We already live quite frugally (more so than you on some things) and our largest expense is gas. If your new to the mustachian way of thinking you’ll probably find other excellent tips on the blog that will help you shrink you loans even faster by cutting expenditure further. If you have a water heater, it will have to be replaced. Emergency funds aren't just for people who are working and raising young families -- seniors need emergency funds too. When somebody does something worthwhile, you celebrate it and use it as an example for others. As James says, paying down a bit of principle now will pay off later. I would do both. If I used the savings to pay down debt, it would barely make a dent and what would happen if I had an emergency? Good stuff, Mr. Mustache! Then allocate whatever is left over to your debt reduction plan. Thus, a credit card is just a way to get a 1-2% discount on everything you buy, with no drawbacks. Related question – I’m sitting on $5k cash in savings as an emergency fund, plus a couple thousand for monthly expenses in checking. Raising children today, though, I feel it’s necessary to explain to my kids how to buy and not buy things. Even if you are an absolute Beginner Consumer Sucka and your goal is still to consume the maximum amount of luxury products, you are still cheating yourself out of stuff just by running a consumer debt balance. April 18, 2012, 11:46 am. Yes, exactly. Almost half my paycheck goes to debt and it will still take me 7 years to pay it off. I think it depends on the amount and type of debt. Net……-10,000 interest paid to the bank + 2,800 tax “savings” from the feds = -7,200.employees leaving your pocket each and every year. Since you keep it paid off under normal circumstances, no interest accrues immediately. Take a look at Mr. Money Mustache's article on The Shockingly Simple Math Behind Early Retirement. When I lost the baby weight, it was the same. If you have that money in the checking account just in time to pay the bill, but not when the purchase was made, then, technically, you did not have the money to pay for those purchases when they were made. Marcia @Frugal Healthy Simple Joe Average I made alot of mistakes b/c of the lessons not learned – my fault. Dave Ramsey) to pay off the smallest *balance* first, so you feel accomplished about yourself, and then continue in order of size of balance. The guy was showing me his new TV and video game system. How about saving up till you can pay for it in cash, then use the credit card to get the free airline miles/etc., then paying off the entire balance? It is better to start slowly and work your way up. I definitely feel a sense of urgency when it comes to debt, which is the reason why my husband and I are planning to pay off our house next year. No More Harvard Debt I began to look for other ways to cut expenses to make this go faster. Without forethought, your kids might go either way. Nope, looks like at least 3 of us LOL You can alter and extend your loans; retimrement accounts not as well. By following your advice from this post, I estimate you just saved/earned me $18,386 over ten years by moving money out of my lame bank account (“gotta have at least 3-6 months salary in liquidity for emergencies!”) and towards paying off debt instead, while relying on our HELOC for emergencies*. Do you have any experience with lendingtree.com in this regard? Or, of course, once you start your Money Mustache, the interest savings could also be used to shave decades off of your mandatory working career.. And there is more good news, since this is an Advanced blog: I always have a little chuckle when people talk about a $10,000 debt, or even a $70,000 or $200,000 one as if it is insurmountable. I know this is going on 2 years later than your post, but a 401K loan is actually a pretty bad idea. This is an increased risk that someone who is paycheck to paycheck is probably less able to handle than those of us who are saving 50% of their income. Those people only are able to lose weight by completely changing their lifestyle upside down. Mr. Money Mustache shares his take on health, fitness, and diet. So let me spell it out for you. This will probably sound terrible but when I needed a new furnace, I “financed” it by first putting it on the company’s “one year, no interest” account. I liked your quote, “More money doesn’t solve money problems….it only augments them!” because it reminds me of one of my mantras. I currently have 6 month’s worth of little employees idling about in a savings account, and I’d really like to put them to work. It’s like saving up rainwater for future firefighting when there’s a brushfire currently burning in your backyard. 