Ten Steps to Living Debt Free
In this day and age it may seem like a pipe dream but you can choose to start a new life debt free by following these steps.
1. Make a Decision
The real challenge to living debt free is our mindsets. We are all well trained to be consumers and live beyond our means. Marketers have taught us that we 'need' and 'deserve' things that are beyond what we can afford. Decide to free yourself of debt. Decide to separate out 'need' from 'want' and stop falling prey to effective marketing. It is all about what you truly value and want out of life. You can decide to follow these guidelines and not only live debt free but build wealth over your lifetime.
2. Make a Budget
You need to know what you can afford each month and how far your money will go. Divide your income at the beginning of the month and know how much is needed for each cost: housing, gas, utilities, groceries, savings and entertainment. If you go over on one, you have to take from another like entertainment to balance it out and stay within your budget. Do not borrow from savings, the cookie jar, your kid's college fund, a payday loan, etc. to stay in your budget. If you are doing this, you need a leaner budget.
3. Live On Less Than You Are Bringing In
This requires some tough choices because you have to cut down what you spend to have money left over. First you will use the extra to pay off debt, and then you will start to use it to build up wealth. Over time this alone can make you a millionaire.
4. Find Ways to Make More Money
Maybe you need a new job or career, maybe you just need to market the skills you have on the side to earn extra cash. Use your imagination. Clean out gutters on weekends, offer handyman skills, clean a few houses a week, sell your crafts, baked goods, photographs, or provide a service like cooking or shopping for folks who are too busy and need the help. Work as a wedding planner or serve food at catering jobs. Sell 'stuff' on ebay.com or craigslist.com.
5. Avoid Using Credit Cards
To establish credit you need to have a credit card, and they are helpful for real emergencies (like when your car breaks down on a trip, not when you want a new stereo system). Don't spend more on a card than you can pay off that month, if you use it at all. Do not carry a balance. They have a tendency to grow very fast. Save for what you want before you buy and pay your cards off every month.
6. Pay Cash
If you make yourself pay cash, you feel the expense in a way you don't when you use plastic. Paying cash makes us all more careful with our dollars and you never have to pay interest, saving you thousands over time. Even big expenses like a car can be paid in cash. You will often get a better deal because you don't have to finance with fees and interest. Keep cars after they are paid off and save the payment amounts until you have enough for a replacement.
7. Payoff Debt with Snowballs
A little snow rolling downhill will eventually become a big snowball because it picks up more snow as it goes. You can use this principle to pay off debt. Pick the debt with the highest interest rate and pay more than the minimum on that card, while paying the minimum to the rest of your cards. Once the first card is paid off, add that payment to the second highest interest rate card until it's paid off, etc. If you are paying the minimum to all your debts you will never get free.
8. Save for Emergencies
An emergency will happen at some point. It happens to everyone, and you will need a financial cushion to fall back on. If you never need it, you are very lucky and you can use it in your retirement. Save each month into a separate account. It doesn't have to be a lot of money, it just has to be steady. Keep at it. You want to build it up over time to be enough to live on for 6 months incase of a lost job or illness, but of course this will take time to do.
9. Save For Retirement
If you saved $2000/year into your retirement in your first 10 years of employment (21-31), you could have over a million dollars at retirement age. The point is, because you have time working for you, it doesn't take a lot when you start early. Save at least 10 percent of your salary for retirement. The days of pension plans are over and it's up to you.
10. Reward Yourself with Financial Freedom
Instead of rewarding yourself with cars, houses, expensive meals and expensive clothes, enrich your life with friends and doing things that have meaning. If you have decided to spend less than you bring in, you will have a life blessed with financial freedom.
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