How I learned to manage my finances and what it's gotten me so far | Your stories | Discussion forum

I am now 33 and debt free, and we own the house and car free and clear.

In my late teens around 1995 I bought into the usual financial trap of buying a car (albeit an inexpensive beater) and then became saddled with insurance and maintenance costs which were a constant horrible sap on finances. I needed a car to get around though as transit wasn't good where I lived.

Not long after I got my car ($500 cash), my best guy friend's older sister - who we often visited - had a discussion with me about the importance of a credit rating and to always pay off credit cards in full each month, among other things. Thanks to her I got a good start in that respect! That one conversation had a *huge* impact on my financial future, especially the importance of always avoiding interest on cards.

I rented an apartment for a while, then my boyfriend moved in with me which obviously helped reduce expenses a lot. We purchased a subcompact car new in 2001 and learned of how onerous monthly car payments are - we couldn't wait until that was paid off four years later! No more brand new cars for us. They depreciate so quickly and we'll buy a 1 or 2 year old car next time. I can't imagine how saddled in debt people who buy regular cars and SUVs must feel. Next car will be a fully electric subcompact hatchback in about five or ten years. There's no point getting a new car until our 2001 subcompact dies, and nothing has gone wrong with it yet.

In 1998 - we purchased a very inexpensive ($118,500 before tax) wartime house with a detached garage and nice large backyard in an older neighbourhood just west of downtown. We wanted to ensure our monthly mortgage would not cost much more than renting would so we avoided the more common newer bungalows in better areas that cost $100,000 more. We only put 5% down but after the first 5 years was up we then socked a $30,000 inheritance he got right into the mortgage and then reduced our amortization period to 5 years when we renewed, and, while it raised our monthly payment a bit, we just wanted to get this huge debt paid off ASAP. Carrying a mortgage meant if we lost our jobs we could lose our home, so wanted to get it paid off as quickly as possible so nobody could ever rip our shelter away from us.

Fast forward to now and the mortgage is completely paid off as of August 2009. So between age 23 and 33, in ten years, we paid off our new car and our older (but in decent shape) house. We are now 100% debt free and continue to pay off credit cards in full every month, and buy a lot of used items to save money.

We have no intentions to fall into the trap of "upgrading" to a bigger house and car as we prefer simple, frugal living. Whole families used to be raised in small houses like ours (now called starter/retirement homes for some illogical reason, especially since people have fewer kids than ever now and don't need huge houses!), and it's far less work to maintain a small place. I can easily carry this house for $400 a month (property tax, insurance, and utilities) if times got tough for a few years and I lost my job. That cost - which equates to $200 per person - beats renting, too.

We've maxed out the amounts going into our pension plans at the office ever since we got those jobs 12 or so years ago which meant 9% of our pay has been going into that with every paycheck. At this point there's a nice RRSP nest egg built up in those pension plans but it still needs to grow bigger before we could live off the interest long term. We also have our own RRSPs in an online brokerage account but it's much smaller than the pension plan. We've decided we don't want to over-invest in RRSPs since my mom did and is getting taxed more now in retirement than she did most of her working life. It's time to focus a bit more on living well *before* retirement.

So our focus from here on in is to invest in those new tax free accounts as well as into regular savings or investments to build up as much as we can, as quickly as we can (hopefully 1/3 to 1/2 of our yearly net earnings will be invested from 2010 onward), to effectively retire earlier than age 65 or to enable us to switch to part time work within 10-15 years. As long as our non-RRSP investments can bring us in $30,000 a year between the two of us, that's our goal. Obviously, interest rates and market performance will have a big effect on how soon we achieve that early retirement goal.

As investors we are balanced investors with a mix of investment vehicles. I find investing in individual stocks too harrowing, although a certain electric car company stock has performed really well for us. Other stocks have not, so we're staying out of individual stocks in the future. Index funds are our preferred choice for stocks and bonds due to the low MER. I've never been one who enjoys gambling, but do like to swoop in and buy extra when the market tanks and the fund unit costs are far lower than normal.

A large part of our approach has been not just saving money and paying off debts, but also cutting costs every way reasonably possible. This is a very large piece of the puzzle, not just a small part. For example my husband can buy a used set of beige business casual work pants for $4 used at Talize or Value Village instead of paying $40+ new - and the same brand or a better brand! We just bought a solid wood coffee table set for 1/3 what it costs new in the catalog from a coworker who was moving. When I travel I stay in hostels or use couchsurfing.org to stay at people's homes for free all over the world. Money saved by APPROPRIATE cost cutting and buying used goods REALLY ADDS UP over the years. By appropriate I mean don't ever cut corners or go cheap on critical items like furnaces, roofing shingle quality, or by skirting car maintenance.

We both make around the average income for our medium sized Ontario city, although for many of those years we made much less than that as we were just entering full time work. We make our modest income go far.

Cars are money pits - avoid them if you can. We only use our car on weekends, have no collision insurance since it's older, and are set as occasional drivers, all which saves costs. We both have transit passes now. Eating out at restaurants also really adds up, so cap it at once every week or two and use coupons. Always bring lunch to work. Another thing we learned in our venture into home ownership is never live within two blocks of apartment buildings and townhouses - they tend to lower the quality of a neighbourhood, at least around here which is a mixed working class area. So, if we were ever swimming in money we'd move to a slightly better neighbourhood, away from apartment buildings, yet still within 4 blocks of a bus stop and store. Garages are also important to help maintain your investment in your vehicle - it's less likely to be damaged, weathered, or stolen.

We were lucky to buy our house in 1998 when housing costs were low - if we were shopping for a house now, we'd have to shell out $180-$200,000 for something similar. I have no idea how people these days are supposed to ever get anywhere or break into home ownership with such high costs to deal with.

The feeling of not having any debts or a mortgage is great! Best of luck if that's your goal as well!