13:15 . Some people have a more volitile life, job, etc. There is no way in hell I would ever have another credit card and I do not for one minute believe there is ANYTHING good to be said about buying on credit. I know I work as a temp cook in them. Had to be cultural/learned somehow. Since you need those luxury products so much, you’d better get out of debt quickly so you can afford to buy more, right? This is really an after-tax cost of money exercise vs. other possibilities. Someone who takes a year to get to the point you think they should start off with and keeps it up until the debt is gone will be better off than a person who starts like you think they should and stops it after 3-6 months. Go ahead and click on any titles that intrigue you, and I hope to see you around here more often. Jay Holden Upon further investigation, it was probably a $22, 12-egg omlette: http://www.bethscafe.com/menu.php?menuCategory=omelettes. And the risk of employing this strategy is the potential of having to pay interest on two months worth of expenses? Anyway after reading an earlier post I decided to dust off the cobwebs on my Trade King Acct (discount broker) and put about $1,025 in and purchase some SPY shares. If your answer to “how do I pay down my debt” is “sell your second car, your motorcycle, your roadbike”, then you’re obviously in a better damn spot that 95% of the people out there. That seems like the obvious thing to do, but it seems like my parents would have thought of that and mentioned it if it were. I understand that you never had to work your way up, but that means you may not understand the best way to do so. Even with a more delicate approach, we have been able to pay off hundreds of thousands of dollars of debt and build up quite an investment portfolio. I only ever wanted cash for gifts, I had jobs since I was 11 (not chores, actual jobs like flier delivery etc)…, Then married life came, and somehow I got sucked into the consumerist society, credit cards etc. I lended a couple of times in the past. ), Finally, this post made me think of this “modern classic” SNL skit: http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff, Amy Poehler: “Hmm…’If you don’t have money, you shouldn’t buy anything.’ Sounds interesting!” You might be able to pin down your loan free date exactly (at this stage you’ll realise you’ve gone full blown mustachian. But it would be even more irresponsible for me to halt progress toward my own financial freedom and risk letting their poor choices pull me under too. He never asked for money again. The rate is pretty low (prime +1), and with an upper cap of $50k that should be more than fine for short term emergencies. Diets don´t work because yo can start for two weeks and nothing happens. Here’s why – I had a nice LOC with Key Bank, and when I deployed, my paycheck a stopped auto-depositing in my Key account (my Army checks went to another account). And If you’re earning less than 3% its probably time to re-think your portfolio. You’re killing me here stashe. Poor Student There is nothing wrong with being a type one person or a type two person. April 18, 2012, 11:34 am. People raised in the same household can become massive credit-card overspenders or frugal penny pinchers without any apparent regard for age, economic situations during childhood or any such thing. I’ll answer your second question first: It is great that you have already established a home equity line of credit. A question: why not encourage paying off a mortgage too? If you like a good inspirational anti-debt tale, check out Andthenshesaved.com, Mrs. Money Mustache But your strategy will vary depending on your situation: – How secure is your job and your industry in general? (Remember, debt is normal for the vast majority of people, they’re comfortable with it and as far as they can see, it’s the only way.) Also, you are 27… It’s time to take control of your finances. Big, bold changes. More money doesn’t solve money problems….it only augments them! Now, while I am paying of the loan to my parents, I am also putting a larger effort towards investments that will return 4-6% over time. Maybe Mustachians are just wired differently than the average consumer? I even made a culture out of it among friends – it was called the “Drink Booster Program” (DBP for short), and part of the challenge was to do high-drama booze pours – boosting your drink in public without being secretive.. while the others might discreetly chant “DBP! But I’m on the road to recovery! I gave it. The link to ” your money can work harder than you can” needs a http:// or something along those lines. April 18, 2012, 9:12 am, Ahh.. It’s always good to diversify. fruplicity Nurse Frugal The trick is identifying which person you are, so you can best meet your financial nirvana. They are actually good things, since they help you to learn. Ransom payments? I once substituted white kidney beans for fava beans in a felafel recipe (which involved grinding soaked raw beans, then frying balls of the mush). Step 3 is 3-6 months expenses. I’ve been done with the CC debt for many years, working on wiping out student loan debt this year, I’m not interested in someone baby talking their way toward suggesting modest changes that have limited results. I think we could pay it off in 5 years. Ha ha DBP I love that! Secondly, he repeatedly states that he LIKES the new frugality – while he may be loosening things up a bit now that the debt is gone, he’s not about to go out and re-purchase the Nissan