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.