Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger who has started her blog and also works as a contributor to the Oak View Law Group. Please share your opinions by commenting below.
We all know that being in debt is emotionally tedious. In such a stressful situation, people always want to do whatever they can to pay off debt. They seek professional debt relief help, or take out a consolidation loan, or transfer the balance to a new card to get rid of their debt.
The 4 Hidden Costs of a Debt Free Lifestyle
However, the payoff process is time-consuming, highly taxing, and requires focus. You have to be financially disciplined to become debt-free. But being debt-free can be costly in other ways…
As the process of becoming debt-free these days is exceedingly difficult to fulfill, people are unsurprisingly quite proud of becoming debt-free. They often forget that even after paying off obligations, they still have to make some costly payments.
Costly payments? Which costly payments do people need to pay after getting out of the red?
1. Lost Connection With Your Family
Your family members may not understand your aversion to being back in debt. They may misunderstand you when you are not able to fulfill their wishes, or when you ask them to minimize expenses. To avoid this situation, you have to talk to your family members before working on the debt payoff goal.
How does the debt-free lifestyle help the entire family? Why should your spouse, or even your children cooperate on YOUR singular focus? What kind of financial changes will they have to accept? For example, you may need to sacrifice time with your family to work a second, part-time job.
These adjustments can be hard to make for family members and reactions can be negative. Be prepared, but work patiently to help them to accept the changes, positively.
A persistent payoff approach may affect one of your most crucial goals: Retirement Savings. To ensure a secure retirement, you need to be diligent in setting aside ever-increasing proportions of your income. Granted, carrying a pile of debt can delay or even destroy your retirement plan.
But, if you put all of your focus on getting into the black without any thought to savings, you may not be able to leave your work life behind just yet. Limited savings invites enormous problems in your retirement. You simply won’t be able to maintain your present lifestyle, and ironically, could fall into new financial obligations.
2. Pay Yourself First
You need to fund your retirement accounts (401K, IRA, Roth, etc.), an emergency savings account, and other investments while chipping away at your debt obligation. The list doesn’t end here; you have to make long-term investments for your future as well.
This sounds scary, but the task is not as bad as it sounds. You just need to be a little bit calculating.
Following a budget can help you sort out things easily. Set aside money for all of the fixed expenses first (retirement fund, emergency fund, utility bills, debt payments, mortgage payment, insurance premiums, etc.)
But also be sure to set aside money for your relaxation. Doing so will help you avoid becoming demotivated.
3. Drastic Lifestyle Changes
To become debt-free and avoid further financial obligations, you have to live within your means. You have to stop living an extravagant life to become debt-free.
Dining out, partying, using credit cards excessively, and impulsive shopping need to stop. By doing so, you avoid incurring further debts and can start saving additional money.
Once you become debt-free, you have to just say “no” to the craving for a lavish lifestyle. Being a debt-free person, you may not be able to splurge on desires like frequently eating out, going on luxurious trips, making unwanted purchases, etc.
That said, living within your means doesn’t equate to depriving yourself. You can still find ways to pamper yourself while staying within the realm of affordability.
4. Faltering Health
Prolonged financial stress affects your health. A broken health condition is certainly the worst consequence of a single-minded focus on debt elimination. Stress often (if not always) leads to many other health issues.
It is important to stay on top of your health while working to balance obligations with building your retirement nest egg. If you don’t, you simply won’t be able to enjoy your work-free days to the fullest.
Every phase of our life has significance and life itself is a great teacher. While you’re in the red, your focus must be on how to live within limited means.
An extravagant lifestyle causes substantial debts. Being a debt-free person, you learn the benefit of saying “no” to every fancy aspiration that leads to financial trouble.
Living a debt-free lifestyle can be costly. Don’t let your desires control you. Plan with a purpose and make debt avoidance a realistic goal, balanced with savings for your future.
Cubert’s Note: I like where Amy is going here. It’s a rather unique argument to suggest that a single-minded focus on debt elimination comes with its costs. But when you peel back the covers, you see where a dogged, single-minded focus on debt elimination can alienate those close to you.
You could lose track of long-term savings goals, and more frighteningly, suffer some health problems. I suppose the key is having a balance. Personally, even though we’re now determined to slay our mortgage in the Abandoned Cubicle household, we’re still putting in our 401K and HSA contributions just as always. I hope you enjoyed today’s guest post! Thanks, Amy!
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Excellent points, Amy. Like anything in life, you can take FIRE to the extreme to the point where it takes over your life. I really like the point about retirement savings! A lot of people say they can’t contribute to retirement yet because they have debt, but the key to retirement savings is starting RIGHT FLIPPIN’ NOW instead of waiting.
Did you seriously title a post, “I Conquered My Biggest Fear Without Peeing Myself”? Hahaha. I’ll DEFINITELY have to check that one out. Thanks for sharing your thoughts here!
I agree that these are “hidden costs,” but they’re short term in a lot of ways. I neglected my retirement savings when I was paying off my debt, but I wouldn’t say it jeopardized it or made it insecure. It delayed it a bit, but now I’m able to save more. As for the other items, I did feel some strain, but found the cost to be worth it. Now that the debt is gone, I can focus on making all areas of my life healthier.
Good stuff, Amanda. I was in a similar situation a few years back. I gave up trying to save for my retirement, but not so much for debt pay down as to save up for real estate investments. This was while under 100K of student loans still. I might need to put out a post on risk taking soon…
Great post! “Prolonged financial stress affects your health.” That’s true, but it’s true of people who aren’t getting out of debt as well as those who are. Financial stress goes down as debt does. I like what you say about finding a balanced approach. Debt payoff is a long, long process (I’m in year 6), and it has to be sustainable to work. Lifestyle changes and family expectations can be tough at first, but a new normal sets in eventually. For savings for retirement, Ramsey suggests once the mortgage is the only debt left, put aside 15% of gross income for retirement (while still paying off the mortgage as aggressively as possible). There is a lot to consider!
Great points, Prudence! I am interested to learn more about Dave Ramsey’s theories. I think it makes good sense to squirrel away at least 15% while paying down the mortgage, but it depends on what rate your mortgage is at. Perhaps you could go higher on retirement savings if your rate is quite low (under 4% say)…?
Debt has a direct effect on your health, and I’ve experienced it a few times when I was building my credit score. I’ve done a few “shopping mistakes” in the past and now slowly, but surely I’m getting out of this hole. I had sleepless nights, and I don’t want to experience it again. I still use a credit card, but it’s a secured one. I’m more conscious with my purchases now, and I make sure that I pay on time. I’m not getting any younger, and I have to build a retirement income that will sustain my kind of lifestyle. I’m also considering buying insurance products that can cover my health care needs and can protect my family too. I can’t wait to be debt-free, to have peace of mind and to have an enjoyable retirement. Thanks for sharing this, Amy!
Agree, Samantha. There’s more and more evidence of the direct impact financial stress can have on your health and well-being. Glad to see you’ve made good progress in your journey. Hopefully we all can put health care insurance worries aside in the not so distant future (as we do with national security, primary school, fire safety, etc.)
Good points – the retirement savings committment vs other potential savings/expenses is a big one for me at the moment. A simple lifestyle is getting me to where I want to be though and I’m working on the rest. Getting out from under debt is always a priority though, it’s not pleasant to live under. That is a bigger stresser than most things. And that we may all be lucky enough to have good health in retirement!
Thanks, Jim. I also agree fully with Amy here. Good health is certainly one thing we cannot compromise on. After checking out your blog it seems you have a really good handle on this balancing act!