I am a Millennial, and I am bucking the trend of heavy debt loads that plague so many Americans and especially people in my generation. No one needs to live their life perpetually in debt. In fact, it’s quite simple to get out of debt and then avoid it altogether in order to build real wealth over time. You just need the discipline to make it happen.
Dabbling in Credit
From an early age, I knew that the ideal way to live is free from debt. Before I went to college I lived my life debt-free. I graduated from college in the summer of 2006 with $3,000 of debt in the form of a single student loan. I got a job six months later and paid off my student loan by the end of 2007.
I was debt-free.
I got my first credit card before going to college, but I never used it and I eventually closed it. At the start of 2006 I got a different credit card that I actually used. Right after making a purchase with it I would go online and pay it off. I have never paid one cent in interest on my credit card because I have never carried a balance on it for more than a month without paying it off.
At the start of 2009 I got married. I had saved more than $10,000. My wife and I needed to buy a car that year, so I found a used one for $4,000. I had heard that it was important to have a more diverse credit portfolio than the one I then had, so I decided to get an auto loan from my local credit union. I paid the minimum payment that first month and then decided to pay it off right after that. I saw no point in staying in debt when I had the money to pay the full amount. Besides, I got that loan on my credit history, so it had served its purpose.
I was debt-free once again. The next time I bought a used car I paid for it in cash and then promptly sold my first car.
Bouncing Back
In 2010, the day after my first son was born, I lost my job in a mass layoff that affected more than half of my coworkers. My wife and I had prepared for this by replenishing our rainy-day fund back to $10,000, and we were able to live off that money for the next eight months until I managed to work my way up from part-time to full-time employment at a new job.
We bought a house in 2013. We looked at houses for a year before finally finding the right one at the right price. My parents loaned us nearly half of the money that we put toward a down payment, but even with their contribution, we weren’t able to cross the 20% threshold to avoid paying mortgage insurance. Over the next three years we paid back my parents and achieved 20% equity in our home on the original purchase price. In total, it took $25,000 to do all of that.
The Payoff
Looking ahead, within the next five years I plan to be debt-free once more and stay there – permanently. No student loan, no auto loan, no mortgage, not even a credit card. The only reason I got a credit card was to have some diversity in my credit history. I’ve always treated it as a debit card anyway. So once I pay off my mortgage I will cancel my credit card and live entirely on cash. My credit score, which currently hovers around 800, will plummet to zero. And that’s fine because I’ll never need to use it again. If I want something, I’ll save up and buy it in cash.
How will I pay off my 30-year mortgage just eight years after getting it? By living below my means. My wife and I spend very little each month beyond the basic necessities. We rarely shop at malls, we don’t buy expensive clothes, we don’t own more than one vehicle, we don’t go on extravagant vacations, and we don’t eat out very often. And yet we (along with our three kids) have all the fun we want to with the help of a little imagination and our local libraries.
I plan to save a few thousand dollars every month. That’s after all of my tax, insurance, mortgage, grocery, and utility bills, as well as the tithing I pay to my church. Each time my bank account swells to $25,000 I will pay $10,000 to the principal balance of my mortgage. If an emergency comes up we’ll still have plenty of money to handle it.
And then, once the day comes when the principal owed is zero, my wife and I will be free to keep all of the money we earn. We will be able to invest it, spend it, give it away, and do anything else we like with it. If we want to buy a new house or car, we’ll do so with cash. And we’ll teach our kids to do the same.
That is the freedom I look forward to achieving.
True Freedom
Until the point when I went to college and had to take on some debt, I was free. But this freedom that I am building will be even better than that innocent time in my life. Because not only will I have no debt, but I will have paid-for assets that will ensure my independence. I’ll live without any fear of losing my home because I will own it outright.
And by the time I retire I intend to be a millionaire. All of this on a simple worker’s salary. That’s the point of my sharing this. You don’t need to win the lottery or become a doctor or lawyer to become a millionaire or financially independent. You can work at an unspectacular job and still perform stupendous financial feats. It just takes patience and daily discipline to build habits of saving money.
If you don’t go into debt, your wealth will be your own. Don’t leverage your future income to pay for current expenses. Save up your current income to pay for future expenses and in so doing you will enrich yourself, not your lenders.