If you are worried about the temptation of getting into debt, then well done! You are clearly a responsible person trying to avoid the all too familiar pitfalls of borrowing. Today we are going to go through the 5 ways to stay debt free.
1.) Understand what is “debt”
Debt, like pain, is all about tolerance level and to what degree you can stand the pressure of debt. Those who easily get into debt and end up with debt problems and issues are often those with a relaxed attitude to borrowing, thinking very little of any debt. Understanding what debt actually is and what it means, and taking your borrowing seriously is one way to stay debt free. A debt is anything that you have had to go outside of your personal finances for, whether it be £5 for a lunch, or £10,000 for a house extension. Taking the matter of debt seriously and feeling as though you are in debt every time you borrow will cultivate the mindset that will most likely keep you living debt free.
2.) Set aside money for a rainy day and be debt free
Peer pressure, work travel requirements, sudden, expensive emergencies and the desire for an annual holiday can all override our ability to comfortably afford our necessities. Instead of leaving your financial situation to luck, a better practice would be to regularly set aside a portion of your money to savings so that when these incidents occur, you have an account ready to deal with the problem so that you don’t have to borrow OR if you do have to borrow, you have to borrow less and can pay it off quickly. For many people, saving is a boring endeavor best left for old age, but you have been warned: you can either save up or borrow, the former option giving you freedom, privacy and power in a sudden unexpected situation and the latter accruing interest and eating into your income for the foreseeable future: no brainer!
3.) Live within your means = debt free living
Living within your means can be difficult, especially if you have a certain love for expensive things, dinners out, or if you have peer pressure to keep up with the latest trends, fads, gadgets and gismos. This is especially true f you feel any kind of pressure to buy a house, get married or wear expensive suits to work in order to blend in with the new crowd. Living within your means doesn’t mean that you cannot enjoy nice things, but it does mean that you should enjoy nice things in an affordable way and not cave into pressure. The best way to do this is to be loud and proud about being frugal so that it is a loveable part of your personality rather than something you feel makes you uncool or not suited to the group you are in.
4.) Cut up credit cards and cancel overdrafts
If you are on a diet, then it would not be a good idea to sit in front of your favourite desert all day every day, carry it around in your bag and keep it in your pocket “just in case”. Amazingly, people feel differently about money and get scorecards, credit cards and overdrafts “just in case”. Whilst its true that there is a time in everyone’s life when a sudden cash injection of some kind is needed, the best way to achieve that cash injection is via your savings. And lets be honest, those cards only come out for pleasure and not for necessity! Rather than leave yourself open to temptation: get rid of the cards to stay debt free.
5.) Practice financial planning
If you know that every February you will get hit with car insurance renewals and winter heating bills, and every Christmas you have a heating bill, and once a month you will go out and have some expensive fun with friend, then plan it in advance to make sure you are never at risk of tipping over the edge of healthy finances. Financial planning is about as complicated and detailed as you make it, but the gist of it involved putting aside savings when the money is coming in, and making cutbacks when the money is going out and saving for key times of year where there will be a sudden spending increase. Financial planning is not just about giving up things you love, good financial planning will also highlight money that can be invested, saved, put aside and more so get your cash flow visible and start planning how to make your money work best for you.
Buck is a debt advisor who writes for a company specialising in loans in Guernsey. He is always happy to help.