Is Your Identity Linked to your Financial Troubles?

your financial identityI’ve started the process for filing my taxes for 2012.

And right now, the little progress bar of my online tax software is telling me that the amount of my refund is higher than my total remaining debt.

I know that might change once I put more information into it, and that’s okay.

As an aside, I make most of my money in January, which I think tells the IRS, “whoa, this girl is going to make a lot of money this year, we better get our cut,” so I always get a fat refund.

If anyone could tell me how to avoid this in the future, I’d be much obliged.

That’s not the point today.

It’s going to sound strange, but it stresses me out a little (nay! more than a little) that in just three weeks, I could pay everything off and call it done.

Isn’t that weird? I’ve been slowly plugging away at this debt, and I am so, so proud to say that it is nearly gone. I have less than $800 to pay on my student loan, and something near $3,500 on my car loan.

When I got my paycheck deposited into my account in January, I panicked. It was bigger than usual. Back when the debt seemed insurmountable, I would have happily thrown that money onto the debt pile, and I would have felt lighter.

This time? I decided that my savings account needed to be fatter.

So instead of saying, “so long suckers!” to the student loan debt, I padded my emergency fund.

Now, it could have been the right thing to do, and it could have been the wrong thing to do. I can make excuses and justify my decision all I want.

But the truth is, it’s human nature.

The road to debt freedom is a long one. A marathon, if you’ll pardon the metaphor. And if my math is correct, then whenever my tax-free loan to the US government gets into my checking account, I’ll see the finish line.

In fact, I can see it now. No harm would come to me by paying off the student loan today.

And yet.

I think, “oh, February. That’s a good month for kissing my student loan goodbye.”

I’m at the end of the race, and instead of finishing strong, I’m slowing down. I’m not walking yet, and I don’t intend to.

 

The Psychological Impact of a Windfall

Back to the estimated tax refund. Because it will come in a lump sum, I am hesitating. HOWEVER, I know myself, and I know exactly how I have been doggedly paying down the student loan, and I know, really  know, that if I had earned ~$500/month more each month, I would have put that on the pile.

But now, it looks like I’ll be debt free by March 1.

And that seems crazy!

However, I know exactly how to make it feel more real. I need to start imagining my life, without debt.

This imagery makes me so happy to wait on the house-buying process.

I think that I’ll feel light.

I might even take myself out to dinner.

I can remember how I felt when I was laid off in January 2009. I was constantly worried about money, and for good reason. Being debt free will mean never having to stay up late at night in tears, wondering how much more of my life I could put on credit.

Life won’t change, really. But I will be changed.

I will be on the other side.

So, no matter when this windfall hits, I will be telling ACS that I want to break up. I will tell my credit union that I’m done with the car loan.

I will tell myself that I’m not going to have a car loan, ever again.

I’ll continue to save half my income.

I will NOT let my lifestyle inflate to match the new space in my financial obligations.

I will be able to say “in debt” in the past tense.

It’ll be amazing.

 

Have you had this slowing at the finish line before? What would an unexpected windfall do to the timeline of your goals?

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  • http://www.dropdeadmoney.com William Cowie

    Awesome, and congratulations! The passage you’re going through is a pivotal one every financially successful person goes through.

    When we’re in debt, our identity becomes that of a debtor, whether we realize it nor not. Subconsciously, we submit ourselves to the institutions we owe money to because we know bad things happen when we don’t. And then we become comfortable “making payments.” But when the payments stop, we need to redefine our identity. The only alternative identity available to us is that of “investor.” As far as identity goes, you’re either a debtor or an investor.

    That transition is neither easy nor automatic. In fact, a high percentage of people, when their debt is paid off, simply find some other payments to make, for no other reason that it lets them off the hook of redefining their identity. They’ve become comfortable making payments, so that’s what they elect to keep doing.

    You picked the perfect tool of transition: the savings account. What’s so nice about it is it gives you time to think. Once you’ve made up your mind, you simply go the savings account, take the money and do what you decided to do. If you want to pay off your debt, then you are free to do that. If you choose something else, you have that option, too. If you feel you don’t have enough to (for instance) buy stocks or a house, you can leave it there and keep adding to it until you have a critical mass, so to speak.

    On buying a house: you need to consider the impact of the economic cycle. House prices are not as low as they were two years ago, and they are rising as we speak. At some point there will be another recession. There always is. Since World War 2 we’ve had a recession every 7-10 years, as you can see from this chart: http://bit.ly/economy_chart.

    And in every recession house prices drop. Obviously if you buy a house at the wrong time it can hurt you financially. It hurt many millions of people in 2008 because they bought when prices were high and money easy. If you can’t afford a house in the very near future, you might want to consider being patient, keep saving and investing, and pick yourself a nice bargain when the next recession rolls around. That (as you can imagine) is much better than getting caught in the next downdraft.

  • http://frugalportland.com Kathleen, Frugal Portland

    WOW I love this feedback — thanks William! You’re so right about how we identify ourselves. Thanks also for the home shopping advice. I’m feeling freedom in renting right now, and it’s a really great feeling. I won’t exchange it for anything.

  • http://mymoneycounselor.com Kurt @ Money Counselor

    Hi Kathleen–on slimming down your perennial tax refund: The IRS doesn’t dictate how much will be withheld from your paycheck, you do! If you don’t have a photocopy, ask your employer for a copy of the W-4 form it has on file for you. Then fill out a new one and, after working through the “Deductions and Adjustments Worksheet” on page 2 of the form. To have less withheld, you need to ‘up’ the number of allowances you’re claiming (line 6, page 1). The Worksheet will help you decide whether to claim more and how many. Submit you’re revised W-4 to your employer and enjoy the boost in take home pay in each paycheck!

  • http://www.thefreefinancialadvisor.com/average-joes-money-blog/ AverageJoe

    What Kurt said. If you want help with this, email me.

  • http://www.paymystudentloans.com Jon

    Congrats on almost paying off your student loans! It is a liberating feeling!