Credit Debt Finances & Money Investing

Our secret to success: Part Four: Manage Money

This article is part of my “Secret to Success” series. Check my index article to see where it all started and for the other four parts!

So far, we’ve talked about spending less than you earn, living a frugal lifestyle, and earning more income. You would think that’s all you need to know to reach financial success, right?


If you’re earning more money and spending less money, then you have to figure out what to do with the difference. Therefore, you need to manage your money wisely or else you’ll never get ahead, no matter how much more income you’re making or how frugally you’re living. If you have debt sucking away any bit of interest you’re earning, or no emergency fund to weather the economic storms, then you’re on very unstable ground my friend!

Managing your money is kind of a mish-mash of topics, mostly relating to debt and investing. So, to continue matching up how well we’re doing against The Simple Dollar’s “One Page“, I’ll go through each line item:

Pay off all high-interest debt

Personally, I think your goal should be to pay of ALL debt, because once you pay off the “high-interest debt”, your remaining debt is now “high-interest”, right? Well, at least compared to how much you could be earning, not paying, in a savings account or long-term investments. But in the grand scheme of things, it may not be practical to try to pay off debt when perhaps you could be using debt to finance even higher returns.

In our case, we’ve accrued debt from a number of sources: school, home, auto and credit cards. I believe Trent’s intention for his statement, however, was to get rid of debt related to depreciating assets or unsecured loans. That means auto loans and credit cards specifically. Student loans are slightly different, but I’ll get to those.

Our Credit Card Debt

When I left college I had about $15,000 in credit card debt, and it went up to a peak of over $20,o00 in the next few years. I managed it, barely, through the use of 0% balance transfers, as well as swearing off the use of credit cards as much as possible. However, I still had that debt following me around, rearing its ugly head every 6-12 months when the balance transfer offer ended and I needed to find it a new home. Luckily, I never missed a payment, even when I had to spend hundreds per month in minimum payments, so I could still qualify for 0% offers. That’s also how I accrued almost a dozen credit cards!

But through perseverance, increased earnings and frugal living, we paid off our credit card debt in September 2007. Back in 2001 when I graduated college, I never thought I would be able to pay it off. It took 6 YEARS to pay off that debt!!! But now we use credit cards for convenience and rewards, but make sure to pay them off every month. We haven’t paid interest to a credit card company for almost 2 years now!

Our Auto Loan Debt

I’ve already written about how we lost $14,500 by stupid mistakes from buying cars, but I’m only just starting to learn my lesson. You see, I have a soft spot in my heart for cars. I even started a car blog, but had to quit writing because I got so tempted to buy another car. But as of May 2009, we have no more car loan debt! And you know what? I’ve gotten a few scratches on the truck in the last month that just don’t bother me. I know I’m keeping this truck for a long time (as long as my will and my wife can keep me).

We had a Chevy Malibu that we paid off 4 years early. We sold that and bought a used Mini Cooper and paid it off in 2 months (using mostly the income from the Chevy sale). And now I paid off the truck 3 years early. And it truly was from a combination of living frugally, earning more and managing our money well. Tracking our spending was a major pain for all those years, but the mental and emotional pain was well worth it to know that all we have left is one student loan (as of this writing).

Our Student Loan Debt

Student loans are always grouped separately from the “bad debts” mentioned previously. In reality, though, student loans are debt and you ARE paying interest on them. In other words, the education that cost you $20,000 can end up costing $25k or $30k or more, depending on your interest rate and length of payment.

I’ve never calculated how much extra we’ve spent on student loans, but I’m sure I can look back at tax returns to see how much interest we’ve claimed. It’s definitely in the $thousands though. Interestingly enough, my student loan is our highest interest rate, except for our second mortgage. And since the loan is already consolidated, I have no chance of lowering the rate.

Many people call student loans “good debt” because they supposedly benefit you by increasing your earning potential. However, I also think there’s a cutoff for when you need to pay off the education debt. Did my $20,000 student loan enable me to make $20,000 more than I could otherwise? Heck yeah! But that was 8 years ago when I graduated college. The hundreds I pay each year in interest are now simply that, money going to someone else. The good will I had towards my student loan debt is now gone and so should the debt.

And for those of you carrying student loan debt, and not doing a single thing related to your degree, maybe you should now consider paying off your student loan. Sure, you can deduct the interest (if you itemize deductions AND you’re within the income restrictions), but using the “deductible interest” excuse is like, well, too stupid to try to find a relevant metaphor.

Build an Emergency Fund

Next up is that thing we call a safety net. Some people seem to think their credit cards and home equity lines of credit are their emergency fund, but that’s not a very good idea. It’s too easy to start considering everything an emergency (“We NEED new windows”, “we NEED a new car”, “we need new flooring!”) and go into debt over your head.

But I’ve found it harder to justify pulling money out of a savings account unless we ABSOLUTELY NEED IT. The only thing we’ve pulled money out for was to pay off my truck early, but in reality, I was putting extra money into savings because I hadn’t decided to pay off the truck or pay down the mortgage. We still have 5 months of expenses in our savings account (counting all bills, groceries and even charity).

