In part 1 of this interview, we met Adam Baker from one of the fastest growing personal finance blogs, Man Vs Debt. We discussed his lifestyle downgrades, ramifications of selling most of his possessions, and aspirations for his impending relocation abroad. Today’s topics include his financial mistakes, what he’s learned during his war on debt, his unconventional debt elimination strategy, and what the future holds. Here’s the conclusion of our conversation:
Mike Smith: Do you have any financial regrets?
Adam Baker: Sure. I regret going to college the way I did. I don't regret the experiences I had, but I went to college and took on loans when I wasn't serious at all. I had no chance of success and even if I had, I might have wanted to travel or open my own business, etc...
I regret ever getting used to the ease of credit cards and I regret initially financing my first car, instead of saving up cash. That all being said, we've done a great job of overcoming these hurdles and have luckily avoided what may have been our biggest regret... buying a house right after marriage.
MS: One could argue that your debt helped to make you the person you are today. Were the lessons you've learned worth accumulating that debt?
AB: I would say "Yes" at this point, but only because we didn't go too far overboard. In my mind, I got in just enough trouble to learn a lesson without doing some serious damage. I consider myself lucky in this aspect. I could have easily over extended myself into real estate, leased or purchased a new car, or any number of other financial mistakes that would have probably not been worth the lesson!
MS: Do you hope that sharing your experiences on ManVsDebt will allow others to benefit in a similar way, without having to experience the pain?
AB: That would be really awesome. Prevention is always the best solution to a problem. Whether people avoid some of the mistakes we did or simply have increased passion on their own battle against debt, this would be a major plus in my book!
MS: You advocate a different approach to debt reduction, which you call the Debt Tsunami. Can you briefly explain the idea and why it works better than other methods in certain cases?
AB: Briefly, the Debt Tsunami is a debt reduction method which has you prioritize your debts in order of their emotional impact. Many times in finance, it's good to remove emotions from the equation. Buying a house or investing a windfall, for example. However, for most people this theory doesn't work well for debt reduction.
My biggest problem with approaches like the snowball is that they assume that the lowest debt will always help you build the most momentum. This obviously isn't always true. Also, some personality types (although not the majority in my opinion) receive much more validation from paying off debts with the "logical" or "quickest" method. They tend to minimize the emotional impact altogether.
That's why I love the Debt Tsunami and why it has worked for us. It has the flexibility to incorporate both of the examples above. The hard part is connecting with each debt and being honest about its emotional impact.
[For more information, read ManVsDebt’s full post describing the Debt Tsunami.]
MS: You've also been building up savings while paying down debt. This method seems to have an emotional, rather than mathematical, motivation as well. Can you describe your thought process regarding this approach?
AB: The only reason we did this is because, we made the decision almost a year ago that we were going to relocate to Australia. Had we not made the decision to relocate, we would have kept our emergency fund low and continued to plow into debt. The decision to relocate was one that was much more emotional than mathematical, though.
It's about prioritizing your life. For us, we knew we had to eliminate non-student loan debt, as well as save substantially for the move. We prioritized it in that order, which is now followed by knocking out the remaining student debt.
MS: Your blog currently reports that you are about $52K in debt, with a net worth of about negative $33K. Where do expect your net worth to be in two months, two years, and two decades?
AB: In two months, I expect our net worth will actually be down a little bit. We will need to rely on our savings a little while we get set up in Australia, which has been the plan all along. We plan on concentrating on making this as short as possible in terms of time, though.
Two years down the road, our goal is to be completely debt-free. I'd be happy with a $0 net worth. Two decades, I'm not really sure at this point. I'm not worried about saving X amount of dollars, because I have no idea what our priorities will be. If we decide to extend our family, I'm sure we will focus more on building net worth, although we may decide to continue to travel and donate our time to worthy causes. Either way, we'd like to maintain a completely debt-free lifestyle!
Many thanks to Adam for taking my questions, especially so close to his move date. You can follow his interesting story at ManVsDebt or connect with him on Twitter. I know I’ll be watching his progress closely.
Would you consider extreme actions to eliminate your debt?