A refusal to get into debt again, for any reason, is one of the biggest motivators that's influencing Diania Merriam's approach to managing her finances during the coronavirus pandemic.
"I'm really just hoarding cash," says Merriam, founder of the EconoMe Conference, which is focused on achieving financial independence. "Money is emotional and I think I'm in a place right now where I feel very uncertain."
She's far from alone: 51% of Americans said they feel at least somewhat anxious about their financial situation, according to a recent survey conducted by NextAdvisor of more than 2,500 adults. And the top three causes of anxiety were debt, lack of savings, and loss of employment or income.
While Merriam has remained employed — her primary source of income is a job in licensing for a brand management company — she continues to draw upon lessons she learned when she paid off about $30,000 in an aggressive timeline of just 11 months, when she was 28. Although she's been debt-free for nearly four years, her approach still is: "Prepare for the worst and hope for the best."
Here are three ways those past experiences have shaped this now 33-year-old's approach to weathering the current recession.
Merriam's journey to becoming debt-free began in September 2015 when she joined a group of like-minded women with similar goals.
Another member of the group shared an article from Mr. Money Mustache, a personal finance blog created by Peter Adeney. As Merriam recalls, the piece focused on why it's important to treat your debt like an emergency. "I read the entire blog, I got obsessed with it," she recalls.
"I like to say Mr. Money Mustache was a refreshing punch in the face," Merriam says, laughing. Armed with more personal finance information than she'd ever learned before, she became determined to pay off her debt as quickly as possible.
She started saving 60% of her pay after taxes, at a time when her salary was less than $100,000 and she was living in New York. She cut expenses, redirected all of her savings toward paying off that debt, and found creative ways to socialize on a budget — including attending clothing swaps, hosting "elaborate" dinner parties by asking friends to chip in $30, and sharing the cost of internet service with neighbors.
Video by David Fang
"A lot of people look at frugality as deprivation, or that you have to make a lot of sacrifices," she says. "To me, it was so much more rewarding."
By August 2016, or just 11 months later, Merriam made her final payments for student loan and credit card debt that had ballooned to about $30,000 in the years since she graduated college.
Today, she's a homeowner living in Cincinnati and Merriam continues to save 60% of her take-home pay. Earlier this year, some of that money was put toward the first EconoMe conference that she hosted in March, and now she's allocating her savings to what she calls her "emergency-slash-opportunity fund."
While many experts recommend a rainy day fund that can cover 3 to 6 months worth of expenses, Merriam found that once she was debt-free, she felt more financially secure with a greater amount of money.
"I always wanted closer to a year of money to cover expenses, and now I want even more than that," Merriam explains. "I want to guard against the bad things that happen and be open to new opportunities."
While Merriam's goals may seem like a stretch, even saving $1,000 is achievable in one year if you set aside about $38 from each paycheck. And she says how many months worth of expenses you have in your emergency fund is "not a straight answer for everyone" — what's right for you will depend more on the amount of risk you are comfortable with and the amount of money that can make you feel safe.
"There is no harm in a really high savings rate," Merriam says.
Like many other Americans, Merriam has felt the impact of the coronavirus downturn in a very specific way: Her employer stopped matching contributions to 401(k) plans for the remainder of 2020. That's not unusual; at the height of the Great Recession, 18.5% of companies offering a retirement plan match suspended or reduced it, according to a 2009 report from the Plan Sponsor Council of America.
Still, the lack of her employer match hasn't deterred Merriam from contributing to her retirement accounts, which include that 401(k) offered by her employer, a health savings account (HSA) tied to her high-deductible health insurance plan, and an IRA.
Merriam plans to max out contributions to all of the above accounts this year — and has been contributing even more in recent months so she can reach those limits sooner. For someone her age, those limits currently are: $19,500 for a 401(k), $3,500 for an HSA, and $6,000 for an IRA.
Video by David Fang
"Looking at it from a worst-case scenario, like if I were to lose my job soon, lowering my taxable income by bumping up my 401(k) contributions felt like the right move," she says.
By aggressively adding even more money to her 401(k) plan now, Merriam will have more cash she can potentially tap as a secondary emergency fund. And if things continue going well, she's setting herself up for a secure retirement even sooner than in her 60s.
When Merriam was in debt, one of the strategies she used was to track every single dollar, down to the penny, that she spent. In so doing, she stopped viewing money as a means to buy stuff and started looking at it as a way to fund the freedom to do whatever she wanted.
"My debt was really pretty senseless, it really accumulated from mindless consumption," Merriam says. "My 20s were defined by financial illiteracy."
Paying off those credit card and student loan obligations did more than erase Merriam's debt, however. "It completely changed my relationship with money," she says. "It opened up a world of opportunities that I couldn't have imagined."
One year after becoming debt-free, Merriam took a two-month unpaid sabbatical from work to hike El Camino de Santiago, a 500-mile trek across northern Spain. She asked her landlord about subletting her apartment and when that request was denied, Merriam realized: "If I'm going to move anyway, why not push myself to try something new?"
Along the way, Merriam became an adherent to the "FIRE" movement — or "financial independence, retire early." The supersaving habits she's learned while paying off debt meant that for her, life during the pandemic hasn't been so different.
From her vantage point, Merriam believes many Americans have enjoyed the slower pace of life during the pandemic, much like she did when she imposed spending restrictions while paying off debt. In a similar vein, she hopes other people will come to realize that pursuing the FIRE dream doesn't mean you hate your job, but rather that you're focused on building a safety net if something bad happens or an opportunity comes up.
Video by Stephen Parkhurst
While Merriam says she's within about 7 or 8 years of financial independence, she's open to adjusting what that means exactly. In the future, she hopes to devote more time to expanding EconoMe so she can educate young people about personal finance.
"I can't imagine how different my 20s would have been," Merriam says. Still, she doesn't regret the $30,000 in debt because it's ultimately led to an "amazing experience" that allows her to share lessons with others. "If I didn't have that experience, I don't think I'd appreciate where I am today as much."
More from Grow: