Imagine living without bills and having a decent savings account. That’s what a debt free life is like! It can be done with some effort and discipline. Let’s take a look at what the experts say about how to achieve a debt free life.
Your first step is to decide WHY you want to be debt-free. There are many philosophies out there and one of them should work for you. As you read through these, decide what mind set will work for you.
Debt-free Mind Sets
Values and Priorities – write down your values and priorities. You’ll use this information to cut spending.
Motivation – living debt free takes effort. Figure out your motivation to live debt free and write it down. You can even post it in a highly visible place (like the bathroom mirror) so you remember why you are trying to live debt free.
Treat your finances like a business – this means you need to plan, educate yourself, and have self-discipline to succeed. Successful businesses have a business plan and short term, mid-term and long-term budgets.
Practice Mindful Spending – if you focus on why you are spending money and ask yourself if the spending is necessary, you’ll spend less.
The best way to live debt free is to follow each of these. The more you understand why, educate yourself on how and make conscious spending decisions the easier you can achieve a debt free lifestyle.
Steps to Becoming Debt Free
Your first and most important step is to understand where every single penny is going. If you are single, this can be fairly easy. If you have a family, make certain everyone is on the same page. Track spending for at least a month.
Examine your spending. While you are doing this, consider the difference between wants and needs. A need is something you must have to live – shelter, food, heat, etc. A want is something that is nice to have but not necessary.
Next, check your spending against your values. Do you want to spend more time with your family? Eliminate things that stand between you and those values. That might include cable tv, expensive cars or overspending on clothes.
Create monthly, yearly, and five-year budgets. Prioritize your needs and cut your wants in order to add to your savings. Balance the monthly budget twice a month; the yearly once a month, and the five-year once a year.
Your budget should allow you to live below your means. This means you might need a smaller house, cheaper cars, or fewer buying sprees.
As you budget, build three savings accounts. One is an emergency account. You want to start by saving up $1000, then work towards 3 months of living expenses. If you need to dip into your emergency account for an EMERGENCY, repay the account. The second is a savings account for big ticket items like a car, refrigerator, HVAC replacement, etc. You may want to add in your annual payments like car tags, etc. The third is a savings account to pay down debt.
Use coupons or online apps to save money. It is a pain and you give up personal spending data, but you can save a lot of money. Plan ahead for meals and look for deals while you shop. But don’t buy something you won’t use, just because it is on sale.
Before you buy, comparison shop. This includes mortgages, car loans, insurance, and pretty much everything you spend money on. Before you buy something, consider waiting 24 hours to see if it really is what you want (or even better, need).
Refinance any loans or debt. You may be able to get your credit card rates lowered by asking!
Pay cash. Some experts recommend getting rid of credit cards. Other suggest no more than two. The problem with getting rid of credit cards is that you can’t get a hotel room or rent a car, or buy airline tickets without one. Keep your credit cards, but don’t carry them with you!
Make extra money. Sell what you can’t or don’t use. Get a side hustle until you pay off your debts.
The keys to living debt free is to live within your means, understand your spending, and control your spending. If you treat your finances like a business and invest time and motivation into them, you will be repaid for your efforts.