Personal Finance 101: Debt-free by 40. Are you also aiming for this goal too?
Debt-free by 40. Are you also aiming for it?
I have friends who tells me that they want to be debt-free by 40. I think they have a good goal. When we are debt-free, we do not need to worry about needing to pay debts. In fact if we are debt-free, we can sleep better at night even if we are between jobs and needs a few months to get the next employment. When we are debt-free, it also indicate that we are able to live within our means and did not overspend. As you can see, there are many benefits to becoming debt-free.
All the definitions of debt-free from many different sources
“Being debt-free means you don’t owe any outstanding debt. However, carrying no debt other than your mortgage payment or a credit card you pay in full each month could make sense.” Source: experian.com
“Debt-free means having no pending debt payments. It also implies having no outstanding dues and not utilizing credit cards for day-to-day purchases. The approach of budgeting with available cash is an effective strategy to stay away from all kinds of debt.” Source: wallstreetmojo.com
“Not owing anyone anything or being beholden to anyone offers debt-free individuals more options and control over every dollar they own. When you have no debt, you’re able to, with 100% freedom, decide how and when to spend your money.” Source: cnbc.com
“The definition of “debt free” isn’t set in stone. One school of thought sees living debt free in absolute terms: zero debt of any kind. A looser approach keeps your mortgage out of the equation, since that’s an investment in an asset (your house) that should grow in value over time.” Source: americanexpress.com
Which one is your favourite and why?
Actually, if we look at the term literally, it means zero debt. No debts of any kind. That’s debt-free. However, there are more who defined debt-free as being free from all the bad debts but may still include some good debts. For example a home loan is usually considered a a good debt because home price usually increase over time which meant home owners will be able to stay ahead of inflation. Meanwhile a credit card debt is always a bad debt because it carries a super high interest rate for outstanding payment. Anyway, we should always aim to have as low debts are possible in order to manage the potential risks from high-debts.
Please also note that even the companies with a huge cash reserves would still take up loans yeah. If they use their cash reserves, they may lose the potential opportunities they could do with their cash reserves. Meanwhile, if they take up a loan, the interest on the loan is likely to be low and the returns they get from the business would enable them to service the debt interest and more.
At 46, I am not yet debt-free and moving into a new home soon
At 46 years old, I am still not debt-free. In fact I will be moving to my new home in a few months time and that home loan will stretch for the next 27 years or thereabout as it started a few years earlier when I was younger. 🙂 I did tell my wife though that this will be the final of the final home we would ever buy and move into. In fact we will just stay here till our children goes to the university. Then, we will sell this and move into a smaller unit, most likely a condo. Hopefully by then, I am close to becoming debt-free (loose definition of including good debts and not zero debts) and could start travelling too.
Hopefully by then, after selling my current home and moving to a smaller home, I will have a surplus which I could then use for holidays with my wife. My aim is to be financially free by 60. It means I must control my expenses and also my debts while having an income which will allow me to still live my life without the need to worry too much about not holding a full time employment. Wish me all the best yeah. I wish you all the best too.
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One Response
Debts is good when we know how to leverage it, especially in property investment. Most of time having debts with real estate, the return could be higher than buy with cash. Of course the matter to calculate also different. I’m happy to have debts and not looking into debt-free anytime soon.