September 17, 2012, 5:00 am

I’m Quitting On Paying Off Debts

by: The Financial Blogger    Category: Assets and Net Worth
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Sometimes the best defense is a good offense.

 

I guess you can bet that I’m a huge fan of this saying. A few years ago, when Jagr, Lemieux and Kovalev were playing together for the Pittsburgh Penguins, they used to put 4 forwards on their powerplay. I’m not sure but I even think that I saw 5 forwards once… who needs defensive play when you control the puck and score a lot of goals? I guess it’s just in my nature; I’m a big fan of offensive play. By nature, human beings tend to defend themselves, to protect their families and assets. So my bet is when you are going more on the offensive, your chances are that you will surprise everybody as they expect you to defend, not to attack.

 

Let’s Face It: I Suck at Paying Debts

 quit

Back in 2010, I wrote a piece called Lifestyle inflation infection. I renamed it on my home page as “How I suck at not paying debts”. 2 years later, I’m stuck with the same problem. I’ve been pretty good at optimizing my payment structures such as:

 

  • I’ve cut down on my insurance payments (life, car and home),
  • I’ve cut down on my utility bills,
  • I’ve cut down on my gym costs (by building a home gym).

 

With these expenses, I’m now saving about $250 per month. But still, during the same period, I’ve spent some major cash:

 

  • Central A/C
  • Pool
  • Expensive Car (car maintenance on my RX-8 is disgusting)
  • Trip to Disney (yeah… I just bought that for 2013… year end bonus is already spent!)

 

2 years ago (November 2010), I was showing a total debt of $328K. 2 years later (August 2012), I’m at 320K. My total net worth has increased by 95K (from 145K to 240K) but only 8K was coming from paying down debt. Seriously, this is ridiculous! So for the past two years I’ve been hovering on my pile of debts living the great life… but not moving 1 iota towards financial independence. How can this be real? I can pull out all kinds of reasons out of my a… but the facts are here:

 

#1 I’m really good at increasing my income

 

#2 I’m really bad at using these increases to pay off my debts!

 

What’s The Plan? Keep Spending Like an Idiot???

 

Yeah… the title of this post was that I was quitting on paying off debts. That’s pretty unconventional, huh? Newspapers are discussing how Canadians are deep in debt and most blogs talk about paying down debts and cutting their credit cards. On my side, I’m standing alone saying: “Hell to frugality, I’m having fun!”.

 

To be honest, I’ve never stressed with debt in my life. Since the age of 19, when I moved in with my girlfriend and financed my lifestyle for 6 months solely with credit cards, I realized that having debts is not the end of the world. If I ever run into bad luck like losing my job, I might lose most of my assets. That’s true. But, seriously, is it that bad? I mean, even if I lose my house and I’m back to living in an apartment. It would suck big time but in the end, the most important assets in my life are my wife and three children. There are definitely worse things in life than losing your job. But it doesn’t mean that I have to do everything possible to lose what I’ve built so far though…

 

The only time I started to stress about debt was this year. This is when I made it a quasi-obsession about paying them off. In the end, it didn’t bring me anything but frustration and stress. I didn’t even pay my debts since I made huge budgeting mistakes (remember the pool and car repairs?).

 

The reason why I’m putting an end to tracking down my debts for the upcoming months is because I want to concentrate on something else. While feeling frustrated and stressed because my debt level wasn’t going down as fast as I wished, I’ve realized that all this energy was consumed by negative feelings and it was preventing me from performing both at work and my online company. I was so obsessed about paying down my debts that I was only thinking of cutting down my expenses instead of increasing my income. The problem is that I’m probably 10 times better at making money than cutting down my expenses.

 

Here’s The Theory

 

My theory is quite simple; focus on your strengths. If I put away my net worth statement and debt tracking for the next 3 months, I should be able to focus on making more money. If I do this well, my income stream should be enough to pay down my debts without me noticing. Then, at the end of January, when I report my next net worth statement, it should show a lower debt level.

 

The work I have done on my personal finances for the past two years is just not showing at the moment. But I know that I’ve decreased my monthly expenses and that I won’t suffer from lifestyle inflation too much in the upcoming years. I feel it’s just a matter of time before I can see the results.

 

In the end, I’m a lot more motivated to crank up my bonus and generate tons of money from my online company than I am to paying down debt. If I have the option of earning $1,000 (net of taxes) or cutting down my expenses by $1,000, I’ll definitely choose the first option.

 

I’m pretty sure you will disagree with me but I’m taking the bet. I know I can win this game with a strong offense, what do you think?

