Disclaimer: This article is not meant to provide financial advice.

I share with you today, 3 simple steps on how to become debt free & enjoy financial freedom.
  • Step-1: Vision - Expectations
  • Step-2: Setting targets - short & long term
  • Step-3: Disciplined Execution - no matter what
Vision - Level Set on Expectations:

First and foremost, be upfront with yourself. If you’ve already started on a journey and add a partner along the way, share your vision and create a common vision/goal.

Our Common Vision Story: A few years after we got married, my wife and I sat down and decided that we wanted to be debt free within a three-year horizon.

Where to start: We looked at our cost to income ratio and figured a percentage we could put away and a percentage we could use to pay down our debt. If there was any yearly bonus, the same approach was applied. As I finished my grad school, I got a promotion and leveraged all the extra money to pay down the debts.

We we started our journey, we were both in our 20's, going to school, had 2 young kids, a brand-new house and one source of income. Whilst, the company I worked for was paying for my grad school, there were strings attached. After graduation, I had to stay with the company for three years and the tuition expenses had a yearly cap.  The rest of our expenses was being covered through my salary. Being first time home buyers and not much guidance, we made some interesting decisions, which in hindsight were not that bad:

  • Our house was in a new area, which added a few more miles to my commute, but lowered the property taxes and provided a decent square footage.
  • We negotiated and had the closing paid by the builder, got all the big appliances within the price and limited ourselves to the builder provided upgrades.
  • Bought down the mortgage rate, which reduced our payments.

Nugget: If you look at home calculators online, it clearly shows just paying a few extra dollars a month, significantly reduces the mortgage time.

Setting Targets (short term = < 12 months and long term > 18 months):

We commonly agreed to delineate between needs and wants. Setting targets based on this criteria is as simple as it gets.

  • Anything we wanted vs needed, implied that we would save up for it, vs purchasing it on credit.
  • We researched best credit cards that earned us cash back (no black out dates); so, earning on the spend vs just the savings.
  • When we bought anything, we’d leverage the credit cards to get cash back and pay it off in full. 
  • We decided to start a college fund closer to when our kids got to middle school. This implied that that we could leverage market data to forecast the totals funds needed. 
  • We only used 401-K up-to a 100% match from the company, not more*.
  • Any bonus that came in form of stocks options (vs purchase), are sold to pay down debt or fund the upcoming need/want,
* The reason for 401-K distribution is very specific to US tax brackets. Another reason is NPV (net present value) & DCF (Discounted cash flows), financial terms. These terms very simply articulate that: value of money today is more than that in the future. 

Disciplined Execution (This is the crux of the matter):

There will always be challenges, some you can manage, others you have to roll with the punches. The company I started my career with got acquired, and then came the recession. For about 5 years, all salary increases, bonuses and stock options became non-existent. This was followed by layoffs and I saw many of friends lose their jobs and much more.

We were lucky, as during these times I stayed employed (albeit, working significant overtime with no extra pay). Another upside was that we had no debt and could fall back on a small nest-egg.

As we worked through these difficult times, we relocated due to job changes, but leveraged our experience to stay on point and never spent beyond our means. Today, we’ve been debt free for more than a decade. Along the way, we’ve continued to set new targets and execute on them with utmost fervor and discipline.

Final Thoughts:

Life can and will continue to throw curve balls. It’s up to you to find the best path forward. Find all the opportunities and de-risk your life by preparing for them, before someone else makes the decisions for you!