Take what you need. Leave the rest.
Author Unknown
Roughly 20 years ago, I was fortunate enough to come across the book Debt-Proof Living by Mary Hunt. I can honestly say that this book changed my financial life. How so? This book taught me a simple way to organize my money, to get out of debt, and how to always have funds on hand for life’s little “surprises.” Ever since reading this book, I have always had a Freedom Account. The best thing about this account for me is that I’m always able to tell myself “I’ve got this!” whenever a truly unanticipated expense lands in my lap.
The Freedom Account
Despite its heading, this account isn’t for retirement. This account is for those small-but-kind-of-large expenses that don’t warrant a visit to your emergency fund. Since I didn’t know how to do it myself, I went to my mechanic to have my SUV’s battery replaced. That was an unexpected $350 hit! After many, many moons, my garage’s motion sensor light went out. Again, I hired someone to replace it for me. That was another few hundred dollars. I also recall that I’ve had to replace my SUV’s tires over the years… let’s call that an even $1,000 every 6-7 years.
Each of these expenses was easily handled by my Freedom Account. A pre-determined amount of money sits in my Freedom Account, until it’s deployed to pay for small-to-medium-sized expenses. The point of this account is to lessen the financial sting of unanticipated-yet-required purchases that occasionally need to be made. Sure, I could have lived without a new motion sensor light. However, mine was burning electricity 24/7 since it never shut off. Paying to replace it was a better economic choice instead of having an extra $20 added to my electrical bill each month for who knows how long. As for the battery, that was a no-brainer. Without a battery, my SUV had become a very large, un-moveable paper-weight taking up room in my garage.
Personally, I would never go to my emergency fund to pay for these kinds of expenses. My emergency fund is there to replace my paycheque, should my employer and I part ways on unpalatable terms. In the event I lose my job, I’ll still need to buy food and pay for my shelter. My emergency fund is there to cover my survival expenses. Its purpose is not to cover expenses associated with car ownership and occasional housing repairs.
Rapid Debt Repayment Plan
At the time that I found Debt-Proof Living, I had a lot of debt: student loans, car payments, mortgage. Thankfully, I didn’t have any credit card debt! Still, I hated making loan payment to creditors. I wanted to be debt-free as soon as possible. This book helped me to achieve this goal. The author set out her 4 rules for the rapid debt repayment plan. I followed her rules, and achieved my goal of eliminating debt from my life sooner rather than later.
What I liked about this part of the book is that the four rules teach you how to best deploy your funds to eliminate your debt. Instead of working in vain, Ms. Hunt’s plan instructs you to create an order of repayment and to focus your money. The debt with the highest priority gets the bulk of your repayment money. Every other debt receives its minimum monthly payment. When debt #1 is paid off, its former loan payment is re-directed to debt #2 on your list. In short, debt-payment #1 is added to the minimum monthly payment of debt #2. The new combined payment is applied to debt #2 until debt #2 is eliminated. Once gone, the money going to debt #2 is added to the minimum monthly payment of debt #3. The process is repeated until all debts have been paid.
Whether to order debts by size of amount owed or by the highest interest rate is a personal choice. Do not let analysis-paralysis over this issue stop you from creating your own debt repayment plan! Every day that you’re not working to eliminate your debt means that more interest is being paid to your creditors. Personally, I like the idea of paying off the smallest debts first so that they’re eliminated and their minimum monthly payments can be re-directed to the larger debts.
My copy of the book includes charts. I expect that these would be fairly easy to reproduce in Numbers or Excel. When I was repaying my debts, having visuals of my progress was encouraging.
Go Back to the Quote at the Top
You see where I said to take what you need and to leave the rest? I added this in because, while I loved the majority of the content of Debt-Proof Living, there were other elements that may not be everyone’s cup of tea.
The author is a devout, religious person and this comes through in her writing. Some people care about this, some don’t. If you like your personal finance and debt advice to be divorced from religious convictions, then this book may not be one you can stomach. Personally speaking, I found that the substance of the money-management principles were incredibly useful. I could easily apply them to my own situation without supplanting my own religious convictions for those of the author.
For my part, I’ve relied on the Freedom Account since the turn of the millennium. I’ve used its principle to create a Me Account, which is a pot of money for pampering myself. Back in the Before Times, this money was used to pay for spa treatments, concerts, subscription services, little things… I indulged myself guiltlessly because the money had already been set aside for that very purpose.
Thanks to Ms. Hunt’s wisdom, I’ve managed to stay out of debt. Big purchases are planned. I’ve been fortunate enough to travel to Europe three times in the space of 5 years. I’m proud to report that all of those trips were fully paid before I stepped into the airport. Renovations to my house were similarly funded well before any contractor started the job. My next big purchase will be a replacement vehicle. My SUV is 14 years old and I know it won’t last forever, even though I wish it would. Now is the time to start saving up for its replacement.
Ms. Hunt’s expression of her faith in this book did not impede the usefulness of her lessons. I simply focused on what was most important to my goals. Should you deign to read Debt-Proof Living, I suggest that you do the same. Take what you need and leave the rest.