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SPENDING ISN’T something I like to do. It doesn’t bring me lasting joy. I prefer just to buy what I need.
For many folks, spending involves borrowing. If spending is your thing, incurring interest charges on credit card debt and car loans probably isn’t a big deal. But to me, borrowing to buy something means I’m overspending. If I can’t afford to pay cash, I shouldn’t buy it.
Borrowing has been the downfall of many. Spending is a onetime event—unless you borrow to spend, in which case your spending has a long tail attached to it. I think people get used to borrowing. The interest charge is just the cost of doing business—in this case, the cost of buying something we can’t afford.
When all goes well, the monthly interest charges just get attached to the monthly bills we have to pay. But if our income drops or we lose our job, those monthly expenses can become nightmares.
For the worker who has always had a job and believes that the job will always be there, spending with borrowed money is comfortable and doable. You’ve always had a salary and you probably believe you’ll always have a salary, so why change?
My experience has been different. As I’ve mentioned in earlier articles, I lost my job 10 times during my working life. While this was bad, it also made me good at finding a new job. I came to understand what I needed to do to make myself more attractive to the insurance companies that might employ me, such as earning my Chartered Property Casualty Underwriter designation. This involved taking 10 written exams, each three hours in duration, over a five-year period.
The other, more important habit I learned was to save and not borrow. Losing a job with no outstanding debt and money in the bank makes for a smoother transition to your next employer. Otherwise, you’ll take whatever job comes along because you need to pay your debts. My financial caution meant I could be more discriminating about who I’d work for and at what salary.
There have been times in my life when I did borrow. The first time was when I bought my 1987 Honda. I worked for a company that was relocating from New York City to New Jersey. It offered a relocation package, including paying the interest on a $10,000 car loan, so I took advantage. I also took out a mortgage to buy a condo as part of this same relocation package.
I ended up voluntarily leaving that company for a new job, so I had to pay the car loan myself. When I sold my condo to buy my current house, I got 15% less than my purchase price. Fortunately, this loss took place during another relocation package, and the company paid me the difference between what the condo cost me and what I ended up selling it for.
After that experience, I decided I was going to be mortgage-free as quickly as possible. In 1990, when I bought the house, interest rates were high. When mortgage rates dropped, I refinanced the loan. I didn’t borrow more than the outstanding balance—something many people did, and which led to some folks losing their homes during the 2008 financial crisis.
After the refinancing, I kept paying the same monthly amount as before, so I paid down the principal balance even faster. I refinanced twice more, but each time stuck to my strategy of paying the same monthly sum that was required on the initial loan. The result was I paid off our 30-year mortgage in 15 years, ensuring we could stay where we lived, regardless of my employment status.
Since paying off our home loan, we’ve never taken out another mortgage. We pay cash for our cars and we pay our credit card bills in full each month. Paying everything in full might not make for a glamorous life. But I can tell you from experience, it’s far less stressful.
David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave’s earlier articles.
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totally agree. Thank you for the article, David.
Money for me was always a number thing and why we have done the following over the years.
1) We always paid all the bills in full on time.
2) The first house we bought, we used a loan, after all, if we had to wait until we had the money, it would a long time.
3) After our savings reached $100K, we always bought big items (furniture, mattresses, and later vehicles when we had more money) by taking zero to low-rate loans. We knew that if we needed to pay it immediately, we had a lot more to cover it.
4) When our portfolio grew substantially, I took another home equity loan for 5 years at 1.99% with zero fees, again, it’s a number game and the risk is much lower while we still working. Our portfolio was 5 times larger and I knew I could easily make 1.99% annually…and I did much more.
5) BTW, I was laid off 3 times but never paid these cheap loans earlier.
I understand the above isn’t common, but logically it made sense to me that if our portfolio is much larger, we paid all bills on time, and the rate is very low, the risk is also very low.
One year before retirement we were debt-free with a large portfolio.
Yes King David, Agreed.
I was raised ultra conservative on a Montana farm and never liked to buy anything. Yes, a not so glamorous and boring life, at first.
Being married to someone of the opposite mind set only worked for so long and she went her own way.
Now, me being at the retirement part of life, with no big bills and plenty of income makes for a very pleasant world! If I need it, I write a check.
See, delayed gratification does work.
I put every expense I can on a credit card so I can get the reward points and then pay off the entire balance each month. I like the Chase Amazon credit card because there’s no annual fee and you can redeem the points for cash.
I also pay cash for my cars and carry no mortgage. If a company charges an additional fee for accepting credit cards, I pay cash.
I am 110% with you, David! Sometimes, there is more going on with financial strategies than just mathematics. There is peace of mind, there is less paperwork, there is less to worry about, and there is that open sky in front of you where you have a lot more choices.
That last item is very important – more choices. Every time you pay off a bill or a loan, you are getting something back that has great value. You get options! You get choices. You get to explore something new, take a risk, go in a different direction, change jobs, or dive deeper into something you love. You get to elect not to do something, or to wait to see if an opportunity develops, rather than being forced to decide immediately. That freedom is priceless.
When I got my MBA, and my class spent time learning about options, the professor got through Black-Scholes and all the math, but then took time to encourage us to think about everything in life in terms of strategic options – and how your actions on even small things can create or preserve personal options for you for the future. And much like financial instruments, those options can have great value!
Thanks for a good article.
I feel like using credit cards for rewards is dangerous, but I still do it. I pay them off twice a month.
Nothing wrong with using credit cards for rewards unless you start buying things you don’t need just to earn the reward points.
