Financial Independence: More Debt for less freedom?

We are at a very interesting time in our financial journey. Under any other circumstance, I’d say we’d climbed to the top of mountain. I’ve achieved the asset position and passive income that I’d set out too get . But we have an accompanying pile of debt to repay. 


Debt is a doubled edged sword. It’s great to help build up wealth and accelerate asset accumulation. It’s helped me take advantage of large market downturns, such as what we had in 2009, and quickly build up positions in undervalued companies.

However I’ve also experienced the downsides of debt, specifically margin debt, which greatly reduced my flexibility when asset values were imploding.  Having to rush to cover when things go south is not particularly fun. Experiences during 2009 reinforced in me a desire not to take on much debt.

So here we are in 2014. Things have moved on well since 2009. The markets have been kind in their generosity. We also got lucky with our housing purchases. Both were made at historically low interest rates not seen for 25 years. Our original condo has now become a rental property, for which we’ve sourced a tenant (amazingly all within a couple of days of listing the property).

Passive income wise, I estimate that we are on track to pull in somewhere in the order of $50k next year, depending on how generous companies are with their dividends, and how fortunate we happen to be with our tenant situation. We’ll see how things go.

Yet, in the midst of all this, there’s still some uncertainty at the sudden increase in debt that we’ve taken on to make all that work. The debt is still very manageable in the context of our overall asset position. We are probably running at debt to total assets of around 40%. I suppose it’s just the fact of the quantum of the debt that will take a bit of getting used to.

I’ve found myself occasionally thinking these last few days….did we take on too much…are we swapping out the financial independence dream for a debt nightmare instead? Financial independence to me is all about living a more minimalist lifestyle. You keep your needs and wants to a minimum, consuming only what you need. Did we really need so much house?

But then the reality of our current situation hits me. We’re all running into each other in our current condo. 2 bedrooms amongst 4 folks doesn’t really cut it for us. It’s hard to have people come and stay over, and I expect our families will be spending extended time with us visiting. Having the kids give up their rooms to squeeze in parents/inlaws is just not tenable.

We’re going from something that’s not spacious enough in the long term, to something that has almost too much space! That’s going to take some getting use too. The good news also is I feel that our tax position is far more efficient. We’ve been doing much right from a tax position this year. Maxing out the 401k, tax sheltered FSA’s for childcare expenses, and deductible mortgage interest should help out alot this year.

But more than all of this, I’m most excited about the experiences that we will be able to have in the new place. A backyard for the kids to run around in, meals out on the sun, on the deck and the ability for the kids to exist without constraints and confines of condo living (no banging on doors! no running in halls!). A bit of room for us all of to coexist in.

At the end of the day, I realized that financial independence needs to be achieved based on your own individual aspirations for quality of life. For us and our family, the move from a condo to a house was definitely something that we need to do and have to do. In that context, doing it right, at a time of low interest rates and to the right neighborhood also makes sense.

However, what this does to is fundamentally change the nature of my financial journey. I’m no longer in asset building mode, or passive income building mode. I’ve got to where I wanted to get to. My journey is now a debt repayment journey.

I’ve done a complete 360 in a very short space of time, from having minimal debt to having a debt ratio that’s likely pretty typical for most American families. That’s very humbling, and very exciting at the same time. Because I know once the debt mountain has been cleared, and we do have a definite plan to clear it, we’ll summit our financial independence mountain.

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