How to Live Debt Free: 4 Steps to A Debt Free Lifestyle

Debt has become so commonplace in today’s society that it’s almost considered “normal” by many people.

Every time you turn on the TV or open a newspaper or walk into a shop you’re being offered credit cards, loans and “interest free” credit.

Like junk food, it has become so embroiled into our everyday life that avoiding it can be a challenge.

Like junk food telling your friends that you’re trying to avoid it can land you some odd looks.

Like junk food, however, debt is also bad for us. Debt controls us and forces us to make life decisions we’d rather not make.

No wonder more and more people like you and me are figuring out how to live debt free. And trust me – it is possible…

How Do We Take On Debt?

The first step to understanding how to live debt free is to understand the reasons why many of us get into debt in the first place.

Once we’re consciously aware of the “danger zones” it can be easier to avoid them altogether, and to instead plot a different course throughout life.

Expensive Purchases

The first type of debt comes from buying things that we don’t (yet) have the money for.

An example might be taking out finance to buy a new car. Or sticking a summer vacation on your credit card, promising yourself you’ll pay it off later.

There are clearly then a number of ways to avoid such situations. Firstly, we can simply make a promise to ourselves that we will stop spending money that we don’t have. Either we save up for an item or we don’t buy it.

With the exception of a mortgage this is quite solid advice. Not only does it ensure that you life debt free, but just as importantly over time as you carefully save up for the item in question you give yourself time to get “post purchase remorse”.

You can rethink your options at any time and instead apply your saved funds to other purposes.

The reason this works so well is that many times when we have a burning desire for an item, this fire soon starts to burn itself out.

That new car you were so desperate for suddenly becomes less important.

You realize your existing – if rather older – car is actually just fine for your needs.

Which leads us on to the second point for living a debt free life; learn to be grateful for what you have. It’s so tempting to be constantly seeking a bigger and better lifestyle that we’re never satisfied with what we have.

We live to accumulate.

As soon as we achieve one purchasing goal we want to move on to the next one.

Consciously changing your outlook so you can value what you already have and see their benefits is another way to avoid such “big purchases”.

Surprise Purchases

Have you ever had to buy something that just a week before you didn’t need?

For example, a couple of weeks ago my car had a problem and the wheel bearings went. I broke down with a wheel that was barely attached to my car.

Seeing as I drive for about 40 minutes to work and then back again every day this was a serious problem, and one that needed emergency repair.

These things happen, but they’re also a common situation for people to get into debt. They stick something on a credit card or take out an overdraft, thinking they’ll worry about paying it off later on.

The problem is that “later” rarely comes, as interest starts to pile on top of interest.

Another key when it comes to how to life a debt free life is to plan for the unplannable.

How?

Firstly, try to think ahead about forthcoming purchases – birthdays, Christmas, taxes and the likes – things that don’t crop up every month but are reasonably predictable when you plan ahead.

Create yourself a budget and factor these in. So if you plan to spend $500 on Christmas this year, divide this by 12 and then put that sum of money aside each month when you get paid. Over time that will build up making major expenses like Christmas completely pain-free.

The second technique is to create an emergency fund. This is how I got my car sorted out in next to no-time. Quite simply, put the effort into creating an easily-accessible savings account and slowly save roughly 3 months of expenses in it.

Such a sum of money can then act like “financial insulation” helping you to overcome any surprise hurdles without needing to rely on debt.

Lifestyle Creep

The third way people accumulate debt is arguably the most dangerous of all.

Rather than using debt to fund big purchases or to cover short-term cash shortfalls, the third method is rather more slow and subtle.

You pop a bit of shopping on your credit card one month. You pay for your fuel the next. You use it to buy a few bits from Amazon soon after. A few dollars here and there won’t really hurt, will it?

After all, it’ll only take a few weeks to pay off in the future.

Then one day you open a bill and realize that all these “little purchases” have really started to add up.

Factor in all the interest being piled on top, and suddenly all these little purchases you made without a second thought have suddenly snowballed into something more serious.

The way to avoid this kind of debt is therefore to pay for everything using money you actually have – whether that’s cash or a debit card.

If you want a credit card then by all means maintain one but never get lazy and use it unnecessarily. Aim to live on this month’s paycheck (if not last months’) and avoid using credit for anything and you’ll be golden.

4 Golden Rules to A Debt Free Lifestyle

I appreciate that in discussing how to live debt free we’ve covered quite a few points.

Fortunately however I believe everything we’ve covered can be boiled down into four golden rules for living debt free.

Remember these and you should live a long and successful life avoiding debt entirely (except perhaps a mortgage).

Create a Budget

When people think about budgeting they often link it to thoughts of not spending money. Surely, budgets are for people who overspend, not necessarily debtors?

While there is some truth to this there are two important lessons to understand. The first of these is that if you overspend you’re more likely to have to rely on debt to make ends meet.

In addition, having a budget can also help you to plan for future expenses like birthdays and car servicing so there are no surprise expenses in your life.

Don’t just think that budgets are boring then – creating a workable budget (and sticking to it) is the core of living a debt free life.

Become a Value-Seeker

They say that people know the price of everything and the value of nothing. In essence what this means is that you should learn to count your blessings and appreciate everything you have in life.

After all, the more you appreciate what you’ve got, the less you will feel the need to buy additions or replacements.

Try to therefore get into the habit of focusing on the good in your life. Consider whatever product you’re considering purchasing and make a fair assessment of whether it will really add value to your life over the long term.

If, in all honesty, you’re likely to lose interest in it within weeks or even months then maybe it just isn’t the bargain it seems.

Decide On Your Financial Priorities

One of my personal beliefs is that many of our expectations about life are unrealistic. Somehow we expect to have the latest cell phone as soon as it is released, a new computer every few years, an expensive vacation each summer, a nice house filled with the latest gadgets and so on.

Oh, and to do all that without getting into debt.

We live in an age where marketing is so common-place (and so effective) that if you’re not careful you’re going to drive yourself mad with the “shopping list” of items that you want to purchase.

Most of these, quite frankly, will add very little to your life within months of purchase. Just consider the amount of “junk” you have in your cupboards at home, in the basement, in the loft, in the garage.

Everywhere you look there’ll be past purchases which now never even see the light of day. It certainly wasn’t junk when you first bought that juicer or that new camera. But now they’re relegated to a dark storage area somewhere.

Remember that you spent money on that item – money that could be sat in your bank account right now making you wealthier – or helping you to pay for that vacation you’re struggling to afford.

The key is this: get your financial priorities straight.

Figure out what really matters to you and your family. Decide what items and experiences really add value and which, quite frankly, are a waste.

Then cut the unnecessary spending.

Doing so will not only help you to rid your home of more “junk” but will also provide more money for the things that really matter in life.

Ignore The Joneses

Do your neighbours or friends make you jealous some times?

Mine certainly do; it’s perfectly normal and not something to be ashamed of. I wish I could afford all those gadgets and nice cars that my friends have – but I can’t without going into debt.

Sadly, neither can they.

Not only is trying to keep up with other people on a material level a never-ending challenge that can only end in failure; it can also cost your financial future.

I lose track of how many people I’ve met over the years who seem to be living an enviable lifestyle with everything they could possibly want, only for them to admit that they’ve dug themselves into so much debt getting there that they can barely make ends meet.

No, if you want to learn how to live debt free then give up your pretentions and on trying to keep up with the Joneses next door.

Let them bury themselves in debt while you maintain a strong budget and spend money only on what will bring you pleasure rather than what will impress your friends and co-workers.