Monday, April 28, 2008

Living Debt Free

Is it possible to live debt free?  It was a questions I saw on the front page of MSN Money today.  Since I am probably in the 1% of Americans who is 100% debt free, I felt qualified to answer this question.

Yes, it is possible to live debt free, and it really isn't all that hard.  I have found it easy becasue

  1. I grew up without much money

  2. I was determined not to grow old without money

So throughout my whole life, I have planned.  I made sure that I would end up with the right job and that I would live the right lifestyle.  So when you combine a high salary with a simple lifestyle, it becomes very easy to be debt free.

Right now, I have no debt of any kind unless you count my credit card which I pay in full every month.  I have no mortgage, no car loans, no student loans, nothing.  It's fantastic.  You just live within your means.  You do it long enough and lots of possibilities open up.  For example.  This weekend, my girlfriend and I decided to buy some furniture.  We saw a TV stand we really liked.  Like all good furniture it is expensive.  In total it cost me $1400.  This wil shortly be paired with a TV that cost $2500.  That will be followed up with a living room set that will probably cost around $2000 and that will be followed by a bedroom set that some more as well.

Now I don't ever spend money like this.  This is highly unusual for me.  But the point is, I can do it, and I can do it all without incurring any debt.  This is coming straight out of savings.  Now to be clear, debt isn't a bad thing if used correctly.  However, I believe it should only be used for productive reasons.   That is, the debt you incur should only be used if the money will be used to earn more money later or to finance a purchase that would otherwise be impossible.  This generally only means

  • Student Loans

  • Buying a house

  • Buying your first car

Student Loans is obvious, this directly leads to you being able to earn income later.  A house falls under the impossible to do without category (although this wasn't always the case).   The latter I allow for simply because it is a big ticket item that a lot of people just starting out can't afford to buy without a loan.  And since most people have to drive to work, I think it is acceptable to take out the loan.  Every car after that though I think you should have the ability to pay for it in cash.  I qualify with "ability" because even though I could now buy pretty much any car I wanted to in full, I doubt I would buy a BMW M5 in cash.  The money could be used better investing rather than laying it all out for a car.

What do you think?  How close are you to being debt free?  Do you find it hard to live with or without debt?


  1. I wish I was debt free.

  2. Be disciplined, live within your means, and you can be.

  3. You're living the true American dream. Not many people are debt-free and are earning a comfortable salary.