I became debt free in June 2017. I had no credit card debt, only student loan payments, which I was able to pay off once I started my full-time job as a physician.
That feeling of being done is so freeing. Being able to become debt free requires some level of frugality, saving, and sacrifice. However, once you’re done with debt, the savings and financial smarts don’t, and shouldn’t, stop. So, here’s how I’ve been spending with my “debt-free” mindset, and maybe it’ll give you some ideas too.
Savings and Investing
The saying goes that you have to pay yourself first. So, after paying rent and bills, my account is debited weekly and money is sent towards investments, including my Vanguard index funds and mutual funds and then my IRA. Of what’s left, I put some into high-yield savings accounts to maintain my emergency fund of 6 months of expenses. If there’s anything left, I’ll usually decide to invest it. (Initially, I was saving up to buy a place, which I did! More on that later in the post).
On average, I am saving and investing about half of my paycheck. I wasn’t been able to do this every month but in the first year and a half since becoming debt free I managed to stockpile approximately 150k in savings and an additional $50k in investments/IRA (on top of what I already had in there). Since purchasing my home, my savings has been a bit slower due to new home costs, but I’ve still been able to invest regularly and maintain my emergency fund!
My attending upgrade still involves travel, lots of it. Since this is what I spend most of my money on, though, I try to make what I spend truly worth it.
Initially, I was all gung-ho about flying in fancy business or first class. Then I talked to my Dad who helped me realize something: the cost of your ticket shouldn’t be more than you can afford.
Well. Duh. But what did he mean? Let’s break it down.
Say you find a business class ticket from California to Europe for 4k. Your overall journey one way will be between 15-20 hours. That’s about 100 per hour (each way) you’re paying for that ticket to lay flat, wear fuzzy slippers and eat fancy food. Unless you make more than that per hour, that’s not a ticket you can afford.
So now when I go shopping for those tickets, I make sure that I can truly afford what I’m purchasing.
In addition, I’ve invested in a great travel credit card: American Express Platinum. There’s an annual fee of $695. However, I get $400 back in travel credit and uber credit per year. I get 5x points on all flights and hotels I book through their travel site. Plus, there’s lounge access at airports, which means free food and drinks. On top of that, you get memberships such as Starwood Preferred Guest, Hilton Honors Gold status, and random other perks. In other words, for a net cost of $150, it’s amazing.
Shopping For Needs Versus Wants
There are things you truly need in life (gas, groceries, rent, etc) and things you “like to have,” aka want. How you divide your spending here is important because this is basically how you live your life every day. So if you can find the best, financially sound balance, for yourself, it goes a long way towards saving you dollars and maximizing the value of what you do spend.
Mortgage--I put over 20% down on my home and got a pretty low-interest rate at 3.125%. My mortgage currently takes up 1/3 of my paycheck, which is slightly more than I had wanted, however, given the amount of house I have, and the area I live in, I’ve categorized this as a long-term investment.
Gas--Can’t do anything about this unless you decide to get an electric car.
Groceries–I try to find the best deals on basic necessities & pre-plan meals so that my grocery shopping is purposeful. I also use coupons when I get them (and remember I have them). Plus, I look for discount grocery stores near me and try to shop there as often as possible. It makes a huge difference.
TV/Internet–I only pay for internet and, to keep myself entertained, I use Netflix, Amazon Prime and Hulu. The net benefit: I save $40 per month.
Homeowners insurance/car insurance–it’s bundled and I’m paying $150sh per month.
New clothes–I only buy on sale, and I only buy those items I think my closet needs. See my post on how I shop on a budget here.
New shoes–still working on this one…
Stuff for the house–I initially did spend on basic furnishings for each room (need beds in the guest rooms!). But once those purchases were complete, I scaled back and now look for the best deals for the items I’m looking for.
For all online shopping, I go through Rakuten. It’s an easy way to get cash back, and it works. I’ve received several checks in the mail since I started using it.
Eating out/going out around town–everyone needs a life, and I highly encourage you don’t delay living it. For me, I spend a lot of my free time going out with friends, and hitting up a nice restaurant is a common meeting point. Needless to say, most of my money for “wants” goes here.
Large New Purchases
My New Home
I mentioned above that I was planning to purchase a new home, and I finally did! It wasn’t exactly what I was planning to get when I started my search, but I truly think I got the best deal for the home.
Since I had the capital, and I wanted to make sure that my mortgage payments were as low as possible, I put down a little more than 20%. I also did the 5/5 ARM loan to get a lower interest rate of 3.125%. I consciously made this decision after doing a bunch of calculations and making sure that, worst-case scenario, if my interest goes up the maximum amount in 5 years, that I’ll still be able to comfortably make the payment. This loan is definitely not for everyone, so do your research before you decide and sign!
The biggest advice I have with this kind of purchase is to make sure you do your research, make a list of your must-haves, and then try to take the emotion out of it. Often times we “fall” for something that feels right but, upon inspection, has a ton of problems. Stay detached and walk away from anything that will cost you money or create future problems. Being debt free makes it easier to do more with your money and gives you the flexibility to fix issues that may arise, but you don’t want to get caught in a money pit.
The car I had was a 2003 Infiniti G35 coupe; granted it had less than 100,000 miles on it, so I figured I could get another couple of years on it. By chance, or fate, my brother ended up getting a new job in a city where he didn’t need HIS car. He drove a 2014 Honda Accord. Since he didn’t need it, he gave it to me. So I basically got a free car and was saved the cost of purchasing a new one (I was eye-balling the new Audi Q5).
The point here is, when planning for a new car, I fully intended to pay cash to maintain my debt-free status. While my brother’s car wasn’t what I wanted, it served my needs and saved me a ton of cash. At the end of the day if you are able to do this: fulfill your needs at low or no cost, then you should. It’s a smart decision, and you’ll never regret saving a large amount of money.
You’re never going to keep up with the Jones’s. There’s always going to be someone out there who makes more or spends more than you. Purchasing expensive things that you may otherwise NOT need is an emotional decision. And it’s a never-ending one. So watch out for those emotions, and when they come up, ask yourself, “do I really need this” or ask, “why do I think I need this.”
Ask these questions, and then don’t make a decision until you’ve shopped around looking for better deals. Granted, I’m not a huge label person, so maybe that makes it easier for me to walk away. If you are someone that appreciates the finer things, then maybe make sure it’s something you’ll use/wear for a long time before handing over your credit card. In other words, make sure that however you decide to spend, you provide yourself with the most value for your money.