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Monday, September 21, 2009

Debt and Freedom

A few days ago my friend left his job. He was offered a different job at his place of business and turned it down and now decided that he isn't going to look for a job for the rest of the year.

The first question that he was asked is how can he afford to do this. He stated that he has enough money put away that he can handle two years of expenses. His life was set up though to have minimal expenses: no education loans, no mortgage, no vehicle, etc.

How does this affect me? I have lots of expenses/bills/loans and would never have the freedom to take four or five months off to re-evaluate my life because of this. I guess what I am asking (or wondering) if I should stop saving and put all my money into paying off loans to achieve this freedom?

I know that long term you have to look at the potential returns, but by paying off loans you are paying off a fixed rate, and thus its a fixed investment that you are paying. This year, with my raise, I put 25% into investments, and 50% into debt repayment (leaving 25% float for myself), so I think I am concerned about paying off my debt, and I have decided that any tutoring money that I get this year will also go towards debt repayment. Realistically though, I am about three and a half years away from this kind of freedom. The only difference between my friend and me is that I have decided to take on a mortgage, and because of this my net worth is better, but my short term freedom is reduced.

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