Why It Isn’t So Bad

Why It Isn’t So Bad

So far I have discussed how I got myself in over $117000 in non-mortgage debt. I will discuss in a future posts about strategies for paying off that debt, but some people have communicated to me privately and asked how I am able to sleep having that much debt.  They are worried that I am going to become destitute. The truth is I hate the debt, but it isn’t all that bad.

For one, all of the debt is at very low interest rates. Not one of the items I have for debt has an interest rate above 4.5%. So that is good. That doesn’t mean I don’t want these items gone from my life, but the interest isn’t what is killing me. What is killing me is seeing my money go out to unproductive items where I am not earning anything; where it isn’t helping my family. That is what irks me more than anything.

Second, my plan is to pay off all of the non-consumer debt by the time I am 45. I will talk about that in another post, but that is my vow. All of this non-mortgage debt is gone within 4 years (hopefully sooner).

Third, while I have a lot of debt. I also have some assets as well. We just bought a house, which based upon the appraisal we received instant equity in, but the bigger part of my asset class are my investments.

While  I was racking up this debt I also began seriously investing my money in 2006. I wish I would’ve started a LOT earlier like when I was 18, but better late than never. I don’t agree with some financial advisors that you shouldn’t contribute to your retirement accounts while you are paying off debt.  I actually try to maximize as much in retirement savings as I can.

Part of the reason is that because we have an option for a pension or a traditional 401(a) we are mandated to contribute 11% of our income and my employer puts in about 5%. So I am automatically saving 15% of my income. So over 8 years, by investing in the right kinds of items, I have grown that part of my portfolio to over 6 figures.

Additionally, because I am capped at the percentage of what I can contribute to my 401(a) plan I also opened up an additional retirement account with my employer, a 403(b). I began slowly, but surely putting monthly contributions into that account in 2008. And every time I get a raise I automatically bump up that monthly contribution by $25. It may not sound like a lot, but I am now saving more in that 403(b) than I do in my mandated contributions. I get the tax benefit of retirement savings and force myself to save as well.

I also opened up a Roth IRA. Everyone, in my opinion, should have a Roth IRA (and a Roth 401k or 403b if you could). It is simply the best retirement vehicle out there that you can manage on your own. Every year for the past few years I have tried to contribute at least some money. This last year I was able to contribute the full amount.  With some wise investment choices those monies have also grown.

Finally, I don’t have a problem with risk. Most of my investments are in mutual funds that focus on stocks. Some of those funds are actively managed, some are index funds. I will talk about why I do both in another post, but because I keep plowing money into the market and I don’t take it out at every drop or rise in the S&P, particularly in 2007-09 I have been able to accumulate investment totals of close to $200,000. I follow some basic investment principles that I learned from watching my dad, reading a lot about personal finance, and also some things that just make sense. All of these are subjects for future posts, but the point is that it isn’t all bad. I have a lot more debt than some people, but I also have a lot to be thankful for. I am on my way.

You can be too. I feel like I have to put in as much money as I can because I have started so late on my investing journey. If I would have started in my early 20s, like most people recommend, I would be even better shape than I am. I am forced to play catch-up and I need to catch-up even faster if I want to have some semblance of financial independence.

2 thoughts on “Why It Isn’t So Bad

  1. I totally agree that you have to finance retirement no matter what. Investing is so critical early on and usually no one ever regrets investing they only regret not starting earlier. Yes being debt free is great, but so are years of compound interest.

    1. Lance,
      You are so right. As Albert Einstein once said (and I am paraphrasing) the most powerful force in the universe is compound interest. I wish I would have gotten that powerful force a decade earlier, but better late than never. And I am ramping it up every chance I will get. Paying off the debt and increasing the savings and I will get to that wealthy status that you wrote about yesterday.

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