Murano and the motorbike. I recently finished paying off my government student loan (after putting a concerted effort at it for a year, although only a fraction of what No More Harvard Debt did!). I continue to track every single one of my expenses and set goals. If I used the savings to pay down debt, it would barely make a dent and what would happen if I had an emergency? But it is a huge waste of money to keep money in the bank earning no interest, while paying higher interest on debts. EDIT- I just saw MMM comment above – stating that he didn’t believe that super low student loan debt was a big concern –. You should downgrade your accommodations to the one level up from a tent, sell the big cars, cut the cable, cell phone bills… Feed at the value grocery stores and only with what’s on special and for the time being, eating out means your back porch or a picnic. Well, they didn’t split up (which is good, on the other hand, as they have a child), which means that I got my money back – because *she* has taken over finances…. I tried for a long time to lose it. The most useful comments are those written with the goal of learning from or helping out other readers – after reading the whole article and all the earlier comments. You’ll be slowing down the backwards-moving conveyor belt that is currently fighting your efforts. Money market fund (High Yield) (insured) savings account. Thank You Mr. Money Mustache for teaching an old dog new tricks. (Even writing this makes me cringe now, but at the time all this seemed perfectly logical.). But he said I probably would have to work another two or three years longer than I wanted. Mr. Money Mustache is the website and pseudonym of 47-year-old Canadian-born blogger Peter Adeney. Start slow and learn. I was spending 100 bucks a month just to own a piece of plastic when I could have had my very own mustache! You will look at them with different eyes. That $30 omelette better be able to beat its six eggs, fry itself, serve me, and clean up after! For a little more detail: We own our home. My biggest memory of watching Little House on the Prairie was Mr. Ingles insistence of “paying cash on the barrel”. No Name Guy And things that are true “surprises” (sudden severe illness, e.g.) The correct response to this sort of debt is. So if you still have a car loan, credit card, department store or even a student loan debt, you should destroy that as a prerequisite to beginning the more relaxed stage of saving for financial independence. The interest rate on the car loan is 3% and the student loans are 4% to 6.8%. Sliced Fresh Seasonal Fruit and Berries (i think they mean not quite ripe canteloupe, honeydew, and bland watermelon with a few blueberries scattered on the tray) Tyrndamere Agreed. Every answer to the quiz: “Yes! This is the post where I realized that MMM is smarter than any other financial advice guru, since he is the only one I have seen advocating for credit as an emergency fund. If I can give one of these up – no problem. Last year, we had a couple of “emergencies”: a $3,000 transmission for the car and a $3,500 heat pump replacement (needed in the south where we live), and cancelled a vacation and stopped all eating out until we had the money saved up to pay for both. My situation is almost 28k in savings and one loan, a 48k mortgage at (ahem) 2.7%! Keep up whatever it is you are doing! I’m out about $60,000 to my 4 kids in total, over the years (I’m 62). Including property taxes, P&I, PMI, and insurance – how much house will $1,750/mo get you assuming a 15-year loan? I just don’t understand how they sleep at night – I know that I couldn’t. Stay on it and let the forward progress accelerate your progress each day. Mr. Money Mustache (@mrmoneymustache — Pete Adeney in real life) grew up in Canada in a family of mostly eccentric musicians. I hope you still read comments this far back! It could be just 8 months away. No Name Guy Thanks MMM! Whoa!! More money wouldn’t change our daily lives in any way, but it would certainly shorten the time to financial independence. Check what the penalties are for withdrawing money from your retirement account vs the interest on your debt and do the straight up calculation to make a decision. Even though it’s not *always* the mathematically correct answer.). Yes MMM is a kick your ass punch you in the face blogger. If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article. Despite all the lack of frugality, and the rampant spending of money in my childhood I came out with an utter distaste for running a debt. I simply need to do zero extra spending until my debt is corrected. I’m on board with you bogart. I'd also, of course, recommend exploring other Mustachian options (cutting costs), rather than touching the Roth. My husband is a full-time student. Low and behold, the charges on my credit card were $1600. Maybe I’m looking too much into the language they are using and actually signing up will just open the line of credit. should i put more, or wait till I buy a condo? Emergency thinking is a sort of victim thinking which reinforces a broke self image (at least for me, anyway). I have a tiny formatting suggestion; instead of putting footnotes at the bottom of the page, could you put them right after the relevant paragraph? I had a little money in savings, and a 403(b) at work which was doing okay, but the savings was for emergencies. Then from 1 glass of wine/day to 1/2 glass per day. Almost half my paycheck goes to debt and it will still take me 7 years to pay it off. Take a look around. Thanks for bringing in some new perspective – indeed many of the most promising Junior Mustaches may be renting a place at the moment and thus unable to set up a home equity line of credit. I still have mortgage debts and those are painful even if they are low interest. I have been putting money into my savings for a downpayment on a future house (I live in NY so I needed more than usual), but I think I am ready to purchase something (maybe around the 150K range). There are only expenses with an unknown date. My budget was very tight and I had to be frugal but by the time I had it paid off I had a much greater appreciation for the amount of work it takes to get out of debt and pay for the things that I want. Where was all this money coming from, since they were still going to school and didn’t have a trust fund? That is why yoyo dieting does not work. January 13, 2014, 6:23 pm. October 12, 2012, 3:26 pm. I haven’t yet replaced my shoes that have a hole in them or taken care of other deferred expenses. I just closed on the home equity line of credit last week, and embraced the prospect of dumping the way too much cash I had saved up into the mortgage. My father now is much better off, but he still spends every cent he earns on things he likes, but no longer plays the bouncing check game, or using credit cards, only debit cards. – I do though, put 8% of my income into a 401K and my employer matches up to 5%. I am totally feeling that. If you can save 85%, you can retire in 4 years. The key is that on the WHOLE, even if you have to pay some interest charges, you come out ahead because you’re using credit for short periods of time and at strategically selected low rates, while the entire amount in question stays invested 24-7-365 earning 7-12%. He bought a used car and continued with the mega cable package while we biked to work and cancelled cable. I’m about to graduate from school and need advice, and thanks! All three siblings are equally terrible with money. Right now is always the time to pay off debt- As in “Right MEOW! I see a dollar as 1.5 dollar (which has my unearned ones), so each purchase is calculated, valued and spent. The video was great, particularly the music. I don’t mind losing the tax write-offs b/c our income goes down as we work less. It seems its even better if you can take that same drive and apply it even after you’re out of debt to get to early retirement. Oh, I see your point about calling things “emergencies” vs. not — you’re absolutely right to not view things like “the water heater breaks” as *surprises.*. Congratulations! Getting rich really is an exponential process, a concept that is hard to grasp until you realize that your money can work harder than you can. April 18, 2012, 11:16 am. Join Facebook to connect with Mr. Money Mustache and others you may know. Further Reading: one man’s description of what it feels like to escape from over $100k of student loan debt in less than a year – by treating it like an emergency and applying some real effort to it: http://nomoreharvarddebt.com/2012/03/29/mission-accomplished/, Or if you prefer a 4-minute video summary of his experience: http://www.youtube.com/watch?feature=player_embedded&v=1Y6kTsBNH78. Another story comes to mind. Then the crash of 2008 happened and my account lost something like 25% which he said wasn’t as bad as for a lot of people. Yes, but the resentment of watching people not pay their debt to me when they had the funds was eating me up, so now I avoid the problem by not lending anything. And every dollar you manage not to waste, builds your skill at saving money and learning to spend it more efficiently. Two days and ~600$ later (it is a very expensive cat, considering he is street-breed), we found the heart problem and got prescription for pills to take for the rest of his (hopefully long) life. Just focus on the things you *can* predict and take care of yourself overall. They are again now way under due to credit cards and government loans. I have a cash windfall coming up that I already plan to put towards eliminating debt. There are two types of people in this world. Muchos gracias for your excellent blog! Super late to this party (reading through the posts from the beginning), but I thought I should contribute my odd early stash location: So I see no value in having any real cash savings beyond that available for the line of credit. I think, intellectually, they know the debt is a problem and they live in denial of the trouble they’d be in with a job loss or other catastrophic event. April 19, 2012, 7:28 am. March 28, 2015, 6:27 am, Mike, that’s exactly right. 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