When you start talking openly about personal finance, it opens the floodgates to others who want to share opinions about money.
I am totally OK with this. I like to hear the viewpoints of others, even if I disagree with them.
One of the more common pieces of advice goes something like this:
As long as my investment are making more than my debt, I’m not in a hurry to pay off my debt.
I have had this said to me many, many, many times.
This is a solid mathematical argument. Say I have $10,000 in investments, which makes 10 percent per year. That percent of return is not an unrealistic amount, and it would bring me an additional $1,000 in interest which would continue to compound. That’s pretty good! If I had purchased a car for $15,000 at 5 percent interest, that means it cost me an additional $750 per year. So, $1,000 minus $750 equals $250 extra per year, and I haven’t done anything different. If I were to sink even more into my investments, the difference between my investments and my debt grows even larger.
That is a sweet deal; a really sweet deal. Following this formula, it makes clear mathematical sense to put even more into investments and let the debt get paid off over time through regular payments.
Here’s why we’re not doing that.
In mid-2011, my wife and I were at a breaking point. The relationship was not healthy. Earlier in the year, a tree root had broken through the sewer line of our home costing a few thousand dollars to repair. My wife’s business had only been open about a year at that point, and the income was coming in, but wasn’t steady and was barely enough. We fought all the time about money, or the lack of it to cover the expense of owning a home, coupled with the debt payments we had.
It wasn’t a happy time. We were in real danger of our marriage falling apart.
We sought marriage counseling. We worked through it. We talked, we listened, we traversed rough waters with a third party that helped us see through the struggles we were going through to a possibility of a better future together.
In those discussions, we talked about how I would often bring up my wife’s desire to stay home more with our children. She didn’t want to return to full-time work because she didn’t want to see the early years of our children’s lives pass by while she went off to work somewhere. It wasn’t in her heart to let someone else raise our children; she wanted to be there for all the good things.
I only saw what we were missing out on. If she was working full-time, we could have more money! There would be more money for all these material things and we could pay more on debt, too! I couldn’t understand why she didn’t see that.
Through our discussions, I came to realize that she valued being with our children more than all this other stuff. As she would put it, “I won’t get this time back.”
I realized that I was wrong. I agreed that I wouldn’t pressure her to find work again. We would find a way to make it work together. To make myself accountable, I put it in writing.
Amy was right. Those days with our children are gone in a moment, and that wasn’t as important as a stupid house.
I haven’t pressured her to return to work full-time since.
In time, her business grew. Although she was working part-time, she was able to do it from our home running a preschool in our house. She had her time with our children, and bring in some extra income. My income improved, too. A little more than a year after our counseling sessions, I took a new job with better pay that ended up being a fantastic experience and career builder.
So when I hear about this formula about how debt isn’t such a big deal, I think of how much we’ve went through to get here. Debt, risk, financial obligations — they nearly destroyed us. What return on investment is worth that? Is it seven percent? How about a 10 percent return? Fifteen?
The answer for us is zero. As in, there is zero amount of a gain that justifies staying in debt, because the emotional and relationship cost is simply too great.
And as Dave Ramsey likes to say, “If we were good at math we wouldn’t be in debt in the first place.”
So to all the naysayers, go ahead and do your thing. Enjoy your returns. You have my blessing. But for us, it’s not worth it.