You know, there are people who seem quite comfortable taking on debt. Charging away on credit cards, carrying balances without a though. Or, signing up for big car loans on whim. Even more jarring – those who overextended themselves financially to buy a ‘dream’ house during the last real estate bubble.
Well, I’m not one of those people. I think being indebted to someone financially is no fun, and would like to avoid it like a plague of locusts. Along those lines, I’ve come up with 10 tips for living without debt:
- Think of how long you have to work to pay it back. Let’s say you have a perfectly good car right now, a 10-year old car with 150,000 miles on it. It’s in good shape and has 2 more good years, but it looks dated already. You would rather get a nice new car, but the car payments would be $500 per month. Well, that’s $12,000 over the course of 2 years. Think about how long would have to work to earn that money after tax. Then, realize how much time and effort you’re putting into working just for a car! It can be eye-opening. Keep in mind that this applies not only to cars, but to silly consumer purchases or bigger outlays as well.
- Picture yourself being old, in lesser health, yet needing to work for money. This happens to people all the time, and it’s sad. Do you want to be one of these people? Didn’t think so. If we go into debt earlier in life, we’re putting off saving. And when it comes to saving and investing, time is a big ally of ours when it comes to letting compounding do its magic. Don’t delay saving due to spending time paying off debt you didn’t need to get into.
- Don’t marry a financially dangerous person. This might seem like a funny way to put it, but that’s how some people are. There are financially toxic people in different walks of life, and the wrong partner might be one of them too. While we of course don’t advocate marrying for money, as that’s not what it’s all about, it’s important to make sure love isn’t blind to wanton recklessness or deceit.
- Know the difference between wants and needs - AND ACT ON IT. The first part, knowing the difference up front, is something that some of us get and others don’t. Yet, among those that do get it, many simply don’t take action due to lack of self-control or whatever other reason at the moment. I’ve been there too, and don’t always follow this strictly. But, it’s important to do a better job with this and act on our knowledge.
- Remember – it’s not our divine right to live in a ‘dream’ house. I would really love to have a dream home. Honestly, I enjoy real estate and this would truly be a great accomplishment. However, it’s not my right to have it. I have to earn that aspiration, and realize that I need to live within means. So many people got tripped up in the last real estate bubble because of this fascination, like it was our destiny here in the land of opportunity to each live in the home of our dreams. I think responsibility comes first.
- Pay off credit cards completely each month. Don’t carry balances, or pay interest or late fees. Just charge what you can pay in full each month. Life gets more simple, and inexpensive, when we follow this approach. If the money isn’t there to buy something in full, don’t buy it.
- Track expenses. Now, I don’t think it’s necessary to devote excess effort to this. There are a number of ways to consolidate and automate tracking of expenses and account activity. Do it, and see how much you’re spending and where the money is going. Being informed on our habits is a good way to make sure that they are actually good.
- Keep an emergency fund. The unexpected problem we occasionally get may not be truly unexpected. We might not have predicted that our crazy friend would drop a bottle of wine on our new carpet, but we can’t say that we’re surprised that it happened. Of course, that’s not even a real emergency. How about medical events, accidents, job loss, etc. If we plan to save just in case something unforseen happens, we can avoid going into debt.
- Become Disciplined. Having self-control is a good thing, whether we’re talking about financial discipline or something else in life. Health is a good example, as lack of care for ouselves can lead to problems that might prevent us from working, or working up to our capacity. Increased medical bills could compound the problem. By making choices that have an element of discipline, we can tilt the odds in our favor a little more, thus saving us money in the process – among other benefits.
- Be thankful for what we DO have. Often times, we can fall into keeping up with the Jonses, so to speak. We see somebody taking an incredible vacation, buying great clothes or shoes, driving a shiny new upscale car, etc. We then feel like we might be missing out, or are just as ‘deserving’. Well, when we stop to think about how lucky we might be to actually have what we do, instead of worrying about what we don’t have, we just might do a better job of avoiding expenses that get us into debt.
My Questions for You
Do you have a similarly strong feeling about debt, or do you feel totally comfortable with it as a regular part of your life?
Which of the above tips resonates the most with you? Why?
Do you have any more to share, that you think would be helpful?