Thursday, January 27, 2011

Debt-free and ready to roll

January 27, 2011 is a momentous day: I am officially free of debt.

Before I get to the story of my new financial reality, I'll tell you my old story first. I suspect it will be similar to that of many young(ish) Canadians:

I graduated university, got my first "real" (read:low-paying) job and started the quick and seemingly painless process of racking up debt. Even as I progressed to higher-paying jobs, I still found myself barely scraping by. The actual amount of debt I accumulated was not enormous: roughly $12,000, yet still it felt like a weight around my neck. Not all of it was wasteful or stupid. A good portion, let's say half of that sum, was accumulated in the process of purchasing my first home, the first truly smart financial decision I made in my 31 years. Much of the other half was just plain waste (I'll detail this later. Disclaimer: it will be amusing to you and highly embarrassing to me). Thankfully -- and this is where my story differs from that of many young Canadians -- I did not have student debt on top of everything else. I worked diligently to pay my way through university, splitting costs with my parents. In essence, many of my good financial habits were already in place. I had been living a bare-bones existence to the point that my friends nicknamed me "bag-of-rice Mel," a nod to my rather spartan diet.

The problem was, once I had actual money to spend, it was as if some fundamental disconnect occurred in my brain: all the frugal habits I'd developed shorted out, igniting a rabid desire to finally have and do "really nice" things. I felt as if I'd won the lottery and I acted like it too. I was practically handing out money on the street. I gave the lady at the laundromat a huge tip for no apparent reason, despite poor service. I moved from my mice-infested apartment to a condo that was so brand new, there was shrink-wrap on the toilet. But then why did I need a $70 monthly gym membership when there was one right in my building? Well, the "other" gym was better and, after all, it was for my health... On and on it went.

This is what is commonly known as lifestyle inflation; your standard of living rises with your pay. The upshot is that I arrived into my thirties without having saved a single cent -- well, almost. I'm forced to participate in our pension plan at work, but to say this is actively "saving" is like comparing military conscription to volunteering to go to war; the mindset is completely different. I'm reasonably certain that if I had that extra money on my paycheque each month, I would have spent that, too.

My thirtieth birthday was an eye-opener for me in many ways: I had bought a fancy dress and shoes, and got a fancy haircut, because I was turning thirty and damn it, I *deserved* it. Really, who can put a price on your entry into capital 'A' adulthood?

It rained. Not the kind of rain you can really shelter against; a light mist that you could barely see. It occurred to me there were a few things about my life that needed to change: Getting out of debt was one of them.

For the next 20 months I pounded away at it, paying whatever I could and directing any windfalls towards the stubborn, slowly-dwindling sum. In the process, I learned how to stop wasting money and developed new and better habits that can now be applied to saving rather than "paying."

Today I made my final credit card payment and am free of all "bad" debt (I still have a mortgage and must continue to make those payments). Finally, I am in a position to aggressively save money. I would like to say this is the first time I have been here; the reality is that I could have been squirreling away funds for the last decade, had I handled things differently. Let's just call those the lost years, and move on.

Obviously none of us can change the past or undo our financial mistakes, only guard against those same errors in future. So, this blog will cover my ongoing quest to save money, in the hopes of reaching financial independence over the next decade, as I move further and further away from the spending habits of my contemporaries in the "buy now, save later" generation.

For many people my age (and younger) it seems the time to start saving is always somewhere in the future, like a faraway mountain range, which just might be located in the village of Not Until It's Too Late. Who wants to wait until they find themselves there? I know I don't.

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