 

 

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Comments

I’m about as frugal as they and, for you, I can honestly say that I think your plan is a good one. You have the personality for it and nothing sucks productivity than a perpetual bad mood. I think you’ve hit the nail right on the head my friend.

A little bit of self control, as you are already exercising, and a lot of push to be offensive is probably the right balance for you!

“as frugal as they come” is what I meant to say.

Wow, never commented on your blog before but this post was pretty amazing. Good luck to you and I admire that you are being honest with yourself. However, this attitude is exactly why America is flaming out. Scary stuff.

I started running last year. It wasn’t that I was out of shape, but just that I wanted to improve myself and try something new. I noticed a funny thing after a few months of running.
1 – I was in worse shape than I had thought.
and 2 – I had forgotten what it felt like to feel good. So much so that I had actually mentally lowered the bar on what good felt like.
I fear that this is what you are experiencing. Possibly why you have now rationalized giving up.
I am like a rabid dog on debt. It hangs over me. So I experience great reward doubling payments and feeling accomplished doing so. I am great at knocking off debt, but I agree with your statement that I would also prefer to earn another $1000 then reduce expenses by the same. Unfortunately it is just easier for me to reduce expenses and the rewards are instant and measurable.
I also fear for you that by raising income, you will just end up raising expenses. The reason I fear this is that your assumption is that you have just happened to land your current income on the magical number of what it costs for you to live. I think it rather you landed your cost of living on your income.
I think the two of us should capitalize on each others strengths.
We could be unstoppable.

An interesting take — good luck, and I’ll check in with you in January!

Mike – Is making more not simply the other side of paying off debt? Both increase net worth, so in fact, you making more is like paying off your debt.

Le’s say you make $1 billion, then your debt/equity ratio is only 0.001%, essentially, debt free!

I don’t think you have much debt at all, since a lot of it is your mortgage. But then again, mortgage interest isn’t tax deductible in Canada right?

@ Financial Samurai – Your right. It is not Tax Deductible. But there are ways around that also. See the “Smith Maneuvre”. for an idea how.
I think I will write a post on that.
Also I really like your thinking about the debt/equity ratio!
especially the $1 Billion part. But it is important to see debt as compared to Net Worth and income.

It is almost like you are putting your head in the sand. I know all of the debt is manageable and inconsequential in the long term success that we both know you’ll have, but what is the point of servicing it month in and month out? So you can “focus” on other goals…I call BS on that. Just b/c you sent 3K to a CC in a given month doesn’t mean it consumed your life for a month.

I am not a frugal or anti-debt kind of blogger, but this post read to me as a giving up b/c it was hard rather than a conscious life choice.

Wow, “retard” really? That’s a great word to use. My guess is that you will delete this comment, but thinking twice before using words like that is probably a good idea. Will be unfollowing your blog.

by: The Financial Blogger | September 17th, 2012 (3:22 pm)

@ Saving Mentor,

The main difference is that I don’t plan on using my bonus to buy something else. The plan is to use the bonus to pay off my debts. Hopefully this will work better than focusing on the “negative” side of the balance sheet!

@Matt,

Yeah… it’s a serious bet! I hope I’ll be able to stand up to the challenge! But just by ignoring my debts last week, I felt better about myself!

@Derek,

To continue on your running analogy; there 2 ways to lose weight: #1 eating healthier and reducing your portion and #2 working out more often and run over 30 minutes per day. I don’t like cutting on my food so I rather working out 4 times a week + I will play soccer 1h30 per week. I’m pretty sure I’ll lose weight… but I’ll still have my glasses of win on Fridays and Saturdays :-). I promise I won’t use my next bonus to pay for more stuff!

@Financial Samurai,

I wish my mortgage was tax deductible! hahaha! Yeah… that’s an intersting way of seeing it. Actually, if I sell my house tomorrow morning, I can pay all my debts and still have about 30K in my pockets (on top of my other assets).

@Evan,

I thought I would get more comments like yours on this post :-). The thing is that I’m not going to exactly quit on paying debts but I will stop following my debts on monthly basis to put it to quarterly follow-up. Right now, I focus too much on negativity (don’t spend to much, how come my only drop my debt of X this month instead of Z?, etc.). It bugs me and drag me down. Since most of my income is created when I’m on a good mood (getting clients requires a lot of energy), I need this energy to focus on increasing my income. Anyway, that’s a theory I’m trying for the next year. I’m pretty sure it will workout.

First step will beJanuary 2013 with my next update!

by: The Financial Blogger | September 17th, 2012 (4:53 pm)

@Ace,

wow! one word and you unfollow my blog… good for you! btw, I’m French so the meaning might not be the same for me…

I actually thought you would get more positive comments than you did, but I guess considering the crowd of people you are writing too it isn’t that surprising.