I believe there is some good debt, such as home (a place to live, and appreciation in value), and a car (as in most locals this is required to get to work to earn a living). The key is to not buy more than is necessary to meet the need. Also with so many people with 3% or less mortgage payments some may be better not paying off their mortgage early, but taking any additional funds and investing to take advantage of the difference in potential returns and the interest rates, as well as what I believe Charlie Munger called the eighth wonder of the world, compounding!
I rarely talk about my own debt with other people as my only debt is my mortgage that is 10 years away from being paid off in15 years instead of 30. My way of paying off my credit card in full each month is to make payments every few days. I hold this standard for myself because I never want to go back to living off other people’s money, paying interest for stuff, always more stuff.
I have less stuff and more freedom.
David:
Over the 54 years in the working world I worked for 10 different employers in three different industries. I bought and sold 8 different homes in 7 different states and lost money or barely broke even on 5 of them. I achieved debt free status @2010 and I retired 14 years later, in January 2024.
In the current economy, where having many different jobs in one’s lifetime is a given and being able to work remotely is not uncommon, the future or employment and home ownership will not be anything like the past.
One thing, however, will remain the same…being debt free is the greatest value you can have for yourself. Next is to have what JL Collin’s refers to as “FU Money.” Like you mentioned, if you are debt free and you have resources saved and invested for periods of unemployment or job loss, your level of anxiety will likely be more tolarable.
As I planned my retirement for January 5th, 2024 (vs, 12-31-23, so I could get one last Roth Contribution for my wife and I, Ha) I relished the fact that our home, built in 2018, on 6 acres of wooded NC land, has a Reverse Mortgage on it. Our home, appraised at $410,000 last December, has an outstanding balance today of @$84,000. $52,000 of that was for a New SUV for which I paid cash, $19,000 in Taxes for 2023 (we received Full SS Benefits in 2020-2021-2022-2023, once I turned 70, but I didn’t;t start having taxes withheld until this year) and the balance was spent on three trips since retiring. Currently, my Line Of Credit stands at $156,914, and is “earning” 7.1% on that balance. The Mortgage Balance, $84,000 is being charged 7.1%, so the LOC grows monthly by an amount 2/3 larger than the interest charged.
No mortgage payment…no debt…Social Security Benefits that are 111% of our standard retirement expenses…and a investment portfolio from which we could (but currently are not) withdraw 3.5% for both of our lives.
Now…I do use credit cards…but like many on HD, I get paid money from the bank, I do not pay interest to the bank, because I charge everything possible, and I get 2% back on 100% of my purchases. (Wells Fargo Active Cash Card.). Otherwise, I consider credit cards a tool of evil currency being used to destroy people’s lives.
Yep…being debt free has its rewards.
Great Article
David – Good article. I couldn’t agree more. Owning a home mortgage-free, paying cash for cars, and never carrying a credit card balance provided all kinds of freedom, not to your comment about stress relief.
A paid off home is less money paid to doctors for the stress induced health issues resulting from job loss. The layoffs always resulted in hidden benefits not realized until years later looking back. Thanks for a look into your life’s experience, and dealing with a special needs child.
I recently had a conversation with my oldest son on this very topic. In his mid 40’s, he’s now out of debt and living within his means and has found the peace that comes from that lifestyle. We discussed how, like so many experiences in life, it’s hard for someone to appreciate just how good it feels until one experiences it firsthand. Once someone achieves it and feels it firsthand, I think it’s a common response that they’ll never willingly go back to living in debt. That said, I hope stories like yours will inspire others to seek the peace that comes from it.
You’re singing to the choir David. Living as you describe gave me the ability to transition into a totally different occupation at age 50. I would not have been able to change careers with debt obligations.
I share your philosophy about borrowing and interest. We have never paid a penny in credit card interest although we use credit cards every day – for the rewards mostly.
What is beyond my understanding is losing a job ten times in a career. That some string of bad luck.
I guess many people can’t understand me working for the same company, in the same city in the same building for 50 years.
I can fully understand losing your job 10+ times during your career.
I worked in Information Technology and being rightsized/downsized/made redundant/FIRED seemed to happen every couple of years or so in the ‘for profit’ world.
I spent the last decade+ working at a
‘not for profit’.
It WAS a paycut … but with much greater stability.
“I guess many people can’t understand me working for the same company, in the same city in the same building for 50 years.”
With pensions becoming a thing of the past, would you have stayed as long as you did if your company didn’t offer a pension? It’s hard to answer that because times have changed.
The company I worked for was one of those once you got hired on, you were there for life. But the industry changed and since 911 every few years they offer packages to get rid of the senior employees and start over with newbies at a lower salary.
The beauty of the 401K is that it allows more workers to skip and hop from job to job and take their 401K with them. I receive a pension, but it was frozen in 2008-2009 period.
There’s an interesting dynamic in industries like software/technology. These younger, fast-growing and profitable employers were born in the 401(k) era, which makes switching jobs easier as you noted. To counter that, these companies built compensation plans using stock options or stock grants that vanish in a puff when you leave after just a few years. As you hit the peak performance and earning years of your career, this can easily account for the majority of your annual income, a powerful incentive to stay. The rules for keeping unvested grants or options vary widely and can change. I’ve heard that my old employer recently changed their policy so new hires no longer keep grants when you leave after age 55 with 15 years of service or after 25 years of service.
If you take a job at a small startup tech company, you definitely want to structure your finances as David describes here. These employers flame out all the time, leaving workers with worthless stock and no income.
I worked for Intuit in the 1990s and didn’t understand the value of the stock options!
I think I stayed more for the stability of the job and the virtual impossibility of any kind of relocation. Our family has deep roots in NJ and leaving was never going to happen. I did apply at other companies over the years, but the very different environment was not for me. Then as years went by I gained authority and influence and independence I could never match elsewhere. You are correct, today the 401k has more value if used correctly. My old company is not the one I retired from either.