off student loan debt
Buy a starter home
Adopt a child in 5 years ($25,000)
Buy 40+ acres for a homestead in 10 years ($250,000)
Build our dream house in 15 years ($400,000)
Retire at age 60 (Requires saving 20% of income)
I then created a budget that revolves around these goals. Each month, we automatically divert 5% of our gross income to Goal #3 and 20% to a Roth IRA to save for retirement (Goal #6). 20% goes to our current mortgage (Goal #2), 10% to taxes, 10% to tithing, and 10% to insurance (term life insurance and disability insurance for me and Mater, a $10,000 whole life policy for each child, health insurance for the family, and car insurance).
The remaining 25% is for regular expenses, such as groceries, and making payments on low interest student loans (4%) to achieve Goal #1. We’ve worked hard to trim our expenses significantly so that more money is available to save for our goals. We’ve cut out cable television, rarely eat out, buy decent used cars with cash and do the maintenance ourselves, shop sales, and limit frivolous spending. If you find that you’ve cut expenses as much as possible but you still don’t have enough left over to accomplish your goals, consider a side gig to make extra cash. This is where your “Marketable Skills” come in handy. If you are good at photography, start offering your services to friends. If you are good at writing, start a blog. If you are crafty, sell your crafts. Mater and I have started doing all of these things to bring in a little extra income, and the best part is that we are making money on things we would do as a hobby anyway. Essentially, every action we’ve done is focused on limiting spending (which we track using a Mint.com account), building wealth, and achieving our goals. We bought our first home so that we could stop paying rent and start building wealth by owning real estate. We saved up several thousand dollars to make this happen using the same process I described here.
So that’s where we are right now. Once we pay off the remaining student loans, that amount will be diverted to an automatic savings account in order to start saving for Goals #4 and #5 (Notice that we’re not going to increase our expenses!). Also, any pay raises in the coming years will not be spent, but will also go into that fund as well. I like to call this the Goal Snowball, the fun alternative to the Debt Snowball, because it follows nearly the same process. You cut expenses as much as you can and save what is needed to meet your Goal #1 timeline. If there is money left over, apply it to Goal #2. Once Goal #1 is accomplished, increase saving for Goal #2, or if you are already on track to meet Goal #2, then start on Goal #3. Continue down the goal list in this manner until you have completed them all.
My motto has always been “Live like a poor college student when you're in school, so that you won’t have to live like one the rest of your life.” Obviously, this process requires significant discipline and going without a lot of “luxuries” like eating out a restaurants frequently or having cable TV in your home. However, we’ve found that actively working to accomplish your goals and doing what you enjoy leaves your happier, freer, and more relaxed than wasting your life away trying to spend your way to happiness.