Monday, March 17, 2008

If You Were Debt Free!

Today I read a post over at Apples and Telephones that got me to thinking. The author is debt free and most of the personal finance books she has read focus on getting out of debt. She mentions Dave Ramsey who it seems focuses completely on getting out of debt. I feel this is because this is the biggest and most important step in his plan. Also, most of Ramsey's audience is probably in debt which is why they are looking for help. The author of Apples and Telephones states that she has no debts and therefore does not quite no what to do. She has no big goals to aim for such as becoming debt free.

For me, once my fiance and I are debt free we will have a plan. I've thought about this many times before. I am considering having all our debt besides the mortgage paid off as being debt free. I think once we are at this point we will be in a good position to save.

We currently save for retirement but once we have no debt we will be able to save a higher percentage of our salaries. I believe that it is very important to save as much as you can towards retirement close to 15% of your salary.

Once we are debt free except for the mortgage we will start paying off the mortgage at an accelerated rate. We don't want to carry a mortgage for 30 years. Hopefully if things go well we can get it paid off in 20 years or less.

We will have our emergency fund built up to 6 months of expenses and we will focus on keeping this at 6 months worth of expenses in a safe online savings account that hopefully earns us a higher rate of return then a regular account at a brick and mortar bank.

At this point we will save for things we want. We will have different accounts saving for new cars when the time comes to replace our current cars. We will save for vacations we want to go on. We will save for anything new we would like.

Last we will be saving into a couple of mutual funds through my company (a mutual fund company) for our futures. We will be saving to build wealth. For us the ultimate goal is building a large amount of wealth where we can feel comfortable financially. An amount of wealth where we will not be concerned with any emergencies that may arise. An amount of wealth where we can feel comfortable donating large amounts to charity. An amount of wealth where we can feel free to experience different things we would like to experience such as world travel.

I feel that once you have become debt free the journey has really just begun. At that time it is time to really save for your future. Enjoy the now but also save so you can really really enjoy the future!


Tyler said...

VERY COOL. I wish you the best of luck in your quest. I'm glad that you're choosing to keep your mortgage so you can accumulate assets and not try to pay down tax favorable debt.

Keep in mind the difference between simple interest (mortgage) and compound interest (investments). I'd even go further to recommend using the banks money against your house and leveraging it into your investmnets.

Look at people on the coasts that saw run-up's in values of their homes. They used to have a home worth 25% more than it is now. I think it's safe to say that money would have been more safe in the bank instead of just sitting as 'home equity'.

Either way - I wish you the best of luck. What you're doing is very cool.

lucky said...

Such a nice blog. I hope you will create another post like this.