Obviously you aren’t completing ignoring your debts, you’re just focusing your energy on your strengths as you said. I think that’s always a good idea! You can do it Mike!

Good luck to you! It isn’t my style but if it works for you then that is all that matters. Keep us updated!

This is definitively some attempt I would/could never do… Completely ignoring my debt for a while, wow, what a concept! I hate just the idea of still having a mortgage to pay so there is no way I could live like that.

However I understand better your strategy now, especially after reading your responses to the comments. I see your point, it does make sense to focus on your strengths and therefore increase your income. I am a little worried however that, by not keeping an eye on your debts, you would also increase your expenses like Derek is saying.

Time will tell. You did put a lot of thought into it and you are far from being stupid so rest assure I will follow your journey. I wish you the very best Mike!

by: Financial Samurai | September 17th, 2012 (8:28 pm)

Mike, if that’s the case, who cares about debt? It’s all just accounting.

Note: Using the word “retard” is offensive to many people in America. Perhaps change the word in your post to “idiot” or something.

I have to agree with you on a choice of generating more income vice paying down debt. As FS said, it’s basically working on one side of the accounting or the other.
We’ve been on the focus on debt paydown side and made decent headway. Recently we’re right back to where we were about 4-5 years ago with the debt. With one caveat … income increased enough, and tax legislation in our favor, to allow for more funds to be diverted into retirement savings.
Right now, I’ve got our budget planned for the next 4 years, which will put us at all debt paid down except mortgage, and putting at least 12% income away … although I’m trying out putting 16% of our income into retirement accounts.
Do I wish I had started by putting aside a larger portion of paychecks aside in the earlier years … yes. But, the past cannot be changed, only the future.

by: The Financial Blogger | September 18th, 2012 (4:15 am)

Hey Sam,

Thx for the note, I just updated my post. Didn’t think it was offensive!

@Rich,

Wow! 12% is very good! most people don’t save anything for retirement. I’m quite concerned about them actually. It seems that several individuals think that the Government or their employer will pay for their retirement!

by: The Financial Blogger | September 18th, 2012 (5:52 am)

@SavingMentor,

Nah… I was expecting more negative comments as not looking at debts is not trendy these days ;-) I’m sure my theory will work! can’t wait to see it in January!

I agree with Evan – your approach really doesn’t make much sense. If you forget about trying to pay down debt, then it will likely just get higher.

And what’s with the Disneyland vacation? You really need to do a super-expensive vacation like that? I’ll bet you are looking at $10k all in.

@Evan – Why weren’t you in Denver?

Couldn’t do it with work and all…Next year 1000%

@Mike,

You’d be surprised. I’ve booked 9 days for 4,5K all included. I have for 2,8K in points that I’ve used to pay for it too. The point is that if I don’t go this year, we would have to wait a good 5 years and pay a lot more (my newborn doesn’t cost anything!).

I’m sure I’ll be able to pay more debts by focusing on increasing my income. let’s wait and see!

The thing about paying down debt is, if you’re making a decent income it’s not really “hard” regardless of how hard you may be working for the income. The debt payment part is about doing a bank account transfer.

Honestly, buck up. I don’t come to this blog to read about why debt is AOK. The only people who do are losers engaging in cognitive dissonance to make themselves feel better. Debt is a form of slavery and it weighs heavily upon your mind whether you admit it or not. And, as pointed out, pretty much none of the interest is tax deductible (funny how we don’t hear nearly as much about the Smith Maneuver since it wiped out a lot of financial ‘geniuses’ in 2009 — “oh, apparently leverage = risk?? so it’s NOT as good as tax-deductible mortgage interest?”).

All of these Canadian bloggers talking really ignorantly about debt reminds me of America in 2007. Our country is going to get a rude awakening and a lot of people will look like the amateurs they are. Just look at our housing bubble that’s finally beginning to pop.

@TFB: That 12% (or 16% we’re trying now) doesn’t count the 4% company match either! :-) And we have 4 bundles of joy that we’d have to pay for airline, etc. It really gets expensive with that many munchkins. LOL

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Like most other people I consider myself a “defensive” person in most aspects, and I didn’t really know where you were going with this post, or how it was possible not to be defensive in the financial game-espeically with a family to take care of. However, when you said you’re better at making money than controlling other aspects of money management, it made sense. If thats your way of doing things, and your debts haven’t put you in a financial hole then by all means keep doing things the way you’re doing them. Great hockey reference BTW.

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As long as your net worth is going up who cares about the debt I guess.

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