Do you know how good it feels to know that if BOTH of us lose our jobs, we can sustain ourselves for at least 5 months? And what’s the chance that we’ll both lose our jobs? In reality, we have close to a year of savings if only one of us has a job. If you don’t have an emergency fund, GET ONE! Even a month of expenses saved up can be a lifesaver.

Retirement and Investing

I’ll admit that we’re not maxing out our retirement options. We both contribute to 401(k)/403(b) retirement accounts, but we haven’t elected the maximum we can by tax law.

The basic rule is that you should max out your pre-tax retirement contributions (i.e. 401(k)/403(b)) before investing elsewhere such as a Roth IRA or individual stocks, mainly due to the tax benefits. In the past few years, though, I’ve invested in my Roth IRA without maxing out my 401(k) first. And I’ve also invested in pretty risky funds (and paid the price for it too). But that’s why I don’t talk much about investing on this site. I still have a lot to learn and don’t want to screw any of you up with my poor advice!

Saving for College

The last item under the “manage money” category on Trent’s One-Page is titled “College Savings?”. Trent recommends starting a 529 college savings plan for your children, but I have two things to say about this:

1. What if you don’t have kids? We’re still not sure if we want to have kids. Do we open a plan now just in case? What if we’re just wasting money? What if we feel we need to have a kid to justify the contributions to a 529? (seriously, weird thought go through your mind when you feel pressured into having children).

2. We think our kids should pay for their own college education. If we do have kid(s), we agree that they shouldn’t be given a free ride to college. And 529 plans are not risk-free. They’re investments that can lose money just like anything else in the stock market.

I can talk a lot about this topic, but basically we feel we should be preparing our children for excelling in school and applying for both financial aid (if available) and scholarships. And since we both worked during college, we agree that part-time college jobs build character and provide crucial spending/saving money. We need to be investing in our own future, while preparing our children to take care of their own.


Managing your money is essential to achieving financial success. But there’s so much information (good and bad) out there that you need to be cautious about who and what you listen to, including sites like mine. No one has the exact answer for your situation because all of our life situations are different. Some people want kids, others want careers (or control of their own time), some have jobs with retirement benefits, others are on welfare.

We’re trying our best to manage our money, but this is the area we’re having the most trouble. Neither of us are educated well on investing, even though we know the rule about maxing out pre-tax investments. But we’ve taken the time and effort to identify where we stand and where we need to improve. I think we’re ahead of the curve, even if we have a long way to go.

And you too have the opportunity to make your first, or fourth, move towards creating your own financial success. Spend less, earn more, live frugally and manage your money well and you’ll be ahead of most of your fellow Americans. But don’t ever stop because you’ll always have room to improve or learn or create new earning potential.

Next Up: Control Your Own Destiny!

About the author

Clever Dude


  • Although everyone’s situation is different, conventional wisdom on many personal finance blogs and sites when it comes to retirement is not to completely max pre-tax investments before investing elsewhere. It’s highly recommended to max your 401(k)/403(b) to the company match (so you don’t lose any free money), then max a Roth IRA (if eligible), then go back to the pre-tax investing if there’s money leftover. Roth 401(k)s are also suggested for those with the option, but that’s still somewhat rare.

  • Clever Dude,

    I like your plan!! Keep it up, and keep perservering. Once you are debt free, your life will change for the better!! Just dont be tempted to go back into debt, once you get out. I have been out of debt and then we bought a bigger house, and was back with a mortgage (nothing else) for another 2.5 years. I felt like I was in financial jail, because my options were so limited during that time. Now, I tell myself no more debt, unless it is just a dire emergency!!

    For those who are working on their debt, I suggest putting your money on an allowance system. This systeme takes all money that is left over after fixed expenses and other savings in the budget, and divides the money amongst members of the family. Everyone gets their pre-agreed amount each payday to spend as they please. Members get the freedom to spend without criticism from others and the budget master know that spending will not go over the budget. It went a long way for us when we were knocking down the debt. We had some freedom to spend, but it kept us from overspending and straying from the plan to get completely debt free.

  • I’m loving this series, and this entry in particular. But I agree with Karen, the first commenter, on what people generally say about retirement contributions.

    Also, as it stands now, no one can really “pay their own way” through college anymore. I guess it’s possible if you go to community college, go to college part-time, or *maybe* if you go to an in-state public school. But for most students, the only way to pay for college on their own is by taking out loans, if they don’t get enough in scholarships.

    Current rules on federal loans also assume that parents will contribute money, whether they do or not. When parents choose not to contribute what the government thinks they can afford, students must take out private or unsubsidized loans to make up the difference.

    It’s a rotten system. But I think that’s why Trent is so gung-ho about 529s for his kids–he knows how awful it feels to be saddled with debt, and he’s trying to protect them from having to go through that.

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