When people hear that I paid off $300,000 in debt in three years and now have a debt-free lifestyle, the most common misconception is that I shouldn’t be spending a lot of money. They believe I live by the “rice and beans” philosophy, which shames you into eating at restaurants and splurging on yourself.
In fact, I like spending money – not hoarding. I love to buy name brand clothes, eat out at least twice a week and travel often. I’ve been known to spend a dime on K-pop merchandise and live concerts.
And while I was paying off my $72,000 student loan, I learned that if I completely deprive myself of everything I enjoy spending my money on, my debt-free journey will last much longer. was not going to run. Finding the balance between living my best life and paying off soul-sucking debt like student loans is personal, but these three spending rules helped avoid the embarrassment of spending and encouraged me to pay off debt faster.
This is the second column in Bernadette Joy’s 5-part series. In “Mess to a Million,” she shows that you don’t need to be perfect to be rich. Pursuance @nextadvisor on Instagram For updates and for a live Q&A with Bernadette.
Rule #1: Ask Yourself, “This or That?”
“This or that” is the rule I attribute most to helping pay off $72,000 of student loans less than a year after graduation. To implement this or that, you must define what “it” is, and what “that” is. “It” refers to something you actually want to buy right now.
“That” refers to the big money goal you’re working for. “That” could be paying off your debts such as student loans, credit cards, a car note, or personal loans. If you’re not focused on paying off debt, “he” could be working toward your investment goals or buying your next home.
When you find yourself in a spending decision, you should ask yourself: do you want to buy this item now, or do you want more of that big goal? this or that?
It sounds simple, but this rule requires two tricks to help you pay off debt. The first trick is to put down exactly the amount you would have spent on your debt. The second trick is to focus on “that” needs, tangible and awesome To you. Simply making “that” means paying off your student loans isn’t too overwhelming.
As an example, I like to buy all kinds of sneakers and shoes, and it’s hard for me to make a good sale. (Trust me, I can always find a good sale.) However, when I was paying off my student loans, if I found myself wandering the mall and finding a pair I wanted to buy, I would ask myself , “Do I want this pair of shoes, or do I want to be debt free and quit my job in the next two years? Most of the time, I approach quitting my day job as the short-term thrill of a new pair of shoes.” But I will choose
And so I made a real spending choice. I’ll take out my phone and pay off my student loans for the exact same amount of shoes cost. If I could show you my transaction history from my student loan account so far, you would see several small payment amounts, each of them related to the time I chose between this or that. By putting the exact dollar amount into something I would have bought, I not only saved money mentally, but I took action toward reducing my debt.
Rule #2: 5% Cash Back Challenge
Let’s be honest. Paying off debt isn’t the most thrilling, so I wanted to figure out a way to make it feel more rewarding along the way. I remember from my days in financial services that people like to use their credit cards because they offer rewards and points programs. So I decided to create my own reward program to pay off debt.
If you have a huge amount of debt, try breaking it down into smaller increments and then making a promise to pay yourself back every time you cross that milestone. For example, let’s say you have $10,000 in debt. For every $1,000 of debt you pay off, you can give yourself 5% back or $50 to treat yourself well to achieve your goal!
While many debt-freezing experts say you should cut out everything that isn’t necessary, I don’t think paying off debt means you can’t treat yourself. I don’t drink a lot of coffee, but there was no way I was going to cut bubble tea out of my life while paying off student loans! Implementing the 5% cash back rule made me feel less guilty about spending money on unnecessary, but enjoyable purchases while on track. I used this cash back reward not only for bubble tea, but also for clothes, gifts for friends, or sweet treats. And sometimes, I’ll pile my cash back to save for a big purchase while paying off debt, like a ticket to see. It gave me something to look forward to, and helped me acknowledge my progress rather than highlight what I had achieved so far.
Rule #3: Ask Yourself, “Is This Fire?”
Now that paying off debt is tough, I’m going to make this bold statement that staying out of debt is as hard as it is.
After paying off my student loans and mortgage, I found myself feeling guilty for spending it on big purchases, as I was used to going without them when paying off my debt. And then for a period during the pandemic, I found myself slipping into old spending habits and justifying purchases I didn’t spend as much on—because, hey, I’m debt-free right now. No? And this world is feeling crazy!
I am finding a new regimen that works well for me now to maintain balance. It’s like asking yourself, “Is this fire?”
Traditionally, the abbreviation FIRE stands for “Financial Freedom, Early Retirement”. But I personally changed the abbreviation to a more tangible one for me at present: “Financial freedom, rest every day.” What does this small change in words do for me? It forces me to ask myself whether the potential purchase will help me become more financially independent in the future or feel more comfortable today.
As an aside, asking yourself “is this fire?” What has prompted me to focus more on investments that will appreciate in the long run: buying my next home and investing more in retirement accounts that clearly help me move toward financial independence faster. On the other hand, it has also allowed me to buy things that don’t necessarily fit into financial freedom, but certainly help me feel revived in the present.
Asking myself if this is FIRE, my guilt-ridden things are also what my first generation Asian parents call a “waste of money.” It’s been a bit, but now I shamelessly buy overpriced organic food, spend money for massages, and don’t hesitate to pay for therapy and coaching at all. These purchases ease my anxiety and bring me closer to the health I need to enjoy financial freedom in the future.
Instead of rigor, I teach my students that an 80% success rate on my all-spending regimen is great.
In my role as a financial educator who has taught thousands of people the pursuit of debt relief, I found that where people falter the most when sticking to their money plans is the idea that it should be all or nothing. No. Either you stick to the rule 100% of the time or not at all. I’ve always been a fan of the Pareto Principle, or the 80-20 rule which says that 80% of your success comes from 20% of the reasons. It is often applied in personal finance to say that you should focus on the top 20% of factors that produce the best results.
But as a recovering perfectionist, I have used this principle in reverse, saying that I am allowed to be human at least 20% of the time as a human. What this means for me is that as long as I follow these rules 80% of the time, it allows me to break the rules from time to time without completely impeding my financial progress.
So yeah, sometimes the shoes win out and come home with me. I spent more than 5% of my milestone goal buying a once in a lifetime ticket to a BTS Live concert. And does that Super Mario-themed denim jacket I love wearing lead me to financial freedom or just about relaxing every day? Absolutely not, but don’t allow yourself to calculate every purchase at least 20% of the time and show my students that you can still pay off debt and make your first $1 million in net worth Which makes personal finance and life, so much more fun.
In my next article on Mess to Million, I will share some of my personal tips on helping my parents financially as a first generation American.