Debt-free At What Cost?
I know a couple who are completely debt-free. They’re in their early to mid-thirties and have no mortgage, no car loans and no credit card debt. Pretty impressive.
While they don’t live unnecessarily frugally (no, they didn’t eat noodles and boiled rice for a year) they have made some major decisions that helped them achieve debt-free status.
1. They’re not having kids
Not having kids means major savings! In San Diego, day care runs about $800-$1,200 per month depending on where you live. Thats a $10,000/year per kid saving! Not having to worry about college expenses means you don’t have to save for it either. Thats another $2,000-$5,000/year.
Plus, you don’t have to buy diapers, baby clothes, baby books, those darn expensive Baby Einstein DVDs
Of course, once the kid is old enough to place in school your expenses drop. Until they’re about 7, at which point you’ll be paying through your nose for activities, classes, trips and gadgets. I read an article in the Wall Street Journal about how it costs about $180,000 to have a kid and I didn’t believe it, until my friends started having kids and I started seeing all these crazy expenses.
2. None of their friends are having kids.
They dumped most of their friends who started having kids and started hanging around with like-minded people. This helps saving money since you don’t have to spend money on other people’s kids. I didn’t think this would be a major expense but if you have 6 friends and each of them have 2-3 kids, this can easily add up. Between birthdays and christmas you’re looking at spending several hundred dollars.(One of my friends had 72 people at his wife’s baby shower!) Plus there’s the trips to disney land. Heck, even a trip to the movies costs $25/person with soda and popcorn.
3. They put off saving for retirement.
They decided not to start saving for retirement until they debt-free. While this isn’t a good decision, atleast now they have more money to sock away for retirement.
On the flip side, should you really be debt-free?
Your home mortgage is the cheapest money you’ll ever borrow (provided you don’t get ripped off on your home loan
Plus, starting your retirement later is never a good idea. You’ve lost the compounding effect on your savings and its very difficult to make up for that just by contributing extra.
But thats the way it is and its hard to find fault with their choices. They were willing to sacrifice for their goals and they reached them.
What would you do to be debt-free?
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August 1st, 2007 at 7:45 am
I know a couple that has 3 kids and are debt-free. They do not believe in paying interest. The buy their cars cash. The wife do not work and the husband make about $40K a year.
The only drawback, They live in a 3 bedroom apartment. They do not own a house.
It is possible, but I cannot sacrifice my comfort level. I need space.
For as the couple you know, It’s nice to be debt free. But I will have to have at least one child. It’s nice to have grandchildren around when yoy are retired!
August 3rd, 2007 at 4:26 pm
They just missed the greatest part of life if they are having no kids. I guess every dollar saved comes with compromise. Like you said, I prefer bad-debt-free, not good-debt-free.
August 5th, 2007 at 6:49 pm
Hmmm. I don’t like to judge other’s decisions. If they are happy with their choices, that’s great.
For me, skipping children would be a horrible disappointment. I feel it is a part of life for me. Again, FOR ME. For me, may not be for everyone.
Its all about priorities and sacrifice, really. What are you willing to give up to get what you want… children for no debt? A latte for a house…? Choices, choices.
Its all about personal choice which is why personal finance is so great!
Best,
MGB
May 14th, 2008 at 2:02 am
Don’t think I could sacrifice not having children my self, from running my business and helping people out of un-manageable debt, you can have a level of debt and still be secure (hence Mortgages and car finance).
James